South Africa stands out for its social protection response to Covid-19, especially regarding the expansion of programmes, number of beneficiaries and benefit amount. At the height of the pandemic, the government introduced the emergency Social Relief of Distress (SRD) grant was introduced for over 10 million unemployed adults and informal workers through a digitised system. Despite successes in expanding the grant system, digitisation of the system presented challenges and led to exclusion errors. An alternative to the country’s school feeding scheme, the National School Nutrition Programme which regularly fed around 10 million children, could not be found.

The Covid-19 crisis led multilateral and bilateral donors to revise their funding strategies to respond to the crisis and to adapt existing programming to the new context it created. This resulted in changes to overall allocations, with some countries increasing aid commitments and institutions like the World Bank scaling up lending to low- and middle-income countries while others have cut aid budgets due to low economic growth and demands on domestic resources at home. Changes in aid volumes and disbursal mechanisms are anticipated to have significant impacts on low- and middle-income countries’ abilities to cope with the crisis in the short term, and the targeting of these investments are likely to have a lingering effect on recoveries for years to come. Although aid makes up a small proportion of countries’ available finance to tackle the Covid-19 crisis, “other financing options such as foreign direct investment, workers’ remittances, and taxes – have fallen and are slow to recover” (Prizzon, 2021). Aid finance will therefore be critical to many countries’ short-term responses to Covid-19 and capacities to abate longer-term negative impacts on social and economic outcomes as countries begin to recover. This report gives a broad overview of trends in bilateral, multilateral, and private foundations’ funding strategies over the course of the pandemic to highlight observable shifts in practice. The review is based on a rapid search of funding announcements from a selection of bilateral donors, a selection of multilateral institutions, and overall trends reported by foundations. The report also includes evidence reported by secondary literature on finance for development over the course of the Covid-19 crisis.

Evidence indicates that business support to small and medium enterprises (SMEs) in lower middle-income countries (LMICs) can improve firms’ performance, create jobs, and have a positive effect on labour productivity (Piza et al., 2016). The impacts of some approaches to private sector finance such as traditional loans, grants and technical assistance have been studied empirically, but there is limited evidence of the impacts of non-traditional and innovative financing instruments (Mallen & Bungey, 2019; Piza et al., 2016). Studies of financial instruments to support SMEs in LICs and LMICs tend to focus on particular markets or adaptations to traditional funding models rather than targeted outcomes such as sustainable employment creation (Mallen & Bungey, 2019). This report explores evidence on the effectiveness of financing options available to bilateral donors to promote private sector development (PSD) in LIMCs, however the evidence base for most financing instruments is extremely limited and much of the evidence is more than 5 years old. The report seeks to provide a (non-comprehensive) list of available Overseas Development Assistance (ODA) eligible options and a more detailed examination of those options for which evidence was identified for this review. An open search for evidence on PSD interventions to support SMEs in LMICs and LICs was carried out, followed by a targeted search of interventions seeking to support medium-sized enterprises (the ‘missing middle’) in Zambia specifically. The report begins with a brief overview of the ‘missing middle’ challenge in Zambia. Section 3 explores recent trends in bilateral finance for PSD. The remaining sections of the report explore available evidence on the effectiveness of specific interventions: credit guarantees, matching grants, equity investment and permanent capital vehicles, mezzanine finance, and funds of funds.