A Challenge Fund (also referred to as enterprise challenge fund) is a competitive financing facility to disburse donor funding for international development projects, typically utilizing public sector or private foundation funds for market-based or incentive driven solutions. [1] [2] [3] As Irwin and Porteous (2005) observed, "In practice, the objective of a challenge fund is to provide the smallest possible financial contribution to a socially worthwhile project consistent with making it less risky and more financially sustainable to the private promoter." [4] Applicant qualifications differ widely among challenge funds, but typically focus on non-state actors.
Typically, a donor agency (such as UK's Department for International Development (DfID), the Inter-American Development Bank (IADB), Swedish International Development Cooperation Agency (SIDA), and the Canadian International Development Agency (CIDA)) hires a development contractor (such as KPMG or Palladium International) to host the funding competition around a broader sector (such as food trade, agriculture, or education in a specific geography) to solicit innovative proposals that otherwise may not be discovered through more traditional grant-making or funding mechanisms. [5] Alternatively, challenge funds are often used as ways to address what development partners describe as a Grand Challenge, which is a challenge fund focused on soliciting proposals around a very specific critical barrier that, if removed, would help solve an important health problem in the developing world, with a high likelihood of global impact through widespread implementation. [6]
Typical features of a challenge fund include open competition, innovative or evidence-based proposals. Proposals are evaluated based on a fixed scoring criteria, and a governance structure that incorporates a voting committee to approve funding decisions. [2] [5] Other common features include a focus on innovation, leveraging other resources, and local solutions. [4] Research performed by TripleLine Consulting identified seven characteristics of challenges funds: "(1) provides grants or subsidies (2) with an explicit public purpose (3) between independent agencies (4) with grant recipients selected competitively (5) on the basis of advertised rules and processes (6) who retain significant discretion over formulation and execution of their proposals and (7) share risks with the grant provider." [3]
Challenge funds greatly differ in size, from over $200 million to under $5 million. [4]
Academia, medical research, and the social sectors have used challenge funds for several decades; however, what is now mostly referred to as challenge funds are a byproduct of DFID's efforts beginning in the 1990s. [3] Early challenge funds in the social sector supported the use of public–private partnerships, for example in the UK for urban issues, including the City Challenge, Rural Challenge and Single Regeneration Budget Challenge Funds. [3] [4]
By 1997, over 50 challenge funds were operating in the UK, disbursing £3,390 million. [1] Of these, the largest was the Single Regeneration Budget (SRB). The first challenge fund within the British overseas development assistance programme (now DFID or UKAid) was the 1997 Business Sector Challenge Fund, followed in 2000 by the Financial Deepening Challenge Fund and the Business Linkages Challenge Fund that were tested in East Africa and later expanded to other regions. [3] [1]
Eligibility criteria vary from fund to fund. [1]
The effectiveness of challenge funds has been evaluated, in part, by donors, consultants, and implementers with varying opinions as to their value for money and effectiveness. [1] [3] Additionally, certain donors such as SIDA have established guidelines to ensure challenge funds are as effective as possible at delivering the intended social impact. [5]
IAP Criteria [5] | |
---|---|
1. | Clear commercial driver and potential for commercial viability |
2. | Potential to reach scale |
3. | Managed by a company or a market oriented organisation |
4. | Poor people benefit (income, products, environment, opportunities, gender equality) |
5. | Avoid negative effects (environmental, market distortion) |
6. | Clearly defined elements of cost-sharing (With the company itself providing at a minimum 50% - which should not come from other public financing) |
7. | Innovative; going beyond what exists now, in terms of the product /service, the delivery mechanism/business model and/or market reach |
8. | Project would not take place at the same scale or have the same development impact without IAP funding |
Below are a few examples of challenges funds, which are funded by one or more donor agencies.
