M-KOPA Solar, a small start-up company based in Nairobi, Kenya, helps low-income consumers in off-grid communities access what would normally be prohibitively expensive energy products such as solar home systems. Repayments are made in small increments by mobile phone, on a pay-per-use basis. Most own their systems outright within a year.
Shell Foundation has supported M-KOPA since 2009, providing grant funding and technical assistance to help them develop their technology, refine their business model and build capacity. In 2011 the UK’s Department for International Development (DFID) made a grant to Shell Foundation to enable them to extend their support for M-KOPA. Finding the partnership with Shell Foundation worked well, DFID has now given them another £2 million to support M-KOPA to develop a new range of products and services and a further £2 million to fund other innovations.
M-KOPA is a good example of how public funding can be used to seed innovation and unlock private markets – an area of emerging interest for DFID. In the three years since its launch, the company has sold 50,000 solar home systems. Last week it secured $20 million funding, including $10 million commercial debt, to expand its customer base to 1 million homes by 2018.
How can these partnerships work? DFID wants to give direct support to enterprises in its target countries but doesn’t have the capacity to do the due diligence and build the relationships. Shell Foundation can identify innovators, build strong, trusting relationships with partners and provide business expertise to support them to scale, but has limited funding. So DFID builds on Shell Foundation’s due diligence and experience – a win-win all round.
A meeting held at the Baring Foundation in London on 26 February aimed to build relationships between DFID and private foundations and to encourage information exchange. Myles Wickstead, chair of Baring’s International Development Committee, recounted how, when he was at DFID, there was lots of contact with NGOs but foundations were not really part of the picture. In the last five years or so, Gates and other wealthy philanthropists are actually making a difference to the aid figures. DFID now has a ‘strong, structured relationship’ with Gates and some other large foundations and works with other smaller foundations on a practical level. ‘Most foundations wouldn’t want a comprehensive relationship with DFID,’ said Anthony Smith, director of DFID’s International Relations Department. ‘If a foundation has interests/issues, they can come and talk to DFID. If a foundation and DFID have common goals, they need to think if it’s worth trying to work together and see if there are synergies.’
In future, he said, partnership will be a prerequisite for everything DFID does – with the private sector, NGOs, other governments, and foundations. ‘Foundations are part of a network of development finance that we need to understand better and incentivize effectively so they address key development needs.’
Their financial resources apart, DFID is interested in partnering with foundations largely because they can complement the work of DFID. For example, foundations can often reach marginalized populations and local entrepreneurs, as in the Shell Foundation example. DFID and foundations also have different areas of expertise. The basic message seems to be that DFID and foundations should keep in touch, know what each other are doing, and work together if the opportunity is there.
Not that it’s always that straightforward. I went to the breakout group on economic development, which is one of DFID’S key priorities, and economic growth is a core part of that agenda: no country has significantly reduced poverty without sustained growth, said Adrian Stone, head of DFID’s Investment Climate team within their policy division. Many NGOs and foundations are, understandably, wary of the growth agenda: in the UK economic growth has gone hand in hand with growing inequality. Trickle-down is totally discredited. How do we know growth will be inclusive? DFID is not just interested in growth rates, Stone insisted, but in economic transformation, sustainable growth that includes the poorest. There is also disquiet about working with multinationals, the question of ‘who benefits?’ always there. NGOs are more comfortable working with SMEs, and talk about creating livelihoods rather than economic growth.
There are some concrete examples of successful partnerships between DFID and foundations but clearly room to develop more. In addition to the work in Kenya, DFID is working with Shell Foundation to spur the SME sector in Jordan. It is partnering with the Omidyar Network in establishing a new source of finance for innovation, with Omidyar bringing their investment expertise to help them understand how to work with entrepreneurs and assess investment opportunities. DIFD is also partnering with the Gatsby Trust in East Africa, taking a market systems approach in certain sectors, such as cotton and tea, where productivity gains have the potential to lift large numbers of poor farmers out of poverty.
Stone stressed more general areas for cooperation: the need to build the evidence base around impact – to ensure that when things get better for business they also get better for the poor – and to share knowledge of what works and what doesn’t. Corporate foundations can also play a valuable role in making the case publicly for a greater focus on economic development and greater engagement with the business community – in an environment where many campaigning NGOs are highly critical of corporates.
One thing that became clear from our breakout group was that foundations working in the same area are often not aware of what each other are doing. This lack of transparency means there is no way of knowing what’s working and what’s not. As Shell Foundation’s Richard Gomes put it, foundations have ready access to risk tolerant capital to spur innovation and DFID could play a great role in scaling this up – but how does anyone know what the most effective solutions are?
So what was the overall assessment of the event? Most thought that it had been a good ‘getting to know you’ event, appreciated by DFID and the foundations. Any future event should move beyond sharing information and be more practical, said Richard Graham of Comic Relief. There is a huge need for leverage, for co-funding, he said. Could there be some structured mechanism by which foundations can look for other funders, or do they just need to go out and look in each case? Could foundations be categorized according to their interests, to help DIFID?
So should the next meeting be more targeted and focused? While a very open meeting has advantages – some people commented that they appreciated the opportunity to meet with a wide range of actors – there is a limit to how many open meetings there can be. In any case, the meeting was a helpful stocktake for DFID to assess how and when to work with foundations, and there did seem to be an appetite for further meetings, especially if held under the hospitable auspices of the Baring Foundation.
If you are a foundation and would like to contact DFID please email Foundations@DFID.gov.uk
Caroline Hartnell, is editor of Alliance magazine.