Technical Guidance on the Design and Implementation of Matching Grants Schemes

in Field Projects

This guidance is the production of the Rural Institutions, Services and Empowerment (RISE) team of the
Inclusive Rural Transformation and Gender Equality Division (ESP).
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Contents
ACRONYMS AND ABBREVIATIONS ......................................................................................................5
EXECUTIVE SUMMARY ............................................................................................................................7
I. INTRODUCTION ....................................................................................................................................12
1.1. Background .......................................................................................................................................12
1.2. Objectives and focus of the guidance ................................................................................................12
1.3. Content of the guidance.....................................................................................................................13
II. UNDERSTANDING MATCHING GRANTS AND LESSONS LEARNED ........................................13
2.1. Definition and purpose of matching grants .......................................................................................13
2.2. Lessons learned on matching grant implementation .........................................................................15
III. GUIDANCE FOR THE DESIGN OF MATCHING GRANTS ............................................................19
3.1. Step 1. Determining the appropriate use of matching grants ............................................................20
3.1.1. Are there market failures?..........................................................................................................20
3.1.2. What type of investment would be suitable to address different market failures and target
groups?.................................................................................................................................................21
3.1.3. Are the investments technically feasible, financially profitable, and socially and
environmentally responsible? ..............................................................................................................21
3.1.4. Why are the investments not already financed? ........................................................................22
3.1.5. Would it be possible to engage financial institutions in supporting the financial requirements?
..............................................................................................................................................................23
3.1.6. If matching grants are needed, how should they be designed? ..................................................24
3.2. Step 2. Defining matching grants’ parameters ..................................................................................25
3.2.1. Eligibility criteria for beneficiaries and expenses .....................................................................25
3.2.2. Size of grants and level of matching ...........................................................................................28
3.2.3. Selection criteria ........................................................................................................................32
3.2.4. Matching grant modalities .........................................................................................................32
3.2.5. Institutional arrangements .........................................................................................................36
3.2.6. Costing and financial analysis ...................................................................................................39
3.3. Step 3. Monitoring and evaluation, risk assessment and mitigation measures..................................41
3.3.1. Monitoring and evaluation (M&E) ............................................................................................41
3.3.2. Risk and risk mitigation measures..............................................................................................45
3.4. Step 4. Transparency and accountability...........................................................................................47
IV. GUIDANCE FOR IMPLEMENTATION OF MATCHING GRANTS ................................................49
4.1. Procedures for matching grant proposal selection and approval .......................................................49

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 4.1.1. Awareness-raising and communication .....................................................................................49
4.1.2. Call for proposals.......................................................................................................................50
4.1.3. Provision of diagnostics, capacity and technical assistance to applicants ................................51
4.2. Disbursement and flow of funds .......................................................................................................52
4.3. Financial management, procurement and audit .................................................................................53
4.3.1. Financial management ...............................................................................................................53
4.3.2. Auditing ......................................................................................................................................53
4.4. Safeguards .........................................................................................................................................54
4.5. Subproject closure and completion report. ........................................................................................55
V. MONITORING, EVALUATION AND LEARNING ............................................................................56
5.1. Continuous monitoring......................................................................................................................56
5.1.1. Milestone-indicator-based monitoring .......................................................................................56
5.1.2. Problem subprojects ...................................................................................................................57
5.2. Evaluation of matching grants...........................................................................................................58
5.3. Learning opportunities ......................................................................................................................59
VI. CONCLUSION AND RECOMMENDATIONS ...................................................................................60
REFERENCES .............................................................................................................................................62
ANNEXES ...................................................................................................................................................63
Annex 1. Understanding and examples of market failures.......................................................................63
Annex 2.1. Example of selection criteria in the Public-Private Partnership matching grant of the AMD
project in Viet Nam ..................................................................................................................................64
Annex 2.2. Example of scoring criteria of the FAO Improving rural competitiveness in Nampula and
Zambézia provinces project .....................................................................................................................67
Annex 3. Checklist of characteristics of a matching grant .......................................................................68
Annex 4. Flow chart of an FAO matching grant project ..........................................................................69
Annex 5. An example of a business plan template: the IFAD Public-Private Partnership matching grant
for SMEs in Viet Nam..............................................................................................................................70

Tables
Table 1. Types of matching grant by category .............................................................................................13
Table 2. Demand-side and supply-side constraints that can be addressed by matching grants....................24
Table 3. Examples of eligible and ineligible expenditures in matching grants ............................................28
Table 4. Examples of matching grant size and beneficiary contributions from World Bank projects .........29
Table 5. Suggested management structure of a matching grant ...................................................................36
Table 6. Suggested indicators at output, outcome and impact level for a matching grant ...........................42
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Figures
Figure 1. Processes and procedures associated with the matching grant modality ......................................34

Boxes
Box 1. Four potential roles of financial institutions as part of matching grants...........................................16
Box 2. Practical suggestions for accelerating the approval process .............................................................39
Box 3. Suggested options for calculating overhead costs for a matching grant ...........................................40
Box 4. Suggested approaches for economic and financial analysis in matching grant design.....................41
Box 5. Distortive effects of matching grants ................................................................................................45
Box 6. Guidance for enhancement of transparency and accountability in matching grant design ...............48
Box 7. Suggested key steps for conducting impact assessments..................................................................58

Case studies
Case study 1. Organization of different funding windows within one project .............................................15
Case study 2. Colombia Productive Partnerships Project: Incentivizing market inclusion through matching
grants ............................................................................................................................................................21
Case study 3. Engagement of financial institutions in the AMD project’s Public-Private Partnership
matching grant ..............................................................................................................................................23
Case study 4. Selection of beneficiaries in the SRDP project in Viet Nam .................................................27
Case study 5. Size of matching grant and level of matching in the FNML project in Laos.........................31
Case study 6. Procedure for selection of subgrant proposal in Viet Nam ...................................................35
Case study 7. Risk mitigation measures for mis-procurement and elite capture in a matching grant in Laos
......................................................................................................................................................................46
Case study 8. Using a Public-Private Partnership platform to call for proposals.........................................50
Case study 9. Safeguard management in a demand-driven grant scheme in India ......................................54
Case study 10. Establishment of a Management Information System for matching grants .........................57
Case study 11. “Learning route” for CIG matching grant ............................................................................59

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 ACRONYMS AND ABBREVIATIONS

3EM The Project for the Sustainable Economic Empowerment of Ethnic Minorities
4P Public-Private-Producer Partnerships
AMD Adaptation to Climate Change in the Mekong Delta
BDS Business Development Service
BP Business Plan
CBG Competitive Business Grant
CDF Community Development Fund
CG Collaborative Group
CIG Common Interest Group
CN Concept Note
CSG Competitive Small Grant
EFA Economic and Financial Analysis
EoI Expression of Interest
FAO Food and Agricultural Organization of the United Nations
FFI Fauna and Flora International
FFS Farmer Field School
FNML The Southern Laos Food and Nutrition Security and Market Linkages Programme
FPD Forest Protection Department
GOM Grant Operational Manual
ICT Information Communication Technology
IFAD International Fund for Agricultural Development
IRR Internal Rate of Return
LoI Letter of Interest
M&E Monitoring and Evaluation
MEL Monitoring, Evaluation and Learning
MIS Management Information System
MS703 Manual Section 703
NAIP National Agricultural Innovation Project

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NGO Non-Governmental Organization
NPV Net Present Value
PEA Provincial Entrepreneurship Association
PIM Project Implementation Manual
PLCP The Pu Luong-Cuc Phuong Limestone Conservation Project
PPP Public-Private Partnership
SCG Saving and Credit Group
SEDP Socio-Economic Development Planning
SME Small and Medium Enterprise
SRDP Sustainable Rural Development Project
SWOT Strengths, Weaknesses, Opportunities and Threats
TA Technical Assistance
TNSP New Rural Development Support Project
TOR Terms of Reference
USD United States Dollar (currency)
VND Vietnamese Dong (currency)
WB World Bank

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 EXECUTIVE SUMMARY
Over the last 30 years, the use of matching grants for agricultural investment has increased. Matching grants
are used increasingly by governments and multilateral and bilateral organizations to co-finance productive
assets and investments. The instrument has been used extensively to support a large number of policies on
issues ranging from innovation and entrepreneurship to agriculture. Matching grants can be used for a
variety of activities, including technical assistance, investment in infrastructure, assets or financing of
working capital. Matching grants are used as a short-term financing instrument to stimulate transfer,
transformation and adoption of technologies. They enable target groups to carry out productivity-enhancing
investments, taking into account cost efficiency and effectiveness. This document provides practical
guidance on how to design, implement, and monitor and evaluate a matching grant. The focus of matching
grants in this document is on near-market technology development, enterprise/agribusiness development,
and support and services targeting farmer groups and agricultural small and medium enterprises (SMEs).
UNDERSTANDING MATCHING GRANTS
A matching grant is a one-off, non-reimbursable transfer to project beneficiaries. It is based on a specific
project rationale for particular purposes, and on the condition that the recipient makes a specified
contribution for the same purpose or subproject.1 Grants and matching contributions can be either in cash
or in kind, or a combination of both. They may or may not be provided together with other financial services,
such as loans, or linked to them.
GUIDANCE FOR THE DESIGN OF MATCHING GRANTS
This document presents four key required steps to ensure an effective matching grant design. Individuals
and institutions who are planning or at the stage of designing a matching grant should consider those
minimum standards and practices in each step.
• Step 1. Determining the appropriate use of matching grants. The following questions address
some underlying conditions for choosing an appropriate matching grant.
o Are there market failures? Market failure occurs when the market for a good or service fails
to include all economic costs and benefits in the price of that good or service. Since the
price of goods or services does not reflect all of the costs and benefits, the use of these
prices results in the misallocation of resources and suboptimal economic outcomes.
Understanding forms of market failures and its causes would help design a proper matching
grant that could mitigate the failures.
o What type of investment would be suitable to address different market failures and target
groups? Define the eligible types of investments and their costs, including investment and
working capital requirements. Keep in mind key questions: would the proposed investment
deal most effectively with the underlying problem of the market failure? Does it compensate
for, reduce or eliminate a market failure that discourages private investment and sales? And
what are the target groups for each type of investment?
o Are the investments feasible and profitable? Discuss and provide evidence about the
feasibility and profitability of the investments.
o Why are the investments not already financed? If the investments are proved to be feasible
and profitable, a simple question to ask would be why they have not been financed by other
actors both from the demand and supply sides. The demand side refers to the target groups
(e.g. farmers, SMEs). The supply side refers to the financial institutions. A thorough
analysis of both sides is required.
o Would it be possible to engage financial institutions? Based on the constraints facing
financial institutions, decide: whether and how the proposed matching grant or other

1 For the purposes of this document, a subproject is defined as any agreed investment within a matching grant project.
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 ongoing interventions could contribute to tackling some of the key constraints; whether
there is still need for a matching grant; and whether matching grants could undermine the
introduction or expansion of term finance.
o If matching grants are needed, how should they be designed? Matching grants are not a
sustainable financing instrument, but their objective should be to support sustainable
investments. Depending on the context and for a certain period of time, matching grants
help address the demand side and supply side constraints to finance but they must not
replace the role of private sector, especially the financial sector. Rather they should help
strengthen the link between the supply side and the demand side.
• Step 2. Defining matching grants’ parameters. Matching grants can be designed as a single
programme or a component within a project/programme framework. Within a project/programme,
there might be different matching grants; or within a matching grant, there might be different
funding windows. These target different groups of beneficiaries. In any situation, for each type of
matching grant/funding window, concrete guidance should be provided at the design stage.
o Eligibility criteria for beneficiaries. This includes type and size of beneficiaries.
o Eligibility criteria for expenses. Clearly defining eligible activities and expenditures will
prevent unnecessary delays in the development and review of proposals.
o Size of matching grant. The appropriate size of a grant is influenced by evidence of
beneficiaries’ capacity to use the additional funds effectively and quickly. It is suggested
that if the capacity of an intended beneficiary is low, then the grant size is lower overall,
and conversely, the greater the capacity, the larger the matching grants.
o Level of matching. The level of matching is a central element of matching grants, which
carries trade-offs between several dimensions (e.g. attractiveness of the scheme,
commitment of the beneficiary, additionality of resources and risks of abuse). While the
grant level should not be set too low, in order for the programme to have a strong catalytic
and attractive effect, the level of contribution should be as high as possible to show
commitment. However, it is argued that the higher the subsidy, the lower the likely long-
term impact, meanwhile the higher the contribution, the higher the risk of exclusion of the
key target beneficiaries.
o Selection criteria. A well-designed grant selection process, including the definition of
selection criteria, is vital to the success of a funding mechanism. Four areas often dominate
the list of selection criteria: relevance, quality, diversity and economic considerations.
Besides these, criteria for many matching grants emphasize the local context, the
additionality of the investment, the environmental and natural resource use implications,
the inclusion of diverse groups of stakeholders, and characteristics that suggest an aptitude
for cooperation and collaboration.
o Matching grant modalities. Include the application and payment modalities. There are often
two types of application modalities used in practice: direct invitation and public calls (using
a competitive process). While the latter is more popular and more complex, the former is
used for special goods and services and in special areas. There are two payment modalities:
ex post (i.e. reimbursement-based) and ex ante (i.e. advance-based).
o Institutional arrangements. The institutional arrangements for a matching grant can vary
depending on the stakeholders involved and the level of decentralization or type of
administration. An effective management structure of a matching grant should consider the
following key questions: Which entities should be in charge of processing, what is their
composition and what is the nomination process? Are they public or non-public
institutions? Are they part of a larger project or an independent institution? How is the
process of selecting the institution undertaken? Does the selected institution have the
capacity and independence to manage the matching grant transparently and effectively?
What are the mandates, roles and responsibilities of entities involved in the decision-

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 making process? What are the processes for the matching grant? What is the level of
decision-making at each layer of matching grant management? And how are complaints,
grievances and appeals addressed?
o Costing and financial analysis. Costs for setting up and running a matching grant vary
greatly from case to case with overhead costs ranging from a minimum of 10 percent to a
maximum of 25 percent of the total fund amount. Economic and financial analysis (EFA)
is an important element to justify whether the matching grant is technically and financially
feasible. It is necessary to consider the importance of EFA during the design of the matching
grant and prepare and develop appropriate approaches, methods and templates for the EFA.
• Step 3. Monitoring and evaluation, risk assessment and mitigation measures.
o Monitoring and evaluation. Monitoring and evaluation (M&E) is central for tracking and
capturing the specific knowledge and innovation emerging from the use of innovation
funds. Key aspects of M&E include identifying appropriate indicators, establishing
appropriate M&E arrangements, following common monitoring practices and evaluating
impacts.
o Risk and risk mitigation measures. Risks in matching grant implementation are certain.
There are various risks from outside that affect the matching grant and from the matching
grant that might affect the external environment. Therefore, the risks and risk mitigation
measures must be clearly addressed at the design stage and regularly evaluated and updated
during implementation.
• Step 4. Transparency and accountability. Transparency and accountability do not strictly
represent a step during the design of a matching grant. They are the conditions, the requirements
and the safeguards for the matching grant to be efficient, effective and sustainable. They must be
addressed in all steps, throughout the preparation, design, implementation and M&E of the matching
grant. Transparency and accountability are required and demanded by all stakeholders including
national legislation, donor requirements, and citizens and beneficiaries.
GUIDANCE FOR IMPLEMENTATION OF MATCHING GRANTS
Effective implementation of matching grants largely depends on the clarity of the procedures, the capacity
of the applicants and the support they receive.
• Procedures for matching grant proposal selection and approval
o Awareness-raising and communication. An essential part of a successful matching grant is
a rigorous awareness-raising and communications campaign. When the matching grant is
started, awareness and trust must be established if competition-based mechanisms are to
succeed.
o Call for proposals. Calls for proposals can be periodic and on a continuous basis. The call
for proposals requires sufficient management capacity to administer the proposals and often
makes use of designated reviewers. Some matching grants, such as those directed at
enterprises, may need to take a more targeted approach, such as via relevant forums,
platforms and associations, to ensure sufficient participation. Technically competent staff
with sufficient knowledge of the grant scheme and local context are needed to ensure an
efficient and effective approach.
o Provision of diagnostics, capacity and technical assistance to applicants. This process
includes (a) a two-stage application process, (b) procurement and financial capacity
assessment and (c) final approval. The two-stage application process with a mandatory
initial diagnostic to verify eligibility ensure that the most promising applicants are selected,
and help applicants avoid putting significant efforts into developing a proposal if they are
not eligible. As part of the proposal preparation and approval process, most matching grants
assess the procurement, administrative and financial management capacity of applicants to
gain a better understanding of the applicants’ capacity, and hence provide appropriate
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 support. Final approval of subprojects for funding is the responsibility of the Budget
Holder. Each approved subproject requires a legal agreement, a Beneficiary Grants
Agreement between the winning applicant and the FAO Authorized Official.
• Disbursement and flow of funds
o Matching grants are usually disbursed in different forms and tranches as specified in the
contract/agreement at the proposal approval stage. The number of tranches and the amount
of each tranche are determined case-by-case, depending upon the amount of the grant and
the nature of the subproject. In order to keep track of the grant amount and to ensure
transparency, a good practice is to require the applicant to establish a separate account,
solely for the purpose of the grant, with the required matching funds. Applicants may
encounter challenges in acquiring the full counterpart funding at the start of the proposal.
In this case, the grant agreement could require counterpart funding to be provided when the
tranches of the grant are paid.
• Financial management, procurement and audit
o Financial management. Matching grants require each recipient to maintain a financial
management system, including records and accounts, to reflect its operations, resources and
expenditures. The financial management system must clearly identify all of the subproject’s
receipts and expenditures and distinguish them from other receipts and expenditures of
other operations of the recipients.
o Procurement. Procurement must go hand in hand with financial management. Good
practices show that efficient and effective implementation of a subproject depends on
timely procurement of items and adequate and dependable funding of subproject
expenditures.
o Auditing. Financial audits are vital to ensure that grant funds are used by the recipient only
for the purposes for which the grant was made. There are often two types of financial audit:
internal audit and external/independent audit.
• Safeguards
o Depending on the donor providing funding to the matching grant and/or the localities in
which the subprojects are implemented, the social and environmental safeguard policies are
provided. The subprojects are funded based on the proposals prepared by the recipients.
The potential environmental and social impacts of those subprojects cannot be identified in
advance. In such cases, it is often required that the recipients prepare in their
proposals/subprojects a framework for managing any environmental and social impacts that
may arise. The framework should provide a detailed assessment of the potential
environmental and social effects of the types of subprojects that are likely to be funded,
with detailed guidelines for monitoring their impacts and mitigating any negative impacts.
• Subproject closure and completion report
o Administrative requirements. All grant requirements remain in full force and effect until
the grant recipient receives a close-out letter from the grant administrator indicating that all
obligations have been satisfied.
o Technical requirements. Submission of the completion report links all findings derived
from the subproject so that its overall achievements and impact can be assessed.
Achievements should be discussed in terms of the subproject’s accomplishments,
contribution to human resource development, the relevance of its findings to development,
how the information and technology emerging from the subproject is being disseminated,
what the present and expected future degree of adoption is, and (where relevant) the actual
impact on productivity, farm incomes, competitiveness and other indicators.
MONITORING, EVALUATION AND LEARNING
• Continuous monitoring
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 o Milestone-indicator-based monitoring. A clear subproject design with explicit objectives, a
time-bound implementation plan with milestones for all activities, and a results framework
with specific performance indicators and targets contribute to monitoring implementation
and achievement of targets. It is strictly required that disbursement agreements with
recipients are established according to a schedule of expected deliverables and
demonstrated progress against pre-established benchmarks.
o Problem subprojects. Problem subprojects are unexpected but often occur in any matching
grant. An important function of the M&E system is to identify “problem” subprojects and
help to resolve the problems. Problems that the subprojects encountered might come from
external factors (such as the weather or unexpected economic changes) or internal factors
(such as capacity of recipients or funding procedures), but when serious problems occur,
the monitoring system should alert the subproject until the problem is corrected.
• Evaluation of matching grants
o Evaluations of matching grants are varied and depend on the purposes of the grant
administrators. Normally, there are two common types of evaluation: interim evaluation
and impact assessments (WB, 2010, 2019). Interim evaluations are conducted during the
implementation of the matching grant, serving specific purposes aiming at constituting an
early warning system, preventing adverse effects and taking corrective action midway.
Impact assessments are implemented when the matching grant is coming to an end. In
various cases, the impact assessment is even conducted several years later to assess changes
in overall societal goals, such as improved incomes, reduced poverty and environmental
conservation.
• Learning opportunities.
o The importance of learning in the matching grant context is that it helps the grant staff and
recipients to acquire the necessary skills and experience through learning and acquisition
of knowledge so that they can achieve the set goals of the matching grant and/or
subprojects. Learning can take place internally through the circle of planning,
implementation, feedback, adjustment and planning, or externally through feeding back
knowledge and experience from outside.

