Making business inclusive:
are enterprise challenge funds
useful tools?
Robin Davies, Associate Director
Kerri Elgar, Visi...
What is an enterprise challenge fund?
• In developing countries, targeted subsidies are sometimes needed to
overcome barri...
3/10
ECF working group
Established July 2013 ‘to examine the rationale for the use of ECFs, reflect on
experience to date and d...
Fault lines

5/10
Ten characteristics of an ECF
1.

2.
3.
4.
5.
6.
7.
8.
9.

10.

Offers firm-specific incentives: it offers incentives to p...
Poverty reduction through private sector
development: objectives
1. Strengthening enabling environments: helping to develo...
Assistance types
• Confidence: temporary subsidies to reduce business expenditure or increase
revenue, or support for rese...
Decision tree
Poverty reduction
through private sector
development
ASSESS:

Objective

General environment

Weak general e...
Two fund types
• Enterprise development (ED): supports the establishment or
expansion of small-to-medium-scale enterprises...
Eight observations on…
1.
2.
3.
4.

5.
6.
7.
8.

Giving money to strong firms: sometimes risk reduction, sometimes to supp...
Making business inclusive:
are enterprise challenge funds
useful tools?
Robin Davies, Associate Director
Kerri Elgar, Visi...
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Kerri Elgar Making business inclusive

