John Paul

Another Competition, Another Missed Opportunity

The World Bank’s Development Marketplace (DM) competition took place in Washington this week. Begun in 1998, and held in DC about once every 18 months, DM is ?a competitive grant program that funds innovative, small-scale development projects that deliver results and show potential to be expanded or replicated.? This year’s competition, entitled, “Innovation in Water, Sanitation, and Energy Services for Poor People,” awarded $5 million to the best ideas that provide clean water, sanitation, and energy to local communities in developing countries lacking these basic services.

For those keeping score, projects focused on providing clean water won just over half the grants. Alternative energy projects–including solar, biomass, and human-powered–accounted for most of the rest, with only a handful of sanitation projects receiving funding. Africa was strongly represented, with 14 of the 30 winning projects coming from the region. The largest number of winners from a single country was India with five projects receiving funding.

While walking through the project stalls located in the World Bank’s grand atrium, though, I couldn?t help thinking that the initiatives around me were not getting the support they deserved. The World Bank has an annual budget of US $20 billion and is the largest foreign aid organization with a mission to reduce poverty. $5 million is only .025% of total annual expenditures, and most of that money didn?t even come from the Bank. Donors to this year’s Marketplace included the Global Environment Facility (GEF), the International Finance Corporation (IFC), the Bill and Melinda Gates Foundation, and the Global Village Energy Project (GVEP).So I checked, and information on previous grant winning projects is available on the DM website. But there is no indication that any additional grants or loans were given to prior winners to help them further scale. There isn?t even data that suggests any post-grant evaluations were done. Why have competitions for projects that have the potential to be expanded or replicated, but invest no additional time or money to make sure that happens? Unfortunately, these projects have few other options.

There is a vast gap — between a few thousand and $500,000 — where financing options to help is almost non-existent. And it is precisely in this range–what we refer to as mesofinance — that successful small and medium-sized businesses in developing countries, seeking to expand, need investment capital, equipment financing, or loans. The gap is important because it is these businesses that provide most of the jobs and generate most of the new employment in every economy.

The reason most often cited to explain this gap is risk. It’s hard for a commercial bank to justify providing a couple hundred thousand dollars in unsecured capital to a new business they don?t know much about. In this case, however, that risk is greatly reduced. All of the projects are vetted during the competition process, and in the case of the winners, there’s a chance to evaluate how well the initial grant money was spent before providing a larger grant or loan.

It all seems like a substantial missed opportunity for the World Bank, although the institute isn’t entirely to blame. The governments that control the WB have not chartered it to do equity financing–that’s the IFC’s job–or to lend money to SMEs (it lends money to governments). These institutions aren’t chartered or structured to fill the mesofinance gap, but maybe they (and other development organizations) should be. By not filling the gap, the development community acts like a company that throws token money into CSR initiatives rather than integrating triple-bottom line approaches into their core business model. The result is a lot of great ideas that have a hard time living up to their potential.