Want to know how to get funding for your business in Africa? Are you looking for capital to start a new business or grow an already established company in Africa? Have you tried other alternatives and sources of funding but failed? Is capital your biggest headache and obstacle right now?
A challenge fund is a financing mechanism where donors use competition to find solutions to problems in areas related to development. Each challenge fund has its specific goals; it may be finding solutions to a particular health problem or methods to promote democracy through ICT (Information and Communications Technology).
A definition shared by the UK’s Department for International Development (DfID), the Inter-American Development Bank (IADB) and the Canadian International Development Agency(CIDA) describes them as ‘a competitive mechanism to allocate financial support to innovative projects, to improve market outcomes with social returns that are higher/more assured than private benefits, but with the potential for commercial viability’. Challenge funds aim to mitigate against risk in markets where business can contribute to poverty alleviation.
One of the main characteristics of a challenge fund is its open, competitive application process, which provides applicants with a one-off, limited-duration grant to overcome the uncertainties that inhibit innovation, research and development, investment and new approaches. The most important feature of the challenge fund is the ‘challenge’, which must be widely promoted and have clear eligibility criteria if it is to elicit a wide array of applicants from the private sector. The goal is to produce a large pool of intelligent and unconventional solutions to longstanding problems in development by tapping the ingenuity of private enterprise.
Small and medium-sized enterprises, organizations, institutions and individuals compete by submitting their project proposals to the challenge fund in question. While they have to meet predetermined and fixed criteria, the applicants have great freedom in the design of their solution. The winning proposals are supported financially and in many cases also receive advice to enable further development and scale-up of products or methods. The financing from the challenge fund must usually be matched by a certain percent of self-funding.
Sida-funded challenge funds:
African Enterprise Challenge Fund (AECF)
Provides financial assistance and loans for innovative projects in sectors such as agriculture, renewable energy, climate change adaptation, financial services as w
ell as information and media services with links to these sectors. The 
projects must be commercially viable with a strong potential for societal impact and operate in sub-Saharan Africa. The fund is financed by Sida, DFID, DFAT, Danida, DGIS and CIDA.
Innovations Against Poverty (IAP)
Sida’s own Challenge Fund, Innovations Against Poverty, is a global fund that supports innovations, methods and business models that benefit people living on less than 2 dollars per day. IAP provides two types of funding, small and large, up to 50 percent of the total project cost. Innovators are also offered advice and access to the Practioner Hub.
Financed together with DFID, USAID, Omidyar Network and the Australian government. Global Innovation Fund invests in innovations with a strong potential for large scale social impact among people living in poverty. The fund has a greater focus on the innovative aspects of proposals than other Sida-funded challenge funds. In order to reach as many people living in poverty as possible, innovations can receive support of up to 15 million USD.
Demo Environment
The program is funded by Sida and managed by The Swedish Agency for Economic and Regional Growth. It connects companies who have innovative solutions to global environmental challenges with expertise on how these solutions can be tailored to the local context in 11 selected countries.
Operates locally and nationally in twelve countries; Ghana, South Africa, Kenya, Tanzania, the Philippines, Indonesia, Pakistan, Uganda, Bangladesh, Nigeria, Mozambique and Liberia. Its focus area is strengthening democracy through ICT (Information and Communications Technology) and the innovations called for are often methods or platforms rather than products. The fund is financed jointly by Sida, USAID, DFID, the Open Society Foundation and Omidyar Network.
Looking for innovative solutions to development challenges related to water scarcity in the agricultural sector in developing countries. The fund is global and supports innovations that make it possible to cultivate crops using less water, or that make more water available for cultivation through better use of different water sources. Securing Water for Food is financed by Sida, USAID and the Dutch government.
Looking for innovative approaches and products to increase access to sustainable energy in the agricultural sector in developing countries. Innovations should facilitate the work of people working in agriculture and increase their productivity. Powering Agriculture is financed by Sida, USAID, BMZ, OPIC and Duke Energy.
A regional fund supporting internet development and digital innovation that can make development projects more effective and inclusive. The main focus of the fund is openness, rights and inclusion. The fund operates in Africa, Asia and Latin America and the Caribbean. In addition to financial support, the fund offers capacity building for innovators. Sida finances Seed Alliance together with the International Development Research Centre (IDRC), African Network Information Centre (AFRINIC), Latin America and Caribbean Network Information Centre (LACNIC) and the Asia-Pacific Network Information Centre (APNIC).
Learn more at LEAP Africa CEOs Forum 2016. A great opportunity to understand how these financing options can work for you Click here for details.
Source: Sida