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I. INTRODUCTION

1.1. Background
Over the last 30 years, the use of matching grants for agricultural investment has increased. Matching grants
are used increasingly by governments and multilateral and bilateral organizations to co-finance productive
assets and investments. The instrument has been used extensively to support a large number of policies on
issues ranging from innovation and entrepreneurship to agriculture. Matching grants can be used for a
variety of activities, including technical assistance, investment in infrastructure, assets or financing of
working capital (WB, 2019). Matching grants are used as a short-term financing instrument to stimulate the
transfer, transformation and adoption of technologies. They enable target groups to carry out productivity-
enhancing investments, taking into account cost efficiency and effectiveness (IFAD, 2014).
Throughout this time, matching grants have spread from initial use for investments in pure public goods to
investments in a broad range of assets and productivity-enhancing technologies for groups, companies and
individuals, benefiting the private sector directly with private goods characteristics. Matching grants help
to address barriers to market development through fostering private investments. They attract investment
for farmers and agricultural small and medium enterprises (SMEs) in areas and activities with growth
potential that otherwise would not be financed due to various constraints and high risks. More recently, an
increasing number of matching grants have been adopting a broader emphasis on access to finance. They
incorporate a “crowding in” mechanism to attract financiers by sharing the risks and increasing the effective
collateral value of the asset being financed. This would contribute to the additionality and sustainability2 of
the matching grants (IFAD, 2014; WB, 2019).
Notwithstanding the convincing aforementioned justifications of the use of matching grants, there are
pitfalls and risks in their implementation, which may limit their effectiveness and impact. In cases where
beneficiaries are not in real need of the capacity, services and assets provided by the matching grants, and
where such provisions do not have significant positive externalities, subsidizing them can create distortions
in resource allocation and constitute a public subsidy for a private gain. Similarly, if matching grants give
beneficiaries only a temporary incentive to procure more services but do nothing to solve the inherent market
failure that prevented them from using these services in the first place, the impact of the matching grants
would be questionable (WB, 2019). The most common criticism of matching grants is the risk of limited
additionality and sustainability which requires proper studies, careful design and thorough implementation
(WB, 2016; McKenzie, Assaf and Cusolito, 2017).

1.2. Objectives and focus of the guidance

This document is intended for the use of field-level staff, primarily FAO personnel, who aim to use the
matching grant modality in their projects or programmes. The main emphasis of this document is to provide
guidance on how to design, implement, and monitor and evaluate a matching grant.3 Questions to be
addressed include:
• Whether a matching grant is the most appropriate financing instrument in a given context.

2 Additionality concerns the questions “Do matching grants crowd in private investment by subsidizing investment that would not
have been made anyway? And do matching grants get firms to undertake innovative activities that they would not otherwise do?”
The issue of sustainability concerns the question: “Can supported projects be self-sufficient after the matching grants project
closes”? (McKenzie, Assaf and Cusolito, 2017; WB, 2019).
3 Rationales for emphasizing matching grants rather than other forms of grant include: Matching grants stimulate market

development, innovation and promote asset-building among low-income segments. Matching grants help to foster private
investments and investors towards underserved markets by addressing specific barriers to market development. Matching grants
help farmers and agricultural SMEs invest in activities that have great potential to generate growth, but they are unwilling or
unable to finance due to a variety of constraints which can be internal or external, financial or non-financial. Matching grants are
often used as a way to stimulate innovation, or technology adoption, as investors might be reluctant to invest due to high risks
(WB, 2019).
12
 • What to consider when designing a matching grant.
• How to design a matching grant that addresses the technical or structural challenges in a
certain context.
• How to effectively and successfully implement a matching grant.
• How to build a monitoring, evaluation and learning (MEL) system that keeps track of and
ensures the efficiency and effectiveness of a matching grant.
Although matching grants can be used for many purposes, in the context of this document, the focus is on
near-market technology development, enterprise/agribusiness development, and support and services
targeting farmer groups and agri-SMEs.

1.3. Content of the guidance

The structure of the guidance is as follows: following the Introduction, Section 2 provides definitions and
practical lessons learned for matching grant design and implementation. Section 3 provides details on the
steps involved in matching grant design. Section 4 describes aspects that require consideration when
implementing matching grants. Section 5 discusses practical guidance for efficient and effective M&E
implementation. Section 6 provides conclusions and recommendations. For each of the features analysed
under Sections 4, 5 and 6, a breakdown of success or failure with solutions is provided. The Annexes follow,
with the inclusion of additional information regarding design and implementation of matching grants.

II. UNDERSTANDING MATCHING GRANTS AND LESSONS LEARNED

2.1. Definition and purpose of matching grants

Matching grants are used by various actors in different sectors. Each might define matching grants in a
different way. However, at the outset, a matching grant has a number of characteristics including
constituting a “short-term temporary subsidy”, a “one-off and non-reimbursable transfer” and a “required
contribution by beneficiaries (in cash or in kind).” Within the context of this technical guidance, the IFAD
(2012) definition is adopted:
A matching grant is a one-off, non-reimbursable transfer to project beneficiaries. It is based on a
specific project rationale for particular purposes and on condition that the recipient makes a
specified contribution for the same purpose or subproject. Grants and matching contributions can
be either in cash or in kind, or a combination of both. They may or may not be provided together
with other financial services, such as loans, or linked to them. (IFAD, 2012, p. 8).
Table 1. Types of matching grant by category

Criteria Categories Descriptions Examples

Social infrastructure (schools,

Public These goods are not excludable, nor clinics, water supply and
By goods/services rival sanitation), productive
characteristi infrastructure (roads)
cs/Type of
goods Inputs, machinery, business
Private These goods are excludable and rival development or engineering
goods/services services to individuals or
companies

13
 Goods and services targeting
Impure public individuals, groups,
These goods are less than fully
and private communities (road, irrigation,
excludable or rival
goods storage, group-based
processing)

Zero percent cash matching - often Production grant for an ethnic

in-kind matching. Often target more group living in remote area to
Grant
disadvantageous areas, sectors, improve food
individuals, institutions, groups security/productivity

By level of Focus more on demand driven,

A tea processing subproject in
match require a certain matching level from
a project area with 49 percent
beneficiaries, bring in more interests
cash contribution from the
Matching grant and responsibilities of beneficiaries
matching grant and 51 percent
(due to matching contribution),
contribution from the
attract financial actors to matching
processor
grant implementation

The finance that serves short term

Working capital expenses for production/operation of Seeds, fertilizer, fuel, etc.
By purpose
a subproject
(type of
capital)
Investment The investment that serves the long- Equipment, vehicles, land,
capital term development of a subproject related technical services

Those who provide goods and Financial institutions,

Suppliers of
services such as financial institutions, researchers, technology
goods
research institutions, etc. providers and services
By recipient
Those who receive/benefit goods and Farmers and farmer groups,
Users of goods
services such as farmers, rural micro-, small- and
and services
communities, etc. medium-sized enterprises

It is often in the form of block grant

Entitlement entitled to residents, communities for Community-driven
based livelihood improvements and/or development
public goods and services
By
allocation A fund that uses competitive/bidding Some value chain, research
Competitive
mechanism process to attract applicants and technology generation

Through Linked to a complementary

A financial institution is entrusted to
financial institutions loan from a
manage and implement the fund
institutions financial institution

Source: Adapted from IFAD. 2012. Matching Grants: Technical Note. Rome.
https://www.ifad.org/documents/38714170/39144386/Matching+grants+-+Technical+Note.pdf, p. 9; WB.
2006. When Markets Do Not Work, Should Grants Be Used? Agriculture and Rural Development Notes.
Washington, DC. https://openknowledge.worldbank.org/handle/10986/9620; WB. 2010. Designing and
14
Implementing Agricultural Innovation Funds: Lessons from Competitive Research and Matching Grant
Projects. Economic and Sector Work. Washington, DC.
https://openknowledge.worldbank.org/handle/10986/12614.

Case study 1. Organization of different funding windows within one project

Funding by the International Fund for Agricultural Development (IFAD) and the New Rural
Development Support Project (TNSP) was implemented in Tuyen Quang province, Viet Nam from 2011
to 2016. The project established three funding windows including:
1. Community Development Fund (CDF): This fund targeted the whole community through providing
public productive infrastructure such roads, irrigation, sluice gates, etc. The needs of the community
regarding infrastructure were defined through socio-economic development planning (SEDP) processes
with various rounds of consultation and prioritization with participation of villagers, enterprises, traders
and other relevant stakeholders. The TNSP provided a maximum of an 80 percent contribution to each
investment but not more than USD 50 000. The community was required to contribute a minimum of 20
percent in cash or in kind (land, labour, cement, etc.).
2. Competitive Business Grant (CBG): This fund targeted the agribusinesses that were willing to co-
finance agricultural businesses based within the project area. The matching level was a maximum of 49
percent of total subproject amount but not more than USD 60 000 from TNSP and a minimum of 51
percent from the enterprise. Eligibility criteria included a viable financial background, a good business
proposal, the involvement of farmers in the subproject through farming contracts and job generation for
local people. Eligible expenses were for private goods and services.
3. Competitive Small Grant (CSG): This fund targeted farmers’ groups. The level of matching was 50
percent from the project (maximum USD 3 500 per group) and 50 percent from the farmer group
(minimum 25 percent cash, the remaining proportion in kind). Among other factors, eligibility criteria
included the formation of a common interest group (CIG) or collaborative group (CG), a sound
production/business plan, sufficient capacity for subproject implementation and showing innovative
aspects of the subproject. Eligible expenses were for private goods and services.
The three funding windows were coordinated by the Project Coordination Unit, ensuring that the funds
were invested along the development of target agricultural value chains in the most effective way.
Source: TNSP. 2016. Project Completion Report. Tuyen Quang, Viet Nam.

2.2. Lessons learned on matching grant implementation

Lessons learned on matching grant design and implementation are various, and case specific. This document
draws on the most practical and relevant lessons from different secondary sources with the main aim of
providing learning opportunities for the design and implementation of matching grants in the context of
FAO projects.
(1) Establishment of a strong economic rationale before designing a matching grant. Among the
rationales, it is essential to address the market failures. The following market failures are often encountered:
❖ Uncertainty over benefits and externalities. Situations in which farmers and agricultural SMEs
are unaware or uncertain of the benefits of investments in technology. Matching grants should
aim to introduce new technologies and practices that contribute to higher productivity and at
the same time generate positive environmental and social externalities that benefit the broader
rural society and not just the beneficiaries.

15
 ❖ Lack of longer-term finance and perceived riskier profile of beneficiary and matching grant.
Situations in which longer-term funding to finance assets is unavailable, either because longer-
term liquidity is lacking or because banks and financial institutions wish to focus on short-term
working capital and perceive the longer-term gestation of the investment as well as the
beneficiary’s credit risk profile (in many cases they do not have sufficient information to assess
it) as riskier.
❖ Lack of access to finance. Situations in which targeted beneficiaries lack collateral acceptable
to developing country banks and financial institutions, many of which lend only against a fixed
asset, usually real estate, as collateral. Also extreme situations in which there are no financial
institutions serving in the project area, and/or if there are, they are not serving agriculture (WB,
2017, p. 4).
(2) Improving access to agricultural and rural finance should be one of the matching grant’s
objectives if an identified market failure is the lack of access to finance for farmers and agricultural SMEs.
This could include explicit mechanisms in the design of a matching grant which would facilitate the
exposure and linkages between financial institutions and beneficiaries. For example, financial institutions
could have a role in the implementation of the matching grant, such as as deposit-takers, advisors and
funders (see Box 1 below). Even in cases where financial institutions may refrain from lending to these
beneficiaries, at least their exposure to them will enable them to collect data and familiarize themselves with
such clients, which could lead to eventually lending to them (WB, 2017, p. 4, 2019; IFAD, 2012).
Box 1. Four potential roles of financial institutions as part of matching grants

1. Financial institutions as deposit-takers. Under this scheme, beneficiaries are required or incentivized
over the course of the project to set aside – either individually or collectively – part of the revenues
generated from the matching grant-financed activities. The “deposit-taking” role for financial institutions
is the most common role for financial institutions when engaged in matching grant projects. Two different
approaches have been experimented with: (1) each producer group sets aside money in a revolving fund,
or (2) each individual sets aside money in a savings account.
2. Financial institutions as funders. Under this scheme, matching grant beneficiaries are either required
or incentivized to secure a loan from a financial institution to cover part of the investments. The “funding”
role for financial institutions is the second most common role for financial institutions when engaged in
matching grants.
3. Financial institutions as managers. Under this scheme, financial institutions play a role – either
“light” or “core” – in the management of matching grants. Under the “light management” approach,
financial institutions play a role in the selection or pre-identification of matching grant beneficiaries,
which can ensure that only financially viable projects are selected while building agriculture finance
knowledge among financial institutions at the same time. Under the “core management” approach,
financial institutions both select beneficiaries and channel grants, which can simplify the investment
process but also potentially create confusion for beneficiaries.
4. Financial institutions as advisors. Under this scheme, financial institutions advise matching grant
applicants on the preparation of their business plans.
Source: WB. 2019. How Can Matching Grants in Agriculture Facilitate Access to Finance? Lessons
Learned from World Bank Group’s Experience. Washington, DC.
https://openknowledge.worldbank.org/handle/10986/33829

(3) In order to judge whether a matching grant is the most cost-effective instrument, constraints on
agricultural and rural finance should be systematically assessed through various forms of diagnostics.
Different alternative instruments (e.g. grants, revolving funds, soft loans) should be considered to replace

16
or complement matching grants. Where the option of a matching grant is decided on, the criteria for targeting
beneficiaries and activities should be transparent, carefully chosen and clearly justified (WB, 2017, p. 5).
(4) Technical assistance to help matching grant beneficiaries prepare business plans and proposals
for financing can help ensure that the matching grant is successfully executed. The technical assistance
would also include promoting the programme, ensuring that applicants meet established project criteria, and
providing ongoing support and mentoring beyond the initial business plan and financing proposals (WB,
2010, 2017).
(5) The design features of a matching grant should be determined carefully to ensure efficiency,
effectiveness and sustainability. Specifically:
❖ A matching grant should target specific investments and types of beneficiaries, particularly
those with limited access to finance; designers and implementers of matching grants should
strive to ensure that by the end of the implementation, however, banks and financial institutions
should be familiar with these investments and types of beneficiaries and should continue
providing financial services to them.
❖ The size of the grant and level of grant matching should vary by type of beneficiary (farmers,
microenterprises and farmer groups, small enterprises or medium enterprises) and by type of
investment (training, technical assistance, assets, livestock, crops, fisheries) so as to ensure
take-up and additionality.
❖ Beneficiaries’ contribution must be set high enough to ensure ownership and to crowd in
commercial credit. Matching grants should be sufficient to encourage participation and
investments, but not so large that they allow the client to finance a very large percentage of the
project free of charge and/or without needing to tap into financial markets.
❖ Matching grants should aim to finance longer term investments, particularly those that carry
sufficient environmental and social externalities, and capacity building/advisory services for
farmers and agricultural SMEs that require longer-term funds (WB, 2017, p. 5).

(6) A matching grant should aim to foster the links with financial institutions through various
modalities, including:
❖ For beneficiaries who have no relationships with financial institutions, a path toward financial
inclusion should be promoted as a key activity within the project. This path could include
financial institutions as deposit-takers in parallel to legal formalization of beneficiaries’
enterprises, and preparation of business plans and financial accounts.
❖ For beneficiaries who have existing relationships with financial institutions, a stronger
financial discipline from beneficiaries through required or incentivized blending of matching
grants with commercial credit may be required. Such an approach could crowd in commercial
credit through lower level of matching or by offering varying level of matching based on
commercial credit obtained.
❖ For beneficiaries who have lost access to finance (e.g. due to exogenous price fluctuations,
economic crisis and other risks), financial institutions could play a leading role in the
identification and selection of beneficiaries.
❖ Where financial institutions’ lack of agriculture-related information and expertise is identified
as one of the key market failures, engaging them in an advisory or management capacity should
be considered. This would expose financial institutions to information and data about
beneficiaries that they could leverage to eventually lend to them (WB, 2017, p. 6).
(7) A matching grant is often designed as part of a larger project. In this line, it is important to explore
synergies with other components/parts of the larger project. For example, investment climate reforms could
address the market failures that preclude farmers and farmer organizations from using nontraditional (e.g.
moveable) collateral for borrowing. Likewise, coordinating grants with partial credit guarantees and
17
technical assistance (TA) to banks and financial institutions could aim at promoting private sector financing
and introduce banks and financial institutions to new types of clients and bankable investments (WB, 2017,
p. 6).
(8) For a matching grant that is part of a larger project, specific M&E is often overlooked (IFAD,
2012; WB, 2019). This requires the project to include an appropriate M&E framework, indicators and some
guidelines for impact evaluation to justify the use of a matching grant. In addition to the usual indicators
that measure absorption of project funds and reach (beneficiaries, investments, etc.), additional indicators
should be considered:
❖ Cost-efficiency: The cost efficiency of the use of a matching grant when comparing the matching
grant size to its operating costs, benefits generated, etc.
❖ Spillover and increased business activity: Indicators should focus to measure impact beyond direct
project beneficiaries and also capturing potential environmental and social benefits from
investments promoted by matching grants.
❖ Access to financial markets: To an extent, such indicators would depend on the financial market
failure identified in the project as part of the justification for matching grants, but could potentially
include access to credit through financial institutions by targeted beneficiaries, access to savings
accounts, etc. (WB, 2017, p. 7).
(9) Projects with a matching grant component should have a specific matching grant manual setting
out the process for grant application, evaluation, disbursement and monitoring, and also including
forms/templates to be used and dedicated sections for financial management and procurement. Where
possible, simplified procurement rules should be used for the acquisition of goods and services under
matching grants (WB, 2017, p. 7). In FAO, Manual Section 703 (MS703) establishes the accountability
framework, policies, rules and procedures that govern the delivery of grants projects. MS703 should be
followed during the design of any matching grant projects and the development of their related Grant
Operational Manual (GOM).
(10) Involving FAO staff from the Implementation Unit in the drafting and adjustment of the matching grant
manual is important to strengthen the capacity of the FAO Implementation Unit staff, ensure project
ownership and to ensure that processes are flexible (WB, 2017, p. 7).
(11) A competitive mechanism with specific time-bound windows for applications is useful for limiting
availability and for enabling choice among several competing subprojects, though approaches and methods
for such selection are diversified and context-specific (WB, 2017, p. 7).
(12) Contracts with any service provider, especially the Business Development Service (BDS), should be
designed to ensure quality and results. For example, terms of reference (TOR) may include a payment
schedule where most of the payment is made at the end of the contract based on the achievement of specific
objectives (e.g. productivity improved, website built etc.) (WB, 2017, p. 7).
(13) A strong communication plan about matching grants from the beginning of the implementation is key
to ensure uptake, equal access to grants, accountability and to foster spillovers. For instance, showcasing
matching grant beneficiaries on local television, radio and social media increases project ownership and
decreases the risk of grant misuse. Additionally, it can foster innovation and technology adoption among
non-beneficiaries, which is a key expected impact of matching grants projects (WB, 2017, p. 7).
(14) Drawing on the above lessons, there are certain factors that contribute to the success of a matching
grant including:

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 ❖ Before designing a matching grant project, a strong economic rationale must be established and
market failures must be properly described (e.g. lack of demand or supply of business development
services, limited supply of financial services, limited bankable demand of financial services etc.).
❖ Size of the grant and level of grant matching should be different depending on the type of
beneficiary (micro-enterprises and farmer groups, small enterprises, medium enterprises) and the
type of investment (technical assistance, fixed assets, working capital) so as to ensure additionality
and sustainability.
❖ Beneficiaries’ contributions must be set high enough to ensure ownership and crowd in commercial
credit.
❖ Matching grant projects should include technical assistance to beneficiaries both to prepare and
implement business plans.
❖ Involving the Implementation Unit in the drafting and adjustment of the matching grant manual is
important to strengthen the capacity of the Implementation Unit and ensure successful matching
grant implementation.
❖ A strong communication plan from the beginning of the implementation is key to ensure equal
access to grants, accountability and to foster spillovers.
❖ Contracts with BDS providers for both the Implementation Unit and the recipients should be
designed to ensure quality and results.
❖ A practical M&E with required cost-efficiency indicators including:
o Percentage operating costs/Total amount of the matching grant
o Increase in beneficiaries’ income linked to the subproject
❖ Suggested M&E indicators to track spillovers may include the percentage of nearby farmers
adopting the promoted technology/equipment compared with a control group (WB, 2019, pp. 30-
31).

III. GUIDANCE FOR THE DESIGN OF MATCHING GRANTS

In contemporary rural development, there are questions concerning what to do to reduce poverty, increase
employment, widen consumer choice, increase market availability, and ensure the sufficient delivery of
goods and services in view of volume and value. Increasingly, there are calls for measures and solutions to
deal with risks relating to markets, climate change and diseases (e.g. COVID-19). In response, development
agencies designing projects have gradually turned to matching grants to provide solutions.
In deciding whether to use matching grants and how to design them, the following key questions and issues
need to be addressed:
• Is a matching grant the best remedy? Justification for the use of a matching grant as an instrument
in the proposed project/programme, based on an analysis of alternative interventions and financing
options.
• Why is a matching grant used? Objectives of the matching grant component. Expected main
outcomes and impacts of the matching grant, which should include a realistic assessment of how
the matching grant will address the market failure and how the matching grant will contribute to
correcting the market failure
• Who is eligible to apply for the matching grant? Intended beneficiaries (communities, groups,
individuals, farmers, SMEs etc.).
• What kinds of matching grant instruments should be used? For each main type/category of matching
grants: details on the type of support (assets, cash/in-kind, technical assistance, etc.), minimum and
maximum grant amounts, and expected matching contribution (amounts in cash/in-kind).

19
 • Is the capacity adequate to implement the matching grant? Making judgements about existing
capacity and future capacity that could be built up.
• Is the grant process transparent and accountable? This is a key element for good governance, and
requires clear thinking about: institutional arrangement; eligibility, selection criteria and approval
procedures; provisions for appeal; how to inform the eligible population; how to ensure community
decisions reflect interests of all groups within communities; possible support for preparation of
grant proposals; reporting requirements for recipients; and monitoring and evaluation (WB, 2006,
2010; IFAD, 2012).
The sections below present the required steps to ensure an effective matching grant design. FAO staff and
institutions who are planning or in the stage of designing a matching grant should consider those minimum
standards and practices in each step.

