Enterprise challenge funds award grants or subsidies through a competitive process to private sector organizations that submit solutions with an explicit public purpose. Companies working within a specific sector are invited to submit project proposals for inclusive businesses that aim to solve a stated development problem and generate high pro-poor impact. Challenge funds can trigger new ideas and innovative solutions or promote the scale-up or growth of existing solutions. Proposals are assessed against transparent and pre-determined criteria. Successful applicants must often match a certain percentage of the grant with own financing and/or in-kind contributions.
The number and volume of funds has grown rapidly since the 1900s. Funds ranges from approximately $1.5 million or less up to $207 million and can address a variety of issues, sectors, or countries or on just one sector or country. Companies are attracted to challenge funds due to their risk-willing capital, rather than the access to subsidies.
Points to consider
- Management requirements: Enterprise challenge funds tend to be administratively demanding with management costs accounting for approximately 20-50 percent of total budget allocation. The delegation of fund management to an independent organization is an option.
- Evaluation requirements: Enterprise challenge funds lack adequate impact measurement systems. Critics point out that there are still very few evaluations of challenge funds to date. Furthermore, those evaluations seem to be focused too much on management issues and not enough on the evidence for the additionality of the funding and on the systemic pro-poor impact.