Introduction

Small and medium-sized enterprises (SMEs) are the backbone of Latin America and the Caribbean’s (LAC) socioeconomic fabric, generating more than 60 percent of the region’s employment while serving as critical enablers of local supply chains, community resilience, and economic inclusion. They play a crucial role in fostering entrepreneurship, reducing poverty, and driving local economic activity (see the numbers of micro, small, and medium-sized enterprises in Brazil, Mexico, and Colombia in Table 5.1), particularly in underserved and low-income areas. However, these businesses face persistent structural barriers, including limited access to financing, technological deficits, and an increasingly competitive retail landscape.

The COVID-19 pandemic exacerbated existing challenges, pushing many SMEs – especially microenterprises and traditional “mom-and-pop” stores – into crisis. Mobility restrictions, disruptions in supply chains, and a lack of digital infrastructure disproportionately affected businesses that rely on in-person interactions. While large retailers adapted by accelerating digital transformation and leveraging economies of scale, SMEs struggled to remain viable. Many owners, already operating on razor-thin margins, were forced to take on high-interest microloans just to maintain inventory and meet daily expenses.

Beyond their economic role, SMEs serve as vital social institutions. In LAC, small neighborhood stores are more than mere commercial enterprises; they function as essential hubs that provide access to basic goods, credit, and even informal financial services to the most vulnerable. Their resilience and adaptability are key indicators of broader economic stability, as thriving SMEs correlate with stronger community ties, reduced crime rates, and increased civic engagement.

However, to unlock their full potential as engines of inclusive growth, SMEs require more than just financial capital – they need capacity-building investments in digital literacy, financial management, and operational efficiency. Traditional financing mechanisms have often fallen short, leaving a critical gap that philanthropy, as part of a catalytic finance approach, is uniquely positioned to address.Footnote ³ When leveraged strategically, philanthropy possesses a high-risk appetite and the flexibility to provide not just funding but also the technical assistance and ecosystem building required for sustainable impact.

The Tienda Cerca initiative, established by AB InBev – the world’s leading brewer – and its foundation, exemplifies the integration of commercial and social investment to drive collaborative interventions. By leveraging technology, financial tools, and capacity building, Tienda Cerca has strengthened the resilience and productivity of SMEs in LAC.

The initiative empowers small-scale retailers by optimizing supply chain operations and enhancing operational efficiency. It also fosters community development by providing digital business capabilities, market insights, and institutional resilience. Rooted in the 4Ps model – private–public–philanthropy partnerships – Tienda Cerca showcases how knowledge transfer, technical assistance, and ecosystem development can fuel economic transformation.

This chapter explores the initiative’s origins, its regional scaling strategy, and key considerations for stakeholders aiming to replicate similar capacity-building efforts to drive systemic change.

SMEs as Community Leaders: Building Capacity through 4Ps

SMEs in Latin America are more than economic entities – they are vital to the social fabric of their communities. These local businesses, known as mom-and-pop grocery shops – also referred to as tiendas or bodegas, embody cultural heritage, fostering a sense of identity and pride among residents. By generating employment, supporting local suppliers, and engaging in community initiatives, SMEs enhance social cohesion and neighborhood well-being. With support from 4Ps, they can expand their impact as agents of change, advancing social development goals and promoting responsible business practices.

The advent of 4Ps, where philanthropic capital is integrated into traditional public–private partnerships (PPPs), has the potential to not only drive SME economic development but also strengthen the social fabric in Latin America by combining investment with capacity building, improved services, and job creation. Historically, countries such as Chile – recognized as a leader in this field – have leveraged PPPs to facilitate the construction and modernization of roads, airports, and ports, stimulating local economies and generating employment, ultimately serving as a benchmark for other nations in the region (Espelt Reference Espelt2015). By incorporating philanthropic capital, 4Ps can further enhance this model, amplifying its ability to help deliver system change.

By leveraging philanthropic capital to strengthen SMEs institutionally, these small businesses can take on leadership roles within their communities, creating a multiplier effect. As they grow and succeed, they inspire other entrepreneurs, gradually fostering a more resilient, inclusive, and dynamic local economy. Through the acquisition of new skills and capacities, this added value fuels a cycle of growth that reinforces community ties, cultivates innovation, and enhances overall quality of life.

Philanthropy as a Driver of Technical Assistance and Capacity Building

Philanthropy is uniquely positioned to fund technical assistance (TA), a critical driver of capacity building and systemic change, particularly in underserved communities. Organisation for Economic Co-operation and Development (OECD) research has highlighted the importance of unrestricted philanthropic investment for capacity building and its unique role therein.Footnote ⁴ Unlike government agencies, which are often constrained by bureaucratic processes, and private investors, who prioritize financial returns, philanthropic organizations possess the flexibility, risk tolerance, and long-term vision necessary to bridge this critical gap.

TA is often underfunded because it does not generate immediate financial returns. Governments face limitations in reallocating resources toward TA, while commercial capital typically views it as a non-revenue-generating expense. Philanthropy, however, can take a more strategic, long-term approach, investing in high-risk, high-impact interventions that build resilience, enhance efficiency, and promote sustainable economic development. By directing resources toward ecosystem building – such as digital inclusion, business mentorship, and policy advocacy – philanthropy can help create enabling environments where SMEs can grow, compete, and drive broader economic transformation.

Digital Inclusion: The Birth and Scale-Up of Tienda Cerca

The COVID-19 pandemic created an unprecedented crisis for small retailers across LAC. As lockdowns and mobility restrictions took effect, millions of micro and small businesses – many informal, cash dependent, and reliant on in-person transactions – faced a collapse in demand. Among the hardest hit were neighborhood stores, or tiendas, which serve as critical community hubs providing access to essential goods. With foot traffic severely reduced, these businesses risked closure, threatening not only their owners’ livelihoods but also the stability of local supply chains.

Faced with unprecedented challenges, many neighborhood shops were forced to close, unable to survive on their own. AB InBev, which typically works closely with its value chain – comprising millions of retailers and thousands of farmers – quickly recognized the need to support these businesses. As a result, it set about designing a program to strengthen and sustain the communities in which it operates.

Given the severity of the crisis, it became clear that any systemic intervention would require broad and deep collaboration to ensure an effective and sustainable solution. This is where the concept of catalytic capital emerged. As AB InBev looked beyond the immediate crisis to focus on long-term institutional capacity – an often-overlooked factor in achieving the UN’s Sustainable Development Goals – it recognized the need to engage a wider network of stakeholders. To foster customer growth and sustainability while prioritizing long-term impact over short-term gains, broader participation and strategic partnerships became essential.

Recognizing this gap and the potential of a collaborative approach, AB InBev engaged its philanthropic arm, the AB InBev Foundation, which focuses on driving social impact by fostering sustainable solutions, particularly in areas related to responsible drinking, road safety, and entrepreneurship development and is well positioned to align corporate objectives with addressing key externalities in the value chain. The Foundation served as a bridge between AB InBev’s corporate vision and the broader socioeconomic challenges faced by SMEs.

Leveraging its expertise in community engagement and partnerships, the Foundation identified critical externalities the program could address, including economic inequality, lack of digital access, and financial exclusion. By collaborating with governments and nongovernmental organizations, it was uniquely positioned to scale impact, promoting economic resilience in vulnerable communities by helping small retailers remain operational during the crisis.

Additionally, its partnerships with public and private institutions provided deeper insights into SMEs’ vulnerabilities, such as their reliance on in-person transactions and limited access to formal credit. These insights allowed the Foundation to align its initiatives with AB InBev’s goal of developing localized solutions and create shared prosperity.

To further strengthen the approach, the Foundation partnered with the Inter-American Development Bank (IDB) Lab to develop a more systemic solution. This collaboration enabled a more ambitious intervention aimed at institutional capacity building while also extending support to grassroots households and the smallest-scale enterprises.

By May 2020, just months after the onset of COVID-19 and starting in Colombia, AB InBev launched Tienda Cerca – an online platform designed to help small retailers sustain their operations by establishing a digital presence. Providing an immediate and practical solution, Tienda Cerca enabled shop owners to continue serving their customers by facilitating online orders for essential goods such as food and beverages. A key feature of the program was its commitment to go beyond financial assistance by integrating capacity-building initiatives to support small retailers’ long-term sustainability through digital integration via tailored digital tools, thereby helping them adapt to an evolving market landscape.

As mobility restrictions eased and customers returned to physical stores, the demand for digital tools remained strong. Businesses that had adopted online transactions, digital inventory management, and electronic payments found themselves better positioned for long-term success. In parallel, AB InBev expanded its business-to-business digital platform, called BEES, offering advanced tools for online ordering and payment processing. As Tienda Cerca grew, small retailers were digitized across several Latin American countries, and customers were able to place orders directly with local grocers via WhatsApp. This innovation led to the creation of Colombia’s largest hyper-local e-commerce network: within just 60 days, the platform had attracted more than 10 million visits, with 70 percent of registered corner shops reporting increased sales.

As the positive impact of Tienda Cerca became evident, a new ambition emerged: how to scale up to more markets and reach more SMEs. How could stronger partnerships be built to ensure a long-term, sustainable intervention that extended beyond crisis management?

The solution was twofold: first, ensuring strong multi-sector engagement by fostering collaboration among nonprofits, government agencies, and private-sector actors; and second, leveraging AB InBev’s deep expertise in commercial project management. By reinforcing the principles of the 4Ps approach while also drawing on specialized technical expertise, the partnership remained resilient despite inherent challenges. AB InBev’s project management expertise played a pivotal role, facilitating a synergistic approach that valued each partner’s contributions while aligning efforts toward a common goal.

By 2024, Tienda Cerca had expanded to connect more than 425,000 businesses across eight countries, up from 334,000 in 2021. Its store locator map had generated 14 million visits, and 70 percent of registered businesses reported increased sales. Through multi-sectoral partnerships, the initiative has evolved into a self-sustaining ecosystem benefiting more than one million families. Today, Tienda Cerca operates at no cost to retailers or consumers in Colombia, Ecuador, Mexico, El Salvador, the Dominican Republic, Panama, and Honduras. Beyond supporting small businesses during challenging times, the platform has played a crucial role in strengthening communities and ensuring the availability of essential products, further solidifying its long-term impact.

SME Digital and Financial Inclusion: The Case of Amigo Digital

By successfully scaling Tienda Cerca, a network of partners catalyzed further collaboration and impact. Working alongside IDB Lab, AB InBev, and various local and regional stakeholders, the initiative evolved beyond immediate digital capacity building to reinforce institutional resilience in the SME sector. This collective effort ultimately led to evolve the name of Tienda Cerca to Amigo Digital, and to continue enhancing SME resilience.

As the OECD notes, strengthening SMEs is key to post-pandemic economic recovery in LAC (Cerda et al. Reference Cerda, Cervantes and Gertler2023). With Tienda Cerca having successfully piloted and scaled a multi-country digital intervention, it provided an opportunity to expand pan-regional TA. Amigo Digital was thus established – an additional initiative that connects strategic expertise with the resources and knowledge of local tech providers and start-ups, comprising both digital and financial inclusion.

Spanning Colombia, Mexico, Peru, Ecuador, Panama, the Dominican Republic, Honduras, and El Salvador, Amigo Digital adapts to the specific needs of each market, ensuring SMEs remain competitive in an evolving digital ecosystem. It operates on three core pillars:

• Digital Commerce: SMEs gain access to tools for inventory management, online ordering, and payment processing through a digital platform.

• Skill Development: Digital training programs equip SMEs with tailored business and technology skills.

• Digital Credit: The “Order Now, Pay Later” feature provides SMEs with flexible financing options, enabling better inventory management and credit history building.

