"The last decade has witnessed the evolution of a new landscape of development cooperation. The rise of new financial contributions and models for meeting international development objectives that are beyond the definition of traditional official development assistance has redefined the contours of development assistance. These new development contributions include non-development assistance committee donors (India and China), climate finance funds, social impact investors, philanthropists, global funds and less concessional flows.

Dewan, Chitrangana

Patara, Shrashtant

DSpace at New York University

  
Working Paper  
April 2014 
 
The Changing Landscape of 
Development Assistance 
Advancing Green & Inclusive Growth in the Post-2015 
Scenario – Perspectives from India 
 
Chitrangana Dewan, Development Alternatives 
Shrashtant Patara, TARA 
 
 
 
 
 
 
 
 
 
 
Development Alternatives 
B – 32, TARA Crescent, Qutub Institutional Area, New Delhi 110 016, India 
Tel: +91 11 2654 4100, 2656 4444, Fax: +91 11 2685 1158 
Email: mail@devalt.org, Website: www.devalt.org  
 
 
The Changing Landscape of Development Assistance 
  1
 
1. The New Aid Landscape  
The last decade has witnessed the evolution of a new landscape of development cooperation. 
The rise of new financial contributions and models for meeting international development 
objectives that are beyond the definition of traditional official development assistance has 
redefined the contours of development assistance. These new development contributions 
include non-development assistance committee donors (India and China), climate finance funds, 
social impact investors, philanthropists, global funds and less concessional flows 1 . The 
composition of development aid has predominantly shifted to non-traditional sources. The 
share of non-traditional share of development aid flows from being only $5.3 billion or 8.1% of 
total development assistance in 2000 increased tenfold to $53.3 billion or 30.7% by 20092. 
This change in the development scenario is a result of a myriad of dynamic global political and 
economic scenarios. The pressures on local politics and resource drain have reduced the flow of 
traditional aid from the developed countries to the developing countries. Moreover, the 
growing awareness that integrating social and environmental action will benefit companies in 
the long run has manifested social consciousness in businesses and investors.  While investing 
for a good cause is generally the good thing to do, there is a strong belief that investments in 
development benefit the companies themselves. For instance, investments in Corporate Social 
Responsibility (CSR) often help companies manage risks, avail of tax benefits, bolster brand 
reputation, increase access to capital and to differentiate themselves from competitors3. 
The reasons are manifold. The reality is that these factors have led to a diverse landscape of 
resources for international development. This change has mushroomed with it, a whole new 
area of catalytic and innovative development finance mechanisms that leverage resources to 
support and advance solutions for poverty eradication and development. These innovative and 
catalytic financial models bring together funds of diverse actors to advance smart solutions for 
people and the planet. The World Bank describes these innovative financing instruments as 
those that depart from traditional approaches to mobilizing and delivering development finance 
and entails “non-traditional applications of solidarity, PPPs, and catalytic mechanisms that (i) 
support fundraising by tapping new sources and engaging investors beyond the financial 
dimension of transactions, as partners and stakeholders in development; or (ii) deliver financial 
solutions to development problems on the ground” 4.   
The acceptance and growth of development finance presents an opportunity for developing 
countries to effectively strategise and leverage this array of domestic and internationally 
available public and private finance complementarily as they advance towards green and 
inclusive growth in the post 2015 scenario. The following section advances some perspectives 
on utilising this existing and increasing pool of development resources for supporting green and 
inclusive growth in developing countries.   
                                                        
1
 European Centre for Development Policy Management, 2012 
2
 Overseas Development Institute, 2013 
3
 The Economic Times, 2013 
4
 World Bank, 2009  
The Changing Landscape of Development Assistance 
  2
 
2. Perspectives from the Developing World on Catalysing Development 
Finance for Promoting Green and Inclusive Development  
Micro, Small and Medium Enterprise (MSME) development is crucial to advance sustainable 
green and inclusive growth in developing countries. An important source of employment 
opportunities and wealth creation, MSMEs contribute to economic and social stability. Local in 
nature, these decentralised models promote resource efficiency and patterns of sustainable 
production and consumption. They can effectively drive market development at scale and 
provide locally relevant solutions along with last mile delivery to serve the basic needs of 
people5.   
At the center of the subject of micro and small enterprise development in developing countries 
lies the critical issue of their limited ability to grow owing to poor availability of finance and 
technology as well as inadequate supporting policy frameworks.  Where these support systems 
and frameworks exist, it is observed that owing to information asymmetries, implementation 
gaps and conservative financial institutions fail to support relevant cutting edge MSME solutions 
on time 6. 
The potential of these new catalytic models to drive innovation collaboratively have been 
demonstrated through various initiatives aimed at community development across the 
developed and the developing countries.  It is in the space of support to MSMEs, that this paper 
envisages the role of catalytic development finance (CDF) models. These CDF models embed the 
principle of leveraging from a diverse pool of resources – domestic, international, public or 
private - in their design.  They support cutting edge business models and enterprise solutions 
that effectively promote green and inclusive development.  
Two routes that been applied successfully and can be replicated/ adopted at scale to bridge the 
gap between financing enterprises and the large pool of development capital available to move 
towards a green economy are discussed. These include 
1. Investing Public Funds in Entities that service Micro and Small Enterprises: Based on 
delivering financial solutions to development problems of the ground, this includes 
supporting entities that nurture micro and small enterprises that are green and employment 
intensive.   
(a) Entity 1: Entities that package and bundle enterprise portfolios for community 
development and enable support to entrepreneurs through finance, capacity building, 
technology and marketing support. They can bridge the financing gap between existing 
development capital and community entrepreneurs.  
(b) Entity 2: National level financial institutions that promote green and inclusive growth 
and bring together diverse funds for livelihood development and entrepreneurship. For 
instance, NABARD7 and SIDBI8 in India provide financial solutions for micro and small 
enterprise development to address critical development needs.    
                                                        
