All in a Day’s Work

Innovation in financial inclusion is a challenge, especially in the context of Nepal where economic, political and geographic boundaries are detrimental to the process of expansion of financial inclusion. Additionally, financial institutions that are well placed at the forefront of this movement are hesitant to expand their services beyond their comfort zone for the fear of the unknown.   


The Sakchyam Challenge Fund, which is also Nepal’s first Challenge Fund (CF), is a financing vehicle that enables investments for specific purposes using competition among organizations that bring innovation, co-investment and expansion of financial services to the underserved communities in Nepal. Proposals are assessed by an Independent Assessment Panel (IAP) against predetermined criteria such as co-investing a certain percentage of the grant with their own financing. Several factors have driven and determined donor interest in selection of projects for challenge funds, namely:

  • Opportunity to engage with both the private and the public sector, encouraging co-investments and enabling the capacity of the public sector to deliver better.
  • Competition is increasingly seen as a method of accomplishing development initiatives through a search for innovative, cost-effective solutions.
  • Leverage of donor funds by engaging in capital contribution in the form of matching financing of projects.
  • Challenge funds enable directly working with commercial players without creating market distortions.

Another example of a successful challenge fund partnership is the Digital Mahila (women) Project, an outcome of a successful partnership with Chimmek Microfinance Development Bank that enables women to be trained as Digital Mahilas who in turn offer financial services using digital technology. Of the total project cost of approximately GBP 1 million, the partnership has successfully leveraged GBP 539,000 as ‘partner contribution’ and is expected to serve 40,000 beneficiaries in Banke, Dadeldhura, Dang, Kailali and Rukum districts.

 

Facilitating Systemic Changes

Facilitating ‘systemic change’ is a process, not an event. Currently in its third year, it is clear that Sakchyam Challenge Fund partnerships have been successful as they have been able to understand exactly when the system-level outputs can be translated into ‘systemic changes’. This has in turn been embedded into the individual design of the ongoing 42 projects totaling GBP 1 million, thereby enabling the partnerships to evolve and adapt to the changes in the market conditions.

Source: The Springfield Center, framework for managing and measuring systemic change processes

Lessons from the Challenge Fund partnerships further validate the thought process that interventions designed should continue to support key market players to innovate and perform effective roles, and empower them to maintain and adapt them in the future. To do this, Challenge Fund projects need to continue to engage with a variety of market players, know when to enter and exit partnerships, and determine whether players genuinely ‘own’ changes promoted, and assess whether and when the system is really changing.

Another measurement of success is the replication of the Sakchyam CF model in Nepal. This replication can be partly attributed to the Sakchyam Challenge Fund that has enabled like-minded institutions to ‘expand’ and launch models that enable and enhance common goals for financial inclusion in Nepal. As of today, there are a few other Challenge Funds that have been set up. Also, there is a genuine interest among the donors to lay the ground work for similar investment vehicles in Nepal. The scope and features of the existing and proposed Challenge Funds echo the basic principles of the Sakchyam Challenge Fund – especially the part where engagement with the private and public sectors, co-investment and leveraging of donor funds for innovation and expansion of financial services is concerned. This is likely to enable the right shift in market dynamics, and will enable the markets to respond to key opportunities, thereby enabling economic growth, including in underserved communities.

More than 27 years since the first Challenge Fund was created, we at Sakchyam – Access to Finance for the Poor Programme continue to envisage that the model will enable us to share reflections, best practices, and new ideas to advance financial inclusion, which holds great promise to improve lives and enables economies to thrive.

 

By Prasanna K.C., Sakchyam – Access to Finance Programme