Expanding Use of Blended Finance Solutions to Support USAID Priorities
Added: Apr 17, 2017 3:06 pm
The United States Agency for International Development's (USAID)Broad Agency Announcement (BAA) for Catalyzing Private InvestmentI. Background: Expanding Use of Blended Finance Solutions to Support USAID PrioritiesThe context for financing global development has evolved dramatically over the past decade. Private capital now represents the majority of money entering developing and emerging markets. This influx is due to a growing recognition that emerging and frontier markets are expected to account for 97 percent of the globe's population growth through 2030 and that the businesses, consumers, and governments in these markets will drive the vast majority of global growth for the foreseeable future. Yet, only a fraction of these capital flows currently target investment in development priorities.These trends increasingly signal the potential for USAID, implementing partners and other development agencies to pivot and create programs that enable private capital providers to become a primary driver of inclusive growth, reform and poverty alleviation. Specifically, blended finance, where government resources (e.g., grants, technical assistance, guarantees, convening, networks) are strategically used to mobilize private commercial capital, can be a powerful force for global development. Government resources can help raise awareness of investment opportunities, lower transaction costs, and mitigate the risk of investments that generate social, economic, and environmental impact.USAID can play an important leadership role in this sector by promoting the robust design, implementation, and evaluation of various approaches to blended finance to catalyze private investment. Private capital cannot completely replace the role of philanthropic and grant assistance. However, when USAID objectives are aligned with those of private capital providers to create blended finance models, working in collaboration can be an effective way to:1. Enhance investment opportunities to drive economic growth - Catalyzing investment into and from emerging and frontier markets represents a "win-win" for both local and U.S. economies. For U.S and international investors and businesses, working alongside donors enables them to broaden their exposure to high-growth emerging and frontier markets and identify and potentially capitalize on investment opportunities, while reducing the risk and transaction costs of these opportunities. Proactively promoting growth through sustainable, developmentally-oriented investments provides a "launch pad" for U.S. commercial engagement as these countries will be critical sources of future U.S. export growth and global prosperity. In turn, bringing to bear the strengths of the U.S. private sector - for example finance and business expertise, investment capacity, and technology - has the potential to advance the growth, capacity, and sophistication of local economies, companies, and investors. 2. Increase efficiency of U.S. government resources - As the investment climate improves in emerging and frontier markets, development efforts will become less dependent on U.S. government and other official development assistance (ODA) resources. Allocating U.S. government dollars strategically to mobilize private capital creates efficiencies by increasing the leverage of public dollars and expanding the resources and expertise that can contribute to development goals. At the same time, it further aligns U.S. commercial interests with its development objectives. 3. Improve sustainability - Mobilization of private capital extends the reach of U.S. government funding beyond the immediate timeframe of a particular investment. If mobilization of private capital is successful, the intervention is likely to continue as long as a business case exists. Secondarily, private sector partners tend to rely less on a single funder or investment for success2and as such, will likely be more resilient against shocks or fluctuations in funding or revenue.4. Increase flexibility - Private sector partners have a financial incentive to move quickly and to respond immediately to changing circumstances. Working alongside private capital providers enables greater responsiveness to shifting trends or conditions in a developing country as well as to the evolution of goals and constraints. 5. Innovate - If an investment is successful, the investor benefits. If an investment is not successful, the investor loses capital and must learn from that mistake prior to subsequent investments. Therefore, the private sector tends to learn and iterate quickly. Introduction of a private sector led and government facilitated approach enables continuous iteration and improvement of approaches at a much quicker pace, leading to improved development outcomes.II. Challenges to increasing utilization of blended financeAlthough the investment, business, and international development communities are increasingly seeking and finding common ground where the dual objectives of commercial returns and meaningful development results can be achieved, significant hurdles to increasing the utilization of blended finance approaches across sectors and regions remain.Currently, only a fraction of the estimated $218 trillion in global assets is invested in sectors and regions that advance sustainable