The rapid scaling of Amigo Digital across seven countries was made possible by leveraging AB InBev’s existing infrastructure and strategic partnerships with local tech providers. This approach allowed for customized solutions tailored to each region while ensuring broad relevance and effectiveness. By aligning philanthropic and corporate resources, the initiative not only bridged financing gaps but also enhanced technical skills, significantly increasing its overall impact and sustainability.

Addressing the “Missing Middle”. Small and medium-sized enterprises in Latin America face significant financing challenges due to insufficient collateral, lack of credit history, and high transaction costs – a phenomenon known as the “missing middle” (Maloney et al. Reference Maloney, Zambrano, Vuletin, Beylis and Garriga2024). Studies indicate that only 40 percent of these enterprises have access to regulated credit, limiting their potential for growth (Cerda et al. Reference Cerda, Cervantes and Gertler2023).

To bridge this gap, Amigo Digital developed the “Order Now, Pay Later” model, enabling businesses to acquire products from hundreds of brands and supplier partners, with payment terms of up to 30 days based on their credit history.

For many of the 283,000 stores that have benefited, this represents their first experience with formal financing (IDB Lab Projects, June 2024). By incorporating multidimensional data analysis and alternative risk assessment criteria, the platform granted credit access to more than 30,000 store owners in its first year, including 10,000 individuals accessing formal credit for the first time.

The impact of this model is clear: in 2023, more than 56,800 store owners in Mexico accessed financing through the platform, with 33,000 being first-time credit recipients. This initiative not only fuels SME growth but also advances financial inclusion, helping underserved businesses establish formal credit relationships and ensuring long-term sustainability.

Scaling Challenges and Adaptive Strategies. Expanding Amigo Digital posed several challenges, given the limited digital capacity of many SMEs and their unfamiliarity with digital tools. Overcoming these barriers required extensive training and support, along with infrastructure improvements to address internet access limitations in remote areas. The program also had to be flexible enough to accommodate diverse business goals, stakeholder timelines, and operational realities. Many entrepreneurs had preexisting strategies that did not fully align with Amigo Digital’s framework, making integration complex and requiring trust-building efforts to demonstrate mutual benefits.

By adopting a collaborative, multi-sector approach, these challenges were overcome through synergistic resource allocation – expertise, financial capital, and time – ensuring that each actor contributed value. The initiative was further de-risked by leveraging catalytic capital from the AB InBev Foundation and IDB Lab, aligning public and private actors around shared objectives.

Leveraging Existing Networks. A key factor in Amigo Digital’s success was AB InBev’s ability to scale solutions rapidly through its digital platforms, business infrastructure, and partnerships with local tech providers. Preexisting networks established through AB InBev and IDB Lab facilitated efficient implementation across multiple countries. Notably, AB InBev’s local business teams played a pivotal role in adapting the program to align with regional market needs, consumer behavior, and cultural nuances. While the core framework of training events remained consistent across Ecuador, Peru, and Mexico, these teams customized event formats and content to resonate with local communities, ensuring both engagement and effectiveness.

Bridging the Gap: Financial Inclusion through Digital and Business Training

While traditional development efforts often prioritize financial support and market access, equipping SMEs with essential digital and business skills is just as critical for long-term resilience and competitiveness. Without these foundational capabilities, many small businesses struggle to leverage financing, adopt new technologies, or scale their operations effectively.

To address this gap, collaboration with key ecosystem actors was fundamental. Amigo Digital partnered with Closelly, a microlearning and gamification platform developed by Closelly Edutech SpA in Santiago, Chile. Unlike conventional training programs, Closelly leverages artificial intelligence to deliver adaptive, interactive, and highly engaging learning experiences tailored to the needs of SMEs. By incorporating gamification elements, the platform increases knowledge retention and encourages active participation, which is particularly beneficial for entrepreneurs who may have limited formal education or time for traditional training.

By June 2024, this partnership had empowered more than 8,000 store owners with digital skills and more than 10,000 with enhanced business competencies, fundamentally transforming their operational approaches. Participants reported improvements in inventory management, pricing strategies, digital marketing, and customer engagement, demonstrating that digital literacy directly translates into better business performance.

To ensure regional relevance, educational content was developed in collaboration with TEC de Monterrey and the United Nations Institute for Training and Research (UNITAR). This approach ensured that training modules addressed the specific challenges SMEs face in Latin America, including limited access to formal financial services, inefficient supply chain management, and difficulties in navigating digital marketplaces. The inclusion of internationally recognized institutions also enhanced the credibility of the program, making it more attractive for SME owners who may be hesitant to adopt new business methodologies.

Critically, the training program emphasized digital and financial literacy, both identified by the OECD and IDB as essential for SME survival and growth. Modules cover essential areas such as finance, leadership, digitization, and operations, helping participants learn everything from basic accounting and inventory management to leadership techniques and self-empowerment. Additionally, the training included content on promoting responsible selling behaviors among customers and prohibiting sales to those under the legal drinking age. By December 2023, more than 31,000 courses had been completed, with evaluations indicating a 23 percent average increase in business competencies among participants. This comprehensive approach not only enhances SME competitiveness but also fosters an entrepreneurial and resilient mindset.

Catalytic capital, provided by the AB InBev Foundation and IDB Lab, played a crucial role in integrating Closelly into Amigo Digital. This initial funding allowed the platform to be customized to SME needs, mitigating risks and ensuring effective delivery of digital and business training. Amigo Digital’s collaborative approach brought together academic institutions, international organizations, and local tech providers around the shared goal of empowering SMEs with digital and business skills.

Operational challenges were inevitable. One of the primary hurdles was the divergent nature of stakeholder priorities: each partner had different objectives and operating models, requiring extensive negotiation and compromise to align interests. Additionally, customizing training content for multiple countries was a complex process, demanding collaboration across diverse cultural, regulatory, and economic landscapes to ensure local relevance and applicability.

Coordination presented challenges, requiring the management of timelines, resources, and contributions across multiple regions while ensuring consistency and impact. However, this is where the 4Ps model proved invaluable. By leveraging the scale and operational expertise of a large organization alongside the localized knowledge and agility of regional partners, Amigo Digital achieved transformational impact.

Closelly’s technological infrastructure, training tools, and financing mechanisms played a crucial role in this process, enabling a seamless approach to digital skill building and financial empowerment. Moreover, unlike traditional financial interventions, which often rely on local banks and financial institutions, this initiative bypassed conventional barriers by adopting a digital-first approach. This not only streamlined SME access to financial tools but also demonstrated the potential of fintech-driven solutions in overcoming systemic challenges that have historically hindered SME development in LAC.

Amigo Digital was strengthened by a robust multilevel governance framework, ensuring alignment with its overarching vision while allowing for localized adaptations. Strategic leadership from AB InBev and IDB Lab provided high-level oversight, ensuring that program objectives remained focused and impactful, while operational teams executed projects at the regional level, tailoring implementation to local market dynamics. Regular stakeholder meetings facilitated continuous alignment, reinforcing a shared understanding of program goals, challenges, and opportunities.

As the initiative expanded, new stakeholders joined, aligning their efforts with Amigo Digital’s objectives. Initial hesitations – stemming from differing priorities, timelines, or operational goals – were addressed through transparent communication and demonstrating mutual benefits. Key to this process was showcasing how Amigo Digital’s tools and platforms could simultaneously drive business development and enhance community well-being, reinforcing its dual impact. By maintaining open communication channels and adapting strategies to regional needs, Amigo Digital successfully united diverse partners under a shared vision, ensuring scalability, long-term sustainability, and continued innovation in SME empowerment.

Critical Success Factors: Adaptability through 4Ps

The success of Amigo Digital is rooted in its collaborative approach, which integrates the reach of large institutions with the localized expertise of regional actors around a common public good. By leveraging public–private partnerships – recognized by the OECD and IDB as essential drivers of inclusive economic growth in Latin America (Cerda et al. Reference Cerda, Cervantes and Gertler2023) – and supplementing them with philanthropic capital to adopt the 4Ps model, the initiative has built a robust support ecosystem for SMEs, driving both innovation and long-term impact.

Beyond digital and operational support, these partnerships are critical to SME growth, particularly in expanding access to formal financial systems – a key enabler of sustainable development. Collaborations with local banks and financial institutions have improved SME credit access, promoted financial literacy, and contributed to the gradual formalization of informal businesses.

Scalability through Market-Centric Design. The scalability of Tienda Cerca and Amigo Digital has been driven by deep alignment with real local market needs. Extensive research into informal retail dynamics, digital literacy levels, and consumer habits informed the design of solutions that are both practical and scalable. Regulatory alignment was also crucial, ensuring compliance with local laws and facilitating effective partnerships with governments where needed.

A flexible business model enabled seamless rollouts, while the “No-Cost Participation” approach eliminated financial barriers, making the platform more accessible to small retailers. The user-friendly app was intentionally designed with minimal onboarding requirements, recognizing that many store owners had limited digital familiarity. A community-driven approach leveraged existing distributor networks, making onboarding efficient and trust based. Consumer trust and awareness were further strengthened through brand credibility and localized outreach campaigns, driving widespread adoption.

Continuous Adaptation and User-Centric Innovation. A defining characteristic of Amigo Digital’s success has been its commitment to continuous iteration and feedback. The platform embraced an agile approach, allowing for real-time adjustments based on insights from retailers and consumers. Key success factors included:

• Scalability and Localization: Adapting logistics, payment options, and digital tools to match country-specific conditions.

• User-Centric Design: Ensuring solutions were simple, intuitive, and provided clear value to retailers.

• Agility and Responsiveness: Rapid adjustments based on market feedback to continuously refine offerings.

• Collaborative Innovation: Co-creating solutions with retailers, consumers, and partners to ensure long-term impact and sustained adoption.

By prioritizing adaptability, inclusivity, and stakeholder collaboration, Amigo Digital has not only strengthened SME resilience but also contributed to regional economic stability, positioning the 4Ps model as a scalable blueprint for sustainable development.

Scaling Success: A Blueprint for Lasting Impact

The 4Ps model of catalytic finance is inherently complex, reflecting the challenges of systemic intervention. The involvement of diverse strategic actors – including decision-makers, tech providers, and local SMEs – often leads to varying objectives and timelines, requiring careful alignment to ensure effective collaboration. Successfully coordinating across multiple countries and sectors demands hands-on management, balancing the need for operational consistency with regional flexibility. Additionally, building trust is a critical factor, particularly among new partners and in regions where SMEs have had limited prior engagement with corporate initiatives.

Navigating Challenges in Multi-Stakeholder Collaboration. Collaborating with local start-ups introduced unique challenges. While these enterprises drive innovation and stimulate regional economies, their capacity to support large-scale projects can sometimes be constrained. Issues such as technical support limitations, scalability challenges, and backup resource constraints required additional coordination and contingency planning to ensure seamless implementation. However, despite these challenges, the 4Ps model fosters a high level of leadership, technical, and management expertise, drawing on the strengths of multiple stakeholders to create a robust, adaptable framework tailored to each country’s unique context.

Leveraging a Shared-Value Approach for Mutual Benefits. A shared-value approach was central to ensuring localized solutions and creating shared prosperity with local communities. This was primarily achieved by leveraging AB InBev’s extensive infrastructure and the expertise of its local business teams to adapt the program’s core framework to regional realities. By embedding the initiative within existing distribution networks and supply chains, Amigo Digital maximized impact and efficiency, ensuring that interventions were locally relevant and easily scalable.

Catalytic Capital: Laying the Foundation for Success. Catalytic capital played a pivotal role in enabling the initiative’s long-term success. Funding from the AB InBev Foundation and IDB Lab provided additional support to the development of Amigo Digital attracting different partners. This created a ripple effect, aligning public and private actors around common goals and reinforcing the sustainability of the intervention.

