Realizing the importance of improving rural people’s lives through innovations, IFAD has over the years invested in the generation of practical knowledge through grants. Institutions and people that have received grants through IFAD Water & Rural Infrastructure shared their activities at the Stockholm World Water Week on 28 August, 2012.
In a session entitled ‘Investment Options at Scale: New Directions in Water for Food’, key highlights included the necessity for business thinking and market driven mechanisms in development projects. According to Miriam Otoo, from the International Water Management Institute (IWMI), an IFAD grant recipient, this requires the development and promotion of innovative business models that represent sources of revenue generation and benefits for all relevant actors. In the natural resources sector where the majority of IFAD target groups make a living, existing business models include: Payment-for-Environmental Services (PES); Benefit-Sharing Mechanism (BSM); Franchising model; and, Cost-reduction model.
An example of a PES business model discussed in the session is the Green Water Credit which has been piloted in Kenya and now expanding to other countries such as Algeria and China. Based on the fact that water always flows downstream, this model is about farmers upstream being paid for good soil and water conservation (SWC) by water users located downstream who benefit from good practices upstream. Soil and water conservation is a matter of survival in most developing countries where the majority are smallholder farmers. Participants concurred that although many private investors are not attracted to natural resources management, it is a fundamental part of sustainable development.
The participants also listened to an engaging story from Ethiopia where communities have re-greened Tigray, a massive watershed which had been hopelessly degraded a few years back. It is now a rejuvenated landscape for 4.4 million people who depend on smallholder agriculture. Investors are also trickling back to support people’s livelihoods.
IFAD support for the role of technology in rural development was also revealed through a project in Smart ICTs which is being explored in Egypt, Mali and Sudan. This intervention is riding on the proliferation of mobile phones in developing countries where there are now more mobile phones than bank accounts. The business model around Smart ICTs recognizes the critical role of intermediaries who add value to information required by smallholder farmers so that they make informed decisions and reduce risk.
According to participants in the session:
- It can take a generation to scale up innovative ideas hence the need for patient finance;
- A business model should have a vision that includes other partners;
- A fundamental issue is getting impact investors onboard from the beginning, not luring them later;
- Many business models are based on public investments. Private money usually shows up after a while.
Summing up the session, Ms Audrey Nepveu, Technical Advisor for IFAD PTA Water & Rural Infrastructure, said IFAD is supporting business models to change rural people’s lives through market approaches that address critical needs. However, most of these models have to be validated in various contexts. She added that, recognizing the need to go beyond IFAD, her organization is building a Community of Practice as a space where people with the same interests can share and trigger more incentives for innovative poverty reduction approaches.