USAID’s new Local Capacity Development (LCD) policy seeks to better assist local organizations to become stronger, vibrant contributors to their communities. U.S. small businesses have an essential and unique role to play in USAID’s new LCD policy that is good for local partners, U.S. international development investments, and American small businesses. 

The new policy builds on a longstanding goal to invest more aid directly into local organizations to accelerate sustainable development in their communities. Administrator Samantha Power’s plan for USAID to increase direct investment to local organizations to 25 percent within four years and the LCD policy are important steps for USAID to measure and achieve its strengthening local capacity commitments. 

While remaining anchored to U.S. compliance regulations and guidelines, USAID’s new LCD policy identifies pragmatic principles, centered on amplifying local voices and perspectives, and steps toward making development investment more adaptable and synergistic. It builds on local systems and capacity across diverse activities to promote change consistent with local partners’ and U.S. international development goals. 

“As Americans with a fraught history living up to our own values, we’ve got to approach this work with intention and humility. But the entire development community needs to interrogate the traditional power dynamics of donor-driven development and look for ways to amplify the local voices of those who too often have been left out of the conversation.”

USAID Administrator Samantha Power

To achieve the delicate balance between expanding direct funding to local organizations while maintaining compliance with U.S. requirements, U.S. small businesses are a natural key partner for implementing LCD policy. Small businesses are essential to the growth, rejuvenation, and sustainability of any economy. As a consequence of limited resources, they must master management functions as well as technical capabilities. Many develop scalable management systems to facilitate their work and the onboarding of new personnel as they grow.

As USAID works to strengthen the capacity of local organizations while minimizing its potential fiduciary risks, it is imperative to prioritize the enhancement of the management systems of local organizations. Technical capacity can falter when organizations lack a strong management foundation. Strengthened management capacity facilitates scaling up and promotes resilience for long-term sustainability. In this collaborative work, small businesses are well suited to partner with and mentor local organizations, particularly small- and medium-sized organizations, as well as new entrants. 

KANAVA International, for example, has worked with local organizations across multiple technical areas in Colombia, West Africa, Cambodia, and Afghanistan to collaboratively strengthen their management capacity by applying its Impact Strengthening Development (ISD®) methodology to measure and develop management capacity organically. KANAVA has assisted local organizations to manage funds, diversify sources of revenue, and strengthen their ability to scale up operations compliantly and transparently. 

“The ISD® training helped us to be become more effective and take on bigger and more significant challenges. My staff obtained new skills in procurement and finance and accounting principles, which in turn allowed them to step into new roles as our organization needs them and to be better equipped to effectively implement USAID-funded programs.”

Chief Executive Officer of an Afghan agricultural services company

In Colombia, KANAVA works with local organizations from the start of a project, providing the time to assess and build their management capacity over the life of the project. In Afghanistan, KANAVA assessed eight organizations, including nonprofits and commercial businesses. After delivering three tranches of training, KANAVA measured improvements in management capacity by an average of 16 percent overall, while one organization improved by 40 percent. In West Africa, KANAVA worked with five regional value chain associations to strengthen their ability to diversify their funding sources. As a result, one association obtained its first non-USAID funding from the African Development Bank (AfDB). After it saw the organization’s ISD® assessment, which reflected its management capacity strengthening, AfDB waived the normal site visit and awarded the funds directly.

Through its collaboration with nonprofits, small businesses, cooperatives, and associations, KANAVA has worked peer-to-peer to empower local organizations to fully understand their current systems’ strength and how even stronger management systems will enable them to better comply with donor requirements as well as promote their long-term sustainability. 

During the COVID-19 pandemic disruption, KANAVA effectively pivoted to utilizing the ISD® digital version virtually to continue this important work while retaining the flexibility to apply it offline in accordance with local conditions. This allowed our assessments and management capacity building work to continue while providing more options for our ISD® services in the future.

By using a tool such as ISD® to assess local organizations, USAID can reduce the potential fiduciary risk and better understand the capacity of the local organizations they may want to work with. USAID will also be able to assess more nascent local organizations that require fundamental assistance to become ready for direct donor funding at a later time, which will enable USAID to systematically expand its new partners’ pool.