Key Lessons for Future Success

The impact of Tienda Cerca and Amigo Digital extends beyond metrics – it has demonstrated the power of collaboration as a catalyst for lasting change. Beyond its measurable outcomes, the initiative has provided valuable insights for scaling technical assistance and capacity building across multiple geographies and highlighting the pivotal role of philanthropy in driving systemic transformation. Key factors for the success of such collaboration are outlined below.

• Adaptability: Designing Contextually Relevant Solutions: A deep understanding of local market conditions is essential for successful interventions. Thorough market research on informal retail dynamics, digital literacy levels, and consumer behaviors enables solutions to be contextually relevant and impactful. Aligning with local regulations and establishing government partnerships where necessary facilitates smoother implementation and ensures compliance with regional policies. Flexibility in business models also plays a critical role. Removing cost barriers through no-cost participation models, simplifying technology adoption, and leveraging existing community networks foster trust and accessibility. Localized outreach campaigns reinforce engagement, while continuous feedback loops with retailers allow for real-time adjustments, ensuring solutions remain effective and user-centric.

• Ensuring Long-Term Sustainability: Sustainability extends beyond short-term interventions – it requires self-sustaining ecosystems. Defining long-term success metrics with partners like IDB Lab ensures that the initiative’s impact continues beyond its initial phase. For example, training content developed by UNITAR was designed with long-term relevance, allowing SMEs to access knowledge independently as they grow. Developing platforms and tools that function independently of ongoing external support is key. Integrating digital platforms within existing supply chains and operational infrastructures ensures continued SME empowerment while reducing dependence on donor-funded resources.

• The Catalytic Role of Philanthropy: Philanthropic capital plays a crucial role in de-risking early-stage investments, enabling the development of infrastructure and technology platforms essential for initiatives like Tienda Cerca and Amigo Digital. Early-stage funding helps cover setup costs, retailer training, and market testing, making the initiative more attractive to private- and public-sector investors. This blended model harnesses the strengths of multiple sectors, enabling scalable and sustainable solutions.

Looking Ahead: A Replicable Model for System Change

The success of Tienda Cerca and Amigo Digital highlights the power of adaptable strategies, sustainable planning, catalytic philanthropic investment, and strong multi-sector partnerships in driving meaningful and lasting change. These principles make it a highly replicable model that can be adapted to diverse contexts, empowering small entrepreneurs and fostering equitable economic growth (OECD/CAF/SELA 2024).

The potential for global replication is vast. With commitment from stakeholders, initiatives like this can transform entire communities, equipping small businesses with the tools needed to thrive. As the OECD underscores, SME resilience is foundational to post-pandemic recovery, and the AB InBev initiative serves as a blueprint for combining digital inclusion with community engagement to drive sustainable growth (OECD/CAF/SELA 2024).

Ultimately, the story of Tienda Cerca and Amigo Digital is one of hope and transformation – a testament to what is possible when sectors work together to improve lives. The challenge now is to inspire more organizations and institutions to follow this collaborative model, expand its impact, and ensure a more equitable and prosperous future for all, and in so doing set a precedent for future initiatives aimed at inclusive economic transformation through capacity building.

Introduction

Saudi Arabia’s transformation represents one of the most compelling narratives of the twenty-first century. Under Crown Prince Mohammed bin Salman’s leadership, and while parts of the Middle East continue to face challenges, Saudi Arabia is leveraging its stability and resources to drive regional progress through economic development, technological innovation, and social reform.

The nation’s journey from a traditional oil-dependent economy to a diversified, modern state demonstrates the potential for sustainable development in the region. Through Vision 2030Footnote ¹ the country is implementing extensive reforms in business, tourism, entertainment, and social policies while maintaining its commitment to regional stability and prosperity.

This transformation includes creating high-quality jobs, promoting gender equality, developing smart infrastructure, and fostering international partnerships. Saudi Arabia’s strategic location and economic strength position it as a key player in global cooperation as it seeks to share the benefits of growth with neighboring countries through investment, development finance, and regional connectivity initiatives. While the dichotomy of delivering sustainable development outcomes, amid numerous regional crises, is challenging to comprehend, the unique resilience of the Saudi people, rooted in history and a culture of scarcity, has proven a critical success factor.

Indeed, the Arab world has shown remarkable resilience over the past few decades despite multiple global challenges. According to the International Monetary Fund (IMF) the Middle East and North Africa (MENA) represent 3.64 percent of world’s gross domestic product (GDP) and were projected to grow by 4.2 percent in 2025.Footnote ² The region’s significance, however, extends beyond economics. MENA is home to 5.9 percent of the world’s populationFootnote ³ and 1.6 percent of the global workforce.Footnote ⁴ Positioned at the crossroads of Asia and Africa, it is well placed to benefit from the synergies and dynamics of these two continents that are set to shape the global economy of the future.

Saudi Arabians take great pride in their strong value system, where generosity and charity are deeply ingrained. However, a key challenge lies in transitioning from traditional forms of giving to more institutionalized and strategic approaches that can drive systemic and sustainable development locally, regionally, and globally. Therein, the nonprofit sector directly reflects Saudi society’s evolution and growth embodying a sentiment of hope and prosperity. Indeed, the latest trends in the Saudi nonprofit sector showcase the potential for not only advancing more impactful forms of giving in the region but also catalyzing the creation of a $26.7-billion economy.Footnote ⁵

This chapter examines the transformative potential of Saudi Arabia’s evolving third sector, emphasizing recent regulatory reforms that have opened new avenues for nonprofit organizations (NPOs). These reforms position NPOs as essential partners in advancing the Kingdom’s long-term Vision 2030 goals.

Catalytic Capital for the Global South

Before examining the opportunities for philanthropy in Saudi Arabia, it is essential to assess the potential of catalytic capital in the Global South. Unsurprisingly, the world is struggling to meet the UN 2030 Sustainable Development Agenda, with Impact Europe reporting that only 17 percent of the sustainable development goals (SDGs) are on track.Footnote ⁶ Meanwhile, climate change experts at the IPCC note that while there is still a window for addressing the global crisis, it is “rapidly closing.”Footnote ⁷

Many countries in the Global South are trapped in debt cycles, limiting their fiscal space to address national development targets. Today, nations face tight fiscal constraints and a heightened risk of debt distress, with the median debt service burden for least-developed countries (LDCs) rising from 3.1 percent of revenue in 2010 to 12 percent in 2023 – the highest level since 2000.Footnote ⁸ Alarmingly, four in ten people worldwide live in countries where governments spend more on interest payments than on education or health.

Private-sector development, a key driver of sustainable growth, has stalled as investments, trade, and technology diffusion in recent years. Structural changes pose new challenges for countries’ productive integration into the world economy, necessitating a search for new growth and development strategies. While financial inclusion is a bright spot, financial and capital markets remain underdeveloped in many developing countries, with financial volatility contributing to the dearth of long-term investment.Footnote ⁹

Challenging the West-Centric Global Development Agenda

The idea of catalytic capital is being promoted as an essential tool to tackle the financing challenges to achieve the SDGs. While funding is essential, more structural challenges need to be addressed to unlock the full potential of reaching the global development agenda before it becomes too late. The Global South is particularly well positioned to demonstrate new levels of local innovation and challenge the historical Western-centric solutions to complex global developmental challenges.

Moreover, against this backdrop, Global South countries can alter the global development agenda when given the opportunity. During the Saudi G20 presidency in 2020, Saudi Arabia proposed structural solutions to address Global South challenges. Notably, this comprised leveraging its leadership position to push for the Debt Service Suspension Initiative (DSSI), which allowed around forty-eight out of the seventy-three eligible countries to seek DSSI relief and receive US$12.9 billion of debt service suspension granted mainly by bilateral official lenders.

Providing more opportunities for Global South countries to lead global economic platforms such as the G20 is critical. By implementing essential structural reforms to the international financial architecture – originally designed eighty years ago by forty-four predominantly Western countries to serve their own growth – new parameters and ambitions can be established to drive inclusive global development.

The Arab world is a diverse and complex region often marked by a dual narrative of turmoil and progress. While instability and crisis have frequently defined its story, the region has also seen successful socioeconomic advancements, with key players investing in aid, relief, and diplomacy to mitigate conflict. This juxtaposition of disaster and prosperity challenges external observers’ understanding of the region. Resilience has been the unifying thread, whether in overcoming adversity or capitalizing on prosperity.

For more prosperous nations, there is a growing recognition that regional stability hinges on ending conflict and sharing the benefits of growth. Resource mobilization, development finance, aid, regional connectivity, South–South cooperation, and global advocacy are crucial in offsetting regional conflicts and fostering a sustainable future. Therein Saudi Arabia can play a very significant and unique role in designing and securing a new future for the region, notably by encouraging the growth of the impact sector and ensuring that it thrives in a conducive regulatory framework.

Regulatory Reform for Sector Resilience: The Case of Saudi Arabia

Since the launch of Saudi Vision 2030 and its ambitious development agenda in 2017, Saudi Arabia’s nonprofit sector has experienced unprecedented growth and impact. For the first time, the impact sector – including NPOs and other third-sector entities – is recognized as a key development partner, with a dedicated goal of contributing 5 percent to the national GDP by 2030.

While this may seem ambitious, the sector has already witnessed remarkable growth in just seven years, expanding from 4,000 entities to over 62,000 NPOs by the end of 2024. This dramatic surge reflects increasing trust in NPOs and a growing societal commitment to giving and volunteering. It also serves as a powerful testament to hope and the resilient spirit of Saudi society.

King Khalid Foundation’s (KKF) latest research reveals that by 2023, the Saudi NPO sector had already surpassed the Vision 2030 target of $26.7 billion in economic contribution, accounting for 3.3 percent of GDP. If current trends continue, the sector is on track to achieve its Vision 2030 goal of a 5 percent GDP contribution by 2028 – two years ahead of schedule. Additionally, the sector has already met its Vision 2030 volunteering target of 1 million active volunteers six years early. These achievements strongly position Saudi Arabia as the host of the region’s largest philanthropic and nonprofit ecosystem.

KKF research further highlights the sector’s dynamism and substantial growth, with key trends shaping its economic and social impact. Educational and research-focused NPOs generated the highest revenues, totaling SAR 19 billion, reflecting strong demand for knowledge-driven initiatives. Meanwhile, health-focused NPOs recorded the highest expenditure at $4 billion, emphasizing the critical role of health care–driven philanthropy in the Kingdom’s development landscape.

Social service and cultural NPOs emerged as the largest employers, underscoring their expansive role in community engagement and job creation. In contrast, environmental NPOs and philanthropic intermediaries ranked as the smallest categories, indicating areas where further investment and policy incentives could drive future expansion.

A notable shift in funding sources has reshaped the sector’s financial landscape. Government grants accounted for 11 percent of charities’ revenues, supported by the Charities Support Fund, which disbursed $130 million in grants to NPOs. However, reliance on government funding has steadily declined – from 27 percent of total revenues in 2016 to 13 percent in 2021 and 11 percent in 2022. This shift reflects a strategic transition toward financial sustainability as private donations, investments, and alternative income sources increasingly constitute the dominant revenue streams for the sector. This evolving financial model not only enhances the resilience of Saudi Arabia’s third sector but also aligns with Vision 2030’s broader objective of fostering a more independent and self-sustaining nonprofit ecosystem.

Indeed, domestic regulatory reforms are playing a key role in building a diversity of income sources for NPOs while fortifying the overall resilience of the sector. For example, the Charities and Organizations Law has introduced updated regulations for implementation, aligning with the General Authority for Awqaf and the National Centre for the Non-Profit Sector. This regulatory reform, along with increased sectoral cohesion, has facilitated the emergence of new actors, driving the sector’s expansion.

