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Effectively Utilizing Repayable Grants to Help Facilitate Market Creation .

Paper | October 6, 2022

Key Insights From the International and Development Finance Institutions on How to Harness Repayable Grants to Build Financial Ecosystems and Nascent Businesses

There is increasing pressure on International Finance Institutions (IFI) and Development Finance Institutions (DFI) to drive market additionality and creation in lower-income countries and emerging market economies. These institutions regard market creation as key to closing the Sustainable Development Goals (SDGs) financing gap. Market creation requires development finance actors to invest in small- and early-stage businesses in emerging and frontier markets. This high-risk strategy requires alternative, deliberate, and structured financial products. Repayable grants represent a financial product that can transition small and early-stage businesses from grant recipients to investment-ready enterprises. Repayable grants can also establish stronger, more sustainable investment ecosystems through building a joined-up community of viable and investible businesses – a precursor for market creation. Building off insights gleaned from interviews with leading actors in the IFI and DFI community, this report provides actionable and practical guidance on how financial institutions can use repayable grants and similar products to facilitate market creation and ultimately close the SDG financing gap.