The Malawi Innovation Challenge Fund has been providing grant finance and technical assistance to lead businesses, in order to support agriculture and manufacturing value chains to work better for the poor, following UNDP’s Inclusive Market Development approach.
The poor level of diversification of the Malawian economy and exports has been compromising the country’s development. Despite the efforts carried out hitherto, the slow rate of economic transformations hinders Malawi’s potential of moving away from a consumer and import-oriented country to a manufacturing and export-oriented one. The country lacks the incentives for the private sector to increase its investments and outputs. The major constraints perceived by businesses are access to finance, transportation, informal practices and lack of power. The poor investment climate exacerbates the country’s lack of competitiveness caused by its inland location, which makes for high transport costs for imports and exports. Another recognized constraint is the lack of integration in domestic, regional and global value chains. Private-sector investments in agricultural trade and agro-processing are thus being hampered by the disconnection between small-scale producers and larger agri-businesses.
The Malawi Innovation Challenge Fund (MICF) is a US$24 million competitive mechanism that provides matching-grant finance for innovative projects proposed by the private sector active in Malawi’s agricultural, manufacturing and logistics sectors. Running since 2014, the MICF offers risk capital that generates real impact, in terms of attempting to increase both the country’s productive capacity, and employment and income opportunities for the poor. The MICF clearly aims to support the process of transformation within the Malawian economy, while focusing on the targeted priority sectors of the National Export Strategy and on value chains with strong potential to contribute to growth and poverty reduction. For instance it seeks to enable manufacturers to backward integrate processes to incorporate local products and services that would enable them to compete in international markets or allow for import substitution in the domestic market, while at the same time delivering large social or environmental impacts.
The MICF is designed to be a transparent, quick and responsive mechanism that endeavours to understand the needs of the private sector. The grantees are expected to match 50% of the grant amount, and this grant follows a rigorous verification process of milestones achieved according to the signed contract. The MICF is implemented through an Inclusive Market Development (IMD) approach, which recognizes that a series of interventions are required across the market system in order to ensure sustained changes in behaviour and to enable markets to function more effectively for the poor. This approach overcomes the drawbacks of conventional instruments by focusing on systemic change. Integrating IMD with the Challenge Fund instrument reduces some of the risks faced by businesses associated with innovating pro-poor and inclusive business models.
The MICF has supported 24 grantees since 2014, in such areas as water-treatment solution, non-refrigerated margarine, UHT long-shelf-life milk and specialty tea. Its main impacts up to now include the following:
– The aggregate number of poor people having experienced income increase or livelihood improvement amounts to 252,356, 32% of which are women;
– The number of smallholder households having benefitted from new or enhanced income-generating activities, or livelihood improvement, amounts to 35,088;
– The number of low-income unskilled individuals having gotten a permanent employment amounts to 1,215, 33% of which are women;
– The additional investments directly leveraged from the private sector through the Fund amount to almost US$10 million.
In view of the success of the initiative, many UNDP Country Offices in Africa (for example in Ethiopia, Kenya and Zimbabwe) have been supported to better understand the functioning of the MICF and a possible roll-out for either a single-country challenge fund or a regional challenge fund.
Provider Country: Malawi
Benecificary Country: Malawi
Supported by: UNDP, International Fund for Agricultural Development (IFAD), UK Aid, KfW (Germany), Embassy of Norway
Implementing Agency: UNDP Malawi, Nathan Associates London Ltd, Imani Development, Malawian Ministry of Industry and Trade
Project Status: On-going
Project Period: January 2013 – December 2019