Global Regulatory Challenges: Sector Advocacy

International regulations have posed significant challenges to the development of the nonprofit sector, particularly in financial accessibility and operational sustainability. While restrictions on NPOs in the region are often attributed to government oversight, a major driver of these constraints stems from global regulatory frameworks established by financial standard-setting bodies.

One of the most influential regulatory bodies shaping the financial landscape for nonprofits is the Financial Action Task Force (FATF), which classifies nonprofits as high-risk entities vulnerable to money laundering and terror financing. In response, central banks and financial institutions worldwide have implemented stringent compliance measures, including enhanced due diligence, transaction monitoring, and, in many cases, outright de-risking. These regulations have led to the widespread financial exclusion of nonprofits, humanitarian organizations, and philanthropic intermediaries – limiting access to essential banking services, delaying international fund transfers, and increasing administrative burdens.

The unintended consequences of such regulatory constraints are profound. Many nonprofits struggle with financial sustainability due to restricted access to formal banking systems, forcing them to rely on informal channels that, ironically, pose even greater security risks. Additionally, the lack of financial inclusivity hampers cross-border humanitarian efforts, delaying crisis response and obstructing the flow of philanthropic capital to regions that need it most.

To counter these systemic challenges, King Khalid Foundation has played an active role in advocating for a more balanced approach to financial regulation. Engaging with civil society organizations through platforms such as the Civil 20 (C20), the G20, the Global Partnership for Financial Inclusion (GPFI), and FATF dialogues, KKF has pushed for reforms that differentiate between high-risk and low-risk NPO activities, ensuring that essential charitable work is not unduly restricted.

A risk-based approach is at the core of these advocacy efforts, urging financial institutions to support legitimate nonprofit activities while maintaining safeguards against illicit financial flows. By fostering greater collaboration between regulatory bodies, banks, and the nonprofit sector, KKF aims to create an enabling environment where philanthropy and social impact initiatives can flourish without unnecessary financial roadblocks. In parallel, dialogue with the Saudi Central Bank (SAMA) has led to the easing of key restrictions, including lifting bans on banking cards and online transactions for nonprofits – critical steps in mitigating the impact of global anti–money laundering standards on the sector. Additionally, in 2022, Saudi Arabia enacted a comprehensive fundraising law, organizing and structuring donations to enhance financial transparency and accountability.

Establishing Enabling Institutions to Facilitate Sector Development

Beyond advocacy, significant strides have been made in improving the sector’s financial oversight and operational transparency. The 2021 establishment of Saudi Arabia’s National Center for Non-Profit Sector (NCNPS), modeled after the UK Charities Commission, has centralized governance, streamlined regulations, and strengthened trust in the sector. The emergence of digital crowdfunding donation platforms has further revolutionized the sector, unlocking the power of retail philanthropy. These platforms have enabled giving, making philanthropy more accessible and equitable for all. By 2024, digital donation platforms generated $4 billion in donations, with Ehsan, the country’s leading crowdfunding platform, playing a pivotal role.

A remarkable shift in donor demographics is also evident. Most donations now come from small individual donors contributing amounts as little as $.27–$27, whereas major philanthropists (contributing $27,000 or more) accounted for 26 percent of total donations. This shift signals a decentralization of philanthropic influence, ensuring that even small NGOs in rural and underserved areas have an equal opportunity to receive funding through online platforms.

The introduction of Waqf investment funds has modernized endowment management in Saudi Arabia. The General Authority for Awqaf (GAA) has enhanced oversight of the Kingdom’s vast endowment sector, which includes some of the world’s most historic Awqaf. Estimates suggest that Saudi Awqaf are worth more than $120 billion.Footnote ¹⁰

In the first half of 2024, the GAA conducted more than 5,900 oversight operations to ensure compliance with donors’ conditions, enhance governance, and maximize the impact of endowments on economic and social development. Additionally, it signed twenty-three agreements and memorandums of understanding with various government entities and endowment organizations, totaling more than $1.07 billion. These measures underscore the GAA’s commitment to strengthening the governance and sustainability of Saudi Arabia’s endowment sector, ensuring that these assets continue to play a vital role in the country’s economic and social development.

By the end of 2024, Awqaf investment funds had reached more than $453 million in assets under management, paving the way for future financial sustainability in the sector. KKF estimates that once assets reach $26.7 billion, forecasted by 2040, it will meaningfully reshape the revenue mix, provided the current growth momentum continues. Endowment investment funds have the potential to transform the sector’s financial sustainability for decades to come. These developments reflect a significant shift from traditional real estate holdings to diversified financial investments, generating sustainable income for NPOs and contributing to the broader economic and social objectives of Saudi Arabia.

Saudi Arabia has also introduced several regulatory changes to strengthen Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) frameworks, aligning them with Vision 2030 objectives. In 2017, the Capital Market Authority (CMA) implemented new corporate governance regulations aimed at enhancing shareholder rights and board accountability, ensuring companies adhere to global best practices in governance and sustainability.Footnote ¹¹

To further promote transparency, in 2021, the Saudi Exchange (Tadawul) issued ESG disclosure guidelines, encouraging publicly listed companies to integrate sustainability factors into their operational and financial reporting.Footnote ¹² While early ESG efforts in Saudi Arabia focused primarily on environmental and governance aspects, there is a growing emphasis on the social component, encouraging businesses to integrate community well-being into their core strategies rather than treating CSR initiatives as mere marketing tools. These reforms reflect the kingdom’s commitment to fostering a business environment where CSR and ESG principles are deeply embedded, ensuring that corporate growth aligns with social responsibility and sustainable development.

Building Collaborative Frameworks

The 2022 Companies Law has introduced provisions permitting the establishment of nonprofit corporations, thereby diversifying opportunities for philanthropy in Saudi Arabia. This regulatory change has led to a significant increase in the formation of nonprofit companies, which have become a prominent type of NPO in the sector. This trend reflects a shift from traditional grant-making toward impact investing within the Saudi nonprofit landscape.Footnote ¹³

Another transformative development in the sector is the transfer of public assets in education and health through privatization, which has bolstered the economic contribution of nonprofit organizations. Leading public institutions, such as King Saud University and King Faisal Specialist Hospital and Research Centre, have transitioned into nonprofit foundations.Footnote ¹⁴ This move is driven by the belief that the nonprofit sector is better equipped to deliver these services, and that innovation will thrive under the non-profit model.

Consequently, Saudi NPOs are now positioned to lead locally and regionally, competing globally in excellence, efficiency, and service delivery. This growing trust in the nonprofit sector is also evident in the increased contracting of public services to NGOs, including public orphanages and family services. Various ministries are partnering with the nonprofit sector to deliver critical services in environmental protection, gender-based violence prevention, and social care facilities.

Trust in the sector has reached unprecedented levels. Historically, the Saudi NPO sector faced challenges related to financing terrorism and money laundering, leading to reputational issues and vulnerability to suspicion. However, ongoing oversight and reforms, along with assurances from financial regulators, have resulted in high scores during mandatory annual governance audits. In 2023, the sector achieved a remarkable governance score of 97, according to the National Center for Non-Profit Sector. Periodic public surveys conducted by KKF indicate an improvement in public perceptions, with 86 percent of Saudis deeming the sector trustworthy. The proportion of Saudis who view nonprofits as untrustworthy has declined from 27 percent in 2017 to 14 percent in 2024.Footnote ¹⁵

As the Saudi NPO sector grows, it faces the challenge of balancing stringent global regulations with the need for operational flexibility. By engaging in forums such as the C20 and the FATF, KKF and other sector actors have influenced regulatory reforms, facilitated access to funding, improved sector governance, and set the stage for greater impact. These developments underscore the dynamic evolution of Saudi Arabia’s nonprofit sector, highlighting its expanding role in societal development and the increasing trust it commands within the community.

Unlocking Regional Catalytic Capital

With the right regulatory frameworks in place, the nonprofit sector in the Arab world has the potential to grow into a multibillion-dollar industry, positioning itself as a core partner in development. By fostering job creation, empowering communities, enhancing capacity building, promoting climate action, and driving systemic change, NPOs can significantly contribute to sustainable progress. However, achieving this ambition requires their full integration into key decision-making processes and the creation of a regulatory environment that supports and incentivizes their growth.

This environment should be characterized by strong partnerships, community trust, and consistent institutional support, enabling NPOs to set benchmarks for excellence in innovation, governance, digital solutions, impact measurement, and sustainable development.

The potential for this sector to thrive is within reach. Current estimates from the University of Cambridge Centre for Strategic Philanthropy indicate that philanthropic giving in the Gulf Cooperation Council (GCC) alone amounts to approximately $210 billion annually.Footnote ¹⁶ While data reliability remains a challenge due to sector-wide inconsistencies, the trend undeniably signals strong growth in philanthropic contributions.

To translate this momentum into long-term sectoral sustainability, favorable regulatory reforms – combined with support from communities, businesses, and policymakers – could accelerate development and steer the sector toward a prosperous and resilient future over the next two decades.

To maximize impact, NPOs must be positioned as preferred partners in these efforts. This involves harnessing traditional giving mechanisms such as Waqf and ZakatFootnote ¹⁷ while also leveraging innovative strategies for community engagement, such as impact investing, blended finance models, and digital giving platforms.

Additionally, regional corporate tax reforms should be designed to incentivize genuine corporate philanthropy while mitigating risks of misusesuch as misclassifying marketing expenses or employee benefits as charitable contributions. Aligning tax benefits with initiatives that drive measurable social impact will encourage Arab businesses to play a transformative role in advancing sustainable development and integrating CSR into long-term national development strategies.

The Future of Multi-sector Partnerships and a Regional Renaissance

Within this evolving landscape, beyond a conducive regulatory framework, the single most critical factor will be the ability of NPOs to collaborate effectively and form multi-sector partnerships. The growing recognition of public–private–philanthropy partnerships (4Ps) as a transformative model is becoming increasingly mainstream, particularly as the funding gap for the SDGs continues to widen. These cross-sector partnerships not only enhance financial sustainability but also drive innovation, enable scalability, and create systemic impact.

A key pillar of the 4P model is asset transfers, where public entities allocate land, infrastructure, or seed funding to nonprofits, empowering them to address societal challenges with sustainable solutions. These asset transfers should be viewed as catalytic investments, unlocking the potential of the nonprofit sector to pioneer innovative and scalable solutions for pressing regional challenges.

Saudi Arabia has made significant strides in fostering multi-sector partnerships, setting an example for regional philanthropy and social innovation. Several high-impact initiatives demonstrate the Kingdom’s commitment to leveraging public assets to empower nonprofits:

• The Misk Foundation has allocated land for the development of innovation hubs and educational institutions, focusing on youth empowerment and capacity building.

• The NEOM megacity project integrates nonprofits and social enterprises into its framework, providing public resources to drive sustainable and inclusive development.

• Environmental sustainability initiatives have received substantial government backing, including land and funding allocations for nonprofits dedicated to climate action and conservation.

• The Saudi Social Development Bank (SDB) has taken an active role in providing seed funding to NGOs, helping them access capital, build long-term sustainability, and expand social impact initiatives.

These initiatives demonstrate Saudi Arabia’s leadership in embedding the third sector into national development efforts, positioning nonprofits as key stakeholders in economic and social progress. By institutionalizing asset transfers and fostering cross-sectoral collaboration, Saudi Arabia is setting a precedent for the broader Arab region.

Ensuring Robust Governance for Sustainable Impact

However, to fully harness the potential of 4Ps and asset transfers, robust governance frameworks are essential. Without clear regulatory mechanisms, these partnerships risk inefficiencies, mismanagement, and inequitable distribution of resources. Several key principles must guide the development of these frameworks:

• Accountability: Nonprofits receiving public assets must adhere to strict governance standards, ensuring funds and resources are utilized effectively.

