January 4, 2012
Paying for development engineering: what the government can learn from the private sector
contributor: Julian Leland
Funding international engineering projects can be tricky, but the private sector has evolved some tactics that work. There are hundreds of private-sector funding opportunities available – competitions, grants, crowd-funding and others – many of which are documented here on E4C. Between businesses, foundations and charitable individuals, the private sector nimbly provides billions of dollars in funding. Unfortunately, despite the size of this funding pool, the competition is fierce.
The US federal government and other national governments are another source of funding for international development engineering projects, through a somewhat bewildering array of financing schemes such as grants programs and competitions (many of which we also help you navigate here). However, these federal programs aren’t nearly as diverse or flexible as their private counterparts – an unfortunate situation, considering the tremendous financial resources at the disposal of federal development agencies.
There are a number of lessons that the federal development community can learn from the private sector. With the private sector as a template, the government can create new funding opportunities for engineering projects that make a difference, and maximize the impact of federal dollars. These lessons are condensed from two research papers I wrote, both of which are available on request.
Fund Small Projects
Most private and public funding sources target big-ticket projects, with grants between $100,000 and $1 million; only a few provide smaller amounts of funding, between $5,000 and $50,000. Because of this, many early-stage development organizations have struggled to find funding to get their programs off the ground, and to grow to a point where they can take advantage of larger funding sources.
The federal development engineering community could fill this “funding gap” and help ensure that good ideas in development do not go unexplored for lack of funding. The government already does this in other fields outside of international development – for example, for business R&D through the Small Business Administration. It should apply the same principle for funding engineering and design efforts in developing regions.
Harness The Crowd
The high fixed costs associated with traditional funding methods – for example, due diligence, administrative costs and transaction costs – are among the greatest obstacles to providing small-scale funding opportunities. Because these costs are constant regardless of how much funding is provided, they make smaller amounts of funding much less attractive to funders, who prefer the greater “bang-for-the-buck” of larger funding amounts.
The private sector, on the other hand, is exploring a number of innovative funding methods which can reduce these costs. Among these are low-overhead grants, microloans, and crowdsourced funding. The most promising of these is crowdsourced funding, which leverages the concept of “collective intelligence” to select and fund projects. In the private sector, variations on the crowdsourced funding model have been implemented by KIVA and GlobalGiving among others, reducing due diligence costs and making prudent funding decisions at a fraction of the cost of traditional, “expert-panel” systems.
While the federal government has experimented with collective intelligence models in the past in different contexts, we have yet to see a true crowdsourced funding model, either in the development community or elsewhere. By investigating the effectiveness of crowdsourced funding, organizations across the government would stand to benefit from a low-cost, efficient method of providing small amounts of funding to the people who would do the most with it.
Use Proxies To Spend More Freely
The federal development community has tremendous resources at its command, but there are also serious restrictions on what it can do with those resources. Federal funding programs are heavily regulated, making it difficult to implement new programs with existing funding methods, let alone explore anything new. Historically, these regulations have been circumvented or reduced through non- or quasi-governmental entities, such as the European Enterprise Funds. The federal development community should create such an entity, which would be able to pursue innovative programs without having to negotiate cumbersome federal funding regulations.
Leverage Other Government Assets
Finally, the federal development community should remember that its resources are not just limited to funding – it can also provide valuable support to development projects in other ways. Leveraging federal logistics networks, as well as connections to “on-the-ground” organizations (for example, the Peace Corps), are just two examples of non-financial support that the government can provide.
Let’s Spend Well
By learning these lessons and developing better funding programs to fit our needs, the federal government can start to meet its enormous potential as a supporter of international engineering projects. We, as members of the development community, can encourage the creation of these programs through closer work with federal development agencies, and by informing our Congressional representatives about the importance of nimble, diverse federal development funding programs.
I’d love to have your input and I’ll be glad to answer questions. Please leave comments below.