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May 7th, 2018

Getting smarter on subsidy: The role of grant funding in smallholder finance

Published by Rural and Agriculture Finance Learning Lab,

This briefing (PDF) by the Rural and Agriculture Finance Learning Lab aims to bring clarity to the area of grant funding by donors to accelerate the growth of an inclusive smallholder finance market. In smallholder finance, subsidy play a crucial role in accelerating the development of an inclusive market. Grant-based funding is key for market development to offset high real and perceived risks. Currently, there are roughly 25 significant grant funders that contribute grant-based subsidy to develop the global smallholder finance market. These significant grant funders’ strategies  all have a series of underlying agendas that drive the granting activity for smallholder market development. Since grant resources are both important and scarce, the authors come up with a set of recommendations. Firstly, donors can increase coordination, cross-learning, and shared initiatives. With each funder pursuing an individual agenda, there needs to be more active conversation about what is being learned, what is still needed, and where collaborative investments can achieve more than the sum of individual actions. Secondly, grants can be structured to reduce transaction costs and re-focus efforts toward long-term, strategic market building activities. Actively working to reduce the burdens on grant recipients will ultimately allow donors to make more progress toward achieving their underlying agendas. Thirdly, donors can further support market development by actively linking short-term catalytic subsidy to long-term subsidy and investment. Grants are important to catalyze market development, but will not be sufficient to meet the longterm subsidy needs of the market.

Curated from raflearning.org