• Transparency: Clear reporting structures must be in place, allowing public oversight and open disclosure of how transferred assets are managed.

• Performance Metrics: Establishing impact-driven benchmarks will help measure effectiveness, scalability, and long-term sustainability.

• Stakeholder Collaboration: Strong partnerships between governments, businesses, and civil society will maximize collective impact while ensuring equitable resource allocation.

When governed with accountability and transparency, asset transfers and 4P partnerships can serve as the cornerstone of a thriving, resilient, and impactful nonprofit ecosystem.

A Regional Renaissance for Philanthropy

Looking ahead, the future of NPOs and the impact sector in the Arab region is poised for unprecedented expansion, driven by economic growth, regulatory reform, and evolving social investment models. Economic projections underscore the transformative potential of philanthropic capital in driving sustainable development.

By 2050, Saudi Arabia is expected to become the world’s eighteenth largest economy with a GDP exceeding $3 trillion.Footnote ¹⁸ With such a robust economic foundation, NPOs are set to emerge as a major driver of regional prosperity, unlocking new opportunities for social investment, economic diversification, and long-term development.

The Arab region stands at a pivotal moment, where strategic regulatory frameworks, financial incentives, and a culture of multi-sector collaboration can elevate civil society into a global force for change. By fostering an enabling environment for nonprofits, the region can maximize their contribution to job creation, expanding employment opportunities across diverse sectors and volunteering growth, fostering a culture of civic engagement. They can drive economic inclusion, integrating social enterprises into mainstream development and address poverty alleviation, leveraging evidence-based solutions to drive systemic change.

As the Arab world redefines its impact landscape, the intersection of economic growth, regulatory progress, and innovative social investment presents unparalleled opportunities for impact. Saudi Arabia has set a new standard for integrating NPOs into national development, demonstrating how multi-sector partnerships can serve as a catalyst for social transformation.

By embracing collaboration, innovation, and governance excellence, the Arab nonprofit sector can position itself as a global leader in social impact – unlocking a new era that is ambitious, data-driven, and deeply embedded in national progress. The path ahead is clear: with the right regulatory foundations, the third sector in the Arab world can transition from a charitable endeavor to a powerful driver of systemic change, advancing prosperity, equity, and resilience for generations to come.

Introduction

Water security is a critical issue in Latin America, a region paradoxically rich in water resources yet facing significant scarcity and inequity. Despite holding more than 30 percent of the world’s water resources, millions lack access to safe drinking water and improved sanitation. This glaring disparity highlights the urgent need for innovative and effective strategies that address both the abundance and scarcity of water resources.

The region’s water security challenges are complex, involving institutional weaknesses, poor coordination, financial gaps, and the growing impact of climate change, which exacerbates droughts, floods, and other water-related crises. These issues require radical collaboration – deep, cross-sector partnerships uniting governments, businesses, nonprofits, local communities, and philanthropic organizations. Such alliances go beyond conventional cooperation, fostering trust-based relationships that harness the strengths of diverse actors to drive systemic change.

In this context, water funds have emerged as a pioneering model for radical collaboration. By pooling financial and technical resources, developing governance frameworks, and implementing nature-based, community-driven strategies, water funds prioritize sustainability and resilience. They enable stakeholders to address immediate water challenges while achieving long-term systemic impact. Moreover, these funds illustrate how diverse actors can come together to co-create integrated and innovative solutions for broader systemic change.

Beyond improving water security, the water funds model delivers multiple co-benefits, including enhanced biodiversity, improved livelihoods, and contributions to sustainable development goals. They exemplify the potential of radical collaboration to produce resilient, inclusive, and lasting outcomes. By aligning the efforts of varied stakeholders, water funds offer a replicable framework for addressing systemic challenges, combating climate change, and advancing collective action for global sustainability.

As explored in this chapter, the water funds model not only demonstrates how water security can be improved but also reveals additional positive outcomes such as biodiversity conservation, livelihood support, and progress toward sustainable development. These funds provide a powerful, scalable example of how collaboration across a diverse array of actors is key to creating resilient and inclusive solutions. They also show how collective action, and innovative governance can help tackle complex entrenched socioeconomic challenges all while addressing the ever-evolving existential threat of climate change.

Principles for a Successful Partnership: Understanding the Core Challenges

Since the outset, the Latin American Water Funds Partnership (LAWFP), established in 2011, has operated on the basis that effective interventions must take into consideration three core factors: the region’s water availability landscape, its institutional weaknesses, and the financial gaps that undermine opportunities for innovation. These interconnected elements form the basis of the sustainable water security solutions that have emerged from the Partnership over the past decade. A failure to address any single one risks undermining the overall success of the initiative due to the complexity of the challenges involved. Throughout its work, the LAWFP has embodied a deep understanding of these factors ensuring that they were embedded into the partnership’s strategy with a view to driving meaningful and lasting impact. Each carried its own intrinsic challenges that risked creating complications for the partnership’s diverse actors, and each had inherent contradictions that rendered the design of interventions complex.

Water Landscape Diversity. Looking first at the region’s water availability landscape, it is characterized by abundance amid scarcity and inequity along with vast diversity. Water-abundant areas, such as the Brazilian Amazon, are juxtaposed with arid zones, such as Chile’s Atacama Desert. Indeed, Latin America stands out as one of the world’s most water-rich regions, with an average per capita water availability of 22,000 m³/person/year – nearly four times the global average of 6,100 m³/person/year (IDB 2020). And yet, despite this abundance, more than 163 million people in Latin America and the Caribbean (LAC) lack access to safe drinking water. In 2019, 150 million individuals in the region lived in areas with extreme water scarcity (Wellenstein and Makino Reference Wellenstein and Makino2022), and while access to safely managed sanitation has tripled since 2000, approximately 430 million people still lack this essential service (IDB 2023). This means two out of every three people in Latin America are exposed to health risks from inadequately treated wastewater. Poor solid waste management compounds these sanitation challenges: only 53 percent of municipal solid waste is disposed of in properly managed landfills, with vulnerable communities bearing the brunt of these shortcomings.

Several factors explain this contrasting landscape in Latin America. Geographical and climatic variability significantly influence water availability in different regions. Arid and semi-arid areas, such as northern Mexico and central Chile, naturally receive low annual rainfall, which makes them particularly vulnerable to water scarcity. Additionally, some regions face pronounced seasonal variations in rainfall, with periods of water abundance followed by severe shortages, further exacerbating the challenges of managing water resources effectively.

Urban areas with high population densities, such as Mexico City and Santiago de Chile, face significant pressure on their local water resources. This often results in the overextraction of groundwater and the depletion of surface water sources. Rapid urbanization further compounds the issue. As cities grow quickly without adequate investments in water infrastructure, water stress intensifies, leading to the contamination of water sources and inefficiencies in water distribution systems.

Agricultural activities in Latin America place substantial demands on water resources. The cultivation of water-intensive crops, such as sugarcane, rice, and avocados, is particularly prominent in countries like Mexico and Chile, consuming significant amounts of water. Additionally, inefficient irrigation practices, such as the traditional use of flood irrigation, result in considerable water loss through evaporation and runoff. While modern methods like drip and sprinkler irrigation are more efficient, their adoption remains limited due to high costs and restricted access to advanced technologies. The expansion of agricultural land into previously uncultivated areas further exacerbates water demand, disrupting local water cycles and diminishing ecosystems’ natural ability to store and filter water. Livestock farming also contributes heavily to water consumption, intensifying local water stress.

Infrastructure and management issues significantly exacerbate water stress in many regions. Aging and poorly maintained infrastructure leads to substantial water losses; for instance, in Mexico City, up to 40 percent of the water supply is lost due to leaks. Compounding this, ineffective water management practices – characterized by fragmented governance, weak regulations, and poor coordination among stakeholders – further intensify the problem. In Mexico, 60 percent of drinking water comes from surface water bodies. Of the main rivers, seven account for 71 percent of the country’s surface water, distributed in the central and southern regions, while only 29 percent of surface water is in the northern region. The main issue with surface water is contamination, particularly from wastewater, whether domestic, industrial, agricultural, or livestock-related, which in most cases is discharged untreated and contains dissolved pollutants and harmful substances. On the other hand, aquifers in Mexico are at risk of overexploitation (IMCO 2023).

Environmental degradation significantly impacts the water cycle and water availability. Deforestation and changes in land use, such as urbanization and agriculture, disrupt the natural water cycle by reducing the ability of watersheds to capture and store water. This leads to decreased water availability, especially during dry periods. Additionally, pollution from agricultural runoff, including fertilizers and pesticides, contaminates water sources, further diminishing the supply of clean and usable water.

Climate change is also profoundly reshaping precipitation patterns, causing significant disruptions to water availability. The increasing frequency and severity of droughts in some regions, coupled with heightened risks of flooding in others, underscore the urgent need for adaptive strategies to manage these challenges effectively. These overlapping factors create a highly complex environment where aligning diverse interests and resources is a formidable challenge, often impeding the development of unified, multi-sector partnerships.

Institutional Weaknesses. The second core challenge for the partnership relates to the region’s institutional weaknesses, which significantly hinder water management in Latin America and the Caribbean, despite notable progress in water, sanitation, and solid waste services. Safe water coverage remains at only 75 percent, a situation compounded by weak institutions characterized by poor coordination and outdated regulations. The OECD identifies key governance challenges, including “territorial and institutional fragmentation, funding mismatches, information asymmetry, accountability, objectives, and capacity gaps” (OECD, 2012). Similarly, the IDB highlights inefficient resource management driven by fragmented decision-making, inadequate regulatory frameworks, insufficient enforcement capacity, and weak basin organizations and national authorities, further exacerbated by the lack of reliable, up-to-date data (IDB 2020).

Operational policy instruments – such as regulations, capacity-building initiatives, and service delivery mechanisms – are essential for sustainable water management. However, many countries in the region face substantial gaps in these instruments, making it difficult to address contemporary water security challenges like climate change and increasing demand. Regulations often remain outdated, and enforcement is weak due to limited resources, tools, and technical expertise within regulatory agencies. The fragmentation of water governance, with overlapping responsibilities across multiple agencies and government levels, leads to conflicts and poor coordination, undermining efforts to integrate water management with other critical sectors such as agriculture, energy, and urban development.

A critical gap lies in the absence of comprehensive water-monitoring systems, which hampers decision-making and accountability. Without accurate data on water availability, quality, and distribution, policymakers struggle to allocate resources, enforce regulations, and plan effectively. Industries and agriculture operations often overextract water or discharge pollutants undetected, exacerbating environmental degradation and water scarcity. This lack of reliable data also complicates the development of integrated water resource management strategies, which rely on clear, coordinated actions and policies.

Institutional weaknesses thus obstruct the creation of multi-sector partnerships by fostering an environment where trust, coordination, and shared accountability are difficult to establish. Fragmented governance and outdated frameworks discourage collaboration by creating confusion over roles and responsibilities among stakeholders. The absence of reliable data not only hampers effective decision-making but also undermines transparency, making it challenging to align diverse interests. Without robust enforcement mechanisms and technical capacity, stakeholders may hesitate to commit resources, fearing inefficiencies and uneven benefits. These systemic shortcomings collectively hinder the development of cohesive, effective partnerships necessary for addressing complex water management challenges.

Financial Gaps and Innovation. The gap in finance and its impact on the opportunity for innovation present a specific challenge for water funds and the LAWFP. The total investment required to expand and maintain the necessary infrastructure to meet SDG 6 by 2030 is estimated at $373.89 billion, equivalent to 0.5 percent of the regional GDP (Brichetti, Mastronardi, Rivas et al. 2021). Additionally, public investment in the region has decreased significantly, from more than $13.5 billion to just over $6 billion between 2014 and 2019, widening the funding gap for the sector (CEPAL Reference Brichetti, Mastronardi, Rivas, Serebrisky and Solís2023). This issue is not exclusive to Latin America; in 2023, the water and sanitation sector worldwide received only 2 percent of total impact investment (Hand, Sunderji, and Pardo Reference Hand, Sunderji and Pardo2023).