3.1. Step 1. Determining the appropriate use of matching grants

This step, often referred to as the feasibility study for the matching grant, involves answering the questions
of why it is necessary to use a matching grant, when it will be used and which matching grant scheme is an
appropriate choice for the given situation.
Previous lessons on matching grant implementation have reflected that sufficient justifications for the use
of matching grant are often lacking. This is mainly due to a shortage of proper feasibility studies and/or
stakeholder consultation before the design. Further, since the matching grant is often designed as an
instrument/component of a larger project, less attention is paid to it, with the consequence that too much
decision-making is left to those implementing it, as shown by lack of information in project documents
(WB, 2006, 2010, 2017; IFAD, 2012). To this extent, it is essential to justify the rationale for a design of a
matching grant before any further effort is expended. The following questions address some underlying
conditions for choosing an appropriate matching grant.

3.1.1. Are there market failures?

As observed in practice, because of asymmetric information and fear of adverse selection, farmers and
agricultural SMEs are unaware or uncertain of the benefits of investments in technology, and/or financial
institutions are not willing to finance a perfectly viable business preposition unless their hard collateral
requirements are met and/or at high interest rates. A matching grant can provide the necessary resources, at
least in part, addressing the above failures. Table 2 on p. 24 presents demand- and supply-side constraints
that can be addressed by matching grants. A market failure occurs when the market for a good or service
fails to include all economic costs and benefits in the price of that good or service. Since the price of goods
or services does not reflect all of the costs and benefits, the use of these prices results in the misallocation
of resources and suboptimal economic outcomes (WB, 2010, p. 9). Market failures appear in many forms
(not necessarily related directly to the market) and generally occur for the following reasons: (i) abuse of
market power (for example, when a company holds a monopoly); (ii) failure to account for externalities;
(iii) provision of public goods (for example, knowledge which when released cannot be limited to certain
users); (iv) asymmetric information (one party to a transaction has more information on the real value of the
good or service than the other party); (v) uneven initial wealth distribution; and (vi) factor immobility (WB,
2006, 2010) (See details in Annex 1). Results of the analysis of market failures would help justify the
rationale and suitability of a matching grant, therefore it is necessary to:
❖ Identify and scrutinise the market failures in the proposed project/programme using the above
forms and reasons.
❖ Define the type and characteristics of goods and/or services affected by the market failures (public,
private, impure public-private).
❖ Discuss and prepare a list of proposed solutions ranging from soft to hard interventions for the
market failures.
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 Case study 2. Colombia Productive Partnerships Project: Incentivizing market inclusion through
matching grants

The Colombia Productive Partnerships Project (2010–2015) built on lessons from its initial phase to
increase the incomes of small-scale farmers by improving their relative position in the market. The project
created favorable conditions for large buyers and small sellers to establish mutually beneficial and
sustainable relationships. It offered matching grants to complement producers’ own resources and/or
funding from other sources (local governments, municipalities, commercial partners). Producer
organizations used the grants to obtain technical assistance and build their capacity (for example, to meet
quality standards, bargain, or enhance their entrepreneurial and negotiating skills).
Through the grants, producer organizations gained the ability and incentive to invest in collective goods
such as storage facilities and packing facilities. The grants also enabled individual small-scale producers
to invest in productivity-enhancing infrastructure and gain start-up capital to meet buyers’ requirements.
By the end of its first phase, the project had demonstrated the following results:
• Of 136 partnerships financed initially, 118 were sustainably operating in a wide range of markets
(such as cocoa, coffee, blackberries, mangoes, plantains, dry beans, milk, honey and fish).
• The types of partnerships varied: over half were food processors, one-third wholesalers, and the
remainder supermarkets and retailers (for domestic and international markets).
• The average income of small-scale producers increased by 77 percent and their employment by
70 percent.
• Over 60 percent of the sample partnerships resulted in an internal rate of return of 12 percent
(based on a random sample of 23 partnerships).
• Success varied, but the relationship between the buyer and producer was terminated only in 13
percent of partnerships (18 of 136) (for diverse reasons, including constraints in establishing
social cohesion within the producer organization; inadequate technical assistance; degradation of
local market conditions; and poor feasibility studies, which prevented technical constraints from
being discovered before the grant was made).
Source: WB. 2010. Designing and Implementing Agricultural Innovation Funds: Lessons from
Competitive Research and Matching Grant Projects. Economic and Sector Work. Washington, DC.
https://openknowledge.worldbank.org/handle/10986/12614, p. 57.

3.1.2. What type of investment would be suitable to address different market failures and target groups?
Along the list of solutions:
❖ Define the eligible types of investments and their costs, including investment and working capital
requirements. Keep in mind key questions: would the proposed investment deal most effectively
with the underlying problem of the market failure? Does it compensate for, reduce or eliminate a
market failure that discourages private investment and sales? (WB, 2010).
❖ Apply priority and/or exclusion criteria if there is broad array of possible choices regarding
investment types.
❖ Define the target groups for each type of investment.

3.1.3. Are the investments technically feasible, financially profitable, and socially and environmentally
responsible?
Based on the list of solutions with proposed investments:
❖ Discuss and provide evidence about the technical feasibility of the investments in the project area
(e.g. availability of spare parts, repair facilities and technical support services beyond project life,
replication and institutionalisation) (WB, 2006).

21
 ❖ Assess the profitability of the investments by calculating their internal rate of return (IRR) and net
present value (NPV), where feasible. If there is a broad range of eligible investments, assess the
profitability of the most representative types of investment. The internal rate of return should
exceed the opportunity cost of funds (e.g. the current treasury bill rate of the central bank) (WB,
2010).
❖ Discuss and assess where the investment incorporates the social and environmental objectives
and/or indicators that promote social responsibility, avoid or mitigate negative impacts, or improve
the environment. The social and environmental responsibility objectives and indicators might
include engagement of vulnerable groups (e.g. poor farmers, ethnic minority, women), job
creation, poverty reduction, child labour prevention, safe working environment, air pollution
reduction, forest coverage, use of alternative renewable resources, and so on.

3.1.4. Why are the investments not already financed?

If the investments are proved to be both technically and financially feasible, a simple question to ask would
be why they have not been financed by other actors both from the demand and supply sides. The demand
side represents the target groups (e.g. farmers, SMEs). The supply side refers to the financial institutions. A
thorough analysis of both sides is required.
Analysis of the target group
❖ Determine the key socio-economic characteristics of the target group, including:
• Income levels and asset base
• Savings capacity and ability to co-finance investment and working capital
• Current access to different types of financial services and institutions
❖ Analyse what is constraining the target group’s access to financial services, in terms of geographic
proximity, psychological barriers (language and communication styles, procedures, attitudes) and
terms and conditions (high minimum savings balances, restrictions on withdrawals, mortgage as a
primary form of collateral, etc.).
❖ Based on this analysis, assess the financing gap to be covered by matching grants for the different
types of investments.
❖ Assess whether the target group has the technical and managerial capacities and the financial
means to operate and maintain the investments in a durable way.
❖ If not, reconsider:
• Whether a matching grant would deal effectively with the underlying financing gap.
• Whether complementary measures are needed to ensure the durable operation of the
investment, and which ones.
• Whether and how the project can ensure that these measures will be put in place (WB, 2006,
2010).
Analysis of the financial institutions
❖ Screen and assess financial institutions in terms of their ability to provide investment and working
capital finance in the target region, for the target groups and for the targeted investments.
❖ Assess the appropriateness of products and services for the target groups and investment purposes.
❖ Analyse the key constraints facing financial institutions, such as (a) insufficient knowledge about
target groups and investments; (b) perceived risks and restrictive policies on client selection,
collateral requirements and interest rates; (c) inadequate operational capacity; and (d) high cost of
and lack of access to long-term funds (given asset-liability matching regulations).
❖ Determine the interest of financial institutions in developing appropriate financial products for the
target markets and the support that the project could provide (WB, 2006, 2010, 2016).

22
3.1.5. Would it be possible to engage financial institutions in supporting the financial requirements?
While most matching grants do not include a specific access-to-finance component, some have promoted
links between beneficiaries and financial institutions. They have done so through four major approaches: (i)
financial institutions advise beneficiaries in the preparation of their business plans; (ii) financial institutions
are involved in managing grants, including appraising and disbursing grants;4 (iii) financial institutions are
required or incentivized to provide credit to finance part of the grant activities; and (iv) financial institutions
are deposit-takers, and beneficiaries are required to save a specific amount and/or at a specific frequency
from the proceeds of their activities (WB, 2017). Matching grants that promote such links with financial
institutions generally show a positive impact on access to and usage of financial services (WB, 2010, 2019).
For this reason, the question of whether it would be possible to engage financial institutions in supporting
the matching grant becomes crucial.
Based on the constraints facing financial institutions, decide:
❖ Whether and how the proposed matching grant or other ongoing interventions could contribute to
tackling some of the key constraints.
❖ Whether there is still need for a matching grant.
❖ Whether matching grants could undermine the introduction or expansion of term finance (WB,
2019).
Case study 3. Engagement of financial institutions in the AMD project’s Public-Private Partnership
matching grant

The Adaptation to Climate Change in the Mekong Delta Project (AMD) in Viet Nam was an IFAD loan
project which operated from 2016 to 2020. The project was implemented in Ben Tre and Tra Vinh
provinces, in the lower basin of the Mekong region which is suffering significantly from climate change.
The project’s Public-Private Partnership (PPP) matching grant was designed to engage SMEs in
development of various agri-value chains in two provinces. The matching level was a maximum of 49
percent of the total subproject amount but not more than USD 60 000 from AMD and a minimum of 51
percent from the enterprise. Eligibility criteria included a viable financial background, a good business
proposal, the involvement of farmers in the subproject through farming contracts and job generation for
local people. Eligible expenses were for private goods and services.
By the time the PPP was designed, various financial institutions were consulted with different agreements
signed for possible cooperation. During implementation, the Post Bank was the committed and engaged
bank in the PPP implementation process with the three roles including as: (i) A deposit-taker. PPP
recipients were encouraged to save in the bank an amount from the proceeds of their activities. This
served as evidence of the financial viability of the recipient; (ii) Through participation in the matching
grant, the bank gained more understanding of the SMEs, then increasingly provided credit to finance part
of the PPP’s activities; and (iii) The bank was involved in the PPP reviewing committee, providing
comments and advise to each subproject mostly related to the financial viability.
With the involvement of the bank in PPP implementation, the level of success of the PPP increased
significantly. After the PPP, all the SMEs were still able to maintain a solid relationship with the bank.

Source: AMD. 2020a. Project Completion Report. Ben Tre/Tra Vinh, Viet Nam.

4 Please refer to FAO MS703 for more details on how financial institutions can be involved in FAO matching grant projects.
23
3.1.6. If matching grants are needed, how should they be designed?
Matching grants for agriculture may be used to address a variety of market failures. These include the
demand-side constraints both non-financial (e.g. lack of willingness to invest in business development
services, or in technology which has unproven results) and financial (e.g. lack of trust in financial
institutions), and the supply side constraints both non-financial (e.g. lack of supply of business development
services providers) and financial (e.g. limited supply of rural finance) (WB, 2019) (see Table 2 on p. 24).
Matching grants are not a sustainable financing instrument, but their objective should be to support
sustainable investments (WB, 2006, 2019). Depending on the context and for a certain period of time,
matching grants can help address the demand-side and supply-side constraints to finance but they must not
replace the role of private sector, especially the financial sector. Rather they should help strengthen the link
between the supply side and the demand side. To this end:
❖ Financial institutions should be consulted during preparation of the initial design to ensure that
alternative solutions are explored and that grant support will leverage – not undermine or interfere
with – their ongoing activities.
❖ Where possible, grant approval should be subject to the willingness of financial institutions to
provide working capital and/or term loans at their own risk. (This may require additional measures
to address constraints facing financial institutions.)
❖ Where this is not feasible, at least not in the short term, a robust institutional design is crucial,
maintaining high professional standards while minimizing political interference and rent-seeking
(WB, 2010).
Even where the analysis determines that local financial institutions would not be keen to finance the target
group, it would be highly desirable to introduce and promote a simple linkage programme. Grant recipients
should be reminded of the need to maintain at least a savings account at a financial institution and to use it
to hold excess income and finance raw material, spare parts and other operating costs. They should also
practice setting aside an amount necessary to replace assets that reach the end of their economic life.
Matching grant managers should meet regularly with representatives of financial institutions to discuss
project activities, the potential of target groups, results achieved and the need for additional financial
services to complement project activities (WB, 2016, 2017, 2019).
Table 2. Demand-side and supply-side constraints that can be addressed by matching grants

Constraints Addressed by matching grants

Demand side

Lack of willingness to Matching grants can promote demand for investment by demonstrating to
invest farmers the profitability of agricultural investments.

Lack of skills to invest Matching grants can help farmers and SMEs develop skills to prepare
production/business plans (both for current project and future activities).

Lack of collateral When matching grants support the acquisition of assets, these assets can serve
as collateral for current and future projects of beneficiaries.

Risks By increasing the repayment capacity of beneficiaries, matching grants reduce

the risks of investments that financial institutions co-finance.

24
 Lack of trust towards When matching grants require beneficiaries to save a specific amount at a
financial institutions specific frequency, matching grants projects can build financial capacity and
trust towards financial institutions.

Supply side

Lack of information on When matching grants require beneficiaries to save at a financial institution,
farmers and financial institutions can capture information on farmers and the cash flow
investments patterns and profitability.

Lack of know-how on When matching grants include financial institutions (in particular when they
agriculture finance are required or incentivized to fund part of the investment), financial
institutions can gain know-how on agricultural credit methodologies.

Costs By screening a variety of projects, matching grants can signal project viability
to financial institutions, therefore reducing the appraisal costs for financial
institutions.

Lack of long-term Matching grants reduce the amounts of financing required from financial
liquidity institutions.

Source: Adapted from WB. 2019. How Can Matching Grants in Agriculture Facilitate Access to Finance?
Lessons Learned from World Bank Group’s Experience. Washington, DC.
https://openknowledge.worldbank.org/handle/10986/33829, p. 7.
Section 3.2. below discusses key aspects and parameters that are fundamental to optimizing the design of
a matching grant.

3.2. Step 2. Defining matching grants’ parameters

As mentioned earlier, a matching grant can be designed as a single programme or a component within a
project/programme framework. Within a project/programme, there might be different matching grants; or
within a matching grant, there might be different funding windows (e.g. public infrastructure, BDSs, private
goods). These target different groups of beneficiaries (e.g. service providers, farmers, groups of farmers,
SMEs). In any situation, for each type of matching grant/funding windows, concrete guidance (in project
design, in the Grants Operational Manual) should be provided at the design stage, including objectives,
eligibility criteria, target groups, size of matching grant, intervention mechanism, and nature of support.

3.2.1. Eligibility criteria for beneficiaries and expenses

3.2.1.1. Eligibility criteria for beneficiaries

(i) Type of beneficiaries
One matching grant may target one or various types of beneficiaries ranging from service providers to
farmers and enterprises. Thorough analysis in Step 1 would help justify the eligibility of beneficiaries (e.g.
access to productive infrastructure, fostering linkages and cooperation between firms, improved access to
services for firms with limited financial resources, reduced programme administration cost, etc.). Issues to
be considered when defining beneficiaries include:
❖ Which target groups are eligible or ineligible should be clearly defined in a comprehensive,
clear and understandable manner.

25
 ❖ Target groups can generally be defined by categories such as profession, age, residence, gender
or group affiliation. Some affiliations may require further narrowing, such as by turnover,
employment or surface area cultivated.
❖ When selection is based on qualitative parameters such as capacity, ability, poverty and
vulnerability, the criteria should be clearly defined.
❖ The means of verifying fulfilment of the criteria should also be stated. Proof can include
certificates of incorporation or occupancy, business licenses, tax payment receipts, lease/rent
agreements, payment receipts or bank account statement (IFAD, 2012, p. 29).
As an additional note regarding the service providers, while most matching grants deal more with the
demand side, some matching grants aim to address the supply side by making service providers eligible for
matching grants. This is intended to subsidize the cost of providing extension and/or business development
services and to improve the diversity, quality, and marketing of these services. Increasingly, there are
matching grants intending to provide matching grants to financial institutions to incentivize them to develop
their capacity to lend to SMEs and farmers. Just like for the demand side, using matching grants for service
providers would require the justification for eligibility (e.g. market failure leading to undersupply or
inadequate supply, confirmed interest/demand from the demand side, selection criteria ensure additionality
of the resources, etc). For whatever reason, the ultimate objective is to increase the quality and diversity of
service available to farmers and SMEs (WB, 2019).
(ii) Size of beneficiaries
The size of the beneficiary pool is often overlooked when designing a matching grant. This causes
difficulties for M&E during implementation, especially regarding costs and benefits. The optimal eligibility
criteria for the size of beneficiaries depend on the main objective and local environment (e.g. characteristics
of the private sector, administrative capacity, production situation). The level and breadth of eligibility
criteria must be carefully set (and revised during implementation, if necessary), as they influence the
programme’s results with regard to implementation and impact. Considerations for defining size of
beneficiaries include:
❖ How large a target group should be formed for each subproject?
❖ Depending on the type of beneficiaries, the eligibility threshold varies significantly.
❖ Criteria for defining size may include: ceilings (e.g. number of employees/employments, cost
per beneficiary, turnover), wealth ranking (e.g. poor, near poor, poverty rate); boundary (e.g. a
hamlet) legal basis (e.g. definition of SME according to SME Law promulgated by the
government).
(iii) Other criteria
There are additional eligibility criteria defined in various matching grants in a certain context, with the
purpose of reaching the desired type of beneficiaries which will maximize impact. Some projects give
greater weight to applications submitted by certain types of beneficiaries (e.g. women-owned businesses).
The following criteria should be considered during the design:
❖ Experience of beneficiaries: A matching grant for business development might have eligibility
criteria restricted to firms with a minimum time in operation (for example, two years), whereas
if a matching grant justifies making start-ups or very young firms eligible, other requirements
can be set to ensure the good use of funds, such as solid business experience on the part of the
owner and/or the capacity to prove the medium-term commercial and financial viability of the
venture.
❖ Registration: Some matching grants for cooperatives or SMEs might require showing a formal
status with a public registry, evidence of compliance with tax obligations or similar

26
 requirements. While such requirements can facilitate tracking of beneficiaries and can
constitute an incentive to formalize, they should be adapted to local circumstances and not be
so stringent as to disqualify a majority of SMEs.
❖ Ownership: Some matching grants specify a minimum share of domestic ownership (i.e. within
a country, within the territory of the project) and/or domestic registration. Moreover, eligibility
is generally restricted to private or majority-private companies.
❖ Other: (a) Existence of a sound financial management system, sound accounting documents and
a stable financial situation; (b) absence of previous public funding for the same activities; (c)
location in specific geographical areas covered by the project; and (e) proof of land rights for
agricultural projects (WB, 2019).
Case study 4. Selection of beneficiaries in the SRDP project in Viet Nam

The Sustainable Rural Development Project (SRDP) was funded by IFAD in the period from
2013 to 2018 and operated in the Quang Binh and Ha Tinh provinces in Viet Nam. The Common
Interest Group (CIG) matching grant was one of funding windows by the project.
The matching grant targeted CIGs with a matching level of 50 percent from the project
(maximum USD 3 500 per group) and 50 percent from the farmer group (minimum 25 percent
cash, the remainder in kind). Eligible criteria for beneficiary selection included (i) willingness to
join common interest group (CIG), (ii) minimum 30 percent of members are poor, (iii) group
must not exceed 15 members, (iv) the group must have a sound production/business plan (v)
sufficient capacity for subproject implementation, (vi) showing innovative aspects of the
subproject, and (vii) willingness to co-finance the subproject.
In order to ensure the information reached the target population and that people had sufficient
capacity to participate in the matching grant, the matching grant engaged the Women’s Union
and the Farmer’s Union in the process of information dissemination and capacity building. These
two agencies were selected due to their extensive networks of farmers and women from
provincial to local level.
Over the four years from 2014 to 2017, 11 000 CIGs (154 000 members) were established with
9 700 CIG (140 200 members) served by the matching grant with impressive results: (a) 600 000
people participated in capacity building, (b) 11 000 production/business plans developed with 9
700 accepted (88.2 percent), (c) average return on investment of 23 percent, and (d) 43 000
farmers escaped from poverty.

Source: SRDP. 2018. Final Impact Assessment Report. Ha Tinh/Quang Binh, Viet Nam.

3.2.1.2. Eligibility criteria for expenses

Clearly defining eligible activities and expenditures will prevent unnecessary delays in the development and
review of proposals. Appropriate expenditures reflect the rationale for using grants. Depending on a specific
context, a matching grant might provide investment, know-how (technical assistance, capacity building,
BDSs) and/or equipment. In other words, the investment will be to public goods, private goods, and/or
impure public and private goods. In addition, there is a combined loan/matching grant package, provided
through one or more financial institutions. In any case, efforts to define which specific expenditures are
eligible and ineligible are essential to avoid the misuse of the matching grant. Table 3 below provides
examples of eligible and ineligible expenditures from World Bank (WB) projects which can be taken into
consideration during the design. However, for FAO’s work, further details on eligible and ineligible
expenditures should be requested through consultation with technical offices, for example, the Inclusive
Rural Transformation and Gender Equality Division (ESP), which is responsible for supporting the technical
aspects of matching grants.
27
 Table 3. Examples of eligible and ineligible expenditures in matching grants

Eligible expenditures Ineligible expenditures

❖ Technical assistance and the purchase of ❖ Regular operating expenses not directly
knowledge-based services (such as training, associated with the matching grant
business services and plans, material proposal.
preparation, studies and demonstrations, ❖ Expenditures for consumable materials,
technology development). inputs, and capital equipment may not
❖ Payments of salaries, wages, and overheads include the purchase of large capital
directly related to the proposed technical equipment such as large field machinery,
assistance or additional activity promoted by construction equipment, vehicles, large-
the grant scheme. scale processing and handling equipment,
❖ Consumable materials, inputs and capital and agrochemicals (including fertilizer)
equipment. Matching grants often allow and other agricultural inputs.
limited funds (a percentage of the total cost) ❖ Large civil works such as buildings and
for these items if they are directly related to roads.
the proposed technical assistance or ❖ Land purchases.
knowledge generation. ❖ Retroactive payments for expenditures
❖ Minor civil works and small structures prior to the date on which the grant
directly related to the proposed technical agreement is signed.
assistance. The grant scheme may elect to ❖ Financial participation in a firm’s capital
cover civil works up to a maximum
percentage of the expenditure.
Source: WB. 2010. Designing and Implementing Agricultural Innovation Funds: Lessons from
Competitive Research and Matching Grant Projects. Economic and Sector Work. Washington, DC.
https://openknowledge.worldbank.org/handle/10986/12614, p. 36.