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  • … to this.Shifting focus to forums in which aid and development policy in general are discussed and coordinated.
  • Here's a stab at what MDOs are.The DAC just keeps a list.The most important thing to note is that MDOs are not simply delivery agents or channels for bilateral donors' aid, though they are sometimes that.For a contribution to be considered multilateral ODA in the strict sense, it must be (concessional and) made to an organisation that:“conducts all or part of its activities in favour of development;is an international agency, institution, or organisation whose members are governments or a fund managed autonomously by such an agency; andpools contributions so that they lose their identity and become an integral part of its financial assets.”Such flows from donors to multilateral organisations are also referred to as “core” contributions. They are sometimes also called “multilateral inflows” – as the term “multilateral aid” is ambiguous between flows from donors to multilateral organisations and flows from the latter to developing countries.ODA outflows from multilaterals are shown in two other OECD statistical constructs, namely Official Development Finance and Country Programmable Aid (which measures take the recipient’s viewpoint), and include some own-resources (e.g. IMF gold sales support the Poverty Reduction and Growth Trust; IBRD/IFC profits support IDA; private donors support WFP
  • Here's a stab at what MDOs are.The DAC just keeps a list.The most important thing to note is that MDOs are not simply delivery agents or channels for bilateral donors' aid, though they are sometimes that.For a contribution to be considered multilateral ODA in the strict sense, it must be (concessional and) made to an organisation that:“conducts all or part of its activities in favour of development;is an international agency, institution, or organisation whose members are governments or a fund managed autonomously by such an agency; andpools contributions so that they lose their identity and become an integral part of its financial assets.”Such flows from donors to multilateral organisations are also referred to as “core” contributions. They are sometimes also called “multilateral inflows” – as the term “multilateral aid” is ambiguous between flows from donors to multilateral organisations and flows from the latter to developing countries.ODA outflows from multilaterals are shown in two other OECD statistical constructs, namely Official Development Finance and Country Programmable Aid (which measures take the recipient’s viewpoint), and include some own-resources (e.g. IMF gold sales support the Poverty Reduction and Growth Trust; IBRD/IFC profits support IDA; private donors support WFP
  • Here's a stab at what MDOs are.The DAC just keeps a list.The most important thing to note is that MDOs are not simply delivery agents or channels for bilateral donors' aid, though they are sometimes that.For a contribution to be considered multilateral ODA in the strict sense, it must be (concessional and) made to an organisation that:“conducts all or part of its activities in favour of development;is an international agency, institution, or organisation whose members are governments or a fund managed autonomously by such an agency; andpools contributions so that they lose their identity and become an integral part of its financial assets.”Such flows from donors to multilateral organisations are also referred to as “core” contributions. They are sometimes also called “multilateral inflows” – as the term “multilateral aid” is ambiguous between flows from donors to multilateral organisations and flows from the latter to developing countries.ODA outflows from multilaterals are shown in two other OECD statistical constructs, namely Official Development Finance and Country Programmable Aid (which measures take the recipient’s viewpoint), and include some own-resources (e.g. IMF gold sales support the Poverty Reduction and Growth Trust; IBRD/IFC profits support IDA; private donors support WFP
  • Here's a stab at what MDOs are.The DAC just keeps a list.The most important thing to note is that MDOs are not simply delivery agents or channels for bilateral donors' aid, though they are sometimes that.For a contribution to be considered multilateral ODA in the strict sense, it must be (concessional and) made to an organisation that:“conducts all or part of its activities in favour of development;is an international agency, institution, or organisation whose members are governments or a fund managed autonomously by such an agency; andpools contributions so that they lose their identity and become an integral part of its financial assets.”Such flows from donors to multilateral organisations are also referred to as “core” contributions. They are sometimes also called “multilateral inflows” – as the term “multilateral aid” is ambiguous between flows from donors to multilateral organisations and flows from the latter to developing countries.ODA outflows from multilaterals are shown in two other OECD statistical constructs, namely Official Development Finance and Country Programmable Aid (which measures take the recipient’s viewpoint), and include some own-resources (e.g. IMF gold sales support the Poverty Reduction and Growth Trust; IBRD/IFC profits support IDA; private donors support WFP
  • Here's a stab at what MDOs are.The DAC just keeps a list.The most important thing to note is that MDOs are not simply delivery agents or channels for bilateral donors' aid, though they are sometimes that.For a contribution to be considered multilateral ODA in the strict sense, it must be (concessional and) made to an organisation that:“conducts all or part of its activities in favour of development;is an international agency, institution, or organisation whose members are governments or a fund managed autonomously by such an agency; andpools contributions so that they lose their identity and become an integral part of its financial assets.”Such flows from donors to multilateral organisations are also referred to as “core” contributions. They are sometimes also called “multilateral inflows” – as the term “multilateral aid” is ambiguous between flows from donors to multilateral organisations and flows from the latter to developing countries.ODA outflows from multilaterals are shown in two other OECD statistical constructs, namely Official Development Finance and Country Programmable Aid (which measures take the recipient’s viewpoint), and include some own-resources (e.g. IMF gold sales support the Poverty Reduction and Growth Trust; IBRD/IFC profits support IDA; private donors support WFP
  • Now from this…
  • Here's a stab at what MDOs are.The DAC just keeps a list.The most important thing to note is that MDOs are not simply delivery agents or channels for bilateral donors' aid, though they are sometimes that.For a contribution to be considered multilateral ODA in the strict sense, it must be (concessional and) made to an organisation that:“conducts all or part of its activities in favour of development;is an international agency, institution, or organisation whose members are governments or a fund managed autonomously by such an agency; andpools contributions so that they lose their identity and become an integral part of its financial assets.”Such flows from donors to multilateral organisations are also referred to as “core” contributions. They are sometimes also called “multilateral inflows” – as the term “multilateral aid” is ambiguous between flows from donors to multilateral organisations and flows from the latter to developing countries.ODA outflows from multilaterals are shown in two other OECD statistical constructs, namely Official Development Finance and Country Programmable Aid (which measures take the recipient’s viewpoint), and include some own-resources (e.g. IMF gold sales support the Poverty Reduction and Growth Trust; IBRD/IFC profits support IDA; private donors support WFP
  • Here's a stab at what MDOs are.The DAC just keeps a list.The most important thing to note is that MDOs are not simply delivery agents or channels for bilateral donors' aid, though they are sometimes that.For a contribution to be considered multilateral ODA in the strict sense, it must be (concessional and) made to an organisation that:“conducts all or part of its activities in favour of development;is an international agency, institution, or organisation whose members are governments or a fund managed autonomously by such an agency; andpools contributions so that they lose their identity and become an integral part of its financial assets.”Such flows from donors to multilateral organisations are also referred to as “core” contributions. They are sometimes also called “multilateral inflows” – as the term “multilateral aid” is ambiguous between flows from donors to multilateral organisations and flows from the latter to developing countries.ODA outflows from multilaterals are shown in two other OECD statistical constructs, namely Official Development Finance and Country Programmable Aid (which measures take the recipient’s viewpoint), and include some own-resources (e.g. IMF gold sales support the Poverty Reduction and Growth Trust; IBRD/IFC profits support IDA; private donors support WFP
  • Kerri Elgar Making business inclusive