The financial gap in the water sector is a major obstacle to achieving water security in Latin America. Many countries in the region struggle to mobilize the necessary local resources to invest in water infrastructure, particularly in rural and underserved areas. This lack of investment not only limits access to water and sanitation services but also hinders efforts to improve water quality and manage water resources sustainably. This funding gap results from a complex context for public administrations in the region. While Organisation for Economic Co-operation and Development (OECD) countries generated tax revenues averaging 34 percent of GDP, LAC countries averaged only 21.5 percent of their GDP from taxes (OECD, CIAT, ECLAC, and IDB 2024).

As we confront this funding gap in a challenging environment, it is essential to recognize the need for a fundamental shift in our operational approach and a need for innovative thinking. The economic, social, and environmental models that have served us in the past will not suffice to achieve the inclusive and sustainable growth we aspire to for the region. Innovation in all aspects of our relationship with water is critical. Investing in knowledge and implementing scientific and technological advancements in water security are imperative (IDB 2020). While the entrepreneurial ecosystem in the region continues to evolve, significant challenges remain in expanding innovation and support networks. Finding systemic ways to scale up successful interventions with the right supportive ecosystem could create truly boundless possibilities.

The Climate Change Connection. Above and beyond the challenges of landscape diversity, institutional weakness and the dearth of innovation and finance, climate change looms large. Over the past two decades, Latin America and the Caribbean have experienced 74 droughts causing more than $13 billion in damages and more than 548 extreme floods resulting in $26 billion in damages. Floods affect more than 1.8 million people annually, and the frequency of floods and landslides has increased by 1.6 and 1.5 times, respectively. With the rise of climate change, further increases in these extreme weather events are anticipated. The World Meteorological Organization highlights that the region is already witnessing significant climate impacts, including more intense and frequent hurricanes, prolonged droughts, and severe flooding.

Projections indicate that water demand will rise by 35 percent over the next century, even with climate change mitigation efforts. Climate change thus poses a significant threat to water security in Latin America, impacting water availability and quality. The IPCC reports that Andean glaciers, crucial for water supply, have retreated by 30–50 percent over the past 30 years, threatening water security for cities and communities relying on glacial runoff.

Droughts lead to water shortages, affecting agriculture, energy production, and domestic supply, and increase wildfire risks. For example, the 2014–2015 droughts in Brazil’s southeast led to water rationing in São Paulo and significant agricultural losses. Floods cause widespread damage to infrastructure, displace communities, and contaminate water sources. The 2017 floods in Peru, caused by the coastal El Niño, resulted in more than 100 deaths and extensive infrastructure damage. Hurricane Otis in Acapulco, combined with inadequate emergency protocols and the late government response, devastated one of the most famous and touristic sites of Mexico causing more than $15 billion in damages (Mexico News Daily 2023).

Addressing climate change impacts on water security in Latin America requires a multifaceted approach, combining infrastructure investments, nature-based solutions, regional cooperation, and community engagement. By leveraging innovative technologies and fostering collaboration, the region can build resilience and ensure sustainable water security for future generations. Public awareness and community engagement will be critical therein. Educating communities about climate impacts on water resources and promoting conservation practices can empower individuals to contribute to water security.

The Journey of the LAWP: From Conservation to Systemic Water Security

The challenges described in the previous sections underscore the ambitious nature of the LAWFP’s mission to develop systemic water security solutions on a transformative scale. From the outset, the LAWFP committed to leveraging existing knowledge and experience rather than starting anew. Central to its philosophy was the belief in nature’s ability to deliver sustainable, long-term benefits through careful stewardship and innovative management – values embedded within the cultural DNA of the partnership. Drawing inspiration from earlier water management successes and rallying around shared principles provided a foundation for cultural cohesion and scalability.

In the late 1990s, New York City faced the challenge of ensuring a clean and reliable water supply. Instead of investing in costly treatment facilities, the city chose to protect its watershed, utilizing natural landscapes to filter and purify water. This strategy saved billions of dollars while preserving environmental integrity, setting a global benchmark for water security and years later, helping inspire the model of the LAWFP. By the early 2000s, water scarcity affected more than 40 percent of the global population. Motivated to create a new scalable, region-wide model addressing water management and climate adaptation, five organizations – The Nature Conservancy (TNC), Fundación FEMSA, the Inter-American Development Bank (IDB), the Global Environment Facility (GEF), and the International Climate Initiative (IKI) – established a collaborative framework for water security in Latin America in 2011.

The LAWFP united public, private, and civil society sectors to protect and manage watersheds using science-based approaches. Building on New York City’s model, the initiative emphasized radical collaboration to drive collective action, ensuring the seamless integration of each partner’s contributions for maximum impact. This strategy aimed to achieve systemic change by leveraging diverse actors’ strengths in a strategically coordinated way. Since its inception, the LAWFP has developed integrated, region-wide solutions engaging both rural and urban communities. By combining scientific expertise with cross-sector partnerships, the LAWFP pioneered large-scale water management innovation, establishing a gold standard for collaboration where the collective output exceeded the sum of individual contributions.

TNC brought scientific expertise and practical implementation skills to the initiative, grounded in its extensive experience with ecosystem-based water management. It designed and executed watershed protection and restoration strategies while fostering collaboration among stakeholders. By bridging the gap between scientific knowledge and practical application, TNC ensured LAWFP projects were scientifically sound, advancing nature-based water security solutions across Latin America and the Caribbean.

Fundación FEMSA provided catalytic capital and philanthropic expertise, propelling the initiative’s early stages. As a key funding partner, it de-risked innovative projects by supplying initial resources to launch and refine sustainable water management practices. This early-stage support was critical for testing and scaling initiatives, particularly those enhancing local capacity for water stewardship. Prioritizing community-driven projects, Fundación FEMSA amplified the initiative’s impact, showcasing LAWFP’s viability and attracting investment from governments and private-sector stakeholders.

The IDB contributed financial resources, technical expertise, and institutional support to implement and expand the initiative. As a leading development finance institution, it facilitated access to large-scale funding, enabling LAWFP to tackle complex watershed management challenges. With a deep understanding of regional development dynamics, the IDB ensured alignment with broader socioeconomic goals and mobilized resources from governments and private sectors, broadening the initiative’s reach and impact.

The GEF, one of the world’s largest public environmental funds, catalyzed investments and provided funding and global expertise. Its focus on biodiversity protection, ecosystem restoration, and climate change mitigation brought an international perspective to LAWFP. By promoting knowledge exchange and best practices from similar initiatives, the GEF strengthened the initiative’s capacity to address cross-border water challenges through innovative, science-based strategies.

IKI focused on integrating water security and climate resilience. As a major program of the German government, it provided funding and expertise to embed climate considerations into watershed management. By addressing the long-term challenges of a changing climate, IKI’s contributions ensured that LAWFP initiatives were sustainable and adaptive. Its emphasis on policy integration further drove systemic changes in water resource management.

Together, these five organizations forged a synergistic partnership, aligning expertise, resources, and networks to deliver integrated water security solutions across Latin America. Over the past decade, the LAWFP has demonstrated how radical collaboration can fuel innovation and address critical water challenges. By combining conservation science with local knowledge and stakeholder engagement, the initiative has strengthened resilience to water scarcity and climate change while fostering economic opportunities and improving livelihoods in vulnerable areas.

A core component of the LAWFP’s success is its focus on scalability. Recognizing that water security challenges extend beyond specific regions, the initiative developed adaptable models and strategies for broader implementation. This emphasis on scalability positions LAWFP to influence global water management practices, with governance playing a critical role in ensuring lasting impact.

Scaling Collaborative Partnerships through Desired State

The LAWFP’s Desired State methodology, introduced in 2018, is a transformative governance tool that standardizes water fund creation and facilitates scalability. This structured framework organizes the project cycle into five key stages – feasibility, design, creation, operation, and consolidation – each with specific deliverables and transition requirements to ensure water funds evolve methodically and consistently. By converting complex water security challenges into actionable, scalable solutions, Desired State fosters impactful and replicable interventions and offers a useful example for scaling other interventions:

Stages of the Desired State Framework

1. 1. Feasibility: This stage evaluates whether water security challenges exist and assesses the potential impact of a water fund. A rapid eligibility test is followed by an in-depth feasibility study to build a strong, cost-effective case for continued investment. This phase ensures stakeholders understand the region’s specific needs and the water fund’s potential to address them effectively.

2. 2. Design: A water fund is structured as a collective action platform where stakeholders collaborate to drive science-based systemic change. Key outputs include a comprehensive strategic plan outlining the fund’s objectives and a committed leadership team (director, board, advisors). The stage ensures stakeholder alignment, financial commitments, and resources necessary to advance to operational readiness.

3. 3. Creation: The water fund is officially launched and prepared for implementation. The strategic vision is translated into an actionable operating plan, with early “quick win” projects demonstrating the initiative’s potential and solidifying its credibility as a platform for regional water security.

4. 4. Operation: The focus here is on stability and systematic execution, including implementing work plans, tracking progress, and continuously refining approaches. Key activities involve evaluating outcomes, demonstrating measurable impacts, influencing policy, and attracting additional resources to enhance water security.

5. 5. Consolidation (Maturity): This final phase ensures the water fund’s long-term viability and transformative impact. By achieving self-sufficiency, the water fund becomes a model of successful governance and collective action, driving sustained systemic change and contributing to a more water-secure future.

The desired state methodology strengthens governance and collaboration by creating a common language and operational framework across all water funds. It enables stakeholders – governments, private-sector actors, NGOs, and local communities – to align around a shared, science-driven vision. This structured approach ensures accountability and fosters effective partnerships through:

• Standardizing Processes: Ensures consistency while allowing flexibility for local adaptation, reducing inefficiencies and enhancing scalability across diverse regions.

• Enhancing Decision-Making: Integrates science-driven criteria at each stage, providing actionable insights and maximizing impact and sustainability.

• Driving Resource Mobilization: Promotes transparency and strategic clarity, attracting and coordinating investments, as demonstrated by the $49 million invested to date by the LAWP.

• Fostering Innovation and Adaptation: Encourages continuous improvement and responsiveness to emerging challenges, ensuring solutions remain relevant and effective.

At its core, desired state transforms water funds into dynamic collective action platforms that integrate diverse contributions toward shared water security goals. By balancing standardization with adaptability, the methodology enables partnerships to address systemic challenges, scale successful models, and deliver measurable, sustainable outcomes.

By 2023, the results of the desired state methodology were evident. Twenty-six water funds, involving more than 340 organizations, collectively managed 565,797 hectares of critical watershed areas. These efforts benefited 137,145 families, showcasing how community-centered conservation can align environmental goals with local development priorities. The structured governance provided by desired state enabled these water funds to achieve transformative impacts, influencing policy frameworks and driving systemic change.

The desired state methodology is a cornerstone of LAWFP’s governance strategy, ensuring that water funds are not only effective but also scalable and sustainable. Its structured project cycle fosters alignment around common goals while maintaining flexibility for regional nuances. By addressing root causes of water insecurity with integrated, science-based solutions, desired state creates systemic change that transcends individual projects.

Moreover, this governance framework strengthens institutions, builds local capacity, and enhances policy influence. Desired state ensures that stakeholders remain committed to long-term goals, driving deeper collaboration and enabling water funds to become enduring platforms for collective action. This approach contributes to a broader, more resilient water governance system, one that can address complex challenges such as climate change, urbanization, and ecosystem degradation.

