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Challenge Fund Process and Criteria

The British Embassy (formerly DFID) describes Challenge Fund as ‘a competitive mechanism to allocate financial support to innovative projects, to improve market outcomes with social returns that are higher/more assured than private benefits, but with the potential for commercial viability'. Challenge Fund offset perceived risks in markets where industry association and firms can contribute to poverty alleviation through economic development. One of the main characteristics of a Challenge Fund is its open, competitive application process which provides applicants with co-investment to overcome the uncertainties that inhibit innovation, research and development, investment and new approaches. The assumption is that without Challenge Fund support, such activities are either unlikely to happen, or will happen at a much later stage.

CHALLENGE FUND CHARACTERISTICS

Characteristics of the Challenge Funds are:

  • A transparent, competitive application process and selection procedure to invest in demand-driven and market-led innovative solutions open to all who are willing to compete, bid and achieve.
  • Encourage development of ideas and innovations that propose local solutions to local problems.
  • Co-investment for innovative, risky projects which motivates and disseminates good practices while promoting outreach, sustainability and replicability.
  • Partnerships include co-funding in projects and providing technical assistance through the accelerator support to achieve economic and social development goals.

UKaid सीप Challenge Fund focuses on: ICT, tourism, commercial agriculture, construction, and light manufacturing sectors through interventions that expand and improve market-led skilling and employment creation in Nepal for increased incomes, productivity and resilience of Nepalis, alongside increased productivity for firms/industries. The programme also focuses on harnessing the benefits of migration for Nepal’s workforce and economic development through cost-effective models that increase migrants’ skills, lower the cost of migration, increase income and savings and productive use of remittances.

UKaid सीप’s innovative Challenge Fund mechanism is providing a pathway for the British Government (Foreign Commonwealth and Development Office) to deploy co-investment and technical assistance as a market-based solution to leverage private sector resources and unlock private and public funding for achievement of common socioeconomic development objectives. सीप’s co-investments in costly and risky projects led by the private sector is helping accelerate and amplify sustainable, market-led services that equip the most underserved people with the skills, networks, and resources needed to build reliable, dignified livelihoods and engage as  productive human capital for socioeconomic growth of communities, industries, and the country.  

Challenge Funds, as a lean and transparent co-investing mechanism, can stimulate the private sector to test business models for which the risk-return profile is unknown, and by doing so, unearth powerful new ways to make markets work better for the poor and encourage enterprise formation and expansion. It searches for innovative outcomes and recognizes that governments or donors do not have all the answers. Challenge Funds seek to capture the private sector’s greatest strengths: the ability to quickly generate and test new ideas; the flexibility to rapidly change direction; and the commercial motivation to replicate its successes. 

Initiated in 2008 in Nepal by another UKaid funded programme, Sakshyam-Access to Finance, also implemented by WSP, the Challenge Fund model is now widely used and adopted in Nepal to catalyze private sector-led development initiatives, investments, and collaborations.  

CHALLENGE FUND APPLICATION PROCESS

Applying for the Challenge Fund is a two - step process:

  1. Firstly, the applicant will have to write a short Expression of Interest (EOI) to explain their project idea and the proposed solution to address the challenges in the key sectors. The EOI is then assessed by the UKaid सीप team.
  2. Secondly, if there is merit in the EOI, applicants will be encouraged to draft an Investment Application (IA) which is more detailed. The IA is assessed by an Independent Selection Committee (ISC).

EOIs are typically processed within a week to four weeks by the UKaid सीप team. Once the EOI is approved, the applicant will be notified and given three-eight weeks to draft the Investment Application. The UKaid सीप team will then review the applicant’s investment application and present it to the ISC for a co-investment decision. The ISC’s decision is reviewed by FCDO to meet the Embassy’s no-objection criteria. Based on the decision of the ISC and FCDO, UKaid सीप team will inform applicants/investment partners of the ISC’s decision, including whether there are any conditions or recommendations for the applicant.

Applicants will receive co-creation support from the UKaid सीप team to draft the Investment Application in the form of technical inputs and suggestions for the applicants to make their project design and plan more competitive--ensuring alignment with सीप’s target groups and investment criteria. Early in the Investment Application stage, Ukaid सीप will also conduct due diligence assessment of the successful EOI applicants and based on the recommendations of the due diligence assessment, applicants can seek capacity building and technical assistance during the implementation phase.

It normally takes less than six to eight weeks from submission of the Investment Application for a final investment decision followed by signing of a grant agreement. The grant agreement lays out the terms and conditions of the partnership between UKaid सीप and the accepted Challenge Fund applicant. For successful applications, induction workshops and grant agreement signing will take place in the week following approval.

UKaid सीप reviews EOIs as and when they come in on a revolving basis. Given that the programme is now in year 3 of implementation, we are only considering applications that are truly innovative and demonstrate the potential to generate maximum job creation results as quickly, cost-effectively, and as sustainably as possible. 

Interested applicants are advised to reference ongoing UKaid सीप partnerships to ensure that new applications are different and complement ongoing efforts. 

The figure below illustrates the full Challenge Fund process in detail:

CHALLENGE FUND EVALUATION CRITERIA

The EOI and Investment Applications will be evaluated against criteria agreed with the FCDO. Bidders submitting EOIs and Investment Applications should not automatically assume that their proposal will be approved. Funding to projects is made available only after ISC approves the proposal, and FCDO gives their no-objection.

