Facilitating inclusive business models

Parveen Huda spoke to Sabrina Shahab, a Fundraising Specialist at Practical Action, Bangladesh. Practical Action work alongside communities, adopting a collaborative approach to finding practical solutions to the poverty they face. They recently partnered with Advanced Chemical Industries (ACI) and tell us below about facilitating the partnership between private sector and donors.

What kinds of partnerships have been developed between inclusive businesses and donors? Where have we seen success?

One core focus of Practical Action is to facilitate inclusive business models.   We have seen some success in this regard. 

We have piloted a contract model between farmer groups,  MFIs and the private sector.  We successfully developed linkages with two private sector companies:  ACI and Panna  Meat.  The contract model pilot with ACI was funded by UKAid under the project BIF (Business Innovation Facility) in 2010.  

We also piloted a PPP model for Faecal Sludge Management, funded by the Bill and Melinda Gates Foundation.  Under this model, we helped to develop pit emptier cooperatives/ entrepreneurs who will be working with municipalities.  We are also in the process of producing compost (organic fertilizer) which will be sold with private sector, including Farook Fertilizers and Rustic.  We are developing the value chain.

We have a flagship program under which the landless extreme poor, living on flood protection embankments in the North West, produce pumpkins on barren sandbars, using an innovative agriculture technique.  We have successfully developed farmer cooperatives and linked them with MFIs and pumpkin exporting companies.  This project has won the USAID Securing Water For Food Grand Challenge and was able to show more than 50% match funding, thanks to the MFIs and pumpkin exporters.

We have recently won an EC funded project under which we will be working with Jute diversified product companies, metal  workshops, Jute factories  to create jobs,  improve  productivity  and  efficiency  in the targeted  sector.  

How can companies and donors align thinking and objectives to achieve favourable outcomes?

As Practical Action is a charity, our  focus is on pro–poor business model development. Therefore donors should focus on developing funding schemes which incentivizes the private sector to collaborate with charities.  We are also focusing on business models which allow the disadvantaged to play an entrepreneurial role, and build up business ventures. For example in our Gates Funded Waste Management PPP model,  we  have developed pit emptier cooperatives who will directly work with the municipalities.   We want donors to facilitate this approach.   

Donors are very much interested in development goals, while private sector is more interested in making as high as return on investment as possible. To achieve  favourable outcome, these two interests must come together.  However it must be ensured that private sector do not use donor funds to just build their business without taking into  account the pro-poor  outcomes.  Donors must ensure this and charities can play a key role in this regard.

On the other hand many charities are showing interest in private sector engagement, many are opening social  business.  So private sector has a huge opportunities to collaborate with charities who can help the private sector  to meet  their  development goals.  

Many charities have come together to set up impact investment fund programs to attract private sector   for pro-poor interventions. Practical Action belongs to one such consortium called ACRE.  Under this program, in-depth analysis is carried, and recommendations are provided for developing pro-poor business models and also linkage set up  for  accessing  funds. 

How can companies go about developing a beneficial relationship with a donor?

Currently, there are plenty of opportunities for companies to develop beneficial relationships with donors.  Especially donors like USAID, who are very much interested in private sector engagement.  DFID is also coming forward.  In order to develop beneficial relationships with donors, private sector companies need to go beyond CSR opportunities and consider developing pro –poor business  models.  In order to do this, they have to think out of the box, learn from successful social business models and also develop linkages  with  charities  who have  a  reputation of  working with the  poor. 

Many donors, especially USAID, have a trusted list of private sector companies which receive millions dollars of contracts.  Private sector may consider setting up partnerships with these companies as subcontractors to gain the trust of USAID.  DFID is also currently going in the same direction.

There is a huge amount of funding available for the private sector and this trend is increasing, both nationally and internationally. Donors are also willing to talk and listen to private sector representatives.  Private sector must be proactive to tap into these opportunities and align their company’s  goals with the donor goals.  If necessary, they should be willing to open start-ups. For example, Impress Group is looking to open a start-up renewable energy company with grant and soft loan from IDCOL  to convert municipality  wastes  into  energy and  compost.  It is likely they will work with Practical Action for technical advice and linkage with municipalities and grassroots communities .  

What do donors look for when they collaborate with businesses?

Donors are mostly looking for sustainability, value addition and innovation, when they collaborate with private sector. This is especially the case when they are targeting middle income countries such as Bangladesh. Currently many donors look for 40% to 50% match funding, which goes beyond CSR contribution. Through this type of match funding requirements, donors want to reduce their grant amount and also they want to see how serious  the private  sector are  about  their willingness to invest. 

As I said earlier, another focus is  also on sustainability and scale-up.  They want the private sector to show a market based approach through which they would be able to make  a proper return on investment  which would  allow them to attract  further investment for  scale  up .  

Donors are also looking for cutting edge innovation to solve the  challenges the world is currently facing.  Donors feel that the private sector has a huge role to play in this regard.  One such example is mobile phone technology which was introduced by the private sector for commercial gain, but has contributed hugely to the development sector.  Another such example is piloting of small solar powered irrigation system which are affordable for poor farmers.   

What lessons can be learnt from donor programmes that engage with inclusive businesses?

Most Donors use annual milestones to evaluate projects. Donors usually provide types of indicators they would like to be used in the Call documents.  Donors also have questions and answer sessions and many have webinars.  Many donors such as USAID, EC, DFID hold sessions where they not only respond to queries, but also request input  from the  participants. 

If the awardee enjoys a good relationship with the donor, then it is possible to change the target,  activities, during the  quarterly, annual  reviews.  However, it should be remembered that the donors are looking for impacts and success stories, so unless the awardees  are  able  to ensure that, they may  see their funds  cut off. That is our experience from Securing Water for Food Grand Challenge, USAID,   funding for the next  year  depended on the  success  of  the  previous  year. 

Another current challenge is many donors are introducing online systems for monitoring their projects.  They are phasing out paper based systems.  Gender is another issue on which they are focusing a lot.  However, donors are willing to provide help in terms of training, mentoring support.

Lastly, one of the most positive sides of the interaction between donors such as USAID and the private sector is donors facilitate networking and investment opportunities with international companies who may help to  open up new  markets, bring in new technologies  etc.

This blog is part of the January 2017 series on how, and why, donors and businesses work together for development impact. For more candid opinions on what works, and what doesn't, read the full series on demystifying donor-business collaborations.