development. Many developing markets are largely unknown to foreign investors. Their legal, policy and regulatory frameworks are volatile, and complicate investor ability to accurately identify and value potential transactions and assess the risk of different investment opportunities. These risks are compounded by the inherent risks of investing in typical development sectors such as health, water, energy, agriculture and education.When compared to more developed markets and sectors, these challenges, real or perceived, can appear insurmountable.While donors such as USAID have many assets (e.g., grants, guarantees, convening power, networks) that are of value to investors and financial intermediaries, the development community has limited experience working with investors as partners and limited expertise in structuring blended finance transactions and sourcing deals with a diverse range of investors across sectors, geographic regions and investment stages. There is also limited bandwidth within USAID for learning, designing and implementing dramatically different types of programmatic approaches - making wholesale programmatic changes very risky for both USAID missions and those who depend on their programs. These challenges are further exacerbated by the operational challenges of accessing the diverse range of expertise from external sources needed to design, deploy, and evaluate blended capital approaches and products across the different regions and sectors in which USAID operates on a timely and cost-effective basis.III. Solutions SoughtIn Addendum Number 02 to the Catalyzing Private Investment BAA, USAID seeks partners to research, design, develop, test and evaluate approaches for quickly and efficiently providing the development community (including USAID missions and operating units) and investors with access to the diverse range of expertise or partnerships (investor and/or implementer) required to design, deploy, and evaluate appropriate blended capital approaches and/or product given a specific challenge or opportunity identified across the different regions and sectors in which USAID operates.Organizations, firms, groups or consortia that have any of the following skills are encouraged to apply:3● Expertise in investment, asset management or financial intermediation in sectors or regions in which USAID engages.● Expertise in designing and structuring financial transactions in sectors or regions of relevance to USAID.● Expertise in designing and structuring financial transactions that utilize different pools of capital that are able to absorb different levels/types of risk (i.e., blended finance transactions).● Track record of working with and/or providing services to asset owners and asset managers and other financial intermediaries (e.g., law firms, accounting firms) working in sectors or regions of relevance to USAID.● Experience facilitating or providing services to networks that include asset owners and asset managers and other financial intermediaries.● Understanding of how to leverage the expertise and tools of donors such as USAID (grants, guarantees, networks, convening power) to effectively develop, deploy and evaluate blended capital approaches.● Expertise in evaluating the impact of private investments on poverty or development outcomes.USAID is not looking for:● Specific transactions or blended finance solutions.● A singular "one size fits all" approach to blended finance.● A single organization that claims that it has the entire set of skills and contacts required to develop, deploy and evaluate blended finance approaches and models across all USAID sectors and regions on its own.IV. Submission InstructionsPlease submit an Expression of Interest that clearly describes how your approach contributes to the need(s) outlined above in Section III, and increases the utilization and deployment of effective blended finance approaches across sectors and regions of importance to USAID. The Expression of Interest must be submitted no later than 5:00 PM EST on Wednesday, May 10.Submitted expressions of interest will:● Be in English;● Be submitted electronically to the following e-mail address: PCMBAAAddendum02@usaid.gov.● Be up to three (3) pages in length and no smaller than 12 font;● Be in .pdf or .docx format.● Contain a header with the following information (not included in the page count):- Respondent Name/Group and Contact information;- Response Title;- BAA Addendum Name/Number● Contain the following:o Idea/approach to quickly and efficiently provide the development community (including USAID missions and operating units) and investors with access to the diverse range of expertise or partnerships required to design, deploy, and evaluate blended capital approaches and products across the different regions and sectors in which USAID operateso Description of your organization's qualifications and experience that you will bring to this collaboration. You do not need to possess expertise or experience in all of the areas discussed above, but you must explain how your specific qualifications can advance the4overall objective of this addendum.Questions:Questions pertaining to this Addendum 02 may be submitted only by email to PCMBAAAddendum02@usaid.gov with the subject "PCM Addendum 02 Questions". The deadline for submission of questions is 12:00 PM EST on Friday, April 21. USAID will respond to all