5
 Development Alternatives, 2013  
6
 International Finance Corporation, 2012 
7
 National Bank for Agriculture and Rural Development (www.nabard.org) 
8
 Small Industries Development Bank of India (www.sidbi.in) 
The Changing Landscape of Development Assistance 
  3
 
2. Engaging Private Sector for Micro and Small Enterprise Development: Traditional aid 
donors, philanthropists and investors have explored and emphasised the role of engaging 
private sector as stakeholders in development as they evolve to make aid more effective. 
Social enterprises and corporations (private sector) desirous of reaching out to the market 
at the base of the pyramid have been supported through provision of patient capital, low 
cost debt, soft loans, investment guarantees. More interestingly, private sector has been 
supported through a mechanism that helps create conducive market conditions such that 
business risks are mitigated and the development market is a safer investment.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
These routes and synergies in development finance promise green and inclusive development in 
India and moving forward provide lessons that can be applied in the rest of the developing 
world.  The following case studies provide an insight into how this has been facilitated.  
  
The two applied routes for MSME development promoting green and inclusive economy 
The Changing Landscape of Development Assistance 
  4
 
Case Study 1: Facilitating Green Construction Based Enterprises 
 - TARA, India 
India has a housing deficit of almost 60 million units with over 40 million of these in rural spaces. 
Construction is an energy and resource intensive sector that leads to serious environment 
damage and contributes 24% of the national greenhouse gas emissions in India. There looms a 
dual challenge of meeting housing needs of the poor and dealing with the environmental 
impacts of the same. Alternative cleaner production technologies and product replacements 
offer a solution to this dilemma. Given the disaggregated nature of the construction sector, 
micro, small and medium enterprises (MSMEs) can play a critical role in enhancing access to 
these technologies 
TARA (Technology and Action for Rural 
Advancement) supports MSME 
development by incubating business 
models, special purpose vehicles (SPV) 
and enterprises through development 
assistance. TARA, through this support 
developed and packaged green 
construction technologies that were 
subsequently transferred to the SPV - 
TARA Machines and Tech Services Pvt. 
Ltd. (TMTS) - for commercial sale. TMTS 
markets and delivers green technology 
business solutions for building 
construction to a global network of 
micro, small and medium enterprises in 
the market today. TARA built the 
capacity of TMTS through the transfer of 
products and assets as well as technical 
services. In addition to this, TMTS has 
also attracted private impact investment 
to help grow the network of MSMEs it 
services. Investment in TMTS has been 
through both debt and equity.  
This catalytic approach has contributed 
to the development of 400 enterprises in 
last five years. These enterprises provide 
quality affordable and green building 
material to homeowners leading to better quality infrastructure development, reduced 
environment burden while creating decent green jobs and stimulating the local economy.  
The model has also been replicated for the incubation and set up of TARAlife Sustainability 
Solutions, a company that supplies quality of life products like clean cooking, water purification 
and solar lighting solutions in order to meet community needs. 
A Clean brick enterprise set up through TMTS  
The model supporting MSME development 
The Changing Landscape of Development Assistance 
  5
 