The Africa Enterprise Challenge Fund (AECF) is a multiple window funding platform funded by DFID and managed by KPMG with challenge funds in agriculture and energy in Africa (including Kenya, Tanzania, and South Sudan). [7] AECF focuses on supporting businesses and raising the income of the rural poor. [8]
Emprender Paz is a SIDA supported challenge fund in Columbia focused on private sector solutions for peace-building. [9]
The Enterprise Challenge Fund (ECF) (2007-2013) was an Australian government challenge fund that ran from 2007 to 2013. [10] ECF was the backbone for the development of the DECD standards for evaluating challenge funds. Numerous reports and evaluations have been developed by or based on ECF. [11]
Managed by Cardno, the Financial Education Fund (FEF) was a DFID challenge fund established in 2008 focusing on financial literacy and access to financial services in Africa. [12] [13]
Established in 2012 and currently scheduled through 2016, the Girls Education Challenge Fund (GEC) is a GBP 300 million fund managed by PwC, focusing the quality and access to education for girls in 22 countries in Asia and Africa. [14]
Palladium International manages the Human Development Innovation Fund (HDIF), which is a GBP 30 million DFID challenge fund seeking to identify innovations in education, health and water, sanitation and hygiene (WASH) across Tanzania. [15] [16] HDIF also engages in activities to "foster a thriving innovation eco-system in Tanzania" and support a government partner in building this eco-system, Commission for Science and Technology (COSTECH). [16]
Managed by TradeMark East Africa (TMEA), The Logistics Innovation for Trade (LIFT) challenge fund is a $16 million DFID fund for reducing the cost of transport and logistics in East Africa. [17] [18]
A Scottish government fund for projects on climate change issues. It illustrates the need for information about challenge funds to be disseminated to potential recipients. A review showed that few applications were made by minority ethnic groups, who were very aware of climate change but not the fund. Zarina Ahmad, the Climate Change and Environment Officer at the Council for Ethnic Minority Voluntary Organisations, Scotland, introduced advice, mentorship and a resulting in applications rising from 3 in four years to 100 in seven years. [19]
Seed Alliance is a challenge fund focusing on internet and digital innovation. [20]
The Vietnam Business Challenge Fund (VBCF) focusing on developing "inclusive businesses" [21] working in agriculture, low carbon growth, infrastructure, and basic services. [22]
Sakchyam Access to Finance Challenge Fund, also known as AFP Challenge Fund, is focusing on increasing access to finance in Nepal. Ref: www.sakchyam.com.np
The Challenge Fund 1 & 2 (CF) is an initiative of the Sèmè City Development Agency (ADSC), in partnership with the World Bank and the National Agency for the Promotion of Heritage and the Development of Tourism of Benin (ANPT). [23]
Innovation challenges are defined by UNDP as prized challenges that Business Units (Country Offices) organize to solicit innovative ideas and solutions to address development challenges which cannot be achieved through traditional solicitation processes. In some cases, Calls for proposals under Innovation Challenges are funded by donors like: Czech Challenge Fund (Ministry of Foreign Affairs of Czech Republic), Slovak Challenge Fund (Ministry of Foreign and European Affairs) or Polish Challenge Fund (Ministry of Foreign Affairs).
Challenges funds and "grand challenges" have overlapping features but are distinct for numerous reasons. Grand challenges are often referred to as a "family of initiatives" focused on very specific problems that try to find the best solutions to those discreet questions. [24]
The Gates Foundation runs two grand challenges: "Grand Challenges in Global Health" that was established in 2013 [25] and the newer "Grand Challenges Explorations" that funds early-stage innovations. [26]
The Canadian government runs or participates in numbers grand challenges in areas from hypertension to saving children's lives to mental health. [27]
As of 2014, USAID runs or participates in six grand challenges: Fighting Ebola, Securing Water for Food, Saving Lives at Birth (with the Canadian government, DFID, the Gates Foundation, and the World Bank), Powering Agriculture, [28] and All Children Reading (with World Vision and the Australian government), [29] and Making All Voices Count (with Sida, DFID, and the Omidyar Network. [30] [31] [32]
Outside of international development, governments have continued to utilize challenge funds.
The "Climate Challenge Fund" is domestic challenge fund in Scotland focused on climate change issues. [33] [34]
The DARPA Grand Challenge is a prize competition for autonomous vehicles funded by the Defense Advanced Research Projects Agency.
Eldis is a database and email service of information sources on international development. It aims to share the best knowledge on development, policy, practice and research.
The United Nations Development Programme (UNDP) is a United Nations agency tasked with helping countries eliminate poverty and achieve sustainable economic growth and human development. The UNDP emphasizes on developing local capacity towards long-term self-sufficiency and prosperity.
The Department for International Development (DFID) was a ministerial department of the Government of the United Kingdom, from 1997 to 2020. It was responsible for administering foreign aid.
Private sector development (PSD) is a term in the international development industry to refer to a range of strategies for promoting economic growth and reducing poverty in developing countries by building private enterprises. This could be through working with firms directly, with membership organisations to represent them, or through a range of areas of policy and regulation to promote functioning, competitive markets.
Plan International is a development and humanitarian organisation which works in over 75 countries across Africa, the Americas, and Asia to advance children’s rights and equality for girls. Its focus is on child protection, education, child participation, economic security, emergencies, health, sexual and reproductive health and rights, and water and sanitation. As of 2021, Plan International reached 26.2 million girls and 24.1 million boys through its programming.
The Framework Programmes for Research and Technological Development, also called Framework Programmes or abbreviated FP1 to FP9, are funding programmes created by the European Union/European Commission to support and foster research in the European Research Area (ERA). Starting in 2014, the funding programmes were named Horizon.
