The Afghanistan Business Innovation Fund has developed a unique methodology for evaluating applications and allocating grants. All applications pass through a sequential evaluation process that allows us to select the portfolio of investment projects that will maximise the expected development outcome within the grant budget for each round. We calculate the amount of grant that we give by reference to the specific risks and returns of each project.
The ABIF application evaluation methodology is designed to focus the competition for grants on development objectives. Once applicants have passed our eligibility criteria and the quality threshold that we set for applications, the final group competes for grant funds based on our objective to maximise the expected development outcome within the total budget set for each round.
The ABIF evaluation methodology has two principal components; our assessment of the potential development outcome (PDO) associated with the project and our assessment of the project implementation risk associated with the applicant. Essentially the PDO is a broad estimate of how many people from our target beneficiary groups would benefit by how much if the project were to be implemented exactly as described in the grant application. However, life is never so simple, and inevitably things rarely go to plan so the project implementation risk is a way of discounting the potential development outcome. The discount factor is derived from an assessment of the applicant's financial and management capacity and the strength of the market presence. The final step is to combine the PDO with the project implementation risk to arrive at a value for the expected development outcome.
The amount of grant support that we provide is determined by the specifics of each investment project and the level of business confidence of each applicant. We create a detailed financial model for each of the shortlisted applicants, based on the investment project budget and the operating financial forecasts associated with their business plan. Before Round 1 was launched we undertook an investor survey that allowed us to estimate the cost of capital in Afghanistan. This estimate gives us a target internal rate of return for the kind of projects we support. We cannot increase future profits, and we cannot reduce the level of risk, but our grants can offset some of the initial investment, to the extent necessary to generate the target rate of return. Based on various scenarios, we come up with an indicative grant range, it is then up to each applicant to decide how much grant they want to apply for within that indicative range.
Ultimately, the higher the expected development outcome and the lower the amount of grant that the applicant requests, the more competitive the grant application will be.