3.2.2. Size of grants and level of matching

There is no universal regulation on the size of grants and the level of matching. The size of the actual grant
and the contributions varies significantly, depending upon the type of fund selected, the objective pursued
with the grant scheme, and the absorptive capacity of the target beneficiaries. Based on the results of the
feasibility study for the grant conducted in Step 1, a matching grant will target a particular type of investment
such as public infrastructure, research, BDSs, capacity building, production inputs, and/or value chain
investment. The size and matching level will be designed accordingly.

3.2.2.1. Size of matching grant

There is limited explicit discussion of the size required for matching grant schemes to have the demonstrated
effects and benefits that would justify the use of matching grants. In the absence of this, the risk is that
matching grant schemes are added automatically and that their size and targeted number of beneficiaries is
driven more by the remaining funds in the total project envelopes that have not been attributed to other
components (WB, 2019). The appropriate size of a grant is influenced by evidence of beneficiaries’ capacity
to use the additional funds effectively and quickly. Injecting too much money too quickly into a system will
not necessarily ameliorate the challenges related to underfunding. In this sense, it is suggested that if the
capacity of an intended beneficiary is low, then the grant size is overall lower, and conversely, the greater
the capacity, the greater the grant size (WB, 2010). When designing a matching grant, the following
considerations should be taken into account:
❖ Calculation of the expected budget as per investment categories including matching grants.
Some donors will not allow the creation of a large matching grant. They specify the ceiling for
28
 each type of grant. Some projects will reserve a modest amount for the matching grant aside
from other direct investments.
❖ Calculation of the number of eligible beneficiaries as per the grant in the project areas.
❖ The economic and financial analyses of the matching grant-related models (e.g. crop production
financial analysis, SME operation analysis). Results such as NPV, IRR, cost-benefit, average
size of model that generate good return on investment are important inputs for specifying size
of matching grant.
❖ Assessment of capacity and capacity needs of beneficiaries regarding the management and
implementation of the investments (crop production, processing, marketing, supply/value
chains). This will confirm their ability to participate in and benefit from the matching grants.
❖ References of prior similar matching grants implementing within the region.
❖ Consultation of the financial institutions in the region regarding both matching grant size and
level of matching, as they are best placed to understand the capacity of beneficiaries (WB,
2017).
Table 4. Examples of matching grant size and beneficiary contributions from World Bank projects

Project Agency Matching grant size Beneficiary

contribution
Armenia Rural Enterprise WB Grants between USD 8 000 and 25–50 percent (paid
and Small-scale USD 20 000, of which a max of 10– in cash or in kind).
Commercial Agriculture 15 percent may be allocated for
Development technical assistance by a third party
service provider.
Colombia Productive WB A cap of USD 2 000 per small-scale A minimum of 60
Partnerships Support farmer. percent.

Zambia Agricultural WB A maximum of USD 150 000–600 25–50 percent. A 75

Development Support per subproject. percent subsidy
targeted at farmer
associations.
Suriname Agriculture FAO Small matching grant: A maximum Small matching
Market Access Project of USD 5 000 grant: A minimum
Large matching grant: A maximum 30 percent financial
of USD 300 000 or in-kind
contribution of the
requested amount.
Large matching
grant: A minimum
50 percent financial
or in-kind
contribution of the
requested amount.
The Horticultural FAO A maximum of USD 10 000 Year 1-2: A
Advancement Activity, minimum 25 percent
Pakistan financial or in-kind
contribution of the
requested amount. 15
percent for women
applicants.

29
 Year 3-5: A
minimum 50 percent
financial or in-kind
contribution of the
requested amount. 25
percent for women
applicants.

Source: WB. 2010. Designing and Implementing Agricultural Innovation Funds: Lessons from
Competitive Research and Matching Grant Projects. Economic and Sector Work. Washington, DC.
https://openknowledge.worldbank.org/handle/10986/12614, p. 37; FAO project documents [unpublished].

3.2.2.2. Level of matching

The level of matching is a central element of matching grants, which carries trade-offs between several
dimensions (e.g. attractiveness of the scheme, commitment of the beneficiary, additionality of resources and
risks of abuse). While the grant level should not be set too low, in order for the programme to have a strong
catalytic and attractive effect, the level of contribution should be as high as possible to show commitment.
However, it is argued that the higher the subsidy the lower the likely long-term impact, meanwhile the
higher the contribution the higher risk of exclusion of the key target beneficiaries (e.g. the poor, members
of ethnic minorities) (IFAD, 2012; WB, 2010, 2019).
Even though the correct level-setting is hardly scientific, it should still be based on an analysis of the specific
conditions and objectives. Lessons from previous matching grant implementation processes have suggested
that matching grants targeting research, investment of an overall public nature, smallholders or small,
demand-driven subprojects require lower contributions from the recipients, whereas grant schemes that
involve the private sector tend to require higher contributions (WB, 2010, 2017). IFAD (2012, p. 27) noted
the following considerations regarding matching level for the design of matching grants:
❖ The lower the contribution of the recipients, the lower their ownership and commitment,
the higher the interest of local politicians and potential beneficiaries, and the faster the
disbursement rate.
❖ The greater the contribution of recipients, the higher the probability of generating adequate
levels of ownership among recipients, the higher their diligence in handling funds and
goods.
❖ The greater the contribution of recipients, the larger the risk for exclusion of poor investors.
In this case specific savings schemes could be designed to encourage poor people to save
the required equity contribution.
❖ The poorer the target group, the lower the monetization level in the zone of intervention
and the lesser the cash income, the lower the matching contribution should be fixed, and
the more beneficiaries should be allowed to make contributions in kind (e.g. in stones, sand,
land, and labour).
❖ The higher the value of the goods financed, as a percentage of the total investment, the
lower the expected contribution. Alternatively, a sliding-scale matching grant could be used
in which the grant proportion decreases as the amount of the investment increases. This is
an indirect targeting instrument assuming that investment amounts often correlate with
poverty levels and that the poor have less ability to contribute to investment costs.
❖ Where the goods supported have purely public benefits, such as potable water schemes, and
productive infrastructures, only a minimum contribution should be required (e.g. 10
percent) to ensure ownership, commitment and sustainability (e.g. operation and
maintenance).

30
 ❖ In the case of goods with public utility character that generate business through their
presence and functioning, such as marketplaces, veterinary pharmacies, laboratories and
water schemes, the contribution level should be higher, probably in the range of 20 to 30
percent.
❖ Where innovations are to be developed through research and development, or the scheme
is to encourage adoption of new practices, contributions may be set at 20 to 40 percent of
the investment amount.
❖ The adoption of new environmentally sound practices may require two assessments, one
economic and one social and psychological. On the economic side this includes anticipation
of commercial losses, the potential to compensate these losses through other practices and
the absolute value of the losses. On the social and psychological side it includes the
presence or absence of enforcement mechanisms and the willingness of target groups to
change their behaviour. In standard cases, the required contribution may be in the range of
30 to 60 percent, depending on whether or not the innovations are judged to be tried and
tested in principle.
❖ Ventures that generate income for private benefit, such as companies, associations,
cooperatives or individuals, should require higher levels of contributions, probably in the
range of 40 to 90 percent of the investment amount. Financial institutions can be mobilised
in this case providing additional financial incentives (e.g. soft loans, guaranteed funding)
to companies complementing to the grant. The more closely the purpose is related to a
private for-profit venture, the higher the expected contribution should be.
Case study 5. Size of matching grant and level of matching in the FNML project in Laos

The Southern Laos Food and Nutrition Security and Market Linkages Programme (FNML), implemented
in Attapeu, Salavanh and Sekong provinces in Laos, was funded by IFAD from 2014 to 2020. Two
matching grants were established by the project, including a Public-Private-Producer Partnership (4P) for
SMEs and a CIG for farmers.
Before establishment of the matching grants, the project conducted various studies and consultations in
order to:
❖ Understand the business and production context of SMEs and farmers within the region as
important inputs for setting the size and level of matching grants.
❖ Identify the interests of SMEs and farmers regarding the 4P and CIG respectively.
❖ Consult various banks and microcredit institutions/projects to better understand the financial
markets as well as to help define the size and level of matching grant.
❖ Undertake cross learning with other matching grants within the region and in other countries (e.g.
Viet Nam) regarding matching grant establishment.
❖ Recruit technical assistance for manual development of the two matching grants.
The results of the project were that:
❖ (i) The 4P was established with a matching level of 49 percent (maximum USD 30 000) from
FNML and 51 percent from the SMEs, and (ii) the CIG was established with a matching level
of 50 percent (maximum USD 2 000) from FNML and 50 percent from the CIGs (25 percent
cash – 25 percent in kind).
❖ Since the project’s ultimate objective was to engage farmers in the value chain through 4P and
CIG, a rule of thumb established for matching contributions was that for every farmer engaged
an overall amount of USD 150 would be required. For instance, if an SME’s business plan
proposed to engage 100 farmers through job creation and/or farming contracts, the co-financing

31
 amount of the project would be USD 15 000. Similarly, a CIG consisting of 10 members with a
sound production plan would be able to access to the matching grant amount of USD 1 500.

Source: FNML. 2020. Project Completion Report. Salavanh, Sekong and Attapeu, Laos.

3.2.3. Selection criteria

A well-designed grant selection process, including the definition of selection criteria, is vital to the success
of a funding mechanism. If the criteria and procedures are not relevant or responsive to the goals and
purposes of the matching grant, the introduction of the matching grant will appear irrelevant (WB, 2010).
The selection criteria must be clearly defined to ensure the equality and transparency of the selection
process, especially if the matching grant is highly competitive, if the demand is likely to exceed the supply
of funds and/or if the funds are awarded on a first come first-served basis (IFAD, 2012).
Four areas often dominate the list of selection criteria: relevance, quality, diversity and economic
considerations. Besides these, the criteria for many matching grants emphasize the local context, the
additionality of the investment, the environmental and natural resource use implications, the inclusion of
diverse groups of stakeholders, and characteristics that suggest an aptitude for cooperation and collaboration
(partnership) (WB, 2010). In designing the criteria for matching grants, the following contents are often
considered (see examples in Annex 2):
❖ Legal requirements, rights and obligations (for example, the legal registration of the grant recipient
or the contractual arrangements for the partnership).
❖ Financial requirements (for example, information on assets, bank accounts and a jointly prepared
business and investment plan).
❖ Evidence of potential impacts on environment and natural resource use. Evidence that the plans will
not create any negative impacts through environmental degradation and natural resource depletion.
Evidence that the plans have measures and solutions to prevent any negative impacts.
❖ Evidence of potential impacts on institutional development. Evidence of plans to strengthen
participating farmer organizations, a guarantee that participating farmer organizations have a
minimum number of members or the inclusion of gender considerations can help to ensure that the
selected proposals are likely to stimulate productive partnerships and successfully elicit matching
funds from the grant recipient.
❖ Evidence that the matching grant activities do not create market distortions.
❖ Weighted criteria: A useful practice is to weight the criteria rather than to rely on simple scoring.
Weighting reduces the chances that poor scores for some criteria will be compensated by good
scores on others (WB, 2019, p. 39).

3.2.4. Matching grant modalities

3.2.4.1. Application modality

There are often two types of application modalities used in practice: direct invitation and public calls (using
a competitive process). While the latter is more popular and more complex, the former is used for special
goods and services (e.g. goods and services with limited producers and providers, good and services dealing
with special/urgent circumstances such as disasters, diseases) and in special areas (e.g. remote mountainous
areas with few producers/providers). Both application modalities require a thorough understanding of the
local context and careful assessments, to ensure applicants have the required capacity that meets the
eligibility and selection criteria mentioned in previous steps. In any case, a comprehensive procedure for
selection and approval of the matching grant must be applied (see Figure 1 on p. 34 below).
Considerations for justification of using direct invitation:
❖ Thorough analysis and understanding of the context (Step 1).
32
 ❖ Specification of the types of goods and services (public, private, impure public and private). Service
providers/contractors are often less interested in small-scale public goods (e.g. road) in rural areas.
Similarly, value chain businesses in remotely mountainous areas receive less attention from the
private sector.
❖ Assessment of the capacity of the applicant. Are the requirements for beneficiaries’ contribution
and grant payment adequate for their capacity? Are the mechanisms in place likely to result in
prompt payment of grants? Is there a significant risk of non-payment, delayed payment and non-
performance by beneficiaries to address?
❖ Direct invitation bears a lot of risks including market distortion, monopoly, elite capture and fund
abuse. It therefore requires more frequent supervision and M&E compared with public calls.
Considerations for justification of using public calls:
❖ Thorough analysis and understanding of the context (Step 1).
❖ Specification of the types of goods and services. Public calls are more common for private and
impure public-private goods and services and targeting specific individuals, groups of individuals
and enterprises.
❖ A greater focus on being demand driven, a certain matching level is required from beneficiaries,
bringing in more interests and responsibilities of beneficiaries (due to matching contribution).
❖ Assessment of the capacity of the applicants. Unlike the direct invitation method, applicants for
public calls are not known in advance; they may be distributed over a wide area. The capacity of
applicants through public calls might also vary. Therefore, greater efforts are required to assess the
capacity of the applicants by the matching grant management. In various cases, an independent
service provider is invited to do the capacity assessment (using the same criterion/questions as for
the direct invitation) to ensure transparency. The public calls should be organized on a regular basis.
❖ Public calls are more transparent, with higher levels of commitment and the undertaking of greater
responsibilities from applicants. However, they still carry various risks (although these might be
lesser compared with the direct invitation method) including market distortion, monopoly, elite
capture and fund abuse. Frequent supervision and M&E is therefore required.
Figure 1 below illustrates the processes and procedures associated with the matching grant selection
modality applied both for direct invitation and public calls.

33
 Figure 1. Processes and procedures associated with the matching grant modality
Selection of modality
(Direct invitation or public
Completion and final
calls) Implementation,
evaluation
reporting, M&E

- Training/support
Communication on procurement Contract signing
- Public calls: awareness-raising, and financial
communication campaigns procedures
- Direct invitation: sending
invitation to applicants
Updated full proposal
Approval or Rejection
(rare) by the
Board/Committee

Submission of letter of interest

(LoI) or concept note
Updated full proposal
(CN)/business plan(BP) submission

- First field appraisal

Screening of LoIs/CNs/BPs by to validate the
Implementation Unit (extra Review of full proposal
interests, ideas, and
members or consultant can be by technical reviewers
capacity of applicants
invited) (Implementation Unit,
extra members inc.
financial institutions,
consultants)

Rejection of CNs/LoIs/BPs Endorsement Full proposal

of the development Submission of full
(Applicants are proposal
encouraged to adjust the LoIs/CNs/BPs
LoI/CN, or prepare new
ideas)

- Information and
training provided to
applicants
- Technical assistance
34
Source: WB. 2016. How to Make Grants a Better Match for Private Sector Development: Review of
World Bank Matching Grant Projects. Washington, DC.
https://openknowledge.worldbank.org/handle/10986/26434, p. 42.
Case study 6. Procedure for selection of subgrant proposal in Viet Nam

The Pu Luong-Cuc Phuong Limestone Conservation Project (PLCP) was funded by the World Bank and
implemented by the Fauna and Flora International (FFI) in Thanh Hoa, Hoa Binh and Ninh Binh
provinces in Viet Nam. A matching grant was implemented with communities (in the form of groups,
lineages and villages) to conserve the limestone forest. The size of grant was up to USD 3 000 and
communities were required to contribute 10 percent in cash and 10 percent in kind per each subproject.
Since the project was implemented in remote areas with ethnic minorities, the procedure for selection
was simple and straight forward:
Procedure for selection of subgrant proposals

1. Interested parties obtain the template proposal from the project office.
2. The proposal for subgrants are sent to PLCP staff for technical review.
3. PLCP project staff work with interested parties to develop, improve and modify proposals as
appropriate.
4. Once approved by the project on technical grounds, proposals are sent to the Forest Protection
Department (FPD) at provincial level for financial review.
5. The subgrants are implemented if accepted by the PLCP project and the FPD.

The procedure can be visualized in the figure below:

The proposal for subgrant

Y N One week
N
N
Is the institution eligible?
Does the proposal meet the criteria for selection?
Y One week
N
- Is the budget appropriate and following the project regulation?

Y
One week

The proposal is implemented

Note: The application must be returned for revision N

Application cannot proceed
N
The application is accepted
Y

Source: PLCP. 2008. Community Small Grant Operational Manual. Ha Noi, Viet Nam, Fauna and Flora
International.

35
3.2.4.2. Payment modality
3.2.5. Institutional arrangements
This section discusses the institutional arrangements for the establishment and operation of the matching
grant. It will guide actors to understand more about the management structure and the level of
decentralization.

3.2.5.1. Management structure

The management structures of a matching grant can vary depending on the stakeholders involved and the
level of decentralization or type of administration (e.g. administered by a public or a private entity).
However, there is little substantive difference in the guiding principles for the good management of a
matching grant. An effective management structure of a matching grant should consider the following key
questions:
❖ Which entities should be in charge of processing, what is their composition and what is the
nomination process? Are they public or non-public institutions? Are they part of a larger project or
an independent institution? How is the process of selecting the institution undertaken? Does the
selected institution have the capacity and independence to manage the matching grant transparently
and effectively? (this is part of the capacity assessment mentioned in the previous section)
❖ What are the mandates, roles and responsibilities of the entities involved in the decision-making
process?
❖ What are the processes for the matching grant (see Figure 1 on p. 34 above) and level of decision-
making at each layer of matching grant management? (See Table 5 below)
❖ How are complaints, grievances and appeals addressed? (IFAD, 2012).
The FAO management structure of a matching grant generally looks like the structure indicated in the Table
5 below. More specifically, the Budget Holder is responsible for establishing two committees in every grants
project: a Technical Committee and a Selection Committee. However, the use of committees is not restricted
to technical and selection functions. Larger projects may choose to establish additional technical or
operational committees in relation to, for instance, the receipt and opening of applications. For more details,
please refer to MS703.
Table 5. Suggested management structure of a matching grant

Structure Composition Responsibility

Technical The committee should be composed by The Technical Committee is responsible

Committee technical specialists, such as Agribusiness, for reviewing and scoring grant
Livestock, Agronomy and Financial applications against pre-defined
Specialists from FAO, in addition to eligibility and selection criteria. The list
specialists from the relevant geographical of scored applications will then be
areas where the project will be implemented. passed on to the Budget Holder.
At the discretion of the Budget Holder,
membership of the Technical Committee may
be opened to external stakeholders, but the
Chairperson and secretariat functions must
remain exclusively with FAO personnel.
Selection The Selection Committee is established by the The Selection Committee is responsible
Committee Budget Holder and can be composed of FAO for selection, rejection and/or

36
 team members from operations, procurement amendment of applications ranked by the
and technical officers. Technical Committee, with reference to
pre-defined eligibility and selection
Membership of the Selection Committee may criteria.
be opened to external stakeholders provided
both the Chair and Secretariat functions are Following the completion of the
retained by FAO personnel. selection process, the final list of Grant
Beneficiaries will be sent to the Budget
Holder for final approval.

In some cases, the Selection Committee

can also be responsible for the
registration of applications and opening
stage, when it conducts a first
verification of the compliance of all
applications received, based on the
eligibility criteria and documentation
submitted.
Budget FAO Budget Holder Budget Holders are responsible for the
Holder overall management of the project, such
as developing the GOM and managing
the full implementation of the project,
the project budget and the transfer of the
awards.

In particular, based on the

recommendations of the Selection
Committee, the Budget Holder has the
final say on the selection of beneficiaries
and will determine awards for selected
applications.

The decisions of the Budget Holder will

be documented in writing with a clear
justification for rejection for each Grant
Support Request. His/her decision shall
be final.
Implementati This is the key unit that ensures the daily - Responsible for managing the matching
on Unit/Team operation of the matching grant. Composition grant and carrying out daily operations.
depends on the type and size of matching
- Provides support for governing and
grant. Often, members of the unit are recruited
technical bodies and facilitates
on a competitive basis. Their capacity is in a
communications about programme
broad array of administrative, procurement,
operations.
financial, technical and M&E experience.
- Responsible for dealing with
complaints, grievance and appeals.

37
 (see further discussion in the following
sections)

Appeals/ Depending on the size of matching grant While it is rarely needed, a scheme must
Grievance and/or the geographical areas that the be put in place to handle any petitions
Unit matching grant covers, there might be the need that may arise from the decisions by the
(optional) for staff or a division in charge of appeals. reviewers or the approval committee.
Some matching grants require a grievance
mechanism, which can usually be handled by
providing a dedicated telephone number and
email address to receive complaints from
dissatisfied applicants, observers or
whistleblowers.
The person in charge of this mechanism
should operate outside the grant approval
process and occupy a higher rank than the
head of the unit in charge of the matching
grants.
Appeal decisions are made by the steering
committee or governing council associated
with the project or host institution.