Through desired state, LAWFP has proven that scaling up collaborative partnerships is not only achievable but also critical for driving systemic improvements in water security. By uniting diverse actors under a common governance framework, desired state empowers water funds to deliver lasting impacts – reshaping water management practices and setting a global standard for collaborative conservation.

Philanthropy as a Tool for Radical Collaboration

The governance of the LAWFP and its ability to integrate complex factors into its business model are crucial, but the role of philanthropy as a catalyst is equally significant. As risk capital, philanthropy has the potential to address critical challenges like water security, though it is often underutilized. While foundations face challenges in aligning diverse stakeholders and overcoming regional disparities, they can drive lasting impact by acting as catalysts for systemic change – something less risk-enabled entities may struggle to do. Fundación FEMSA’s experience shows that philanthropy, when paired with measurable outcomes and radical collaboration, can attract further investment and scale systemic interventions.

However, for even greater impact, foundations should consider pooling resources, as competing priorities and organizational silos often fragment efforts. Trust issues and varying levels of transparency can further complicate collaboration. Fundación FEMSA’s work in the LAWFP illustrates that by emphasizing shared goals, mutual accountability, and collective innovation, philanthropy can unite diverse perspectives and create solutions that no single actor could achieve alone, leading to transformative outcomes.

The foundation’s experience also highlights that beyond catalytic capital, capacity-building is vital. By empowering local organizations through training and technical support, Fundación FEMSA enhanced project implementation, fostered local ownership, and ensured lasting impact. With a long-term, impact-first philosophy, it focused on relationships over short-term results, demonstrating the importance of sustained engagement for enduring success.

To drive systemic change, foundations must integrate collaboration into their leadership vision. By fostering inclusive leadership that unites governments, civil society, and the private sector, they ensure initiatives are both relevant and sustainable. Fundación FEMSA’s experience shows how open communication, capacity building, and adaptable funding models can overcome barriers. By bridging sectors and filling gaps, philanthropic foundations can advance innovation, resilience, and sustainability. The LAWFP model is a powerful example of how foundations, through strategic partnerships and long-term collaboration, can address global challenges and create replicable impact.

Scaling the LAWFP

The LAWFP has inspired numerous impactful interventions across Latin America, providing a scalable model for systemic water security solutions. Rooted in the LAWFP’s principles of inclusive governance and multi-sector collaboration, these initiatives highlight how diverse stakeholders can unite to tackle regional water challenges effectively.

Agua Capital, for example, exemplifies how LAWFP’s model drives innovation and policy alignment with global frameworks such as the UN Sustainable Development Goals (SDGs). This independent, nonpartisan platform fosters collaboration among key actors and spearheads initiatives like the National Youth Water Prize and governance projects such as Aguas Firmes in Hidalgo, Mexico. Through partnerships with institutions like UNAM and UNESCO, Agua Capital advances thought leadership on water security, exemplified by its policy paper, “Water Perspectives in the Valley of Mexico,” which offers actionable strategies for the region.

Similarly, the Metropolitan Environmental Fund of Monterrey (FAMM) reflects the LAWFP’s emphasis on science-based decision-making and sustainability. Focused on addressing Nuevo León’s environmental challenges, FAMM has conducted critical studies like the Nuevo León 2050 Water Plan and implemented reforestation projects, conserving more than 9,000 hectares. Its influence extends to public policy, where its collaboration with Agua Capital, UNESCO, and UNAM provides a broader framework for enhancing water management across Mexico.

In Bogotá, Agua Somos demonstrates the LAWFP’s collaborative ethos by integrating ecosystem conservation, water access, and policy development. Supporting Bogotá’s water security vision for 2050, it leverages partnerships to resolve conflicts, implement nature-based solutions, and strengthen governance. Its involvement in the Central Region Water Security Plan exemplifies how multi-sector collaboration fosters systemic outcomes and resilient solutions.

Agua Tica in Costa Rica showcases the LAWFP’s principles through its public–private partnership addressing water security in the Grande and Virilla River sub-watersheds. By uniting civil society, government institutions, and private businesses, it implements nature-based solutions such as reforestation and agroforestry, directly benefiting nearly 2 million people. Agua Tica’s success reflects the LAWFP’s ability to align diverse interests, ensuring long-term sustainability and replicability in other urban and environmentally stressed regions.

These examples underline the LAWFP’s transformative impact, showing how proven models of governance, finance, and collective action can scale solutions globally. They highlight how the partnership’s innovative frameworks address complex water security challenges, fostering sustainable development and systemic change through collaboration and science-based strategies.

Looking Ahead: A Vision for the Future

The LAWFP exemplifies the transformative potential of science-based governance frameworks and collective action in addressing water security challenges at scale. By uniting diverse stakeholders – including governments, private enterprises, philanthropic entities, and local communities – under a shared vision, it has established a robust foundation for systemic change. Central to this success is the desired state methodology, a technically rigorous framework that transforms complex challenges into actionable, scalable solutions. Through standardized processes, contextual adaptability, and a focus on evidence-based decision-making, desired state has enabled the LAWFP to deliver impactful and sustainable outcomes across regions.

This framework also integrates a whole-ecosystem approach by addressing both the ecological and socioeconomic dimensions of water security. It ensures water funds operate as multifunctional platforms that leverage cutting-edge science, institutional capacity, and community-driven strategies. From restoring degraded wetlands to implementing advanced monitoring systems, these initiatives combine nature-based solutions with technological innovation to deliver measurable results in water quality, biodiversity, and resilience.

Rising to Future Challenges

As climate change accelerates and global water demand continues to rise, the LAWFP’s model becomes increasingly critical. Rising water stress, driven by shifting precipitation patterns, population growth, and urbanization, threatens both natural ecosystems and the communities that depend on them. Addressing these challenges will require scaling the LAWFP’s approach through:

1. 1. Enhanced Data-Driven Decision-Making: Expanding the use of advanced tools such as artificial intelligence to optimize water resource management and predict future risks.

2. 2. Broader Integration of Nature-Based Solutions: Increasing investments in sustainable practices like reforestation, wetland restoration, and soil conservation to mitigate flooding, recharge aquifers, and enhance ecosystem services.

3. 3. Strengthened Policy Alignment: Advocating for regulatory frameworks that incorporate climate resilience and integrated watershed management into national and regional development strategies.

4. 4. Deeper Community Engagement: Building local capacity through education, training, and grassroots initiatives such as rainwater harvesting, watershed conservation, and sustainable farming practices to empower communities to take ownership of water stewardship.

5. 5. Innovative Financing Models: Expanding philanthropic support and introducing blended finance approaches that combine public, private, and international funds to sustain long-term investments in water security.

A Blueprint for Global Replication

Over the past decade, the LAWFP has demonstrated that ambitious goals, visionary leadership, and radical collaboration can overcome entrenched systemic barriers. Its success as a scalable global model lies in its ability to bridge gaps across sectors and disciplines, ensuring that all contributions are seamlessly integrated into a cohesive response to water insecurity. By directly addressing root causes and fostering systemic alignment, the LAWFP not only advances water security but also strengthens socioeconomic resilience in vulnerable communities.

The catalytic role of philanthropy in this partnership cannot be overstated. Philanthropic investment has de-risked early-stage initiatives, facilitated stakeholder engagement, and unlocked resources for innovative projects. Moving forward, continued investment will enable the LAWFP to refine its methodologies, expand its reach, and drive technological and ecological innovation.

Toward a Sustainable Future

As water crises intensify, the LAWFP provides a technically robust and socially inclusive road map for addressing humanity’s most urgent resource challenge. Its emphasis on governance, scalability, and local empowerment positions water funds as critical tools for navigating a rapidly changing environmental landscape.

The LAWFP stands as a testament to the power of integrated, cross-sector collaboration and offers an inspiring model for global replication. By leveraging cutting-edge science, innovative financing with philanthropy de-risking, and community-driven action, it delivers not just water security but also a pathway to greater environmental resilience and socioeconomic equity. As this partnership continues to evolve, it will remain a beacon of hope, demonstrating that with aligned vision and collective action, systemic change is not only possible—it is inevitable.

Introduction

Despite significant global progress in poverty reduction – the number of extreme poor declined from 38 percent in 1990 to 8.5 percent in 2024 as reported by the World BankFootnote ¹ – the Arab world continues to grapple with stark socioeconomic challenges. Prior to the COVID-19 pandemic in 2020, approximately 25 percent of the region’s population lived in poverty. This figure has since risen sharply, with estimates suggesting the pandemic has driven the total number of poor people in the region from 66 million in 2010 to 131 million in 2023, including 52 million categorized as extremely poor.Footnote ²

Beyond poverty, the region faces a litany of challenges: political instability, high unemployment rates, relatively high demographic growth rates,Footnote ³ migration, and mounting financial pressures. These systemic issues are further compounded by entrenched social norms, which can create barriers to women’s participation in the workforce and slow progress toward sustainable development. Female labor force participation remains exceptionally low, averaging just 20 percent compared to the global average of 53 percent.³ When high-income countries are excluded, this figure drops further to 16 percent, highlighting a key area for developmental focus.

Regional and global conflicts such as in Gaza, Sudan, and Ukraine have further strained household incomes notably in nations ill-equipped to deal with competing complex crises. The region’s socioeconomic vulnerabilities are also exacerbated by its significant and growing refugee population, which exceeds nine million and intensifies already precarious living conditions. In 2018, for instance, 24 percent of the region’s population resided in slum areas.⁴

These distinct macroeconomic challenges underscore the urgency of a collaborative and multisectoral approach to development in the Middle East and North Africa (MENA) region. Effective responses must involve partnerships between civil society, the private sector, and governments. However, such collaboration requires an enabling regulatory environment that is currently insufficient to allow civil society organizations (CSOs)Footnote ⁴ to contribute meaningfully to addressing these issues. The Arab world’s third sector faces significant regulatory barriers that stifle its ability to support both long-term socioeconomic development and intermittent humanitarian crises.

This chapter examines the regulatory context of the Arab world focusing on Egypt and explores how policy frameworks shape the potential of CSOs to drive progress. It also examines how conducive policies can unlock underutilized development capital and empower the third sector to make significant contributions to Sustainable Development Goals (SDGs).

Civil Society as a Catalyst for Sustainable Development: The Global Context

The strength of the region’s civil society in terms of its contribution to economic and social advancement stands in stark contrast to that of Europe and North America, where the nonprofit sectors play a substantial role in promoting socioeconomic development. The sheer number of nongovernmental organizations (NGOs)Footnote ⁵ stands as a testimony to the flexibility and support provided by public policy.

France, for example, with a population of approximately 68 million, has 1.5 million NGOs. Germany, with a population of 84 million, has around 650,000, while Italy, with around 60 million people, has 359,574. Similarly, Sweden, with a population of about 10.5 million, hosts 257,572 NGOs, and in the United States, there are approximately 1.54 million nonprofit organizations serving a population of 334 million.Footnote ⁶

In these countries, the nonprofit sector is vital not only for social progress but also as an economic contributor. In France, the nonprofit sector contributes 3.3 percent to the gross national product (GDP), while in Germany this figure reaches 4.1 percent, and in Sweden it is 3 percent. The United States presents a similar case, with the nonprofit sector representing 5.6 percent of GDP and an economic contribution amounting to $1.4 trillion.Footnote ⁷ In Canada, civil society contributes 8.5 percent to the national GDP surpassing the retail sector and closely rivaling the petroleum sector.Footnote ⁸

The third sector also exerts a considerable impact on employment, providing jobs for 29.3 million individuals across the European Union, representing 13 percent of total employment in the region.Footnote ⁹ In the United States, the nonprofit sector accounts for 12.3 percent of total employment, with more than 12 million jobs, while in Canada, it supports 2 million jobs. Additionally, civil society generates numerous volunteering opportunities. In the United States, for example, around 65 million people engage in volunteer work through this sector.

