ABSTRACT
Markets and the private sector could play an instrumental role in social development. This chapter argues that donors spending for developing markets for social and economic development is one of the better spending models. It presents the story of how the microfinance market in Pakistan has evolved through donor funding. It discusses how donors have aligned their support to the different phases of the development of the microfinance industry from pure grant-based funding, to limited subsidies, and to purely commercial lending. In doing so, the donors have not only developed self-sustaining microfinance institutions but have also been able to leverage limited financing for a much larger impact at scale. The chapter provides examples and case studies from Pakistan, where aid was used to help establish self-sustaining and profitable social businesses generating social impact at scale. Developing and strengthening markets for the delivery of social goods has emerged as an innovative model for the “better spending” of aid that yields high social returns for donors and recipient countries alike.
