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German Institute for Development Evaluation

Structured funds

Background

To reduce the shortfalls in funding for the achievement of the Sustainable Development Goals (SDGs), donor countries are being urged to make greater use of innovative financing mechanisms and instruments in development financing, which in addition to public funds increasingly includes the mobilisation of private resources.

A major obstacle to private-sector investment in development-related projects in developing countries is the fact that these investments are often considered too risky. Every investment involves financial risk, but in developing and emerging countries, this is often seen as prohibitively high.

At the same time, many of today’s political and economic challenges are global in nature. They cannot be addressed through ‘isolated solutions’, and instead require cooperation beyond national borders. This is true of, for example, the expansion of sustainable energy supply or better access to the capital market.

In light of these challenges, structured funds are used in the field of development cooperation to mobilise private resources on a transnational basis for the purposes of development support. As part of cooperation with regions, structured funds are used in various regional and sectoral contexts and are considered to offer great potential for the financing of the SDGs.

A key characteristic of structured funds is that losses are covered to a certain amount by public donors, thus mitigating the risk for private investors. This is intended to encourage private investors to invest more in development-related projects. Most structured funds are also supported by technical cooperation with a view to reducing capacity-related risks and ensuring compliance with environmental, social and governance standards.

Goals of the evaluation

The number of structured funds involving German development cooperation has risen steadily in recent years. Around EUR 800 million in German federal budgetary resources and around EUR 500 million in KfW funds are paid into these funds. However, very little is currently known about the impact of structured funds. The objectives of the evaluation are therefore as follows:

- Position structured funds within the objectives of German development cooperation and analyse if fonds are a suitable finance intrument to reach the objectives

- Analysis of the implementation of development principles (division of labour, donor harmonisation, strengthening of regional actors)

- Analysis of the contribution to mobilising additional funds/sustainability of the financing structures

- Analysis of the effects on portfolio quality and abilities to reach end-beneficiaries

- Analysis of the effects on MSME development

Methods

The evaluation questions will be answered using a theory-based approach.

Based on a mixed method approach, a combination of quasi-experimental design and qualitative case studies will be used to examine the development impact of structured funds. When combined, the quasi-experiments and qualitative comparative case studies can be used to identify causal links and thus explain why specific effects were observed.

Provisional schedule

August - November 2018: Preparation of detailed evaluation concept

December - April 2019: Data collection in case studies

May - July 2019: Assessment of data

August - December 2019: Reporting

First quarter 2020: Publication

As at: January 2019