Case Study 2: NABARD - Enhancing Natural and Social Capital  
There is growing recognition among governments, finance institutions, banks, companies and 
development practitioners to the value of natural and social capital in underpinning wealth 
creation at a time when we face serious pressures on natural resources and the society. Major 
financial investments – from both public and private source, guided by smart and equitable 
policies – are being channelised to help transition to more green and inclusive pathways. 
Developing countries like India need to marshal a large pool of investments and assets at scale 
through innovative channels to jumpstart with green and inclusive economic systems. The 
National Bank of Agriculture and Rural Development (NABARD), India is one institution that 
bundles together the growing menu of green economy based funds catalytically and channelises 
them to promote scalable models and businesses that can restore natural capital base, create 
livelihoods and nurture adaptive capacities of people in rural India. 
 Two interesting examples of projects focusing on building natural and financial assets include: 
Rural Financial Institutions Programme: Despite the large number of financial institutions, most 
rural Indians, particularly the poor still remain excluded from adequate access to financial 
services. NABARD is implementing the reform programmes of financial institutions with the 
Government of India support. To enable quality and delivery for this, NABARD has partnered 
with GIZ for technical assistance and financial support to develop its own capacities and those of 
other the rural financial institutions and support structures. The programmes activities are 
coordinated with activities of Asian Development Bank, the World Bank, Germany's KfW 
Entwicklungs bank efforts and other cooperatives9.    
Umbrella Programme for Natural Resource Management (UPNRM): India is vulnerable to the 
impacts of climate change because of its high dependence on natural resources and its limited 
capacity to cope with it. UPNRM, supported by GIZ, develops and implements new green 
financial products that support partnerships for 
linking natural resource management, clean 
technologies and livelihood improvements. By 
helping develop and demonstrate approaches in 
which loans have encouraged sustainable forms 
of income generation, this programme is 
contributing to a gradual shift from grant-based 
to loan-based natural resources management 
projects. These projects have reached out to 
100,000 households in 14 sub national states 
leading to improved resilience, increased 
agricultural production and improved standards 
of living10.  UPNRM has explored opportunities 
to attract private investment and leverage on 
CDM for further benefits of communities under 
this programme. 
                                                        
9
 GIZ Website, (accessed April 2014)  
10
 Down to Earth, 2013 
NABARD brings together public and 
private funds at a national level   
The Changing Landscape of Development Assistance 
  6
 
Case Study 3: Smart Power for Environmentally Sound Economic 
Development 
The urgent need for rural electrification to boost sustainable economic development in India is 
known. With private sector rapidly moving in the erstwhile government dominated sector and 
the increasing uncertainty related to fossil fuel pricing coupled with declining cost of renewable 
energy (RE), the RE avenue is being explored as an important opportunity for rural 
electrification.   
With grid connected renewable energy likely to be competitive vis-à-vis fossil fuels, 
decentralised renewable energy (DRE) plants are beginning to emerge as opportunities to supply 
power for rural energy access. However, ESCOs 
(Energy Supply Companies) and investors are still 
exploring the commercial viability and business 
modeling of these rural DRE models. Given the 
nascence of the field, the unfamiliar environment, 
this exciting innovation fails to attract investment 
as it presents credit and commercial risks to 
investors. Moreover, there is a glaring mismatch 
between accessible capital and that what is 
needed to operationalise DRE models in India11.    
In a first of its kind, this financing gap has been 
mitigated under the Smart Power for 
Environmentally Sound Economic Development 
(SPEED) initiative of TARA and Rockefeller 
Foundation through ecosystem support using 
private capital and public funds catalytically. 
As a first step, a purpose driven intermediary is 
established to blend together capital from various 
sources that include global impact investors, 
multilateral, bilateral institutions and mainstream 
financial institutions. This intermediary makes 
available the blended capital to the ESCO for 
investing in a DRE plant such that business risks 
and cost of capital are reduced. In this ecosystem, 
the ESCO is further supported through a grants 
mechanism for creating an enabling environment 
for the business to operate in. The grant support is utilised to support local CSOs such that they 
to mobilise and engage the local community for creating electricity demand further mitigating 
the risk of the business. This model has enabled the provision of clean assured energy to 
households and creation of micro enterprises and telecom towers across five sites in poor or 
non-grid connected areas in India. The model serves as a demonstration of how private sector 
engagement can serve development needs and promotes economic growth in a viable manner. 
                                                        
11
 ckinetics, 2013 
A home lights up with DRE in Bihar, India 
The SPEED Catalytic Model   
The Changing Landscape of Development Assistance 
  7
 
References 
ckinetics (2013); Landscape of existing supply of capital decentralized renewable energy based 
rural electrification in India  
Down to Earth (2013); NABARD: Making a Difference with Climate Change Initiatives 
Economic Times (2013); Why do companies invest in CSR – Social Impact vs. PR Spin: 
Reproduced from Knowledge@Wharton 
European Centre for Development Policy Management 2012; Reporting on Development: ODA 
and Financing for Development 
International Finance Corporation 2012; Micro, Small and Medium Enterprise Finance in India 
ODI 2013; Greenhill, R, Prizzon A. and Rogerson A.; The age of choice: developing countries in 
the new aid landscape - A synthesis report 
World Bank (2009);  Girishankar, N. Innovating Development Finance - From Financing Sources to 
Financial Solutions, CFP Working Paper Series N.1, World Bank. 
 


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