As the Implementation Unit has the key role and responsibilities in management of the matching grant, the
capacity of staff, the size of unit and its function will significantly affect the scheme’s success.
Capacity:
❖ Required capacity building depends on the circumstances, in particular the technical capacity of the
staff, complexity of the design and administrative process, technicality of the eligibility and
selection criteria, prior experience of staff with similar grants and the accountability environment.
As is often the case, capacity assessment is conducted at the recruitment stage to ensure staff are
capable of operating the matching grant. However, continuous capacity building is required during
the operation of the matching grant. Training should be delivered prior to processing the first
applications and after finalization of the grant operational manual (GOM). Ad hoc or refresher
training may also be needed.
❖ Software and technology solutions may also require specialized training.
❖ When appropriate, capacity building service providers should be identified, and included in the
roster for use when needed (IFAD, 2012).
The size of the Implementation Unit depends on:
❖ The number of anticipated proposals and the size and complexity of those proposals.
❖ The extent to which the unit’s responsibilities (such as technical expertise and monitoring and
evaluation) are handled internally or outsourced to other organizations or individuals.
❖ The extent to which the unit supports sector development and provides services, such as capacity
building (WB, 2010, p. 33).
The functions of the Implementation Unit mainly include:
❖ Facilitation of overall sector development by engaging with stakeholders and providing overall
guidance.
❖ Management of the communication and networking aspects of the matching grant.
38
 ❖ Coordination of collaboration with other similar facilities and funds, and maintaining a database of
subprojects and clients.
❖ Screening concept notes for eligibility and organize field appraisals.
❖ Informing stakeholders of decisions that affect them, and arranging for training on the grant
programme’s requirements and proposal development.
❖ Arrangement of a comprehensive review by the technical reviewers for the matching grant
proposals.
❖ Coordinating the awarding of grants and appeals.
❖ Arranging for agreements to be signed, disbursement of grants and management of the fund.
❖ Arranging for M&E of subprojects.
❖ Acting as secretary to the other governance structures, such as the approval committee5 (WB, 2010,
p. 33).
Box 2. Practical suggestions for accelerating the approval process

❖ Use feedback from clients to systematize and speed up application, proposal

development and screening processes.
❖ Develop guidelines and formats (for business plans, proposals and screening criteria)
and adjust them, regularly and as needed.
❖ Use an ICT-enabled subproject application and processing system.
❖ Ensure that technical expertise and administrative capacity are available to guarantee
smooth appraisal and the submission of good proposals.
❖ Provide support for full proposal development and subproject implementation, as
needed.
❖ Continuously accept concept notes and approve proposals at set intervals.
❖ Difficulties in convening physical meetings with a large and diverse group of
representatives can delay the approval of concept notes and proposals. Multi-
stakeholder committee meetings and approvals may be more efficient if they can be
held virtually. It may also help to determine the minimum number of representatives
required to make valid decisions.
Source: WB. 2010. Designing and Implementing Agricultural Innovation Funds: Lessons from
Competitive Research and Matching Grant Projects. Economic and Sector Work. Washington, DC.
https://openknowledge.worldbank.org/handle/10986/12614, p. 46.

3.2.6. Costing and financial analysis

3.2.6.1. Costing
The cost for setting up and running a matching grant greatly varies from case to case, with overhead costs
ranging from a minimum of 10 percent to a maximum of 25 percent of the total fund amount (WB, 2010).
The level of overhead costs depends on several factors, including:
❖ Geographical coverage of the matching grant. A large project area will require higher administrative
costs and transportation costs.
❖ The size of the matching grant. A large matching grant would require more technical staff to
implement and supervise the grants.

5 In FAO, selection and approval are handled by the Selection and Technical Committees and the Budget Holder.
39
 ❖ Complexity of the matching grant. The greater the complexity (e.g. different types of interventions,
various actor involves including financial institutions) the higher the cost required for technical
assistance and capacity building for applicants.
❖ The charges associated with the agency administering the matching grant.
❖ The efficiency and effectiveness of the matching grant management process. Many layers of
matching grant management, lengthy proposal development and review process will add more costs
to the fund.
Box 3 below provides suggested levels of overhead costs for various types of matching grant management
for consideration during the design of a matching grant.
Box 3. Suggested options for calculating overhead costs for a matching grant

• The numerator for calculation includes the salaries and emoluments for staff involved in the process;
initial legal fees for setting up the facility and for recovery in case of fraudulent applications; training of
clients/recipients, staff and committees; and audit. The numerator excludes costs to elaborate the project
implementation manual (PIM)6 and midterm and project-end evaluations.
• The denominator includes the total costs of the facility, including the grants and all overhead costs, but
excluding the costs for M&E, audit and project reporting usually associated with project management.
• In the case of a business-oriented facility, total overhead costs for processing matching grants, including
expenses for appraisal, verification, decision-making, reporting, documentation, M&E and special audit,
generally should not exceed 8 to 10 percent of total funds for the facility. This may be higher under
difficult conditions but should not exceed 15 percent. Costs of administering very small matching grants
to a large number of beneficiaries should not be more than 15 to 20 percent of the grant value.
• In the case of an innovation facility, overhead costs should be around 5 to 8 percent for facilities with
small numbers of large grants and standardized approaches not requiring external assistance, and up to
12 to 15 percent where large numbers of small grants are processed using external assistance.
• When grant processing is subcontracted to institutions or firms with tried and tested systems, the cost
of subcontracting should not exceed 8 to 10 percent of the volume disbursed.
• Community-driven development projects may have overheads of 15 to 20 percent of the total costs of
the facility where (a) there is extensive local participation in design, implementation and supervision, (b)
projects are spread out over many regions and (c) projects target poor communities.
• For matching grants involving grassroots financial institutions, costs may range from 10 to 18 percent,
depending on the need for external assistance in the appraisal process.
• In countries with a high prevalence of malpractice, poor financial management standards, inadequate
public procurement systems, lax internal control mechanisms and low scores on the Transparency
International Corruption Perception Index, additional expenses of about 2 percent of the grant volume for
anti-corruption measures may be justifiable to ensure correct management.

Source: IFAD. 2012. Matching Grants: Technical Note. Rome.

https://www.ifad.org/documents/38714170/39144386/Matching+grants+-+Technical+Note.pdf, pp. 37-38;
WB. 2010. Designing and Implementing Agricultural Innovation Funds: Lessons from Competitive
Research and Matching Grant Projects. Economic and Sector Work. Washington, DC.
https://openknowledge.worldbank.org/handle/10986/12614; WB. 2016. How to Make Grants a Better

6 A PIM is the equivalent of an FAO GOM.

40
Match for Private Sector Development: Review of World Bank Matching Grant Projects. Washington,
DC. https://openknowledge.worldbank.org/handle/10986/26434.

3.2.6.2. Economic and financial analysis

Economic and financial analysis (EFA) is an important element in justifying whether the matching grant is
technically and financially feasible (see section 3.1.3: “Are the investments technically feasible, financially
profitable, and socially and environmentally responsible?”). This is crucial to help the technical reviewers
and the approval committees to make a decision on whether the proposal for a matching grant should be
granted or not. The EFA is often overlooked during the design of grants. This is because of the diversity of
models in each grant (each type of model might require a different form of EFA) and the capacity required
for anticipation/projection (the comparison of before and after the investments) (WB, 2010, 2016, 2019;
IFAD, 2012). In this sense, it is necessary to reconsider the importance of EFA during the design of the
matching grant and prepare and develop appropriate approaches, methods and templates for the EFA. Box
4 below provides guidance on approaches for EFA.
Box 4. Suggested approaches for economic and financial analysis in matching grant design

• Where matching grants are offered, a standard financial analysis should be prepared, showing the results
with and without external support. This will ease the M&E process, ensuring consistency in monitoring,
evaluation and reporting before, during and after implementation of the subprojects.
• Where predetermined innovations are not supported, designers should attempt to provide a reasonable,
objective estimate of the anticipated investments. They should then draw on any similar experiences and
data or on a small number of investments deemed representative to estimate demand (if the main
investment options in the project areas can be anticipated). The expected incremental revenues could then
be used to develop an overall economic and financial analysis.
• If it is not possible to make reasonable assumptions about the main types of investments likely to be
financed, an eligibility criterion could be introduced stipulating that the minimum financial internal rate
of return of proposed projects would need to be higher than the opportunity costs of the funding.
• Where the proposed business venture reaches a certain level, for example above USD 20 000, the
economic and financial analysis should include a sensitivity analysis and a calculation of net present
value and financial internal rate of return.
• No economic and financial analysis is needed in cases of organizational or institutional reform
processes, social infrastructure, capacity building measures, natural resource management or
environmental protection. In these cases, it would usually suffice to list the anticipated benefits and weigh
them against the projected total costs. A cost efficiency analysis would then substitute for the traditional
economic and financial analysis.

Source: IFAD. 2012. Matching Grants: Technical Note. Rome.

https://www.ifad.org/documents/38714170/39144386/Matching+grants+-+Technical+Note.pdf, pp. 38-39.

3.3. Step 3. Monitoring and evaluation, risk assessment and mitigation measures

3.3.1. Monitoring and evaluation (M&E)

“Monitoring” is defined as the continuous assessment of how a subproject is being implemented in relation
to agreed schedules and the use of inputs, infrastructure and services by the subproject’s beneficiaries.
“Evaluation” is the periodic assessment of a subproject’s relevance, performance, efficiency and impact in
relation to stated objectives (WB, 2010, p. 51). Monitoring and evaluation is central for tracking and
capturing the specific knowledge and innovation emerging from the use of innovation funds. Key aspects
41
of M&E include identifying appropriate indicators, establishing appropriate M&E arrangements, following
common monitoring practices and evaluating impacts.
M&E is essential for matching grants but is often underestimated and under-resourced (WB, 2010, 2016).
This is mainly due to the fact that matching grants are often designed as one component of a larger project;
the M&E is hence integrated in the M&E system of larger project. Establishing an adequate M&E system
before implementing the matching grant is imperative for success. Good M&E practice should entail a few
essential steps: (i) clear objective and design, (ii) indicators that capture the outcomes and processes and
(iii) M&E arrangements for collecting, reporting, disseminating and using data for decision-making (WB,
2010).

3.3.1.1. Setting performance indicators

Indicators are one of the crucial aspects of any project’s design. They are quantitative and qualitative
variables that provide a simple and reliable means to measure achievement, reflect changes connected to an
intervention or help assess the performance of an organization against the stated targets. Indicators serve as
incentives to stakeholders who must provide accurate and timely information to the Implementation Unit to
receive continued funding during implementation (WB, 2010). When designing performance indicators for
a matching grant, the following criteria should be visited:
❖ The performance indicators should be closely related to the matching grant’s objectives.
❖ Among other aims, the indicators should aim to measure increased effectiveness, increased
efficiency, the promotion of favourable institutional change and the observance of accepted public
finance criteria (Eliot and Echeverria, 2000). It is essential to evaluate performance against
indicators of effectiveness (e.g. the impact on factor productivity, rate of return on investment and
adoption of results) and efficiency. In other respects, matching grants can be evaluated like any
other public finance mechanism – in terms of the revenue implications (additionality), allocated
efficiency (distortion of expenditures) and administrative burden (costs of collection and
disbursement) (WB, 2010).
❖ Environmental and social (e.g. gender, ethnic minority) aspects are equally important as economic
ones in matching grant implementation. Environmental and social aspects are wide, consultative
and decision-making mechanisms should be set up to determine the selection of indicators (IFAD,
2012). Easily-understood indicators should be established to measure the positive or adverse impact
of the matching grant in relation to social and environmental issues.
❖ With the exception of community-driven development projects, some basic elements should be
monitored and evaluated. These should include the number and value of matching grants disbursed
by type of activity supported and characteristics of the community; sustainability of projects after
two to three years; and profitability, in cases where income-generating activities have been
supported (IFAD, 2012, p. 34).
❖ An effort should be made to clarify the causal link between the matching grants facility and the
outcomes and impacts achieved at large, to determine whether the grant was the main factor behind
the impact and outcomes identified. (IFAD, 2012, p. 34).
Table 6 below provides suggested indicators at output, outcome and impact level for consideration during
design.
Table 6. Suggested indicators at output, outcome and impact level for a matching grant

Level Indicators

Output • Number of applications received by gender, geographic region, profession, age, legal
status, type/category of grant sought and amount of grant sought

42
 • Number and value of grants processed, approved and disbursed, by gender, geographical
region, profession, age, legal status, type/category of grant sought and amount of grant
sought
• Characteristics of enterprises supported (groups, cooperatives, communities, etc.) in
terms of specified criteria (e.g. full-time and part-time staff employed, turnover, net profit,
taxes paid, assets, machinery, debt, poverty levels, level of technology applied, etc.)
• Sources of planned funding of subprojects supported (own equity/budget resources,
grant, other supports, external loans) by category of subproject
• Technical assistance and business development services delivered, by type of recipient
• Training and capacity building measures for potential beneficiaries, by type of
beneficiary
• Number of business plans financed
• Withdrawal of ground/surface water
Outcome • Average processing time for applications approved and rejected (which requires
collating dates of application and dates of decision in the database) and time between
approval and disbursement.
• Number of new businesses established, by subsector and gender
• Number and amount of incremental investments by type/category, sector or subsector
• Receipt of parallel bank or microfinance institution financing (short-, medium- or long-
term for working capital and investments, lending rate/surcharge on prime rate, etc.)
• Changes in deposit base of recipients (in case a linkage programme with financial
institutions also emphasizes a saving process).
• Factor productivity (crop yields, labour productivity).
• Product certification
• Incremental use of facilities supported
• Percentage of members of farmer groups, cooperatives or communities engaged in
decision-making and annual general meetings.
• Emission/absorption of CO2 (tons)

Impact • Improvement in turnover, net results before (and after) taxation, new business services
rendered, quality of services, etc., by grant category and type of business
• Employment creation in terms of short-term and permanent part-time and full-time jobs
created, by grant category and type of business
• Continued use and quality and costs of services of public facilities created
• Continued maintenance of the public facilities created
• Continued profitability of the enterprises (or business ventures) supported (after three
years)
• Continued use of financial services, as indicated by value of deposits (at end of period)
and bank loans received (cumulative over a period)

43
 • Additionality of resources attracted by the matching grant (from clients, private sectors,
financial institutions)
• Institutional capacity increased: staff qualification index, capacity to engage in
partnership, strengthened organizational practices
• Reduction of poverty rate
• Changes in national and regional policies
• Incremental tax revenues of government

Source: Adapted from WB. 2010. Designing and Implementing Agricultural Innovation Funds: Lessons
from Competitive Research and Matching Grant Projects. Economic and Sector Work. Washington, DC.
https://openknowledge.worldbank.org/handle/10986/12614, p. 52; IFAD. 2012. Matching Grants:
Technical Note. Rome. https://www.ifad.org/documents/38714170/39144386/Matching+grants+-
+Technical+Note.pdf, p. 47-48.

3.3.1.2. Monitoring and evaluation arrangements

Institutional arrangements and institutional and human capacity must be adequate to support M&E for a
matching grant. The arrangement of M&E often has three interrelated levels, including:
❖ Centralised M&E unit. Matching grants that are part of larger projects often either establish an
M&E unit that is integrated into the project Implementation Unit, or they choose to share M&E
tasks among the implementing partners and primary stakeholders. The centralised unit has overall
responsibility for project M&E (WB, 2010; IFAD 2012).
❖ Matching grant M&E subunit/division. Responsible for coordinating M&E related to the grant
programme, including support to grant recipients, field visits, subproject evaluations, collection of
reports and overall reporting to central M&E unit (WB, 2010).
❖ Matching grant recipient: Responsible for providing reporting activities and milestones and for
allowing field visits, following the contract/agreement signed between the Implementation Unit and
the matching grant recipient (WB, 2010).
The M&E arrangements must include a functioning Management Information System (MIS). The key
purpose of an MIS is to support management in making timely and effective decisions for planning,
monitoring, and managing the grant scheme. An MIS manages and analyses data on subprojects and helps
to ensure that data on the projects and subprojects can be fully utilized by the project management and
technical units. An MIS comprises at least four elements: (i) the actors who take decisions on the grant
scheme; (ii) the data and information that are useful for decision-making; (iii) the procedures that determine
how the actors relate to the data; and (iv) the tools that facilitate the collection, analysis, storage and
dissemination of the data (WB, 2020, p. 53). The design and planning of an MIS requires systematic
dialogue with the stakeholders. Key features of an MIS often include:
❖ The MIS tools should be organized modularly (different functions of the system are managed by
distinct modules, which in turn are integrated into a common, central database).
❖ The MIS should adapt to the decentralized organization and operation of the grant scheme.
❖ Any new grant scheme components should be managed by the MIS to prevent the multiplication of
management tools.
❖ The MIS should facilitate the management of impact information.
❖ MIS tools should facilitate decision-making.
❖ Information management should be secure.
❖ The accounting system should be linked with subproject monitoring (WB, 2010, p. 54).

44
Monitoring and evaluation require intensive and continuous training for both matching grant staff and
recipients. As part of the capacity building framework developed for the Implementation Unit, M&E
requires specialized training to equip staff and recipients with sufficient capacity to keep track of project
progress and measure the efficiency, effectiveness, impacts, sustainability of the matching grant. Where
appropriate, M&E should be outsourced to service providers for capacity building purposes.

3.3.2. Risk and risk mitigation measures

The presence of risks in matching grant implementation is unavoidable. As mentioned in previous sections
(see Section 3.1), external risks that affect the matching grant and the risks from the matching grant that
might affect the external environment are various. Therefore, risks and risk mitigation measures must be
clearly addressed at the design stage and regularly evaluated and updated during implementation. The
following typical risks should be considered in any matching grant design:
❖ Market distortions.
❖ Elite capture: the control and use of the matching grant by an individual or a group of individuals
who were not the primary target of the project.
❖ Rent seeking: a business or an individual might lobby the matching grant manager for access
without any reciprocal contribution.
❖ Systemic failure of recommended technology and innovations.
❖ Government interference and political pressure to support projects that are not in compliance with
the conditions.
❖ Unwillingness of financial institutions to finance follow-up or replacement investments and
working capital.
❖ Poor financial management standards of beneficiaries and project staff.
❖ Unrealistic projections of sales, costs and profits.
❖ Unwillingness of beneficiaries to make their pledged contributions.
❖ Insufficient number of satisfactory proposals.
❖ Insufficient number of qualified service providers (IFAD, 2012, p. 34).
Box 5. Distortive effects of matching grants

Matching grants are introduced in response to market failures and distortions, but they may have
distortive effects of their own. Sometimes the difference between impact and distortion is a fine line.
Distortive effects may arise from:
• Promoting non-viable or non-feasible enterprises or business activities
• Substituting savings with external grants
• Crowding out financial institutions
• Crowding out private investment
• Misallocating scarce resources
• Supporting asset creation among groups of people, instead of individuals, which may lead to
lack of care and maintenance of the assets received or failure to achieve satisfactory levels of profit.

Possible distortive effects should be identified during project design, together with suggestions for how
project managers could or should deal with them and mitigation measures to avoid conflicts and
negative impacts.

45
Source: IFAD. 2012. Matching Grants: Technical Note. Rome.
https://www.ifad.org/documents/38714170/39144386/Matching+grants+-+Technical+Note.pdf, p. 12.
In order to deal with risks effectively, thorough context studies with associated risk analysis prior to the
design and sufficient planning capacity of staff are required. The following aspects should be considered in
order to deal with risks:
❖ Describe the risks potentially associated with the matching grant component.
❖ Assess the probability that such risks might occur during project implementation.
❖ Assess the potential impact of risks on implementation and the likelihood of achieving the desired
results in the face of risks.
❖ Outline risk mitigation measures.
❖ Determine residual risks after successful implementation of the proposed risk mitigation activities
(IFAD, 2012, pp. 34-35).
Effective design would help avoid various risks. However, there are some forms of risk that are persistent
and/or might occur during the implementation and so would require certain mitigation measures, including:
❖ Effective awareness-raising and communication on the matching grant and its procedures to the
wider public, ensuring transparency.
❖ Build effective capacity for project staff, partners and recipients in anticipating and mitigating risks.
❖ Rigorous selection of beneficiaries through a transparent process.
❖ Intensive orientation and training of beneficiaries and staff involved in the appraisal process on the
requirements of honest and correct application of grant funds and the accountability of decision-
makers.
❖ Beneficiary monitoring and establishment of internal controls (to be developed as part of the grant
approval and management process) to help limit possible abuses.
❖ Effective operation of a robust monitoring system.
❖ Regular inspections.
❖ Penalties for abuse and malpractice; recovery of grants based on fraudulent practices in civil courts;
and lodging of complaints with the police and criminal courts.
❖ Detailed selection criteria.
❖ Restrictions on the total amount of support.
❖ Arrangements for linking disbursements with payment of the beneficiary’s contribution, including
the requirement for a down payment of the contribution into a bank account before disbursement of
grant funds.
❖ Involvement of commercial banking institutions.
❖ Provision of technical assistance for beneficiaries.
❖ Post-disbursement follow-up visits by project staff.
❖ Funding the costs of business plans prepared by an accredited consultant (IFAD, 2012, p. 35).
Case study 7. Risk mitigation measures for mis-procurement and elite capture in a matching grant
in Laos

The project ABC (anonymous) was funded by IFAD in Laos with a matching grant designed to support
farmers applying climate resilient farming practices, hence enhancing their livelihoods. The matching
grant targeted farmer groups with a matching level of 50 percent from the project (maximum USD 3 000
per group) and 50 percent from the farmer group (minimum 25 percent cash, the remaining in kind).
Eligibility criteria for beneficiary selection included (i) willingness to join the famer group, (ii) minimum
40 percent of members are poor, (iii) group must not exceed 15 members, (iv) the group must have a
sound production/business plan with a focus on climate smart agriculture, (v) sufficient capacity for

46
 subproject implementation, (vi) showing innovative aspects of the subproject and (vii) willingness to co-
finance the subproject.
In the first round of matching grant implementation in 2016, various instances of fraud were observed
by the IFAD supervision mission, including mis-procurement and elite capture, such as:
• Instead of allowing the groups to procure the inputs (e.g. seedlings, fertiliser) following the
procurement plans specified in the production/business proposals, the district agency
(anonymous) organized all the procurements. Some procurements were direct purchases from
providers who are the relatives of the district staff. Procurement procedures as stated in the
procurement manual, including provision of quotations and evaluation of the capacity of the
providers, were not strictly followed. No quality control was observed. As a consequence, the
quality of the inputs provided to farmers was bad (e.g. low survival rate, low productivity).
• Within various groups there are better off households and/or households of those who are
relatives of village/district leaders. These groups tended to receive more benefits compared with
the rest, such as more input provided, better input qualities and more thorough extension services.
Right after the supervision mission, the following immediate actions were undertaken:
❖ Organization of further investigations on the above frauds.
❖ Organization of civil courts with adequate penalties for abuse and malpractice, including
recovery of grants.
❖ Establishment of a grievance redress mechanism including two tiers: one internal to the
communities concerned and the other involving third-party/external mediation. Grievance
Redress Committees were established from the villages/district level to provincial level, built on
the existing structures consisting of concerned departments, mass organizations, women and
ethnic representatives. At the village level, community-based co-management was incorporated
into the existing grievance mechanisms that were chaired by elder and/or spiritual/tribal leaders,
which are largely acceptable to local communities, particularly the ethnic minority groups. The
grievance redress, once established, significantly prevented the fraudulent practices.
❖ Provision of a hotline that any farmer who suspects abuses or frauds can use to report cases,
triggering immediate action from central/provincial level (investigation, field visit).
❖ Organization of frequent awareness-raising and communication programmes on the rights and
responsibilities of farmers in matching grant implementation with subsequent capacity building,
especially on community procurement.
❖ Strengthening the M&E system, increasing the frequency of reporting and monitoring from
monthly to weekly reporting.
❖ Increasing IFAD supervision/implementation support missions from two missions to four
missions a year.
With the above mitigation measures in place, there was no malpractice after 2016. In 2020, at the time
of IFAD’s final supervision, the matching grant was evaluated as satisfactory and was introduced as good
practice for replication to other projects in Laos.

