External scrutiny of applications

Many applications concern processes where

we need sector specialists to evaluate the project

The ABIF project management model has always included the idea of an expert pool comprising sector specialists, an environmental expert and a social expert who would be responsible for scrutinising applications and advising the fund management team on relevant technical issues. However, as we developed our grant calculation methodology and better understood the capacity of our typical applicant, it became apparent that in addition to this support, we would also need investment project financial modelling resources.

This is because we require a detailed financial model for each application as a part of the ABIF due diligence and evaluation process. The model is used for assessing both the appropriate grant offer and the commercial viability of the proposed investment project, requiring applicants to reach a reasonably high quality threshold for the financial model. Afghanistan is clearly a fairly extreme example of lack of capacity among applicants to provide reliable financial data or address the complexities of project accounting, but I suspect that funds operating in many other countries face similar issues. This is why I would commend this idea of bringing in specialist support to anyone managing a similar fund. Because we have kept the applicants fully engaged, I think that we have succeeded in bringing in this additional support without undermining applicant ownership of the business plans.

We have been able to use this approach because of the way that we manage our pipeline; narrowing down to the most promising applications as quickly as possible (attrition pyramid A in the diagram below). In a more traditional approach characterised by pyramid B, providing this level of support (which in an environment such as Afghanistan would appear to be essential) would not be possible.

ABIF adopted approach A to pipeline management

The very process of building the model is throwing up a lot of searching questions about the proposed investment projects. We have had a much more focused and better informed dialogue on financial issues with grant applicants than I have seen in my previous projects, long before the final application is drafted and submitted. This is an ongoing process of support, but already our understanding of the applicants' business models has been enhanced and in some cases the applicants themselves have realised that there are shortcomings in their investment projects that need to be addressed. By the time that we receive the final applications, applicants will have tightened their own plans, projections and assumptions, and our fund analysts will have a much deeper understanding of the financial viability of the proposed projects. In the words of one of the external consultants hired by an applicant, "I believe this strictness is good for them [the applicants], they are learning a lot as well, that business planning is not just guessing and creating numbers out of imagination."

The way that we have managed this process is quite new. Some time ago, we asked for volunteer MBA graduates to help with financial modeling as a part of the risk based investment strategy that we have adopted (see this post). For the last weeks, we have been working with a group of four excellent professionals who have brought valuable analytical skills to the team and a vital external perspective to the project application process. Although my hope for volunteers was a bit optimistic, nevertheless the value added delivered by the participation and external scrutiny from our colleagues has been truly impressive!

I am confident that as we approve grants and start to fund projects, having this additional resource will result in not only enabling us to justify the level of grant awards, but also a stronger portfolio of projects more likely to deliver the intended development outcomes.