Private Sector Engagement

Private Sector Engagement (PSE) refers to the interest of donors and others to work more strategically and systematically with business. The OECD has proposed a very broad definition of PSE as ‘an activity that aims to engage the private sector for development results, and involves the active participation of the private sector’ (OECD, 2016). Putting it into practice, however, “implies a need to narrow down the most relevant PSE categories … and to draw pragmatic boundaries” (DCED PSE WG, 2017).

For example, PSE strategies tend to focus in practice on working with international business (ECDPM, 2012) whereas other approaches may focus more on local business (e.g. MSD) or on government agencies (e.g. BER). PSE strategies are a means to reach many development goals, the private sector being an equal partner with finance, ideas and capacity. Private Sector Development focuses on stimulating the private sector to generate more economic opportunities for the poor.

Enhancing staff skills in engaging the private sector more effectively is a priority for many donors. To assist in this effort, this dedicated DCED web page lists training offers on private sector engagement and partnerships.

We’re in the process of refreshing our website. Take a look, and then let us know what you think of this updated PSE page.

At a glance: Short reads on PSE by the DCED

Synthesis Note           Two-page Summary

Introductory overview of PSE as a way of operating to achieve the SDGs, as well as a summary of current key issues and practices.

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Demonstrating Additionality, 2017

Summarises the DCED guidelines on demonstrating additionality in one page plus graphics. It targets donor programmes providing grants and/or technical assistance to business.

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Comparison of matching grant schemes and systemic approaches, 2015

Covers both the differences and potential complementarities between matching grant facilities such as challenge funds and systemic approaches to PSD.

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Donor Engagement in Innovative Finance: Opportunities and Obstacles, 2019

Summarises four key issues that donors need to address as a basis for effective engagement in innovative finance, and illustrates key concepts and contested issues.

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Donor funds and facilities for partnering with business, 2017

Gives an overview of design options, current trends and lessons learnt for challenge funds and similar facilities for partnering with business.

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Towards strategic private sector engagement: Programming innovations and institutional change in donor agencies, 2018

Summarises pioneering changes in policies, procedures, and staff capacity that donor agencies are implementing to enable strategic PSE. For a checklist to review organisational readiness for PSE, click here.

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Results Measurement in Impact Investing: A Preliminary Review, 2016

Reviews the ‘state of the art’ in measuring social and environmental impact generated through impact investment.

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DCED guidance and knowledge products

This section provides access to the DCED’s key documents on private sector engagement, based on the experiences of DCED member agencies and other organisations. Click here to learn more about the DCED’s Private Sector Engagement Working Group.

Overview documents

This section links to overview documents on how donors and other organisations engage the private sector in development.

Different formats of engagement

1. Engaging with private investors and finance providers

Under the umbrella of ‘Innovative finance’, donors engage with private investors and finance providers to mobilise additional private finance and/or for making more effective use of existing funds for development. While there is no single definition of innovative finance, the following three concepts feature frequently in ongoing discussions:

Blended finance

Blended finance

Catalytic approaches used by development actors to mobilise additional private finance for development purposes using a wide range of instruments

Impact investment

Impact investment

The practice of private investors of deploying private capital towards development outcomes, while (according to most definitions) generating a financial return

Results-based finance

Results-based finance

A set of instruments used by development actors to mobilise pre-financing for SDG-relevant projects by agreeing to repay or financially
reward (impact) investors or implementers upon achievement of results

Donors increasingly use  blended finance approaches to mobilise private finance for impact investments; impact investors themselves increasingly provide blended finance to encourage financial providers to cater to underserved clients. Result-based finance formats that mobilise additional finance qualify as blended finance instruments.

2. Engaging with companies’ core business

A second set of PSE strategies focuses on engaging with (mainly international) companies – either directly or via an NGO – to support or influence core business investments and practices or related activities (e.g. investments that may become core business in the future). This can be done through a variety of instruments, such as grants, loans, policy dialogue or technical assistance to the partner business. Resources on some of the key formats of engagement used by donors can be found below.

Challenge funds

Challenge funds

Competitive mechanisms that are primarily geared at businesses from donor countries, and offer cost-sharing and/or technical assistance to facilitate investments in developing countries

Sectoral partnerships

Sectoral partnerships

Partnerships with combined donor and private funding and an agreement of all funding and implementing partners on the sharing of tasks and responsibilities towards a common goal

Multi-stakeholder platforms and processes

Multi-stakeholder platforms and processes

A specific sub-form of partnerships with a knowledge-sharing or standard-setting purpose involving multi-stakeholder members, supporters and funders

Result reports and evaluations of challenge funds

Photo credits: USAID Ethiopia (flickr.com).

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