Centre for Development Studies, University of Bath
Abstract
The use of challenge funds to promote economic and social development continues to grow, buthas been the subject of relatively little research. This paper develops a definition of what challengefunds are and how they differ from other development funding mechanisms, taking into accounttheir purpose, financial terms, agency relationships, screening processes, selection mechanisms,implementation and risk sharing characteristics. A challenge fund provides grants or subsidies withan explicit public purpose between independent agencies with grant recipients selectedcompetitively on the basis of advertised rules and processes who retain significant discretion overformulation and execution of their proposals and share risks with the grant provider. This paperdraws on a review of fifty challenge funds being operated by international agencies in order toexplore variation in their characteristics. A distinction is drawn between business oriented‘enterprise’ challenge funds and civil society or social development challenge funds, and betweenrelatively ‘light touch’ and ‘hands-on’ approaches to their management. The paper concludes withsuggestions for further research
