I’d also like to highlight the role of donors in reducing risk in these markets, including in higher risk sectors such as Agriculture. One example USAID uses are the Development Credit Authority (DCA) to provide loan guarantees to secure access to finance for sectors, companies and projects that are not accessing funds already. The DCA Exposure website offers a compilation of DCA impact stories, searchable by sector, segment, region.
How Can International Government Donors Help Businesses Scale their Contribution to the Sustainable Development Goals?
oh so true! Best works of ANY corporate anticipates the continuity for IF/WHEN they are no longer a partner in the initiative.
Hi Christina - interesting point. How do we overcome that?
While agriculture plays a less important role economically in industrialized countries, it is one of the most important segments of the economy in developing countries. Helping smallholder farmers to close the yield gap contributes to move rural families out of poverty. International donor funds have a fundamental role, not only to provide the funding but also to align and lead multiple partnerships on the venture.
A very good example is The Farm to Market Alliance (FTMA) a partnership between public and private institutions to support smallholder farmers as they move from subsistence farming to market-oriented agriculture. Partners in the FTMA include Grow Africa, AGRA, Bayer Crop Science AG, IFC, Syngenta Crop Protection AG, Rabobank, World Food Program and Yara International ASA. The FTMA model connects buyers to smallholder producers, while providing farmers with a wide range of interventions. FTMA is active in Rwanda, Tanzania and Zambia - reaching more than 90.000 farmers (50% women). The average farmer income increased by 83%.
This can be so important also where responsible actors are trying to get a foothold - for example a trader trying to get responsible artisanal gold to market, or a responsible labor broker trying to succeed while bearing the costs of what it means to treat migrant workers well. Derisking credit for these kinds of actor has an important role to play.
There are a huge range of different forms of partnership that are having impact around the world. Partnerships to support business to do business responsibly and sustainably; partnerships through which donors help to de-risk business investment in countries; innovative finance mechanisms; inclusive business partnerships; value chain sustainability and market transformation collaborations; co-investment in the social, environmental and ‘hard’ infrastructure.
Wherever there is clarity over the shared underlying interest of prosperous business, prosperous society, there is the potential for partnership and co-investment.
Here’s an overview of the different types of partnerships with business:
I think its important for donors to support partnerships with a clear exit strategy. One that requires “skin in the game” as we say it here in the US from the private sector partner or Local Gov partner.
Building on Sashi’s point. In addition to loan guarantees and other risk sharing mechanisms, donors could also help reduce risk in key markets by promoting policy / legislative reforms that strengthen the enabling and regulatory environment.
And might I add that being very open amongst collaborators about what your organization i) contributes to the initiative and also ii) what your organization expects out of their participation in the initiaitve. There is generally speaking a concern and reticense to be honest and open about what a corporate gets in return, including the brand and reputational value. Honestly-- that’s OK.
having a clear plan for sustainability and therefore knowing what the indicators are for when to exit a partnership (or hand-over the ‘maintenance’ part – presumably to government)
Als Paul said, sustainability needs to be looked at honestly from the beginning. The initiative may be financially viable, but that does not mean that a large company can sustain it. There are internal policies such as margins / profitability expectations. So maybe some initiatives need more long term funding, since they are essentially hybrid models.
Hi Caroline - do you know of any examples of where donors have rewarded responsible business behaviour among smaller businesses for example through facilities that enable access to credit on more favourable terms due to lower risk profile?
When it comes to de-risking market entry, donors should also leverage technical assistance to local companies which are very often lacking key business skills and capabilities. These interventions require overcoming certain reluctances to “subsidies” or “market distortions” by helping directly specific businesses
How do we approach partnership where there is a clear underlying interest of responsible business (but no measurable prospect of more $$) and prosperous society. That is, when it’s not a ‘win-win’ unless one takes the business win as being part of a sustainable society with reducing inequalities? These are the harder cases, I find. And perhaps where donors have a particular role to play too.
Agreed. We need to work on multiple fronts including policy and through examples that demonstrate the potential value of entering a new market. Another example I’d like to highlight is from our work with Root Capital, Keurig Green Mountain, Cooperative Coffees, and Equal Exchange to help 40,000+ smallholder farmers combat coffee rust, a disease that threatened their harvests. USAID provided Root Capital with a $15 million DCA credit enhancement to cover the risks of lending to cooperatives. Keurig Green Mountain is covering the Fund’s first $400,000 in potential losses. By mitigating risk and acting as first movers, USAID and Keurig have attracted new investors, and an additional $8 million
Thanks for the great inputs so far. Let’s move on to the next question:
Q2: What are we learning about what holds companies back when seeking to scale inclusive business models or responsible business practices, and how can government donors help to remove these barriers?
Derisking business should be is crucial so that companies play a more development and inclusive approach with their business. Without that support priritization coudl restrict private investment.
A fine question. Indeed, potentially a space for donors if they can help to build markets for more sustainable / responsible goods. But also the role of government policy and regulation to increase standards and help level the playing field for more responsible companies / sustainable products etc.
HI Richard, the IFC has a sustainable supplier finance program that used differentiated discount rates based on how a supplier performs according to pre-determined sustainability criteria. These programs use the off-take guarantee from large commercial buyers, but it is a way of rewarding smaller business for investing in responsible / sustainable business practices.
My first comment would be that not everything is scaleable nor needs to be scaled. We need to manage expectations at the outset of any collaboration that perhaps something is just right for (and entirely dependent on) a particular context with particular players. Understanding this at the outset would avoid later disappointments and a false sense of lack of achievement
But, nevertheless – and related to the point above - I could imagine that one of the challenges could be not having a clear plan for sustainability and therefore knowing what the indicators are for when to exit a partnership (or hand-over the ‘maintenance’ part – presumably to government) and setting these at the start of the initiative and holding all actors to account.