Behavioural changes or increased investment by donor-supported companies leads to new firms being started or registered

This page outlines the evidence showing behavioural changes in a business or increased investments – whether as a result of a market development programme or partnership facility such as challenge funds – leads to the creation of new firms. There is little academic evidence on this link, but several  programme reviews and evaluations.

Donor programmes often share the use grants and technical assistance to encourage a firms to change their behaviour – by adapting their business model to be more inclusive, or expanding into new markets. Once this has happened, other firms may start up as a result – for example to copy the business model pioneered by a donor partner business, to supply goods and services to the business, or to distribute its products.

One example where this has happened is M-PESA:

  • In 2007, Vodafone received a matching grant from DFID’s Business Linkages Challenge Fund to facilitate the introduction of  mobile banking in Kenya. ‘M-PESA’ mobile banking not only improved access to credit for thousands, but also contributed to the creation of many new enterprises. According to USAID (2009), as of March 2009 there were 7,000 M-PESA agents who buy and sell phone credit (which serves as a virtual currency for banking). However some may have been operating firms prior to the introduction of M-PESA, and then diversified their activities.
  • M-PESA has now been extended to Tanzania, Egypt, Lesotho and Mozambique and as of the end of 2013 there were 79,000 M-PESA agents who buy and sell phone credit (which serves as a virtual currency for banking). Again, some of thesevmay have been operating firms prior to the introduction of M-PESA, and then diversified their activities.

The former AusAID funded Enterprise Challenge Fund reports firm creation effects at portfolio level:

  • Coffee International (2012) monitored 21 projects in seven countries in the Pacific and South-East Asia, and found that, since 2009, four projects have seen 38 new suppliers enter the market. Three projects have seen four competitors start up in the market, with the link to the ECF projects clear in two cases. One example is WING, a provider of mobile phone payment services that enables customers to transfer, store and cash-out their money using a mobile phone. An ECF matching grant funded 25% of the cost of extending affordable payment services to rural Cambodians. By the end of March 2011, two years after the grant was awarded, WING had reached more than 200,000 customers and at least two mobile payment competitors had entered the market.