    1. 1. Making business inclusive: are enterprise challenge funds useful tools? Robin Davies, Associate Director Kerri Elgar, Visiting Fellow Development Policy Centre Crawford School of Public Policy
    2. 2. What is an enterprise challenge fund? • In developing countries, targeted subsidies are sometimes needed to overcome barriers for businesses on the threshold of making investment decisions that are likely to benefit poor people as employees, suppliers or consumers. • Enterprise challenge funds (ECFs) are main instrument used by bilateral aid agencies for providing such targetted subsidies to inclusive business ventures. • Pros and cons…but increasing in popularity. 2
    3. 3. 3/10
    4. 4. ECF working group Established July 2013 ‘to examine the rationale for the use of ECFs, reflect on experience to date and develop principles-based recommendations to development agencies on their use in the future’ Four ‘big-picture’ questions: • rationale for the use of ECFs • their place in a broader array of approaches • their partnership structure • their impact And four more practical but still broad questions bearing on the design of ECFs: • geographical and sectoral scope • the manner in which financing is made available • the role of complementary services • fund administration 4/10
    5. 5. Fault lines 5/10
    6. 6. Ten characteristics of an ECF 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Offers firm-specific incentives: it offers incentives to particular firms to invest in business creation, reconfiguration or expansion Issues a challenge: the incentives are used for a specific purpose of the proponent’s own devising, sometimes within broad parameters defined by the fund Employs competitive allocation: firms are selected through open competition Requires additionality: an investment must be one that would not otherwise have made Requires risk-sharing: incentives are set at a level, determined by a matching ratio, that only partially compensates for market or government failures Seeks benefits for the poor: investments confer benefits on poor people associated with beneficiary firms as suppliers, employees or customers Seeks sustainability: it is intended that such benefits be provided on an ongoing basis, beyond the consumption of the incentive Values competitive neutrality: incentives compensate for government or market failures without seeking to give beneficiary firms a long-term competitive advantage Values demonstration effects: it is intended that similar benefits are subsequently experienced by other groups of poor people through the replication or scaling-up of investments, whether by the beneficiary firm or copycats Values systemic impact: it is intended that such replication or scaling-up occur with less or no need for the provision of further incentives 6/10
    7. 7. Poverty reduction through private sector development: objectives 1. Strengthening enabling environments: helping to develop legal and regulatory frameworks, infrastructure, workforce skills and consumer knowledge in order to promote the growth of the private sector for the general benefit of a region or country 2. Fostering enterprise development: helping to establish or expand particular enterprises in order to deliver general economic benefits for a region or section of the population, often with an eye to those enterprises’ direct impact on poor people as suppliers, employees or consumers 3. Stimulating inclusive investment: helping to reconfigure particular enterprises or extend them into new markets in order to promote the beneficial engagement of poor people with those enterprises as suppliers, employees or consumers 7/10
    8. 8. Assistance types • Confidence: temporary subsidies to reduce business expenditure or increase revenue, or support for research on the characteristics, skills and preferences of the target population of poor people, or the ‘good offices’ of the sponsoring agency • Context: physical infrastructure with public-goods characteristics, or general workforce skills development, or consumer education >==============================< • Capital: grants, equity, loans or guarantees (including within blended financing packages negotiated with banks or multilateral development financing institutions) • Capacity: business planning and management capacity, business-specific workforce skills development, or equipment 8/10
    9. 9. Decision tree Poverty reduction through private sector development ASSESS: Objective General environment Weak general enabling environment? STOP Weak project enabling environment? ASSESS: Project environment Firm strength Intervention type Adequate general enabling environment? ASSESS: Strong firm? PROVIDE: Weak firm? STOP Confidence (temporary subsidies, intelligence, association) Context (public goods) Strong project enabling environment? ASSESS: Weak firm? PROVIDE: Capital (direct or by guarantee) Strong firm? STOP Capacity (technical assistance) 9/10
    10. 10. Two fund types • Enterprise development (ED): supports the establishment or expansion of small-to-medium-scale enterprises to achieve positive general or sector-specific development impacts, by providing investment financing or increasing firm capacity • Inclusive business (IB): supports the expansion or reconfiguration of large-scale, often multinational, enterprises to increase their beneficial engagement with poor people as suppliers, employees or consumers, by providing risk reduction financing, information and good offices 10/10
    11. 11. Eight observations on… 1. 2. 3. 4. 5. 6. 7. 8. Giving money to strong firms: sometimes risk reduction, sometimes to support a project champion—but the beneficiaries are the suppliers, employees, customers Geographic and sectoral scope: open for IB funds and more restricted for ED funds—but the latter should be organised in hub-and-spoke fashion if possible Which firms get assistance: open for ED funds but IB funds could reasonably target a donor country’s own firms, with care Fund scope: housing ED and IB funds under one roof does not make much sense (different clients, offerings and stances) Lightness of touch: ED funds operate in the market and work with fragile firms, so need strong TA and market intelligence capacity; IB funds have no need of this but must be capable of highlevel business engagement and persuasion Financing terms: for IB funds, use grants; for ED funds use grants or guarantees within blended finance packages or else equity, quasi-equity or debt Measuring results: where payments are for risk reduction, make them proportional to specific results automatically measured by the firm (inputs purchased, units sold, wages paid) Semantic niceties: while any fund that places the onus on some entity other than the donor to come up with pro-poor business ideas can reasonably be called an ‘enterprise challenge fund’, better to talk about IB funds and ED funds 11/10
    12. 12. Making business inclusive: are enterprise challenge funds useful tools? Robin Davies, Associate Director Kerri Elgar, Visiting Fellow Development Policy Centre Crawford School of Public Policy

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