The Malawi Innovation Challenge Fund (MICF) is a competitive mechanism that provides matching-grant financing for innovative projects proposed by the private sector active in Malawi’s agricultural, manufacturing and finance sectors. The initiative is implemented by the United Nations Development Programme (UNDP), Nathan Associates London Ltd., Imani Development and Malawi’s Ministry of Industry and Trade, and supported by the International Fund for Agricultural Development (IFAD), UK Aid, the German Development Bank (KfW) and the Embassy of Norway in Malawi. Running since 2014, the MICF offers risk capital that generates real impact in terms of increasing the country’s productive capacity and employment and income opportunities for the poor. The MICF supports the process of transformation within the Malawian economy, while focusing on the targeted priority sectors of the National Export Strategy and on value chains with strong potential to contribute to growth and poverty reduction. For instance, it seeks to enable manufacturers to backward integrate processes to incorporate local products and services that would enable them to compete in international markets or allow for import substitution in the domestic market, while delivering substantial social or environmental impacts. 

The MICF is designed to be a transparent, quick and responsive mechanism that endeavours to understand the needs of the private sector. Grantees are expected to match 50 percent of the grant amount and this grant follows a rigorous verification process of milestones achieved according to a contract. The MICF is implemented through an Inclusive Market Development approach, which recognizes that a series of interventions are required across the market system to ensure sustained changes in behaviour and to enable markets to function more effectively for the poor. This approach overcomes the drawbacks of conventional instruments by focusing on systemic change. Integrating this approach with the MICF instrument reduces some of the risks faced by businesses associated with innovating pro-poor and inclusive business models. 

Since 2014, the MICF has worked with over 50 grantees across Malawi, supporting the development and commercialization of innovative products, such as a water-treatment solution, a hydro-powered water pump, non-refrigerated margarine, UHT long-shelf-life milk and specialty tea. The corresponding enterprises have helped deliver socioeconomic impacts for the communities in which they operate, contributing to the creation of over 2,000 jobs, delivering affordable products to 21,000 low-income consumers and ultimately improving the livelihoods of 350,000 Malawians (41 percent of which are women) by increasing their incomes. 

In view of the success of the initiative, many UNDP Country Offices in Africa (for example in Ethiopia, Kenya and Zimbabwe) have been supported through South-South exchanges to better understand the functioning of the MICF, considering possible country- or regional-level replications of the instrument.