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4.5.8. Seed Funding

DESCRIPTION Seed funding can be described as grant funding into early-stage, high-risk and potentially high-reward projects to prove their viability, so that they can be further commercialized or scaled by private investors (Unlocking Capital for Development). As shown in the figure below, seed funding is indicative of where a business is in its lifecycle; as the first stage, “seed” is perceived to be the riskiest type of funding for investors.

4.5.7. Competitive Procurement and Reverse Auctions

DESCRIPTION “Competitive procurement is not unique to the energy sector, and is simply defined as a method for purchasing a product or service through an open and competitive process with multiple bidders. In the electricity sector, competitive procurement refers to the purchase of an energy or capacity product through a competitive tender process.

4.5.5. Subsidize Mobile and Electronic Banking

DESCRIPTION Payments systems that can strengthen the financial sector by reducing the time, risk and cost of transferring funds. Modern systems can facilitate digital payments, including mobile money, which enable more people to pay bills and transfer money electronically. Although FinTech products can be offered by banks and non-bank financial institutions alike, the last decade has seen the most innovation from FinTech start-ups and non-banks.

4.5.3. Strengthen Investment Promotion Agency Capacity

DESCRIPTION Many countries have some form of Investment Promotion Agency which have the potential to play a large role in identifying and promoting investment opportunities. Investment Promotion Agencies can have a strong impact in convening, creating forums and events in which those seeking finance can engage with finance providers (Source: Mobilizing Private Finance for Development: A Comprehensive Introduction).

4.5.2. Convene Market Stakeholders in Policy Conversations Regarding Financing

DESCRIPTION A sound and stable macroeconomic environment and the fiscal discipline that underpins it is an important driver of economic growth. For example, the potential for high inflation or currency devaluation is a strong deterrent to business investment. Poor or unstable fiscal policies discourage investment by increasing the risk of loss and making the potential for positive returns more uncertain.

4.5.1. Advocacy and Convening

DESCRIPTION USAID and other development agencies can have a strong impact in convening, creating forums and events in which those seeking finance can engage with finance providers.

4.5. Facilitators & Disrupters

Overview of new types of financial intermediators and facilitators with interventions to address these facilitators and disrupters.

4.4.7. Alternate Exchanges and SME Windows

DESCRIPTION “Since 2002, 20 African stock exchanges have created specialist SME boards to help SMEs gain access to equity. The SME board is a segment of the stock exchange, dedicated for trading the shares/ securities of SMEs, who otherwise find it difficult to get listed on the main board of the exchange. The concept originated from the difficulties faced by SMEs in gaining visibility and attracting sufficient trading volumes when listed along with bigger stocks on the main board.

4.4.5. Digital Plus for Financial Products other than Mobile Money (e.g. loans, insurance, agrovouchers)

DESCRIPTION Digital Plus provides additional services on top of mobile banking infrastructure. Examples include loans, insurance (e.g. crop insurance), or agro-vouchers, among others. Mobile banking infrastructure is conducive to a more secure financial market, and Digital Plus is the term that encompasses various strategies for USAID to take advantage of this infrastructure to provide an even stronger foundation.

4.4.4. Build Payment Systems

DESCRIPTION Cash-only economies limit enterprises and consumers from reaching their potential. They are limited to in-person transactions, and at a relatively low cost, considering the resulting insecurity consumers and enterprises feel when having a significant amount of cash on hand. It is additionally difficult for enterprises to obtain investments from sources outside of their immediate community. USAID holds expertise in supporting digital payment systems, from physical banking with electronic credit cards, to mobile banking, which may be more appealing in rural markets.

4.4.3. Alternative Credit Scoring and Rating

DESCRIPTION “The International Committee on Credit Reporting (ICCR) expands on alternative data as ways to collect and analyze data on creditworthiness based on information readily available in digitized form but ‘alternative’ to conventional methods such as documented credit history. It has been broadly categorized as: Structured data, e.g. utilities, mobile phone, rental information and taxes; Unstructured data, e.g.

4.4.2. Build Collateral Registries

DESCRIPTION A collateral registry is a record of legal claims to personal property used as collateral for a loan. Transparent collateral registries allow lenders to check if collateral being offered as security for a loan has already been pledged to another lender. Modern collateral registries are often computerized, improving the timeliness, accuracy, and accessibility of collateral information to avoid disputes over rights to property.

4.4.1. Build Credit Bureaus

DESCRIPTION A credit bureau is an agency that researches and collects credit information on individuals and sells that information to creditors when they are making decisions on loans. As such, credit bureaus and electronic funds transfer systems can increase security and transparency, further reducing risks and cost-to-serve (Source: Mobilizing Private Finance for Development: A Comprehensive Introduction).

4.3.7. Support Bankruptcy Law

DESCRIPTION Bankruptcy law includes legal procedures and regulations initiated by an individual or a business that cannot pay their debts and seeks to have the debts discharged or reorganized by the courts. Bankruptcy law is a risk mitigation tool, helping to protect lenders, so if a borrower defaults, a lender is protected.

4.3.6. Provide Governments with Advisory Support for Tax Policies and Collection Systems

DESCRIPTION Tax policy and collection is essential for adequate financial market oversight, and also helps lower interest rates. Also known as ‘domestic resource mobilization’ (DRM), it is the process through which countries raise and spend their own funds to provide for their people – i.e. the long-term path to sustainable development finance. DRM not only provides governments with the funds needed to alleviate poverty and deliver public services, but is also a critical step on the path out of aid dependence.

4.3.4. Support a Strong Rule of Law and Security & Governance

DESCRIPTION A necessary condition for an effective financial marketplace is rule of law, the assurance that property rights are secure and that contracts will be enforced. Additionally, a secure environment disincentives corrupt behavior and attracts investors who would otherwise be hesitant to invest in an environment that was unstable and unpredictable.

4.3.3. Facilitate Shareholder Rights

DESCRIPTION Shareholder rights are company owner’s right to maintain ownership, transfer ownership, inspect corporate documents, and sue for wrongful acts, etc. Without these, no one would invest in equity. Shareholder rights are especially important to investors in the stock market. The ability to record ownership of property, as well as to pledge one’s rights to that property as collateral, is essential to commerce (Source: Mobilizing Private Finance for Development Training).

4.3.2. Improve Government Financial Management Systems and Record Keeping

DESCRIPTION While USAID is no longer heavily engaged in macroeconomic policy, it continues to be deeply involved in fiscal policy and practice. Domestic resource mobilization and public financial management are considered key parts of the journey to self-reliance for USAID partner countries. Poor fiscal policy and systems can impact the cost of funds, pushing up interest rates due to governments borrowing to cover deficits.