Source: Confidential IFAD data.

3.4. Step 4. Transparency and accountability

Transparency and accountability do not strictly represent a step during the design of the matching grant.
They are the conditions, the requirements and the safeguards for the matching grant to be efficient, effective
and sustainable. They must be addressed in all steps, throughout preparation, design, implementation and
M&E of the matching grant. Transparency and accountability are required and demanded by all
stakeholders, including national legislation, donor requirements, and citizens and beneficiaries. Since
47
transparency and accountability are essential for good governance, the design of the matching grant (see
more in Annex 3 - Checklist of characteristics of a matching grant) would require clear thinking about:
❖ Application and decision-making procedures
❖ Sources of final authority in decision-making
❖ Provisions for appeal
❖ How to inform the eligible population
❖ How to ensure community decisions reflect interests of all groups within communities
❖ Possible support for preparation of grant proposals
❖ Reporting requirements for recipients
❖ Monitoring and evaluation (WB, 2006; IFAD, 2012)
Box 6 below provides guidance on how to enhance transparency and accountability and assess whether the
provisions made are adequate.
Box 6. Guidance for enhancement of transparency and accountability in matching grant design

❖ A project implementation manual (PIM)7 or matching grant manual is in place before

implementation starts, and regular updates are made during implementation.
❖ Clear financial management rules and regulations are in place and are known and observed by
staff.
❖ Beneficiaries are always selected in accordance with guidelines and in a transparent and
accountable manner, and there is no nepotism or favouritism.
❖ Clear and comprehensive regulations for accountants are in place.
❖ Terms of reference for auditors cover the following additional points: (i) compliance with all
terms and conditions as contained in the project agreement and the PIM/matching grant manual
in the grant allocation process; (ii) observation of ring fencing agreements related to different
facilities or funds; (iii) proper recovery of grants disbursed in cases of fraud or intentional or
erroneous application of the grant terms; (iv) proper functioning of systems detecting double
dipping; and (v) presence and proper functioning of fraud control mechanisms.
❖ Terms of reference and roles for all staff, committee members and other decision-makers have
been specified and communicated clearly to all persons concerned and are observed.
❖ Duties have been clearly separated between staff and committees.
❖ Decisions and actions are comprehensively documented for all applications, decisions, payments,
post-disbursement monitoring and verification.
❖ Regular and spot supervision of appraisal staff is practised.
❖ All important documents, both electronic and paper, are properly stored and retrievable (e.g.
MIS).
❖ Staff and committee members are trained on important issues as and when needed.
❖ Forms and procedures are tried and tested and in place before services start.
❖ The ‘four-eye-plus’ principle is fully embedded everywhere: all decisions and transactions
require the presence, approval or signature, as mandated, of at least two people, and all are fully
documented.
❖ The Implementation Unit publishes a complete list of grant terms and conditions in official and
vernacular languages used in the area of intervention, along with a simplified leaflet with the
main terms, references and contacts.
❖ The Implementation Unit publishes the list of beneficiaries and core subproject details (name of
recipient, location, subproject type, support category, total value of subproject, value of matching
grants, type of other services rendered, date of grant agreement and disbursement) in an
appropriate format, including a publicly accessible website. Preferably, the website contains

7 A PIM is the equivalent of an FAO GOM.

48
 information on all sites and subprojects financed, with corresponding photos and GPS
coordinates.
❖ All decisions, reports, recommendations, payments, etc., are clearly linked to a specific person,
identified by name and position, and through a signature and a date.
❖ All decisions, reports, recommendations, payments, etc., are fully documented, and the full
documentation is accessible to authorized external reviewers at all times.
❖ Approval and decision-making takes place in stages, and all decisions are verified by the next
higher level and approved or rejected.
❖ Spot checks of field staff work undertaken by the supervisor are made in accordance with
standard audit principles, as are spot checks of all persons in charge of finance undertaken by the
project director/chief executive officer and internal and external auditors.
❖ Rotation of staff engaged in grant appraisal and approval is foreseen and practised.
❖ Appraisal staff and members of the Selection and Technical Committees are forbidden to
participate in any case involving relatives, friends or neighbours.
❖ The person nominated to receive complaints and deal with grievances of target groups and
applicants keeps a sequential register of all complaints received and documents all steps, actions
and decisions. This person makes an annual report on her/his activities and submits it to the
project steering committee. Ideally, a summary list of all complaints received and dealt with is
published on the project website.
❖ A code of ethics has been elaborated and adopted and is being observed.

Source: IFAD. 2012. Matching Grants: Technical Note. Rome.

https://www.ifad.org/documents/38714170/39144386/Matching+grants+-+Technical+Note.pdf, p. 50.

IV. GUIDANCE FOR IMPLEMENTATION OF MATCHING GRANTS

Effective implementation of matching grants largely depends on the clarity of the procedures, the capacity
of the applicants, and the support they receive. This section discusses aspects that help improve the
aforementioned areas contributing to efficient and effective implementation of matching grants.

4.1. Procedures for matching grant proposal selection and approval

4.1.1. Awareness-raising and communication

An essential part of a successful matching grant is a rigorous awareness-raising and communications
campaign. When the matching grant is started, awareness and trust must be established if competition-based
mechanisms are to succeed. As mentioned in the previous sections, there are various risks, including
political interference or a lack of transparency that can destroy trust. If applicants believe that favouritism
will skew selection procedures, interest in competing will fade (WB, 2010, p. 41).
The Implementation Unit in FAO is often the actor in charge of implementing the awareness-raising and
communication campaign. The following points should be considered and respected before and during the
campaign.
❖ It is necessary to have a thorough understanding of the target audience/applicants: their culture,
language use, their interests and the natural and socio-economic context.
❖ Design appropriate awareness-raising and communication products, taking into account the
previous conditions.
❖ Design adequate communication channels for effective information dissemination (e.g. mass media,
poster, pamphlet, face-to-face contact). If the communities cannot read or communicate using the
official language, direct face-to-face meetings using the local language must be used.

49
 ❖ Organize multiple rounds and continuous awareness-raising and communication to ensure eligible
stakeholders learn about the purpose, potential activities, procedures and requirements of the
matching grant.

4.1.2. Call for proposals

There are often two types of application modalities used in practice, including the direct invitation and the
public calls (competitive process) (see above Section 3.2.4.1: Application modality). Either one of the two
is implemented; the purpose is to generate awareness of and interest in the matching grant among potential
applicants. Calls for proposals can be periodic and on a continuous basis. The call for proposals requires
sufficient management capacity to administer the proposals and often makes use of designated reviewers
(Technical Committee - see Section 3.2.5.1: Management structure). Some matching grant programmes,
such as those directed at enterprises, may need to take more targeted approaches, such as via relevant
forums, platforms and associations, to ensure sufficient participation. Technically competent staff with
sufficient knowledge of the grant scheme and local context are needed for an efficient and effective approach
(WB, 2010).
It is noted that the potential applicants may be distributed over a wide area, in remote areas, and/or the
agricultural sector may be relatively fragmented. In such cases a sequenced approach for soliciting proposals
– for example, beginning with areas having greater agricultural potential – may be a better strategy for
success, because it permits the processing of successful applications, fosters learning and allows adjustments
to be made before scaling up the target area (WB, 2010, p. 42).
Case study 8. Using a Public-Private Partnership platform to call for proposals

The Adaptation to Climate Change in the Mekong Delta Project (AMD) in Viet Nam was an IFAD loan
project that operated from 2016 to 2020. The project was implemented in Ben Tre and Tra Vinh
provinces, in the lower basin of the Mekong region which is suffering significantly from climate change.
The Public-Private Partnership matching grant was designed to engage SMEs in development of various
agri-value chains in two provinces. The matching level was a maximum 49 percent of the total subproject
amount but not more than USD 60 000 from AMD and a minimum of 51 percent from the enterprise.
Eligibility criteria included a viable financial background, a good business proposal, the involvement of
farmers in the subproject through farming contracts and job generation for local people. Eligible expenses
were for private goods and services.
After various rounds of public calls through social media which were not successful, the project worked
with the Provincial Entrepreneurship Association (PEA) and reorganized the call through the PPP
platform of the PEA. The PPP platform contained a website, regular meetings, events and networks which
were the most reliable source for the enterprises. As a result, after the calls through PPP platform, there
were a remarkable number of applications to the matching grant.
Lessons learned through the calls include:
❖ Communication tools and channels are essential and should be appropriate for each type of
target group. Local media might be good for farmers but might not be good for SMEs because
they may not have time to hear/watch local media.
❖ Timing of information dissemination is also important. Dinner is often the time that recipients
hear/watch media. Calls, if through media, should prioritise this time.
❖ For a certain target group (for example SMEs), the reliability of the source of information is
critical. In the case of the AMD project, enterprises applied to the matching grant because
matching grant information was guaranteed by the PEA.

50
Source: AMD. 2020b. Public-Private Partnership Manual. Ben Tre/Tra Vinh, Viet Nam.

4.1.3. Provision of diagnostics, capacity and technical assistance to applicants

Figure 1 on p. 34 (in Section 3.2.4.1: Application modality) describes a comprehensive process from the
preparation of a concept note to the development and approval of a full proposal. The process indicates the
needs for providing diagnostics, capacity and technical assistance to applicants at various stages in order to
ensure a sufficient capacity and high-quality proposals from applicants.

4.1.3.1. A two-stage application process

As reflected in Figure 1, the two-stage application process (LoI/CN/BP - full proposal) with a mandatory
initial diagnostic to verify eligibility, ensure that the most promising applicants are selected, and help
applicants avoid putting significant efforts into developing a proposal if they are not eligible. A two-stage
process is often managed by the Implementation Unit. In the process, applicants first submit a short concept
note or expression of interest, using a specified format provided by the project. Those who submitted
promising concept notes are then invited to submit full proposals (in a format provided by the project) for
further review and possible funding (WB, 2010, 2016).
Concept notes are usually screened by the Implementation Unit against a checklist, set criteria and screening
format. At this first step, field checking and discussion with owners of concept notes might be required to
verify the ideas of the concept notes. Staff of the Implementation Unit are in charge of field checking.
However, in some cases when the ideas are complex, and the required capacity is beyond the knowledge
and experience of staff, consultants/service providers can be recruited, but this is rarely the case.
At second stage, the selected applicants are encouraged to develop full proposals (see Annex 5 for an
example of a full proposal template for the SME matching grant). At this stage, capacity and technical
assistance should be intensively provided, including:
❖ Training course(s) for selected applicants providing a range of information and capacity on the
basic objectives of the grant scheme, including the types of support and restrictions in
expenditures; the subproject approval process (peer review, secretariat budget negotiations and
board approval); the consequences of inappropriate or corrupt contract implementation;
guidelines for preparing proposals, including the required proposal outline and draft grant
agreement format; procedures for disbursement; and procurement and audit rules. This training
will greatly improve the quality of proposals, eliminate unnecessary confusion and enhance the
quality of implementation (WB, 2016).
❖ Where appropriate, and as per the specific request of the applicant, technical assistance should be
provided during the process of proposal development. Costs of technical assistance can be
covered by the matching grant or shared with applicants depending on the agreement before the
technical assistance implementation.
❖ Frequent/ad hoc communication between the Implementation Unit and the applicants during and
for proposal development.
The full proposals are submitted to the unit and peer reviewers. The technical review panel is fully in charge
of the review. During the review process, second field appraisal is often required to verify information and
activities provided in the full proposal.
Based on the technical and other selection criteria and appropriate review formats, the reviewers evaluate
the proposals, suggest changes in approach or budget as appropriate (few proposals are accepted without
alterations), and approve the proposal, reject it or recommend changes (IFAD, 2012; WB, 2010, 2016).
Please see Annex 4 for a diagram that shows a simplified flow of steps in an FAO project, in case a project
does not have the resources for a two-stage process.

51
4.1.3.2. Procurement8 and financial capacity assessment
As part of the proposal preparation and approval process, most matching grants assess the procurement,
administrative and financial management capacity of applicants to gain a better understanding of the
applicants’ capacity, and hence provide appropriate support. The proposed two-stage process is ideally
suited to meet this need. It provides an opportunity to assess capacity and arrange a short training course for
applicants that have made it through the concept note screening (first stage). The training should include
information on the basic objectives of the grant scheme, including the types of support and restrictions in
expenditures; the subproject approval process (peer review, secretariat budget negotiations and board
approval); the consequences of inappropriate or corrupt contract implementation; guidelines for preparing
proposals, including the required proposal outline and draft grant agreement format; procedures for
disbursement; and procurement and audit rules. This training will greatly improve the quality of proposals,
eliminate unnecessary confusion, misuse of the fund and enhance the quality of implementation (WB, 2010,
p. 45).

4.1.3.3. Final approval

As mentioned in previous section, final approval of subprojects for funding is the responsibility of the FAO
Budget Holder. Each approved subproject requires a legal agreement, between the winning applicant and
the FAO Authorized Official. This binding legal agreement will make reference to the procedures described
in the GOM, regarding for instance the expected value of funds to be disbursed by the grants scheme, the
types and numbers of beneficiaries to be served by the grants scheme, the duration of the scheme and other
relevant information as required.

4.2. Disbursement and flow of funds

As mentioned in the payment modalities section, matching grants are usually disbursed in different forms
and tranches as specified in the contract/agreement at the proposal approval stage. The number of tranches
and the amount of each tranche are determined case-by-case, depending upon the amount of the grant and
the nature of the subproject.
In order to keep track of the grant amount and to ensure transparency, a good practice is to require the
applicant to establish a separate account, solely for the purpose of the grant, with the required matching
funds. Applicants may encounter challenges in acquiring the full counterpart funding at the start of the
proposal. In this case, the grant agreement could require counterpart funding to be provided when the
tranches of the grant are paid (WB, 2010).
Disbursement milestones are often set up in the matching grant proposal and concretized in the
contract/agreement. These are used as indicators for monitoring and evaluation of disbursement. Applicants
are fully responsible for implementation of the proposal including the procurement of capital items,
consulting services and goods. Regular verification through field supervision and subproject M&E, followed
by a formal audit, are essential. Some proposals use a third-party service provider to verify the delivery of
services and goods before the Implementation Unit disburses funds. The engagement with external
institutions and/or entities for the management of grant funds and monitoring implementation is often seen
as a mechanism to increase grant efficiency and to bring about a higher level of transparency in the
management of the funds. However, the success of these arrangements is greatly reliant upon effective
communication and coordination between the Implementation Unit and the third party verifying the
implementation. If those elements are not in place, these well-intended efforts may result in the duplication

8Procurement of all activities in FAO is carried out by the Procurement Service Unit (CSLP). For more information, please
contact: CSLP-MS502@fao.org

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of functions, over-reporting, additional costs, delayed disbursements and a lack of benefits (WB, 2010, p.
48).

4.3. Financial management, procurement and audit

4.3.1. Financial management

Matching grants require each recipient to maintain a financial management system, including records and
accounts, to reflect its operations, resources and expenditures (WB, 2010; IFAD, 2012). The financial
management system must clearly identify all of the subproject’s receipts and expenditures and distinguish
them from other receipts and expenditures of other operations of the recipients. Financial records should
include the accurate, current and complete disclosure of grant income and expenditures, supported by the
appropriate documentation (such as purchase orders, invoices, receipts or justifications for selecting a
specific vendor) to substantiate all costs incurred by the grant recipient in carrying out the subproject (WB,
2010, p. 47).
Subject to the requirements/conditions stated in the grant agreement, recipients are responsible for preparing
periodic financial reports, receiving periodic/regular/ad hoc supervision and facilitating M&E missions by
the matching grant management.
Financial books, records, financial statements, any substantiating documents and other records related to the
subproject should be retained by the grant recipient, often for at least one year after the audit report is made.
In many matching grant evaluation reports, financial management by the recipients is often evaluated as one
of the bottlenecks in matching grant implementation. This is mainly due to limited and diversified capacity
of recipients, confusing/complicated requirements from matching grant management, and lack of regular
checks and supervision from the Implementation Unit (WB, 2010, 2016, 2019; IFAD, 2012). In this view,
the following issues need to be considered for efficient and effective financial management:
❖ Recipients are diversified depending on grant type/modality. Most of them are unfamiliar with
financial management requirements from the matching grant. Hands on capacity building must be
provided at the beginning and continuously by the matching grant to the recipients. Further, regular
checks and supervision should be conducted by the matching grant to provide timely support to
recipients.
❖ Many matching grants required recipients to conform to the financial management regulations of
both the donors and the local authorities. This sometimes ended up generating confusing, conflicting
and/or unpractical guidelines, making recipients impossible to implement. Thorough studying of
the financial management policies and undertaking recipients’ capacity assessment during the
design of the matching grant would help produce simple and practice guidance to financial
management. Besides, regular communication and checking with recipients would further simplify,
adjust and update the financial management regulations.

4.3.2. Auditing
Financial audits are vital to ensure that grant funds are used by the recipient only for the purposes for which
the grant was made. There are often two types of financial audit: internal audit and external/independent
audit.
The internal audit is conducted by the Budget Holder/Implementation Unit on a regular/periodic basis. This
type of audit is not only to monitor and supervise the technical management of subprojects and verify
progress in relation to established milestones, but also to ensure that subproject finances are in order.
The second type is to outsource an independent service provider to conduct financial auditing of the
recipients. In some countries (e.g. Viet Nam, China, Laos), the government’s financial authorities (Ministry
of Finance) send their staff to audit some subprojects in a certain matching grant. Such monitoring is often
53
done on a random basis. All subproject grantees must be made aware that an unsatisfactory or incomplete
audit frequently causes the subproject to be cancelled and may prevent the grantee from competing for any
other financing from the innovation fund (WB, 2010, 2019).
Grant recipients are expected to cooperate fully with the auditor and provide any records, documentation
and other information requested in connection with the audit, including the financial books, records and
financial statements related to the subproject (WB, 2010). Good financial management (Section 4.3.1.) and
procurement (Section 4.3.2) systems would ease the process of auditing.

