Giving Compass' Take:

• Capacity development organizations (CDOs) need to overcome financial challenges (with the help of funders) in order to survive the economic impacts of COVID-19. 

• The authors suggest adjusting the financial models and look towards various funding categories in an effort to pivot strategies that will help businesses prosper.

• Read more on how small businesses will survive through COVID-19.

The COVID-19 crisis is threatening small and growing businesses in low-income nations and the capacity development organizations (CDOs) they depend upon. Helping CDOs overcome three types of financial challenges is critical to responding to the current and coming economic devastation.

Roughly 40 percent of these emerging-market businesses—a growth-oriented subset of the larger micro, small and medium-sized enterprises (MSMEs)—face potential failure in the next six months due to the crisis, according to data collected from members of the Aspen Network of Development Entrepreneurs (ANDE). Beyond the distressing stories of individual businesses shutting down, the broader economic consequences would be devastating: Recent evidence from the World Bank estimates that high-growth firms account for about half of net new jobs in emerging markets.

While it is impossible to ensure every SGB in emerging markets survives this crisis, many will needlessly fail without access to the mentorship, networks, and other tools and services provided by international development organizations, which include capacity development organizations (CDOs) like technical assistance providers, incubators, accelerators, entrepreneur networks, and researchers.

If these CDOs fail, entrepreneurs will be left without support that is critical to the survival of their businesses, from Gauteng to Myanmar. With the COVID-19 crisis threatening to break already strained SGBs and CDOs, funders should rethink what a CDO financing model looks like and consider three categories of action:

  • Flexible Funds Many grants to CDOs include significant restrictions on how the funding can be used.
  • Urgent Funds Many CDOs have developed business models that minimize the use of grant funding, putting them in particular peril given the inability of SGBs to pay for services.
  • New Programs CDOs also need funds to create new programs that help SGBs navigate both the immediate crisis and post-crisis market conditions and opportunities.

Read the full article about community development organization funding by Matthew Guttentag, Mark Pedersen, Kusi Hornberger & Alekhya Sure at Stanford Social Innovation Review.