The final draft of the Investment Application is assessed by an ISC which is formed from industry experts who will remain anonymous to the bidders. Probing into the ISC by applicants will automatically disqualify them from the bidding process. UKaid सीप technical teams will present the Investment Application to the ISC on behalf of the applicants.

To analyse and select innovative models to fund, the ISC will use pre-defined criteria. Post-COVID, in 2020, UKaid सीप reviewed and refined its original investment criteria to ensure they stayed relevant to the changed market context and evolving FCDO priorities. Below is the consolidated investment criteria:

Alignment with Identified Challenges and Market Constraints

  • How does the applicant address at least one or more of the market constraints defined by सीप? Re: M4P Analysis for Skills | for Migration. 
  • How does the applicant improve poor’s participation and increase market systems performance to expand and improve access for disadvantaged Nepalis, especially those coming from Province 2 and Lubmini Province, to avail quality livelihood-creating services such as job-linked skilling, recognized certification, access to financial solutions, and ethical migration services?
  • How does your proposed solution contribute towards increases in income/productivity for individuals; upskilling migrants to increase incomes; increases in remittances; reduction in the cost of remittances; and/or improved use of their re-investment.

Alignment with Outcomes and Targets

  • Is the immediate, and potential future reach of your project, in line with सीप targets? 
  • How many people, especially from Provinces 2 and Lumbini, will benefit from the service(s) you can offer?
  • How will your project contribute to enabling skilling-based job creation and/or increase income of individuals (by at least 20%) alongside improved productivity for firms? Or, if applying under the migration component, how will your application enable one or more of the following: increased incomes through skilling and certification; improvement in remittances; reduction in the cost of remittances; and improved use of remittance for productive avenues and enterprise start-ups? 

Alignment with Gender Inclusion and Safeguarding Goals

  • To what extent and how are you addressing barriers, issues and encouraging participation of UKaid सीप target communities and people, especially for women, disadvantaged groups, and People with Disabilities (PwD) in Provinces 2 and Lubmini to better access market-based livelihood services? Reference: GESI Analysis for Skills | GESI Analysis for Migration 
  • In what capacities are women, disadvantaged groups, and PWDs included in your application design, implementation plan, and impacts/benefits intended from your intervention?
  • How are you promoting new non-stereotypical job roles for women, and excluded groups?
  • How does your intervention seek to encourage wider adoption of inclusion-building practices and policies in the sector/industry?
  • How will you commit and contribute to FCDO and सीप’s recommended safeguarding measures and approach, including to ensure protection from COVID-19? 

Innovation

  • How is your approach to skilling-based employment creation and/or migration optimization innovative, and why is it likely to drive transformative change in the skilling and employment and/or migration landscape? 
  • Do you demonstrate the potential to scale or replicate best practice or present innovation (i.e. adoption, adaptation or invention of new concepts)?

Learn about the Innovations Catalyzed by UKaid सीप so far here.

Scalability and Sustainability

  • Is there potential for your project to be scaled up (larger impact group), scaled out (new locations/businesses), scaled deep (broaden the scope and ripple into new sectors)?
  • How will the proposed benefits/service from your intervention endure beyond UKaid सीप financing?
  • How will your project be sustainable, including any potential income generation or self-financing

Value for Money and Leverage

  • Applicant demonstrates that the proposed project shows value for money for the British Government’s investment. Potential to utilize evidence-based choices to maximise the impact of each Nepali rupee spent on programme activity as outlined in सीप VFM strategy. 
  • What are the direct and indirect resources being leveraged to ensure needed financial support for the success and sustainability of the intervention (co-financing, in kind contribution, cost-effectiveness in terms of cost to project versus potential benefits)?
  • What plan of action do you present for your objectives to be achieved economically/cost-effectively? 
  • Can you provide financial, capital, and human resource investment to support needed co-investment for the proposed intervention?

Evaluation and Evaluability

  • Does your intervention have adequate monitoring, evaluation and learning structure, including team and committed resources, that can be sufficiently used to monitor and evaluate the project regularly and systematically and report to UKaid सीप as per its Monitoring and Evaluation Guidelines?
  • What capability is already present within your organisation to regularly and systematically monitor and evaluate the project?

Compliance to UKaid’s Public Subsidy Policy and Additionality

  • Does your application demonstrate compliance with UKaid’s Public Subsidy Policy?
  • Can this proposed partnership go ahead with normal public or private sector funding? That is, is your proposed solution triggering an investment that would otherwise not happen without सीप Challenge Fund support? The principle of 'additionality' decrees that money should go only to projects that would not have gone ahead with normal private and public-sector funding.

Maximise impact at a scale for priority target groups, including for reintegration of returnee migrants

  • Does your application demonstrate potential to deliver high yield of employment in terms of both number of jobs created (job placement / self-employment) and earnings with special focus on returnee migrants and other disadvantaged groups?

Compliance with UK aid’s 4Ps and Response to COVID-19 Pandemic and GoN and Provincial Governments’ Plan and Programmes aligned with its budget

  • Does your application demonstrate alignment with GoN, and Provincial Governments’ plan and programmes illustrated in the budget, also in response to the COVID-19 pandemic?
  • Does your application demonstrate compliance with UK aid’s 4Ps (protecting health, protecting income, protecting vulnerable, and preparing for economic recovery) humanitarian response priorities in post Covid-19 context?

Downloads

EOI and IAs must be made on official सीप Challenge Fund forms, available under the following URLs:

For queries on the Challenge Fund and to submit the EOI: fundmanager@seepnepal.com