Evaluation criteria and due diligence

Earlier this week we completed the initial evaluation of the 350 or so concept notes that we received before the deadline for submission on 12 January. I am delighted to say that we have a draft shortlist of some really very good ideas; some we were expecting and others that have come as a complete surprise.

Since Wednesday, we have been working with the applicants included in the draft shortlist to resolve issues arising from the evaluation and to complete the limited applicant due diligence. All of this has to be finished in the next few days ahead of announcing the final shortlist.

Marble processing business wanting to introduce supply chain innovation

The period between the deadline for concept notes and today has been incredibly demanding. Working our way through so many concept notes is no small task, we had to give each and every one a fair hearing, despite the fact that we were working to a fixed timetable and having to process several times more concepts than we had anticipated.

First we narrowed the field considerably by eliminating those concept notes that were ineligible for one reason or another; some very ineligible (NGO applicants etc), others that probably are eligible, but we had to say were ineligible for lack of evidence that they were eligible (if you see what I mean?). Our eligibility criteria involve yes or no answers so this step is relatively straightforward, it is not possible to be partially eligible. This largely technical first step in the evaluation process took out about half of the concept notes that we received.

Then we moved on to look at all of the concept notes left against our evaluation criteria. This stage involved a lot more judgment; we are looking at things like the management and financial strength of the applicant to implement the project, we want to see evidence of a distribution network that will allow the product or service achieve impact at scale and we also want to gauge the market presence and the reputation of the applicant. On the concept side, our criteria are that the investment:

• Will lead to a product of service that is relevant, accessible and affordable to ABIF's target beneficiaries; and
• Will produce a tangible benefit to ABIF's target beneficiaries as producers, workers or consumers.

At this stage, the outcome of our evaluation against each criteria is a categorisation of "strong", "borderline" or "weak", we do not give individual scores. We then have rules about how we amalgamate the individual evaluations into an overall evaluation of all of the eligible concept notes.

Raisin processing company that plans to introduce new drying technology

This process allowed us to develop a draft shortlist, which we took to our Investment Panel. Our panel comprises four members (three, including the chairman are Afghan, and one is British), all of whom have extremely valuable experience of working on private sector development in Afghanistan. The quality of the discussion during their two day review of our shortlist was very impressive. They each brought a different perspective according to their background, and the breadth and depth of their knowledge of the Afghan private sector was obvious. Generally there was a broad consensus on the merits or problems with one or another concept note, but it also has to be said that there were moments of very lively exchange, particularly on the meaning of innovation, the degree of risk associated with new ways of doing things and what ABIF should really be doing to incentivise innovation.


We looked at some really interesting ideas and often we wanted to know more than either the paper in front of us or the fund analyst presenting the concept note could tell us. Frequently, as the discussion progressed we constantly had to remind ourselves that we were looking at 4 page concept notes, not fully fledged business plans... we had to accept that there would be details that we would have to take on trust at this stage. Basically the panel review was about reaching a conclusion as to whether each concept note contained a good idea and whether the applicant looked as if they could implement that idea. We were simply opening the door to allow them to move forward, with no commitment on either side at this stage.

Printing business now looking to diversify with ABIF support

The good news is that at the end of the panel meeting, we were left with our good spirits intact and just over 20 concept notes that we all agreed we should take forward to the second stage of the application process, subject to our due diligence and clearing a number of questions with each applicant. The vast majority of questions raised by the panel related to the business model applicants were planning to implement (not always described very clearly) and the budget they had estimated (often considerably greater than would appear to be appropriate to the investment project or the applicant's financial history).

The due diligence prior to announcing the shortlist is limited to technical issues such as verifying identity and authority. We really want to know whether the person who is submitting the concept note is who they say they are and whether they have the authority to act on behalf of the applicant company and (if relevant) consortium. We also check that the applicant is properly licensed and is in good standing with the tax authorities and relevant sector regulator... all the usual type of things that allow us to draw conclusions as to whether this applicant is suitable for the shortlist or not.

We took the decision to visit as many of the applicants on the draft shortlist as possible. About 60% of them are based in Kabul, and of the remainder, we had already met several of them during the provincial visits we ran during the design phase or as a part of the first round marketing effort. This is what I really enjoy, getting out and about and talking with real business people about what they are doing, how their business is going and what they plan to do in the future. We were very careful to explain to all of the people we met that they have not yet been shortlisted, but that if they pass our due diligence and can answer various specific questions about their concept notes satisfactorily, there is a chance that they will be shortlisted for this round.

From washing machines to washing wool for carpets...

So Wednesday and Thursday were spent visiting a range of businesses from across all of our sectors. We have had factory tours, discussed business plans, looked at some amazing carpets, consumed copious amounts of tea and we have seen the scope for innovation and the impact it could have. At the same time, we have had to deliver some very straightforward messages about what we need from applicants; we often had to explain that the wishlist budget was not really the way forward, and that commercial viability means that a business will survive without donor subsidy. On the whole, our applicants have been very responsive to our requirements and limitations, and I am pretty confident that out of the current draft shortlist, the majority will make it onto the final shortlist which we will announce next month.

Given our limited resources and the way that the business community operates here, we really want to cover all bases before going public with the shortlist. So now is the time to address all of the fundamental issues we have identified with each concept note (whether it be something about the scope of the project, or the size of the budget, or the need for a consortium partner to bring required expertise), and only once we have obtained and recorded satisfactory answers to all of these questions will we move on to the full proposals. If we can't get the answers we need within the deadline set, we will remove the applicant from the draft shortlist and look to deal with the outstanding issues in time for the second round.

The last few weeks have been incredibly busy. It is amazing to see the ABIF team coming together, working extremely long hours, learning very fast as we go along, and developing their business analytical skills and understanding. We still have some way to go in terms of finalising our systems and building our own capacity, but things are definitely going in the right direction. I am truly impressed by the effort that the team is putting into their work and I cannot wait for the moment that we are ready to announce the shortlist and start work on the full proposals.