Impact investments are often accompanied by technical assistance (TA), as a key value proposal. The goal is to support a business’s passage to commercial sustainability and achieve development outcomes. TA is typically provided after an investment is finalized.
The UK Department for International Development (DFID) launched Impact Programme in 2012 with an aim to transform the social impact investment landscape in South Asia and Sub-Saharan Africa. The Impact Programme comprises of –
The Impact Fund (IF) which invests in funds and other intermediaries that have the potential to achieve development impact but aren’t yet in a position to attract commercial capital. The Impact Accelerator (IA) directly invests in high developmental and commercially sustainable opportunities. However, here the risks are too high and/or the financial returns too low. PwC’s Programme Coordination Unit, working alongside CDC Group and other partners, manages both: Impact Fund (IF) and the Impact Accelerator (IA).
Both invest in companies that require significant support. Thus, DFID has made TA funding available to the funds’ pipeline and portfolio companies, beginning in 2015 for the Impact Fund and 2016 for the Impact Accelerator. The Technical Assistance (TA) facility “assists the passage to commercial sustainability and to maximize the likelihood that development outcomes are achieved.”
This post summarizes the insights from the Technical Assistance program, wherein majority of the funding has been used post-funding.
TA Facility: Deployment
The TA facility strictly governs how TA funds are deployed and monitors their impact. A TA Committee, comprised of CDC Group representatives and independent members, provides oversight. Decision making about how, when and where to use technical assistance is delegated to deal teams (for IA) and individual fund managers (for IF) for all ‘Standard’ projects. The TA Committee must approve all “Non-Standard” TA projects.
As of the end of Q3 2016, £285,338 had been approved for 43 TA projects across the two active funds, £109,299 of which has been spent. Most funding has been used post-investment to support business operations and strategy, financial management, governance/ESG, and performance/data management.
TA Facility: A Case Study
In 2016/17 a company in Injaro’s portfolio that provides high quality seeds to the agricultural market in Mali, received $21,442 in TA to be used for a farmer awareness program. Malimark was brought in as the service provider of the TA – the intervention lasted from Jul-Dec 2016.
The TA helped serve three key functions:
- To promote/showcase the benefits of using the improved seeds
- To develop the company’s customer base, and build relationships with smallholder farmers
- To promote the use of best practice agricultural techniques, which both improve the capabilities of smallholder farmers in the country and help to maximize the benefits of using the improved seeds
This TA intervention provided real business value to the company by simultaneously promoting business development, broadening market analysis and providing customer level technical support. Malimark not only strengthened the portfolio company’s relationship with 586 smallholder farmers, but also created a platform for the company to track sales and conduct periodical trainings.
TA Facility: Value-Add
While strict governance is essential to ensure TA funds are deployed in a transparent and responsible manner, there are also eight core principles that, if followed, can help ensure Technical Assistance adds the intended value. Further explanation of each core principle can be found on page 5 of the report.
- Business ‘buy-in’ and ownership: TA intervention will only be successful and sustainable if the benefiting businesses provide sufficient time and commitment. Thus, the TA Facility requires a contribution towards TA project costs.
- Additionality: Requests should articulate how the assistance will influence the pace, direction or scale of business growth and development impact, beyond what would have happened without it.
- Openness and transparency: Whilst respecting commercial confidentiality, the TA Facility will be as open and transparent as possible. The awarding of TA and lessons generated from its use will be public.
- Accountability: TA funding is used for the purposes agreed and delivers expected outcomes.
- Proportionate: TA funding should be proportionate to the size of the business and Fund investment in it. Funds should not exceed the equivalent of 10% of the capital committed.
- Appropriate: TA must reinforce commercial principles wherever possible.
- Simplicity: TA should not create a bureaucratic mechanism that diverts attention from the core aim.
- Learning: The Technical Assistance Facility is committed to capturing, sharing and integrating lessons.
The Impact Programme TA Facility has been refined over time to enhance its effectiveness. The following insights are fundamental to TA funders and managers who wish to deploy TA funds effectively:
- Make TA aligned, but arms-length from the deal team. TA must be fully aligned with investment strategies and business plans in the most commercially-orientated way possible.
- Ensure additionality through careful screening. Requests for technical assistance need to be carefully screened to ensure they support catalytic ‘one off’ – rather than recurrent – activities.
- Recognize the limitations of technical assistance. TA can plug critical gaps in financial management, business operations and in ESG systems. It is not a silver bullet for the capacity constraints facing SMEs.
- Address constraints in service supply. Companies often struggle to find suitable TA service providers. Donor support could focus on finding cost-effective ways to intermediate TA supply and demand.
- Consider TA that helps address sector-level constraints. Recurrent, system-wide constraints could be better addressed with a ‘sector’ level TA project, rather than on a company-by-company basis.
- Actively engage with the TA ecosystem. Impact investors need to be aware of the TA ‘eco-system’. Coordinating with other donors/ investors providing TA co-investment helps to ensure that input is complementary and that there are no unintended negative consequences such as overlapping or duplicative assistance or high transaction costs for companies managing multiple inputs.
 TA funds are typically used to support business development, market analysis, technical support, training and staff development, financial and business information management, ESG (including action plans and management systems), and social/ environmental impact data collection and performance management. TA funds are not to be used to support capital and ongoing operating expenditure, working capital smoothing, and “life support” to sustain failing businesses.