By Yinka Kolawole, with agency report

A Challenge Fund, also referred to as enterprise 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.

Seed-fund

The Africa Enterprise Challenge Fund (AECF) is a $250m multiple window funding platform capitalized by multilateral and bilateral donors to stimulate private sector entrepreneurs in Africa. It is meant to help find profitable ways of improving access to markets and the way markets function for the poor, particularly in rural areas.

The Fund which was launched in June 2008, awards grants and repayable grants to private sector companies to support innovative business ideas in agriculture, agribusiness, renewable energy, adaptation to climate change and access to information and financial services. It is managed by KPMG. The purpose is to improve incomes of smallholder farmers and the rural poor in Africa.

It is supported by the governments of Australia, Denmark, Netherlands, Sweden and the United Kingdom, as well as the International Fund for Agricultural Development (IFAD), and is hosted by the Alliance for a Green Revolution in Africa (AGRA).

The Fund supports private sector investments that: Provide solutions that help small holder farmers develop their businesses and increase their income; Develop new markets for agricultural products along the value chain and; Increase financial services to businesses and people in rural areas. It is open to companies all over the world, as long as the idea is implemented in Africa.

Portfolio

The AECF portfolio is spread across 23 countries with 49 percent in East Africa, 26 percent in Southern Africa, 11 percent Western Africa, 9 percent in the Horn of Africa and 3 percent in Central Africa.

Application process

The AECF proposal application process follows a two-stage process that is common to all AECF funding windows. The first stage is submission of an initial application form where the applicants write about their business ideas, and about their company(s). The ideas should not only be in terms of commercial viability but also on potential rural development impact. During the first stage, the applications are assessed solely on the quality of the written submissions.

An interested business submits their application when invited in the Concept Note stage. Once the competition for entries closes, the concept notes are assessed, and if successful in the initial assessment, the applicant is asked to submit a more comprehensive Business Plan for the project in the business plan stage.

Being selected is the second stage of the funding process and is a 3-stage process. During this stage, AECF engages with and visits all of the companies preparing business plans. The final business plans are presented to the independent Investment Committee for a decision about which business ideas win the competition for AECF funding.

Once awarded funding the successful businesses are informed and invited for an Induction Workshop prior to contract signing. The contracting process is followed by reporting and disbursement of funds. As part of its mandate, the AECF monitors and evaluates the project over the 6 year life of the contract.

Evaluation

It is mandatory for grant beneficiaries to self-report semi-annually. The beneficiaries can, however, chose to report quarterly if they need funds disbursed. The Fund Manager undertakes monitoring and evaluation visits to the projects semi-annually with some being visited quarterly. The visits mainly assess both technical and financial progress.

AECF measures business performance using two key indicators – turnover and profitability. Turnover, and growth in turnover, are closely correlated with, and are a predictor of, development impact i.e. businesses with a large and increasing turnover tend to generate higher development impact. Profitability is tracked primarily because, if the business/project idea is not profitable, the development benefits being created will not be sustained after AECF funding ends.

Eligibility

Private sector companies are invited to compete for AECF funds by submitting their new and innovative business ideas to a particular AECF competition. These ideas have to comply with the rules (eligibility and selection criteria) of the particular competition being applied for.

To be eligible for AECF funding you must enter both the amount of grant requested and the amount of repayable grant requested, even if one of them is zero. The total amount applied for cannot be less than $250,000 or more than $1,500,000. The total is an automatically calculated field on the online form. The minimum amount the AECF requires your company to invest is usually 50 percent of the total cost of implementing the project.

Contribution

Your share of the total funding may come as debt (borrowing) or equity (cash injection), by yourself or by another partner(s). In principle AECF does not recognize the contribution of existing fixed assets such as land and buildings or of sunk costs, however important these may be to the success of the project.