4.4. Safeguards
The matching grant or local authorities of subprojects might require the recipients to adhere to specific
practices to prevent or mitigate any environmental or social problems that may arise from their activities.
Depending on the donor providing funds to the matching grant and/or the localities where the subprojects
are implemented, the social and environmental safeguard policies are provided. The subprojects are funded
based on the proposals prepared by the recipients. The potential environmental and social impacts of those
subprojects cannot be identified in advance. In such cases, it is often necessary for the recipients to prepare
in their proposals/subprojects a framework for managing any environmental and social impacts that may
arise. The framework should provide a detailed assessment of the potential environmental and social effects
of the types of subprojects that are likely to be funded, with detailed guidelines for monitoring their impacts
and mitigating any negative impacts. The mitigation measures will be an integral part of the development
and implementation of subprojects to ensure compliance with local and international guidelines and
standards (WB, 2010). In some cases where the potential social and environmental impacts foreseen are
significant, an independent social-environmental impact assessment, with comprehensive mitigation
measures to reduce risks and impacts, may be necessary.
Safeguards are often overlooked by the recipients in subproject implementation. This comes from the
perception that safeguards are another layer of administrative procedures that prevent recipients from
maximizing profits (WB, 2010, 2016, 2019). Measures to mitigate the risk of misperception and enhance
the effectiveness of safeguards implementation should include:
❖ Provide clear and detailed guidelines on safeguards to recipients before the matching grant
agreement is signed.
❖ Accordingly, provide templates and capacity building on social and environmental safeguards to
recipients for implementation.
❖ Organize periodic and/or regular monitoring and evaluation to keep track of progress and quality,
and prevent any mis-implementation.
❖ Where appropriate, provide technical assistance to recipients for efficient and effective safeguard
development and implementation.
❖ Though not expected, penalties must be imposed for abuse and malpractice.
Case study 9. Safeguard management in a demand-driven grant scheme in India

India’s National Agricultural Innovation Project (NAIP) (2008–2014), funded by the World Bank,
provided competitive research grants to consortia representing multiple stakeholders working on a
range of topics. The project developed safeguard protocols for the subprojects to be funded under the
grants. These protocols consisted of a safeguard management framework and a checklist of likely
social and environmental impacts. The potential safeguard issues were identified through a rigorous,
multi-stage, consultative process which involved representatives of academia, scientists, non-
governmental organizations (NGOs) and the private sector, with support from external consultants.
Under these protocols, activities were excluded from subprojects if they required involuntary land
acquisition; damaged wildlife, forests and other natural habitats; excluded or adversely affected local
54
 people in general and vulnerable populations in particular (such as particular ethnic groups, landless
people, or marginal or very small-scale farmers); could cause flooding and landslides; promoted the
use, storage, manufacture and distribution of banned hazardous agrochemicals; resulted in the
elimination or replacement of indigenous flora and fauna; or harmed sites of religious and cultural
significance.
A research consortium could not receive a grant if it failed to comply with the safeguards mandated
by national law and World Bank policies. Each consortium was required to prepare a safeguard
management note as part of its overall project proposal. The safeguard management notes were
expected to include:
• Baseline information on the proposed project’s social, economic, demographic, cultural,
ecological and related environmental aspects.
• A stakeholder analysis identifying the key stakeholders, their views and their level of
acceptance of the proposed project.
• Impact assessments identifying the positive and negative social and environmental impacts
likely to occur as a result of the interventions and detailing specific measures to enhance the
positive impacts and mitigate the negative ones.
• Monitoring and evaluation arrangements, along with specific indicators.
As part of its overall monitoring of subprojects, NAIP designed a strong programme to monitor
environmental and social effects and promote adaptive management when needed. Twice during
NAIP’s implementation, the Indian Council for Agricultural Research enlisted the services of an
external consulting agency to conduct a safeguard assessment. Information related to all research
consortia, as well as NAIP as a whole – including information on safeguards – was disclosed publicly.
Source: WB. 2010. Designing and Implementing Agricultural Innovation Funds: Lessons from
Competitive Research and Matching Grant Projects. Economic and Sector Work. Washington, DC.
https://openknowledge.worldbank.org/handle/10986/12614, p. 49.

4.5. Subproject closure and completion report.

Closure and completion of subproject require both administrative and technical procedures including:
Administrative requirements:
❖ Obtaining and approving all required financial and progress reports.
❖ Disbursing all outstanding grant payments.
❖ Ensuring that any unexpended grant funds are refunded to the grant administrator.
❖ All grant requirements remain in full force and effect until the grant recipient receives a close-out
letter from the grant administrator indicating that all obligations have been satisfied.
Technical requirements:
❖ Submission of completion report links all findings derived from the subproject so that its overall
achievements and impact can be assessed. Achievements should be discussed in terms of the
subproject’s accomplishments, contribution to human resource development, the relevance of its
findings to development, how the information and technology emerging from the subproject is being
disseminated, what the present and expected future degree of adoption is and (where relevant) the
actual impact on productivity, farm incomes, competitiveness and other indicators (WB, 2010, p.
50). It is important to note that the completion report does not simply repeat or summarize
information in the regular progress reports submitted by the subproject but presents a broader and
deeper assessment of impact.
❖ Feedback from the Budget Holder/Implementation Unit on the quality of the completion report. The
feedback might be accompanied by meetings or field verification/supervision by the grant
administrator.

55
 ❖ Completion report approval.
Matching grants are not a sustainable financing instrument, but their objective should be to support
sustainable investments (WB, 2019). For this reason, all matching grants should always build an exit
strategy that emphasizes scenarios and options for replication and sustainability of subprojects. Among
those, examples include introducing and handing over to local authorities or similar projects/programmes
for continuing supports, cooperation and replication; and bridging the subprojects to enterprises for
inputs/output/market secure, or to the financial sector for expansion and sustainable of capital. Even before
the completion stage, it is advisable that the exit strategy for the subproject(s) should be discussed
thoroughly, taking into account the above scenarios/options to ensure the sustainability of subprojects.

V. MONITORING, EVALUATION AND LEARNING

Monitoring and evaluation arrangement, capacity building and proper MIS establishment served as solid
foundation for M&E implementation, and have been addressed in a previous section (see Section 3.3: Step
3. Monitoring and evaluation, risk assessment and mitigation measures). This section discusses the
continuous monitoring, evaluation, and learning opportunities for efficient and effective performance of
matching grants.

5.1. Continuous monitoring

Upon subproject approval, the M&E framework should be finalized and agreed in the contract/agreement
between the Implementation Unit and recipient. Usually, the Implementation Unit or the outsourced experts
monitor financial and technical implementation of the subprojects through regular progress reports and field
visits. It is essential that approved subprojects are monitored closely from an early stage onward and that
any problems encountered, such as problems with the adequacy and continuity of funding, smoothness of
procurement arrangements, and so on, are resolved quickly (WB, 2010; IFAD, 2014).

5.1.1. Milestone-indicator-based monitoring

Milestone-based disbursement constitutes a good practice and discourages corruption. A clear subproject
design with explicit objectives, a time-bound implementation plan with milestones for all activities, and a
results framework with specific performance indicators and targets contribute to monitoring implementation
and achievement of targets (WB, 2010). Establishing disbursement agreements with recipients, according
to a schedule of expected deliverables and demonstrated progress against pre-established benchmarks, is a
strict requirement (WB, 2010; IFAD, 2012). Recipients must produce periodic reports on expenditures
(related to procurement and other inputs) and technical progress toward subproject objectives. Progress
reports should tie to tranche disbursements where appropriate, and should provide adequate information on
implementation progress, which is usually measured against agreed indicators (WB, 2010; IFAD, 2012,
2014).
MISs should be used efficiently in milestone-indicator-based monitoring. The M&E framework, with
specific milestones, indicators and timeframes for each subproject, is uploaded at the beginning of
subproject implementation. Recipients are required to update the progress and results on the MIS on an
agreed timing basis. Using a coding system (e.g. colour, notification), the MIS will inform both the grant
administrator and the recipient if there is delay in updating the progress. For instance, the indicator will turn
red if there is a delay in updating the progress, and at the same time there is a notification sent to the
registered email of the both the administrator and recipient. In some cases, the MIS even provides early
warning notifications to grant administrators on some potential risks such as implementation delays or

56
misunderstanding of indicators. For example, the MIS will inform the administrator if there are delays to
updating on more than three occasions, or if there are modifications to the database.
Although the reporting frequencies across subprojects may vary, the grant administrator should make at
least one visit to each of the approved subprojects during the first six months after the agreement is signed,
to review progress on the ground and, if necessary, agree on required modifications in the implementation
arrangements. Follow-up reviews of subprojects in the field should be organized at least once every six
months (WB, 2010).
Case study 10. Establishment of a Management Information System for matching grants

The Project for the Sustainable Economic Empowerment of Ethnic Minorities (3EM) in Dak Nong
province, Viet Nam was intended to contribute to the sustainable improvement of the livelihoods of poor
and ethnic minority households in the province, with a particular focus on women. The project was funded
by IFAD from 2010 to 2016. Within the project, there were various funding windows established
including the Community Development Fund (CDF), the Public Private Partnership (PPP), the Saving
and Credit Group (SCG) and the Common Interest Group (CIG).
An MIS was established at the beginning of the project, to support the management in making timely and
effective decisions for planning, monitoring and managing the grant scheme. The MIS was a website-
based system with membership granted to all relevant stakeholders to access. There were different levels
of access granted from full access with editing functions to limited access with viewing only. The MIS
has the following key features:
❖ The MIS was organized in different modules (different components, matching grants) making
the processes of updating and reporting easier. The modules then fit into the central database for
extracting database and report serving for M&E and management.
❖ The MIS applied a colour coding system providing early warnings for M&E. Green represented
good progress, yellow slow progress and red critically slow progress. Based on the colour, the
Implementation Unit and M&E section would handle the situation accordingly.
❖ Depending on the level of requirement, the MIS could allow database and progress reporting for
M&E and management purposes which saved significant time and effort among staff and
recipients.
Source: 3EM. 2016. Project Completion Report. Dak Nong, Viet Nam.

5.1.2. Problem subprojects

“Problem” subprojects are unexpected but often occur in any matching grant. An important function of the
M&E system is to identify such subprojects and help to resolve the problems. Problems that the subprojects
encounter might come from external factors (such as the weather or unexpected economic changes) or
internal factors (such as capacity of recipient, funding procedures), but when serious problems occur, the
monitoring system should alert the subproject until the problem is corrected. Depending on the level of
problems, the recipient should decide whether they will resolve the problem themselves in a given time
frame or if they would need assistance from the Budget Holder/Implementation Unit or service providers.
If subproject grantees do not address problems on a timely basis despite repeated requests, the subproject
should be terminated (WB, 2010, p. 55).
Termination of a subproject is difficult and sensitive as it may encounter complaints or appeals. In this
sense, the matching grant manual and each subproject agreement must specify the conditions and reasons
for termination of a subproject. There are various reasons for termination including:
❖ The recipient may face serious disasters or shocks that they are unable to recover from.

57
 ❖ The grant recipient may not follow the provisions of the memorandum of understanding or may
encounter such significant delays in implementing the subproject that the grant administrator
believes that the subproject will not achieve its objectives.
❖ The recipient may fail to submit a complete financial report or to submit copies of financial
documents to complete its financial reporting. Proper accounting may not exist in the recipient’s
financial records or the recipient may provide false documents or information.
❖ The recipient may have used the grant to finance expenses not approved by the grant administrator
or to conduct activities other than those approved for funding.
❖ The grant may also be terminated if the main applicant cancels its participation in the subproject or
if financial support for the grant scheme itself is terminated (WB, 2010, p. 55).
When a grant is terminated, the normal practice is to retrieve all unused funds and the equipment purchased
under the grant. Some grant schemes have suffered from unauthorized sales of goods and equipment
purchased with grant funds. Continuous monitoring and early warnings would mitigate this risk.
Furthermore, a financial system that requires physical holding of all registration documents, titles and other
ownership documents for goods and equipment acquired with grant funds should be established.

5.2. Evaluation of matching grants

Evaluations of matching grants are varied and depend on the purposes of the grant administrators. Normally,
there are two common types of evaluation: interim evaluation and impact assessments (WB, 2010, 2019).
Interim evaluations are conducted during matching grant implementation and serve specific purposes aiming
at constituting an early warning system, preventing adverse effects and taking corrective action midway.
Impact assessments are implemented when the matching grant is coming to an end. In various cases, the
impact assessment is even conducted several years later to assess changes in overall societal goals, such as
improved incomes, reduced poverty and environmental conservation (WB, 2010, p. 57). Evaluation is often
not conducted for every single subproject. Rather, in order to support matching grant assessment, samples
of subprojects are selected to be evaluated serving for assessment purposes (e.g. whether the various small
subprojects had increased agricultural productivity or farm incomes).
Matching grants should be evaluated against their set objectives, their impact on institutions and
beneficiaries and their other economic, social and environmental impacts. There should be a particular
emphasis in this evaluation on gaining valuable lessons on process. Box 7 below highlights key steps for
conducting impact assessment.
Box 7. Suggested key steps for conducting impact assessments

❖ At the beginning of the project, collect baseline data and allocate sufficient resources for the
assessment.
❖ Depending on the type of impact assessment (e.g. economic, social, environment), sample
subprojects with identified target groups.
❖ Measure benefit streams:
• Identify technologies/innovations generated in a subproject.
• Estimate the diffusion and adoption of each technology/innovation (x years into the
future).
• Estimate the impacts to human and/or institutions (e.g. capacity, institutional
arrangement).
• Estimate the productivity impact (for example, the effects on yield, cost, quality) – the
incremental net benefit per unit of analysis (farm/hectare) from adoption of the
technology.
• Estimate other social and environmental impacts.
58
 ❖ Measure matching grant costs.
❖ Estimate the internal rate of return (IRR). This is an important indicator for economic impact
assessment.
• Estimate annual benefit flows and cost flows in the future (projections are needed).
• Separate non project effects.
❖ The overall IRR for the matching grant is the sample average of the subproject IRRs.

Source: WB. 2010. Designing and Implementing Agricultural Innovation Funds: Lessons from
Competitive Research and Matching Grant Projects. Economic and Sector Work. Washington, DC.
https://openknowledge.worldbank.org/handle/10986/12614, p. 58.

5.3. Learning opportunities

The importance of learning in the matching grant context is that it helps the grant staff and recipients to
acquire the necessary skills and experience through learning and knowledge so that they can achieve the set
goals of the matching grant and/or subprojects. Learning is becoming as important as M&E. However, it
has often been overlooked and/or conducted for wrong purposes. Many study tours are organized, but mainly
for relaxation instead of peer learning.
Learning can take place internally through the circle of planning, implementation, feedback, adjustment and
planning, or externally through feeding back knowledge and experience from outside (e.g. technical
assistance, training, visits to other similar matching grants).
Internal learning is often processed through the monitoring and evaluation activities of the matching grant.
The results of monitoring and evaluation, including lessons learned, can help to improve the performance
and quality of further subprojects/matching grants through a learning process involving the grant
administrator and recipients. Internal learning can be immediate and efficient but may be risk of limited
innovations and new ideas. External learning is often organized in the forms of capacity building by an
external service provider and exchange visits to similar programmes/matching grants. External learning can
facilitate new knowledge, new experience and innovations but can be less cost efficient and effective and
take time to adapt to the matching grant.
Depending on the context and objectives of each matching grant, internal and/or external learning
opportunities should be promoted. For each form of learning, the budget should be sufficiently organized.
However, it is recommended that regular M&E activities (for internal learning) should be supplemented
with opportunities to exchange experiences and lessons (external learning) to facilitate the best of
knowledge, experience and innovation for matching grant implementation.
Case study 11. “Learning route” for CIG matching grant

Funded by IFAD, the New Rural Development Support Project (TNSP) was implemented in Tuyen
Quang province, Viet Nam from 2011 to 2016. The Competitive Small Grant (CSG), targeting farmer
groups, was among the funding windows of the project.
In order to improve the capacity of subproject recipients, the common interest groups (CIGs), a proper
capacity framework was developed, focusing on both internal and external learning. One of the very
practical internal learning practices was the organization of the “learning route”.
Since the project area was stretched out over a large area, covering different patterns in terms of ethnicity
and wealth, the project organized cross learning through inviting CIGs to visit each other. On each visit,
the CIGs were requested to conduct a strengths, weaknesses, opportunities and threats (SWOT) analysis

59
 for the subprojects that they were implementing. In this way, the process offered a lot of learning
opportunities for members of the CIGs.
The “learning route” practices significantly helped to improve the subproject implementation, and at the
same time were greatly appreciated by the recipients because of the following aspects:
❖ The learning environment was familiar to all recipients. They easily gained confidence in
learning.
❖ The language used both local and not overly technical.
❖ SWOT analysis was simple and relevant to the practical issues that the CIG faced.
❖ The learning network (after the “learning route”) was easier to maintain because of the relevance
and the patterns that the CIG shared.

Source: TNSP. 2016. Project Completion Report. Tuyen Quang, Viet Nam.

VI. CONCLUSION AND RECOMMENDATIONS

Practices of matching grant implementation have suggested that matching grants can be good instruments
to compensate for market failure. They can be used to increase the supply of goods and services, or to
increase demand for these. They can be used for investment or for consumption. They can be used to buy
assets for the poor, or to supplement their incomes. They are often used for training, or to promote the
development, dissemination and uptake of new technologies. However, improper use of matching grants is
risky. They can waste public resources, distort or destroy markets, crowd out the private sector, provide
unfair competition and give rise to political favouritism and corruption. Therefore, careful and thorough
preparation, assessment, monitoring and evaluation of matching grants is essential.
This document provides practical guidance for design and implementation of matching grants. In deciding
whether to choose a matching grant and how to design and implement it, consideration of the following
questions and issues is recommended:
i. Is there a market failure? A market failure is when there is a significant difference between social net
benefits and private net benefits. Understanding forms of market failures and their causes would help design
a proper matching grant that can help to mitigate failures.
ii. Is a matching grant the best remedy? There are some reasons that a matching grant is likely to be an
appropriate solution, including:
❖ Lack of public goods such as infrastructure, legislation or information. A matching grant can help
reduce transaction costs, production costs and crowd in private sector financing.
❖ Lack of economies of scale. A matching grant might help to line up actors for improving and scaling
up the economy.
❖ High risk. A matching grant can be put in place to first share the risk with the recipients, then help
mitigate the risk through providing grants to different measures.
❖ High costs of protecting property rights. When and where the costs of enforcement are so high that
recipients are discouraged, a matching grant can be established.
❖ Lack of commercialization of the economy. This especially slows down development of financial
services and a matching grant should not be used in these cases for subsidizing credit, but they may
be justified for training, development of Management Information Systems, or helping to expand
branch networks and install new technologies.
❖ Lack of technology, information or trained staff. A matching grant may be useful to solve these
problems.
iii. Eligibility criteria for matching grants are essential. Matching grants are generally justified for training
and skills development, technology, innovation, information, start-ups of businesses, project preparation,
trade fairs, private investment in local infrastructure, networks, lumpy capital and collective action.

60
iv. Cost-benefit analysis of grants: The key issue in analysing whether a grant would be worthwhile is
determining whether the additional benefits of a grant outweigh its costs. The private sector will generally
take up investments that are privately profitable, regardless of whether their net economic benefits to society
are positive or negative. It will generally not take up investments that are not privately profitable, and some
of these (those that have net positive economic benefits to society) may qualify for grants.
v. How big should the matching grant be? The most difficult aspect of managing a grant programme is
determining how much grant funding is required to overcome a particular market failure. If the grant is too
small, the market failure may not be overcome, and the objective of the grant will not be met. If the grant is
too large, it could create its own market distortion. They should be sufficient to turn investments worthwhile
to society into profitable investments for private businesses.
vi. What kinds of matching grant instruments should be used? There are different ways in which grants can
be provided, including entirely as grants (zero percent matching) or as matching grants. Depending on the
specific context, the relevant kind of matching grant is selected.
vii. Who is eligible to apply for the matching grant? It is important to decide in advance which group is
targeted by the matching grant, and for those who are targeted, what the eligibility criteria are for
participation.
viii. Is the capacity adequate to implement a matching grant? To answer this, judgements are required about
existing capacity and about future capacity that could be built up, if indeed a grant scheme is likely to be
sustained well into the future at a large enough scale to justify building capacity to handle it. It is important
to make sure the scheme will work without needing to bring in expensive foreign assistance for extended
periods.
ix. Is the grant process transparent and accountable? This is essential for good governance, and requires
clear thinking about:
❖ Application and decision-making procedures
❖ Sources of final authority in decision-making
❖ Provisions for appeal
❖ How to inform the eligible population
❖ How to ensure community decisions reflect the interests of all groups within communities
❖ Possible support for preparation of grant proposals
❖ Reporting requirements for recipients
❖ Monitoring, evaluation and learning

61
REFERENCES

3EM (Sustainable Economic Empowerment of Ethnic Minorities Project). 2016. Project Completion
Report. Dak Nong, Viet Nam.
AMD (Adaptation to Climate Change in the Mekong Delta Project). 2019. Impact Evaluation Report.
Ben Tre/Tra Vinh, Viet Nam.
AMD. 2020a. Project Completion Report. Ben Tre/Tra Vinh, Viet Nam.
AMD. 2020b. Public-Private Partnership Manual. Ben Tre/Tra Vinh, Viet Nam.
FNML (Southern Laos Food and Nutrition Security and Market Linkages Programme). 2020.
Project Completion Report. Salavanh, Sekong and Attapeu, Laos.
IFAD (International Fund for Agricultural Development). 2012. Matching Grants: Technical Note.
Rome. https://www.ifad.org/documents/38714170/39144386/Matching+grants+-+Technical+Note.pdf
IFAD. 2014. Linking matching grants with loans: Experiences and lessons learned from Ghana. Rome.
https://www.ifad.org/documents/38714170/39135645/matchinggrants_ghana.pdf
McKenzie, D., Assaf, N. & Cusolito A.P. 2015. The Additionality Impact of a Matching Grant Program
for Small Firms: Experimental Evidence from Yemen. Policy Research Working Paper 7462. Washington,
DC, World Bank. https://openknowledge.worldbank.org/handle/10986/22884
PLCP (Pu Luong-Cuc Phuong Limestone Conservation Project). 2007. Community Small Grant
Operational Manual. Ha Noi, Viet Nam, Fauna and Flora International.
SRDP (Sustainable Rural Development Project). 2018. Final Impact Assessment Report. Ha
Tinh/Quang Binh, Viet Nam.
SRDP. 2018. Project Completion Report. Ha Tinh/Quang Binh, Viet Nam.
TNSP (New Rural Development Support Project). 2016. Project Completion Report. Tuyen Quang,
Viet Nam.
WB (World Bank). 2006. When Markets Do Not Work, Should Grants Be Used? Agriculture and Rural
Development Notes. Washington, DC. https://openknowledge.worldbank.org/handle/10986/9620
WB. 2010. Designing and Implementing Agricultural Innovation Funds: Lessons from Competitive
Research and Matching Grant Projects. Economic and Sector Work. Washington, DC.
https://openknowledge.worldbank.org/handle/10986/12614
WB. 2016. How to Make Grants a Better Match for Private Sector Development: Review of World Bank
Matching Grant Projects. Washington, DC. https://openknowledge.worldbank.org/handle/10986/26434
WB. 2017. Lessons Learned from World Bank Projects Using Matching Grants. Agriculture Finance Note
#1. Washington, DC https://openknowledge.worldbank.org/handle/10986/28313
WB. 2019. How Can Matching Grants in Agriculture Facilitate Access to Finance? Lessons Learned
from World Bank Group’s Experience. Washington, DC.
https://openknowledge.worldbank.org/handle/10986/33829