questions received by the deadline through an amendment to this BAA.V. Review of Submissions1. CriteriaThe following criteria will be applied in selecting expressions of interest:1) Idea/Approach: USAID will evaluate the idea/approach for soundness and creativity and its relevance to the need(s) articulated above in Section III. The proposed approach should facilitate the design, deployment, and/or evaluation of blended finance approaches and products; increase the speed, efficiency and cost-effectiveness by which USAID missions and operating units, donors and investors can access the expertise to design, deploy and evaluate blended finance solutions; demonstrate an understanding of what other organizations have done to facilitate the design, deployment, and evaluation of blended finance models, and how development agencies can incorporate these approaches in their planning and programming; and contribute to creating opportunities for businesses and investors (U.S. and local) operating in, or interested in entering, all or a subset of markets and sectors in which USAID operates and achieving development impact.2) Impact: USAID seeks solutions that have a high likelihood of: increasing the integration and utilization of effective blended finance approaches to solving problems across all sectors and regions in which USAID works; increasing the understanding of the most effective use of blended finance models; and maximizing the impact of private investment to achieve USAID objectives and facilitate opportunities for investors and businesses in all or a subset of the countries and sectors in which USAID works.3) Qualifications and Experience: The qualifications and experience of the applying organization or consortium demonstrates its ability to contribute to the design, deployment, and/or evaluation of blended finance approaches and products in all or a subset of the countries and sectors in which USAID operates, per the proposed solution. This should include relevant experience as an investor and/or partner in similar ventures or consortia.4) Diversity of Perspectives and Capabilities: USAID seeks to bring together a diverse set of co-creators in collaboration in order to enable broader thinking and innovation. The selection of individual applicants, whether applying as an individual organization or as a group or consortium, will be with the goal of achieving this diversity.2. Processa. USAID will review and select Expressions of Interest (EOI) submitted in accordance with the guidelines and criteria set forth in this Addendum. USAID reserves the right to disregard any EOIs that do not meet the guidelines and is not obligated to issue a detailed justification for those5not selected to move forward.b. Selected groups will be invited to join the co-creation process which may consist of a co-creation workshop that is tentatively scheduled for the week of June 19, 2017, in Washington, D.C., but may be subject to change. Up to two experienced technical experts from the submitting organization must be available to participate in this workshop to develop the ideas presented while collaborating with USAID staff and other selected organizations. USAID will work with the invited applicants to identify the appropriate individuals to represent the applicant in the co-creation workshop. Travel costs associated with the co-creation workshop will not be reimbursed by USAID.c. One or more concept papers of five to ten pages will result from the co-creation process, outlining the programmatic plan, focus areas, goals, timelines, etc.d. Final concept papers will be reviewed by the Peer and Scientific Review Board.e. Those concept papers that are successful following the review process will be recommended for award.USAID is not obligated to issue a financial instrument or award as a result of this Addendum.For more detail on the complete BAA process, please review the blanket announcement under which this addendum has been released, BAA-OAA-PCM-2015.Information ProtectionUSAID's goal is to facilitate the research and development that will lead to innovative, and potentially commercially viable, solutions. Understanding the sensitive nature of submitters' information, USAID will work with organizations to protect intellectual property.Expressions of interest should be free of any intellectual property that submitter wishes to protect, as the expressions of interest may be shared with USAID partners as part of the selection process. However, once submitters have been invited to engage in further discussions, submitters will work with USAID to identify proprietary information that requires protection.Therefore, organizations making submissions under each Addendum grant to USAID a royalty-free, nonexclusive, and irrevocable right to use, disclose, reproduce, and prepare derivative works, and to have or permit others to do so to any information contained in the expressions of interest submitted under each Addendum. If USAID engages with the organization regarding its submission, the parties can negotiate further intellectual property protection for the organization's intellectual property.Organizations must ensure that any submission under any Addendum is free of any third party proprietary data rights that would impact the license granted to USAID herein.
BAA-OAA-PCM-2017 US Agency for International Development Washington Office
4/17/17, 3:06 PM