The most important aspects of science and technology in Argentina are concerned with medicine, nuclear physics, biotechnology, nanotechnology, space and rocket technology and several fields related to the country's main economic activities. According to the World Bank, Argentina exports in high-technology are products with high R&D intensity, such as in aerospace, computers, pharmaceuticals, scientific instruments, and electrical machinery. Benefiting from Latin America's highest literacy rates since shortly after President Domingo Faustino Sarmiento made primary education universally available in the 1860s and 1870s, Argentine researchers and professionals at home and abroad continue to enjoy a high standing in their fields. Argentine Bernardo Houssay was the first Latin American awarded with a Nobel Prize in sciences. Educated in a National University, Houssay went on to establish Argentina's National Research Council, a centerpiece in Argentine scientific and technological development, fifty years on. Many other Argentines have contributed to scientific development around the world, though sometimes having to emigrate to do so. Probably for that, the Argentine education is referred as the Latin American docta, which originates from the Latin docta (learned). Argentina was ranked 73rd in the Global Innovation Index in 2023.
Humanitarian Accountability Partnership International, established in 2003, was the humanitarian sector's first international self-regulatory body. A multi-agency initiative working to improve the accountability of humanitarian action to people affected by disasters and other crises, HAP members ranged from organisations with a mandate for emergency relief and development activities to institutional donors. The organisation aimed to strengthen accountability towards those affected by crisis situations and to facilitate improved performance within the humanitarian sector. The ultimate goal of the organisation was to uphold the rights and the dignity of crisis-affected populations across the world.
The Tanzania Commission for Science and Technology (COSTECH) is a parastatal organization affiliated with the government of Tanzania. It was created by an Act of the National Assembly of Tanzania in 1986 as a successor to the Tanzania National Scientific Research Council. The commission was a subsidiary institution to the Ministry of Communications, Science and Technology (MCST) and is now a subsidiary institution to the Ministry of Education, Science & Technology. The main offices are located in Dar es Salaam.
Self Help Africa is an international charity that promotes and implements long-term rural development projects in Africa. Self Help Africa merged with Gorta in July 2014, and in 2021 merged with UK-based INGO, United Purpose. The organisation also owns a number of social enterprise subsidiaries - Cumo Microfinance, TruTrade and Partner Africa.
The Office of Social Innovation and Civic Participation was an office new to the Obama Administration, created within the White House, to catalyze new and innovative ways of encouraging government to do business differently. Its first director was the economist Sonal Shah. The final director was David Wilkinson.
The Bangladesh Climate Change Resilience Fund (BCCRF) is a multi-donor trust fund (MDTF) created to collect and disburse climate adaptation funding for Bangladesh.
Climate finance is an umbrella term for loans, investments, and other forms of financial capital allocation in the area of climate change mitigation, adaptation and/or resiliency.
The Water Supply and Sanitation Collaborative Council (WSSCC) was a United Nations-hosted organization contributing to Sustainable Development Goal 6, Target 6.2 on sanitation and hygiene. It was established in 1990 and closed at the end of 2020. WSSCC advocated for improved sanitation and hygiene, with a focus on the needs of women, girls and people in vulnerable situations.
Cities Alliance is a global partnership fighting urban poverty and supporting cities to deliver sustainable development. To manage its activities, the Cities Alliance operates a multi-donor fund with UN Office for Project Services (UNOPS), as host and trustee. Different members provide direction, financing and advocacy. Cities Alliance aims to deliver solutions to urban poverty.
The Human Development Innovation Fund is a UKAid financed 40 million British Pound challenge fund providing grants to businesses, NGOs and research institutions for scaling innovations focused on the quality, value for money, and sustainability of basic services in education, health and water, sanitation and hygiene (WASH). HDIF was launched on May 12, 2014 with the support of the Vice President of Tanzania.
International Center for Biosaline Agriculture (ICBA) is an international, not-for-profit applied agricultural research center with a unique focus on marginal environments. It identifies, tests and introduces resource-efficient, climate-smart crops and technologies that are best suited to different regions affected by salinity, water scarcity and drought. Through its work, ICBA aims to improve food security, nutrition and livelihoods of resource-poor farming communities around the world.
Grand Challenges Canada (GCC) is a Canadian nonprofit organization that uses a Grand Challenges model to fund solutions for health and development challenges in the developing world.
The CALP Network is an organisation originating in 2005 and officially launched in 2009 as The Cash Learning Partnership, with the objectives of increasing the scale and quality of Cash and Voucher Assistance (CVA) employed by humanitarian agencies around the world to deliver aid. CVA encompasses aid delivered as cash, or vouchers exchangeable for goods and services, directly to recipients, and represents an increasingly significant aid modality amounting to 21% of total international humanitarian assistance expenditure in 2022. CALP works to build CVA capacity within aid organisations, especially by providing training and e-learning; coordinates the use of CVA by agencies; compiles and shares knowledge and research; and contributes to the development of policy environments encompassing CVA.
The Global Innovation Fund (GIF) is a non-profit investment fund. It invests in the development, testing, and scaling of social innovations with the potential to have a measurable impact on the lives of those living on less than $5 per day, such as new products, services, business processes, and policy reforms. It is headquartered in London with offices in Washington, D.C., Nairobi and Singapore.
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