In the third and final article on grant-making for private sector actors, I share some of the lessons and recommendations from the in-depth study of the Strengthening Host and Refugees Populations in Ethiopia (SHARPE) program experience. The first two articles in the series can be found here and here.
Be Prepared to Work Along the Chain
For market systems development (MSD) programs trying to benefit hard-to-reach target groups in distant regions, a key lesson from the U.K. Foreign, Commonwealth & Development Office-funded SHARPE project is the need to support enterprises along the whole supply chain. MSD programs have typically eschewed working directly with target groups, generally preferring to engage with larger actors who can generate the required scale. However, in the case of programs such as SHARPE, this approach may not reach the intended groups.
There is a growing body of evidence that what is sometimes referred to as a “push-pull” strategy is the best way of generating sustainable impact in the context of protracted displacement (versus “push-only” MSD programs or “pull-only” humanitarian livelihoods programs). For example, a recent International Labor Organization/UN Refugee Agency paper argues that:
“Interventions should be aimed at combining 'push' and 'pull' factors. 'Push' factors aim at building the capacities of the target group to engage with the market, for instance, through skills development, transfer of assets and/or strengthening social networks, while 'pull' factors focus on developing market systems in such a way as to expand and diversify the market opportunities available.”
In these contexts, grants and other forms of support, therefore, need to be deployed within an overall strategy for each priority supply/value chain, with support potentially provided to actors along the whole chain.
Watch Out for “Donor Hunters”
When providing grants to businesses, programs must watch out for companies only interested in cheap donor money—referred to as “donor hunters” by one firm we interviewed for the study. Given the donor-heavy context, SHARPE did a great job of seeking out larger companies genuinely interested in targeting host and refugee markets (albeit with the need for an initial cost share to buy-down risk) and testing their commitment early on.
The cost-sharing requirement and the focus on only funding innovation (not “more of the same”) was also designed to exclude actors only looking for free money. Several companies we interviewed also highlighted SHARPE’s ability to “speak the language of business” as an important factor in deciding whether to partner with the program.
It's Not All About the Money
SHARPE demonstrated that grants can effectively incentivize larger companies to develop and pilot new business models targeting difficult-to-reach markets. For these new or untested markets, cost-sharing grants are a good way to buy down the initial risk.
However, SHARPE’s experience shows that it is not all about the money. For example, many of the grantees interviewed for the study also highlighted the importance of the market linkages brokered by SHARPE along the supply chain and the on-the-ground facilitation support provided by the SHARPE sub-national teams.
Given that host and refugee markets were often new markets for larger firms, some companies also faced capability constraints in terms of how best to adapt their business models to serve these markets effectively and profitably. We found evidence that some firms could build these capabilities themselves through learning-by-doing, helped in many cases with research and insights provided by SHARPE. Besides this, SHARPE provided relatively little technical assistance, which is a more direct way of tackling “capability” constraints in firms (see article 1).
Programs should, therefore, consider a wide range of “facilitation tactics” when developing the package of support and tailor that package to each partner's specific constraints. The menu of possible facilitation tactics should include cost-share grants and other forms of financial support, such as risk-guarantee mechanisms, as well as brokering linkages, on-the-ground facilitation, and technical assistance provided by external consultants.
The Devil is in the Detail
The grant manual is perhaps not the most interesting of program documents, but SHARPE’s experience shows that it is essential to get the policies and procedures right: small details can have a significant impact on grant effectiveness.
The program did a good job of developing a clear policy regarding the use of grant funding, with a strong focus on catalyzing innovation. SHARPE also adapted its administrative and due-diligence processes—for example, by introducing micro-grant agreements—which allowed it to support relatively large numbers of refugee grantees while still providing the necessary assurance and oversight. On-the-ground support to potential grantees, such as helping refugee entrepreneurs open bank accounts and obtain the necessary licenses, was also critical.
One area for improvement was perhaps the near universal use of reimbursable grants by SHARPE, which limited the effectiveness of the grant in cases where refugee grantees faced insurmountable access to finance constraints (and were therefore unable to fund 100 percent of the upfront investment). Following the study, SHARPE changed its grant policy and is now almost entirely pre-financing its refugee grantees.
The Art of the Deal
A fully formulaic or rules-based approach to cost-sharing is probably not feasible given the multitude of different businesses and innovations supported by MSD programs like SHARPE, and the variety of contexts. Finalizing a grant agreement is also a negotiation, with the outcome partly dependent on each side’s negotiating power and skills.
To help program staff negotiate the best deal, it may be useful to provide staff with cost-sharing benchmarks for different types of enterprise—both internal benchmarks from previous grants and external benchmarks from comparable projects in the country and elsewhere—and written guidance on the factors determining when and why the cost-share might deviate from these benchmarks (see article 1).
To aid this effort, we could perhaps all do better at publishing cost-share data from our programs so we all have a richer set of benchmarks to draw on.