62
ANNEXES

Annex 1. Understanding and examples of market failures

(Source: WB, 2010, pp. 61-62)
Defining market failure
Market failure occurs when the market for a good or service fails to include all economic costs and benefits
in the price of that good or service. Since the price of goods or services does not reflect all of the costs and
benefits, the use of these prices results in the misallocation of resources and suboptimal economic outcomes.
Market failures generally occur for the following reasons: (i) abuse of market power (for example, when a
company has a monopoly); (ii) failure to account for externalities; (iii) provision of public goods (for
example, knowledge which when released cannot be limited to certain users); (iv) asymmetric information
(one party to a transaction has more information on the real value of the good or service than the other
party); (v) uneven initial wealth distribution; and (vi) factor immobility.
Correcting market failures in transition economies
Market failures are common even in developed market economies, but are often corrected through
legislation, institutional arrangements or public investments. They are even more common in transition
economies which, by definition, do not have the advanced market mechanisms, legal structures, institutional
arrangements or public funds to counteract them. In addition to the usual market failures found in developed
market economies, transition economies experience some temporary market failures. After a short period of
government or private intervention to correct these market failures, the market will develop, and market
interventions will no longer be needed.
Examples of market failures
Public goods are goods that, when provided, cannot exclude users. As a result, the price drops and private
producers do not have the incentive to produce these goods at an optimal level. To counteract this kind of
market failure, public funding has to be used to produce public goods, or legal rights have to be established
to protect providers of those goods. Examples of goods typically provided with public funds include public
roads or extension services (which communicate information about new technologies that can be transferred
from one individual to the next and are therefore nonexclusive). Drug formulations with patents are
examples of public goods that have been altered through additional legal protection.
Externalities occur when the costs or benefits of a particular good or service accrue to third parties. An
example of a negative externality is pollution. An example of a positive externality may be the establishment
of a private meat processing factory that results in secondary employment in the area, because now workers
have more wages to spend, thus creating more jobs outside the plant. Negative externalities are sometimes
controlled by regulations or through financial incentives. Governments sometimes try to encourage the
creation of positive externalities by providing incentives (such as tax benefits or grants) to private
companies. An example of this kind of intervention is the use of a matching grant to locate a factory in a
remote village where new jobs would have a significant economic impact.
Market power distortions result from institutional structures that develop in such a way as to prevent
competition, such as monopolies. Market power distortions that most often affect small scale producers are
the barriers to entry created by the high transaction costs of association. Farmers’ inability to form
associations results in their inability to aggregate their products and thus achieve economies of scale that
would make their businesses profitable. A group of small-scale farmers may not be able to overcome such
barriers to entry, even though in the longer run it would be extremely profitable for the group to do so. To
help small-scale farmers overcome these barriers, a government or private facilitator may provide a one-
time grant to help farmers set up the appropriate institutional structures, such as associations or cooperatives,
that would allow them to aggregate and jointly market their products.
Asymmetric information occurs when one party to a transaction has more information on the real value of
the good or service than the other. For example, a small farmer produces organic vegetables that could sell
for a premium in the market. The farmer knows that they are organic, but the buyer may not be confident
that the produce is really organic. As a result, the buyer is only willing to pay the lower price for nonorganic
63
produce. This market failure could be corrected by providing grants or information on how to establish an
organic certification process at the farm level or install a pesticide residue testing facility at the market. With
pesticide residue testing equipment at the market, consumers could verify that the produce was organic and
the higher price would be paid. Another common asymmetric information problem faced by small-scale
farmers is knowledge about what markets exist. For example, small-scale producers may be in an area that
is excellent for producing nutmeg, but they may not know that the area is suitable for nutmeg production,
how to produce it or that there is a high-value global market for nutmeg.
Initial endowments (wealth) of market participants, particularly the difference in initial endowments, can
result in market failure, since poorer individuals cannot participate in some markets without a minimum
endowment. This type of market failure is common among the poorest of small-scale producers. A grant or
partial grant programme to acquire productive assets such as livestock, targeted at the poorest subgroups, is
often effective in providing the minimum equity endowment needed to compete in the market. An important
aspect of market failure related to initial endowments is the inability of poor small-scale farmers to absorb
risk. Without sufficient initial endowments to absorb risk, small-scale farmers are reluctant to take the risk
of adopting new technologies. One-time grants to encourage the adoption of new technologies can offset
this market failure. Once the new technology has been adopted, there is no need for further grants or
subsidies.
Factor immobility occurs when assets used in production are fixed in a particular location for a period of
time and cannot be moved to a location that would yield higher returns. This is a common problem with
household farm labour, which has a very high cost associated with moving. One way of reducing the
effective factor immobility of remote rural locations is to improve transportation to markets or to change to
products of higher value on which transport costs have less of an impact.
Avoid market distortions through grants
The most difficult aspect of managing a grant programme is determining how much grant funding is required
to overcome a particular market failure. If the grant is too small, the market failure may not be overcome,
and the objective of the grant will not be met. If the grant is too large, it could create its own market
distortion. In evaluating a grant proposal, it is important to estimate the minimum grant that is required to
overcome the market failure. This is the amount that should be given as a grant to the beneficiaries. The rest
of the investment should be made by the beneficiary. Objective and subjective evaluations of the economic
benefits and costs of the proposed project are required to determine the minimum grant amount. Evaluations
could include an assessment of economic rates of return, financial rates of return, short-term cash flow
requirements, and subjective assessments of externalities and other market failures.

Annex 2.1. Example of selection criteria in the Public-Private Partnership matching grant of the
AMD project in Viet Nam
(Source: AMD, 2020b, p. 32)
The Adaptation to Climate Change in the Mekong Delta Project (AMD) in Viet Nam was a loan project
from IFAD which operated from 2016 to 2020. The project was implemented in Ben Tre and Tra Vinh
provinces, in the lower basin of the Mekong region which is suffering significantly from climate change.
The Public-Private Partnership matching grant was designed to engage SMEs in development of various
agri-value chains in the two provinces. The matching level was a maximum of 49 percent of the total
subproject amount but not more than USD 60 000 from AMD and a minimum of 51 percent from the
enterprise. Below are the criteria that were used for selection of a subproject:

Appropriate level (Put an X

No Criteria to the cell 1: extremely Total points
bad…4: Very good)

64
 1 2 3 4

Criteria Appropriate beneficiaries ……/20

1

1.1 Cooperative registered and operated under

the Law on Cooperative 2012 (at least 24 ……/4
months) or enterprise registered and
operated at least 24 months)

1.2 Cooperative/enterprise operated within 30 ……/4

project communes

1.3 Cooperative/enterprise with female ……/4

Management Council Chair or Director

1.4 Number of households benefited from the ……/4

subproject

1.5 Number of households benefited from the

subproject who are poor, near poor and ……/4
female- headed households

Criteria Subproject’s outputs/outcomes ……/20

2

2.1 Products/services of the subproject are ……/4

enhanced

2.2 Number of households, especially the ……/4

poor, engaged for jobs

2.3 Number of households, especially the ……/4

poor, that have farming contracts

2.4 Number of households, especially the

poor, that are trained and provided ……/4
technical assistance by the
Cooperative/Enterprise

2.5 Number of households, especially the

poor, that are involved in the ……/4
production/processing linkage with the
Cooperative/Enterprise

65
Criteria Capacity of Cooperative/Enterprise ……/20
3

3.1 Portion of contribution of the Cooperative/

Enterprise out of the total investment cost ……/4
of the subproject

3.2 Management capacity of the

cooperative/enterprise (an external TA is ……/4
recruited to conduct this)

3.3 Production/processing capacity of ……/4

Cooperative/ Enterprise

3.4 Market outreach of the Cooperative/ ……/4

Enterprise

3.5 The Cooperative/Enterprise’s vision and

commitment of implementation of ……/4
subproject

Criteria Subproject’s sustainability ……/20

4

4.1 Return on investment of the subproject ……/4

4.2 Climate change adaptation aspects of the ……/4

subproject

4.3 Subproject applied the equipment/tools for ……/4

saving energy

4.4 Subproject applied the equipment/tools for ……/4

saving water source

4.5 Linkage between the subproject and the ……/4

provincial value chain plan

Criteria Upscaling capacity of the subproject ……/20

5

5.1 Subproject applies simple techniques and ……/4

technology

66
 5.2 Low cost for applying the techniques and ……/4
technology

5.3 Subproject does not require high ……/4

investment cost when starting

5.4 The production models are being

implemented at the locality or other places ……/4
with a similar socio-economic situation

5.5 Potential to expand the operation of the ……/4

Cooperative/Enterprise

Total points ……/100

Annex 2.2. Example of scoring criteria of the FAO Improving rural competitiveness in Nampula
and Zambézia provinces project
(Source: FAO project document, not published)

FAO Mozambique is implementing the EU-funded project Promove Agribiz (GCP/MOZ/127/EC) in the
provinces of Nampula and Zambezia. The project enhances the capacity of farmers to successfully set up
market linkages and become trusted business partners, resulting in sustainable integration in value chains
and higher income.
The minimum grant ceiling is USD 1 500 and the maximum amount is USD 15 000. The matching
beneficiary contribution is set at 20 percent of the total grant amount.
Business valuation
The investment proposal is (i) clear, (ii) aligned to the business plan and (iii) 10
logically linked to the operationalization of a specific activity.
The investment proposal is aligned to and will support the improvement of at least 10
one of the following types: production, diversification or commercialisation (one
point per type applicable).
The investment and its implementation strategy/approach are appropriate to 5
achieve the objectives and activities of the business plan.
The proposed project has identified a market and has a competitive position 10
(including reference to clients, market expected costs and market operating
strategies).
The investment proposal can be achieved within the given time plan and budget. 10
Subtotal 45
Financial criteria
Budget calculations for necessary investments are realistic and match existing 10
market requirements and trends. Grant funds requested in the budget are relevant
to the project goals and consistent with the intended use of the investment.
The 20 percent co-investments of the group are met. 5
The group can cover the operations and maintenance costs. Operations and 5
maintenance costs are the annual expenses required to operate and maintain the
infrastructure.
67
The grant investment is intended to lead to an increase in profits; increase of 10
income and/or increase in market share.
The investment intends to have a positive contribution to the overall livelihood, 5
either in terms of food security or increased income of the farmer group and its
members.
Subtotal 35
Social benefits
The group is likely to have the capacity, through the engagement of members, to 10
operationalize the investment throughout the project life span, based on progress
reports of the Farmer Field School (FFS) attendance.
The proposal counts on and builds on the capacity trainings and skills 5
development.
Subtotal 15
Technical capacities
The technologies, the type of equipment and facilities used are appropriate and 10
in accordance with national, local and environmental conditions
The time-frame for implementation is realistic. 10
Subtotal 20
Bonus
Investment proposal intends to contribute to increase the participation of and to 5
expand the benefits for women and youth.
TOTAL 120

Annex 3. Checklist of characteristics of a matching grant

(Source: WB, 2010, p. 67)
Minimum requirements to consider:
• Rationale for grant use.
• Target group: main beneficiary, including eligibility criteria.
• Eligible activities and expenditures.
• Anticipated grant demand (volume and time schedule).
• Subproject size, grant range and match requirement (as relevant).
• Implementation arrangements, including Implementation Units and their roles, and
administrative costs.
• Basic implementation procedures, including procurement.
• Monitoring and evaluation arrangements.
• Cost-benefit analysis, using representative examples.
Additional recommended activities for an efficient and sustainable grant program:
• Prioritization of themes/activities targeted by the grants.
• Client and stakeholder engagement throughout the design and implementation.
• Capacity building and partnership facilitation arrangements (for example, to grant
Implementation Units, applicants, potential service providers).
• Parallel supporting activities to build synergies between infrastructure, regulatory and market
development activities.
• Coordination with other programmes and actors.

68
Annex 4. Flow chart of an FAO matching grant project

69
Source: FAO Mozambique EU-funded project Promove Agribiz (GCP/MOZ/127/EC) GOM
[Unpublished].

Annex 5. An example of a business plan template: the IFAD Public-Private Partnership matching
grant for SMEs in Viet Nam

The SMEs with the expressions of interest (EoI) accepted by the matching grant secretariat will be provided
with the below Investment Proposal/Business Plan Template. The text in red is explanatory and detailed
questions are provided to help in preparation of an investment proposal. The red text is to be deleted and
replaced by enterprise descriptions as per the given headlines.

PROJECT FACT SHEET (One page)

PPP Project Title:

Product description and key outputs of the investment:

Co-Investing Company:

Project Location:

Project Duration: (year)

Proposed Co-investment by PPP Fund: (VND, %)

Proposed Contribution by the Enterprise: (VND, %)

Total PPP Investment and Expected Duration of Return on Investment at Enterprise Level: (VND,
year)

Estimated Number of Long-Term Full-Time Jobs Created: (non-poor, near-poor/poor people)

Estimated Number of Supplier Households Involved: (non-poor, near-poor/poor households)

Estimated Average Profit per Supplier Household: (VND)

Contact Details of Company and Responsible Person:

PPP Proposal Writing Team:

70
PART 1. ENTERPRISE OVERVIEW (max. five pages)

1.1 Name, Location and Legal Status

1.2 Product and production facility description

- Description of the product/service produced by the company
- Quality, monthly/yearly volumes and pricing of the produce
- Facilities (including land, buildings, machines, vehicles, etc.) currently owned and used by the
enterprise
- Production capacity with the existing facility
- Value of the facilities, operation and maintenance cost of the facilities
- Existing volume of raw material intake, and location of suppliers

1.3 Marketing and sales

Customers
- Who are the current customers and where are the customers located?
- Why do the customers buy produce from the enterprise?

Market analysis
- Which other producers sell to the same customers?
- What is the difference between products of the enterprise and those of its competitors?
- What is the difference between prices of the enterprise and those of its competitors?
- How did the markets of the produce change during last years?
- How will (can) the produce price and quality requirements change in the coming years? Is any form
of certification in use or foreseen? (e.g. 4C, Rainforest, GAP)

Market development strategy

- How will the enterprise keep its customers and reach new customers?
- What are the product quality and volume requirements of existing and new markets? Is there any
certification mechanism?
- What channels of promotion will the enterprise use?
- What risks and opportunities for the enterprise are foreseen in changing markets?

1.4 Human resources

- Company organization structure
- Management team
- Professional staff and labourers

1.5 Stage of development and growth vision

- When, and at what size and production model did the enterprise start?
- How has the enterprise developed until now?
- What are enterprise’s objectives for the coming five to ten years?
- What are the next strategic measures to reach the objectives?
- How will the enterprise finance its growth measures?

71
PART 2. ENTERPRISE LEVEL PPP INVESTMENT (five to ten pages)

2.1 Targets of the proposed PPP investment

- How will the enterprise increase its profitability as result of the investment?
- How much is the increased volume of production, if any?
- How will the product quality be improved?
- How will the raw material intake capacity of the enterprise be increased?

2.2 Description of required asset investment

- What investment is required at the enterprise level to achieve the above targets? (housing, machinery,
vehicles, utility installations, trainings, etc.)
- What are the planned items? Describe each item and its purpose.

2.3 Description of required human resources development

- New management positions, professional staff and/or labourers required for installation and for
operation of the new investment. Qualities and experiences of assigned staff. Tasks, duration and
salaries of each new position. Estimated amount of poor and near-poor people employed.
- Skills required to manage the PPP and the proposed business operations. Technical skills required to
install and operate the proposed new production systems. Required training for the management team,
staff and/or labourers.
- Detailed list of required training and coaching items, including schedule.

2.4 Investment cost and profitability at the enterprise level

- What is the total cost of the investment at the enterprise level?
- What is the cost of each proposed item at the enterprise level? (Provide three quotations when
possible)
- What is the annual increased profit of the enterprise through the PPP investment?
- What is the duration of return on investment?

2.4 Risk identification and management

- What are the foreseen risks in the production process of the enterprise?
- Risk management strategy

2.5 Permits, land allocation and government incentives

- Which official permits are needed for the current operation and for the planned investment?
- Does the investment require land? Has such land been identified and allocated?
- Which government incentive policies such as subsidized lending, primary producer support, staff
training or other inputs are available? How the government incentives can be utilized?

2.6 Environmental and labour standards

- Does the enterprise currently have any environmental risks? Are any new risks foreseen as result of
the planned investment? What is the enterprise’s environmental management plan?
- Does the enterprise follow labour standards for its staff as per Viet Nam Labour Law? Requirements
for improvement and action plan?

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PART 3. FARM LEVEL PPP INVESTMENT (five to ten pages)

3.1 Raw material requirement for the PPP investment

- The required raw commodities for the production
- Quality requirement for the raw material
- Period of raw material purchase
- Cost of the raw material
- As result of the investment, how much more raw material does the enterprise plan to procure during
the coming years? What is the expected rate of annual increase during the next one to five years?

3.2 Raw material producers

Number of households expected to be supplying
- What is current average yield per ha of the procured raw material?
- What is the improved average yield per ha, as result of the PPP?
- How much is the average area of production per household?
- How many households currently sell raw material to the enterprise?
- After the investment, what is the expected annual (one to five years) increase of households required
to produce the raw material?
- What percentage of the existing and new producers are poor/near-poor households?

Location of source of raw material

- Where is the raw material currently procured from?
- What are the new locations for raw material purchase?

Contractual arrangements with suppliers

- Are the households organized in groups or villages or led by lead farmers?
- Who helps the groups in group management and with technical issues?
- Is the enterprise dealing with groups of households or with individual households?
- Is the enterprise signing contracts with the households to buy the raw material?
- Is the contract signed at time of purchase, in the beginning of the season or for longer term?
- How is the price of raw material set in the contract?
- Is the enterprise lending inputs to households to increase quality and quantity (give input against
reduced cost of purchase)?
- How is the arrangement between the enterprise and the required new producer households foreseen?

3.3 Development of supply chain

Capacity of the raw material producers
- Capacity of the existing producers to produce the required quality
- Capacity of the new producers to produce the required quality
- Potential to include poor households to the supply chain
- Do the existing and new raw material producers require improved inputs or technology?

Need of R&D and training services for the raw material producers
- Is there any need of R&D for the raw material supply?
- Who will be responsible and what is the total cost of the R&D?
- Is there any need for training for the existing/new raw material producers? How many producers?
- What are the total required training items, what is their cost and what is the source of funding (capital,
lending, public resources, producer households, project funds)?
- Who will provide the required trainings? Can the enterprise provide technical assistance to the farmer
households? Any other potential technical assistance providers?

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 - What is the training methodology?
- When will the trainings be provided?

3.4 Investment and profitability at the farm level (details in Appendix 1)

Farm budget narrative
- Initial investment cost and its depreciation
- Annual working capital requirement
- Job creation at the farm level (non-household jobs)
- Revenues and gross income
- Duration of return on investment

Financing needs and sources for the producer households

- For both existing and new raw material producer households, what are the financing needs to sustain
and improve production?
- What are the current and potential sources of financing to the households?
- How can the project and the enterprise help households access financing?

3.5 Production environment of the raw material producers

Services and inputs
- What services and inputs do the raw material producers require?
- Are these inputs available in satisfactory quantity and quality to the current producers?
- Are the inputs available to an increased number of producers after the investment?
- How the inputs can be improved in collaboration with the enterprise?

Public infrastructure
- What is the condition of public infrastructure supporting the raw material producers? Roads, bridges,
irrigation, electricity, water and sanitation?
- What is the requirement of infrastructure construction/repairs works?

PART 4. PPP PROJECT BUDGET AND WORK-PLAN (two to six pages)

Budget (table with comprehensive information, suggested to use Excel for calculations)
- What is the cost of each proposed item in the overall PPP plan?
- What are the sources of funding for the investment, including enterprise capital, farmer capital, loan
funds and PPP grant? Which are provided in cash and which in kind?

Work-plan (table with comprehensive information)

- Detailed work-plan to implement the investment, including schedule and responsibilities
- Milestones for disbursement of funds

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Appendix 1. FINANCIAL ANALYSIS OF THE PPP PROJECT

Financial analysis of the development impact at the household level

- Household income with and without project:
(i) Initial investment cost and its depreciation
(ii) Annual working capital requirement
(iii) Revenues and gross income
(iv) Duration of return on investment

Financial analysis of PPP viability at the enterprise level

- Price and quantity of produce sold per annum or per season
- Detailed costs of the initial PPP investment and estimated annual depreciation value
(depreciation = investment cost / estimated number of years of use)
- Cost of new employment at the enterprise level
- Detailed annual running costs for the investment including purchase of raw material, electricity, water,
fuels, transportation, maintenance costs, marketing costs and any other cost
- Incremental revenues and savings to the enterprise through the PPP investment
- Profitability of the PPP investment including return on investment, net present value and internal rate
of return analysis

Appendix 2. REQUIRED FINANCIAL STATEMENTS BY THE ENTERPRISE

(for business households category, requirement assessed by the Project Coordination Unit in each
case)

a. Balance sheet

b. Income statement

c. Cash flow statement

d. Valuation of enterprise assets (evaluation of in-kind contribution value by authorized valuer, to be

conducted after the approval of the PPP project proposal)

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