Challenge fund


A 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. As Irwin and Porteous 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.’ Applicant qualifications differ widely among challenge funds, but typically focus on non-state actors.
Typically, a donor agency, the Inter-American Development Bank, Swedish International Development Cooperation Agency, and the Canadian International Development Agency ) hires a development contractor to host the funding competition around a broader sector to solicit innovative proposals that otherwise may not be discovered through more traditional grant-making or funding mechanisms. 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.
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 an voting committee to approve funding decisions. Other common features include a focus on innovation, leveraging other resources, and local solutions. Research performed by TripleLine Consulting identified seven characteristics of challenges funds: ' provides grants or subsidies with an explicit public purpose between independent agencies with grant recipients selected competitively on the basis of advertised rules and processes who retain significant discretion over formulation and execution of their proposals and share risks with the grant provider.'
Challenge funds greatly differ in size, from over $200 million to under $5 million.

History

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. Early challenge funds in the social sector supported the use of public–private partnerships, were in the UK and tarted urban issues, including the City Challenge, Rural Challenge and Single Regeneration Budget Challenge Funds.
By 1997, over 50 challenge funds were operating in the UK, disbursing £3,390 million. Of these, the largest was the Single Regeneration Budget. The first challenge fund within the British overseas development assistance programme 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.

Eligibility

Eligibility criteria vary from fund to fund.

Effectiveness

The effectiveness of challenge funds has been evaluated, in part, but donors, consultants, and implementers with varying opinions as to their value for money and effectiveness. Standards have been developed by the DECD for measuring the effectiveness of challenge funds. Additionally, certain donors such as SIDA have established guidelines to ensure challenge funds are as effective as possible at delivering the intended social impact.

Examples

Below are a few examples of challenges funds, which are funded by one or more donor agencies.
Africa Enterprise Challenge Fund
The Africa Enterprise Challenge Fund is a multiple window funding platform funded by DFID and managed by KPMG with challenge funds in agriculture and energy in Africa. AECF focuses on supporting businesses and raising the income of the rural poor.
Emprender Paz
Emprender Paz is a SIDA supported challenge fund in Columbia focused on private sector solutions for peace-building.
Enterprise Challenge Fund
The Enterprise Challenge Fund was an Australian government challenge fund that ran from 2007-13. 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.
Financial Education Fund
Managed by Cardno, the Financial Education Fund was a DFID challenge fund established in 2008 focusing on financial literacy and access to financial services in Africa.
"Girls Education Challenge Fund"
Established in 2012 and currently scheduled through 2016, the Girls Education Challenge Fund 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.
Human Development Innovation Fund
Palladium International manages the Human Development Innovation Fund, which is a GBP 30 million DFID challenge fund seeking to identify innovations in education, health and water, sanitation and hygiene across Tanzania. 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.
"LIFT"
Managed by TradeMark East Africa, The Logistics Innovation for Trade challenge fund is a $16 million DFID fund for reducing the cost of transport and logistics in East Africa.
Seed Alliance
Seed Alliance is a challenge fund focusing on internet and digital innovation.
Vietnam Business Challenge Fund
The Vietnam Business Challenge Fund focusing on developing 'inclusive businesses' working in agriculture, low carbon growth, infrastructure, and basic services.
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
Challenge Fund - Call for Innovation
The Challenge Fund 1 & 2 is an initiative of the Sèmè City Development Agency, in partnership with the World Bank and the National Agency for the Promotion of Heritage and the Development of Tourism of Benin.

Grand Challenges

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.
Gates Foundation
The Gates Foundation runs two grand challenges: "Grand Challenges in Global Health" that was established in 2013 and the newer "Grand Challenges Explorations" that funds early-stage innovations.
Canada
The Canadian government runs or participates in numbers grand challenges in areas from hypertension to saving children's' lives to mental health.
USAID
As of 2014, USAID runs or participates in six grand challenges: Fighting Ebola, Securing Water for Food, Saving Lives at Birth, Powering Agriculture, and All Children Reading, and Making All Voices Count (with Sida, DFID, and the Omidyar Network.
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. The DARPA Grand Challenge is a prize competition for autonomous vehicles funded by the Defense Advanced Research Projects Agency.