In contrast, civil society in the Arab region faces significant structural limitations. CSOs in the Arab world operate within regulatory frameworks that often include complex requirements for research, funding, and partnerships. While some governments have begun recognizing the sector’s potential as a development partner, further policy refinements could enhance its contribution to national progress. Unlike their European and North American counterparts, which may receive up to 43 percent of their funding from government sources, CSOs in most of the Arab world frequently operate with minimal governmental financial support. While regulations around foreign funding and administrative processes aim to ensure accountability, they at times create unintended barriers that limit CSO’s ability to scale their impact.Footnote ¹⁰ These constraints often limit their access to resources, which in turn limits their capacity to participate in large-scale poverty alleviation, education reform, or social welfare projects.Footnote ¹¹

Regulatory Constraints: Barriers to Growing the Sector

The range and nature of regulations governing CSOs across the Arab region frequently act as barriers serving to undermine the sector’s potential as a force for social change. Many countries impose stringent requirements for registration while creating insurmountable bureaucratic hurdles that often prevent communities from registering CSOs and even discourage philanthropists from regional giving.

Many regional governments are now conscious of the challenge and, indeed, the missed opportunity and are seeking to rectify the issue: Egypt’s Law No. 149 of 2019, for example, marked a significant shift in the regulatory framework governing the third sector: by simplifying the registration process, the law made it easier for organizations to gain legal recognition and become fully operational. However, the law falls short of addressing systemic challenges such as persistent bureaucratic delays and constraints on foreign funding, which hinder Egyptian CSO’s ability to build partnerships, secure resources, and expand their impact.

This situation reflects a broader regional trend in which, despite tentative efforts to develop new regulatory frameworks for CSOs, governments continue to lag behind their global peers. As a result, much of the third sector’s capacity remains underutilized, exacerbating already complex development challenges. To unlock the potential of these organizations as agents of positive change, governments must adopt more enabling policies that promote transparency, encourage participation, and reduce unnecessary restrictions that hinder technical capacity, financial resilience, and broader civic engagement and volunteerism.

Technical Capacity – Data Access and Scientific Evidence. Access to reliable data is a crucial technical enabler for CSOs, yet it remains a major challenge across much of the Arab world. Organizations need the freedom to collect, analyze, and share data to develop interventions rooted in scientific evidence. A data-driven approach helps identify community needs, assess program effectiveness, and refine strategies for greater impact. However, without supportive regulatory frameworks, CSOs struggle to leverage this essential resource, weakening their ability to implement evidence-based solutions and enhance their technical capacity.

To fully realize their potential, CSOs must evolve beyond operational efficiency and focus on strategic alignment with community needs. Grounding programs in clear objectives and scientific research can reshape government and public perceptions of the sector’s value. Investing in capacity building and specialized training will further enable CSOs to design impactful initiatives and advocate more effectively for their role as key development partners.

Research underscores the value of scientifically informed initiatives. Nobel laureate Michael Kremer has demonstrated that development programs based on rigorous evaluation can yield returns on investment ranging from 1:5 to 1:17. To harness this impact, governments must facilitate data collection, enhance program evaluation, and institutionalize policies that support scaling proven interventions. Strengthening these frameworks will foster evidence-based decision-making, ensuring that successful initiatives can be scaled.

Financial Resilience. Financial constraints remain a persistent challenge for CSOs in the region, exacerbated by limited government funding and strict restrictions on foreign contributions. Unlike in Europe and North America, where government subsidies can account for up to 30% of nonprofit revenue, Arab CSOs primarily rely on inconsistent and restricted external funding. This dependence severely limits their operational capacity and long-term financial sustainability.

While the role of CSOs in addressing key developmental challenges is increasingly recognized, financial regulations in some countries still create hurdles that limit CSO’s ability to secure sustainable funding. In some countries, CSOs face stringent regulations that prevent them from receiving international grants or philanthropic donations without undergoing extensive due diligence. This can lead to delays that ultimately result in the grant being withdrawn. Direct government financial support is also extremely limited despite the sector’s ability to reach marginalized populations beyond the scope of traditional state mechanisms.

Restricting CSO’s ability to form partnerships further exacerbates financial challenges. Addressing complex and systemic issues requires multi-sector collaboration, combining varied sources of capital. Strengthened partnerships are particularly vital in tackling large-scale challenges such as climate change, which demand coordinated and scalable responses. However, current regulatory frameworks do little to encourage such collaborations.

Civic Engagement and Volunteerism. A strong culture of civic engagement and volunteerism is essential for a vibrant civil society, yet participation remains underdeveloped across much of the Arab world. To bridge this gap, Arab governments and CSOs can collaborate to cultivate a culture of civic responsibility, empowering communities to take part in development initiatives. While public campaigns promoting volunteerism and collective responsibility do exist, they are rarely institutionalized or integrated into broader societal structures, such as within educational curricula or youth programs.

Embedding civic engagement within formal education and policy frameworks could help expand public participation, strengthening civil society’s capacity to address pressing social challenges. Additionally, fostering structured volunteer opportunities could provide meaningful pathways for under-engaged youth, many of whom face limited job prospects and inadequate educational resources. Institutionalizing civic engagement would not only enhance social cohesion but also empower individuals to actively contribute to sustainable development and long-term societal progress.

Navigating Regulatory Landscapes for Impact: Bab Amal in Egypt

The role of an enabling regulatory environment is crucial for unlocking the full potential of development initiatives. While regulatory frameworks are designed to ensure accountability and efficiency, they can also create unintended barriers that slow down or complicate the implementation of impactful programs. Navigating these challenges is essential for translating innovation into large-scale, sustainable change.

Bab Amal (Door of Hope), launched in Egypt by the Sawiris Foundation for Social Development (SFSD) in collaboration with BRAC International and the Abdul Latif Jameel Poverty Action Lab (J-PAL), is built on a rigorous, evidence-based approach to tackling systemic poverty. Initially developed by SFSD through extensive engagement with multi-sector actors, Bab Amal now has the potential to reach more than 100,000 households, benefiting approximately 500,000 individuals – more than 10 percent of Egypt’s most impoverished population. Yet like many ambitious social programs, its journey highlights both the opportunities and the complexities of working within regulatory frameworks.

Initial implementation of the program faced delays due to the multi-partnership setup of the program and because the program was launched in 2018 ahead of the new NGO law introduced in 2019. However, a significant breakthrough came in early 2025 when the Egyptian Ministry of Social Solidarity provided an opportunity for expansion, marking a pivotal step in accelerating Bab Amal’s reach. This government support is expected to fast-track the program’s impact and serve as a compelling example of how enabling regulation can unlock value.

While the Egyptian government has made notable progress in strengthening and facilitating the civil society ecosystem, Bab Amal serves as a valuable learning opportunity. By analyzing both its successes and challenges, policymakers and development practitioners can refine future evidence-based interventions, improve regulatory frameworks, and enhance the scalability of proven global models to drive sustainable impact.

A Model for Evidence-Based Poverty Alleviation. Bab Amal was inspired by BRAC’s internationally acclaimed Graduation Approach, a comprehensive strategy that enables extremely poor households to achieve sustainable economic improvement. This approach integrates interventions to enhance food security, support small business creation, provide technical assistance through community facilitators, and improve access to essential government services. Globally, the model has shown measurable impact over the short, medium, and long terms, with benefits persisting for up to 11 years. Recognizing its potential, SFSD worked to adapt this approach to Egypt’s unique context, focusing on two of the country’s poorest governorates, Assiut and Sohag.

Operational Regulatory Hurdles. One of the primary challenges in developing Bab Amal arose during its establishment phase, mirroring obstacles faced in other regional countries, particularly regarding registration and partnership formation. In 2018, prior to the change in the NGO law, SFSD initiated discussions with Professor Abhijit Banerjee, Nobel laureate and cofounder of J-PAL, to assess the feasibility of implementing BRAC’s Graduation Approach in Egypt. Despite securing support from local NGOs, international partners, and academic experts, the program encountered an eighteen-month delay in obtaining the necessary approvals, illustrating the regulatory hurdles that can impede even the most well-supported initiatives.

Additional obstacles included restrictions on data collection, a crucial component for conducting a rigorous randomized controlled trial to assess the program’s outcomes. The approval process for collaborating with international organizations, such as BRAC’s technical team, was hindered by procedural complexities, resulting in further delays. The process of finalizing contracts and securing permissions for data collection took longer than anticipated, requiring SFSD and its partners to adapt their timelines and financing strategies and resources to ensure successful implementation.

Financial Consequences of Regulatory Delays. These regulatory inefficiencies had profound financial implications, significantly inflating costs and limiting the program’s reach. Initially, the estimated cost per beneficiary was approximately $140, but this figure increased to $218–238 due to anticipated implementation challenges. As the delays persisted, costs escalated further, reaching $534 per household – nearly four times the original estimate.

At a national scale, these delays increased the cost of a planned expansion to 100,000 households from $24.8 million to 53.4 million – a 225 percent rise.

The Power of Partnerships. Fortunately, Bab Amal was built on collaborative partnerships, which became its cornerstone, helping overcome operational challenges while driving innovation. By bringing together local philanthropic organizations like SFSD, global NGOs such as BRAC, and academic research institutions like J-PAL, the program demonstrated how combining local knowledge, global expertise, and scientific rigor can generate innovative and scalable solutions. Similar alliances, such as those formed by Life Makers and the Egyptian Food Bank with international research centers, further highlight the value of such cooperation.

Flexible funding structures also played a pivotal role, enabling the program to adapt and refine its strategies in response to challenges. Bab Amal’s evaluation revealed that even when implemented at half the original cost, the initiative could achieve significant impact, demonstrating the potential for scaling evidence-based interventions efficiently. This adaptability not only reduces financial risk but also enhances the appeal of such programs to donors.

Government also played a role. The establishment of the Egypt Impact Lab within the Ministry of Planning was a positive step toward enhancing the country’s ability to implement effective and scalable programs. By fostering partnerships between NGOs, academia, and the private sector, the Lab can help institutionalize evidence-driven decision-making, enhancing the efficiency and impact of interventions. Encouraging donors to invest in adaptive funding mechanisms would support iterative testing and scaling, creating a conducive environment for innovation and sustainability.

In this respect, Bab Amal has the potential to serve as a central hub for integrating various social protection interventions, fostering a more cohesive and efficient approach to tackling poverty. It can also act as a catalyst for trusted investment from individuals, governments, international donors, and the private sector, ensuring sustainable and scalable impact.

For instance, the food subsidy program, one of Egypt’s largest social protection initiatives, could be incorporated into the scale-up of Bab Amal, reducing the overall cost of expansion. As the targeted families are already eligible or should be included in the food subsidy program based on their economic status, this integration would not impose any additional financial burden on the government. Similarly, other existing government interventions, such as social housing and related schemes, could be aligned with Bab Amal to maximize efficiency.

What makes Bab Amal truly remarkable is that, for the first time, we have a proven, evidence-based model that demonstrates its effectiveness not only in improving people’s lives during the intervention but also in sustaining these gains for more than a year beyond its completion. Moreover, Bab Amal provides a clear and precise estimation of the social return on investment, offering valuable insights into the impact of each Egyptian pound spent per household. This level of transparency, accountability, and measurable impact positions Bab Amal as a unique and replicable model for shaping the future of social protection programs in Egypt and beyond.

Public Policy Reform: Innovation in Egypt

The Bab Amal program is a powerful example of how evidence-based approaches can drive meaningful social impact. Its success highlights the potential of rigorous, data-driven interventions to improve livelihoods at scale. At the same time, its journey offers valuable insights into the practical challenges of implementing large-scale development programs within complex regulatory landscapes.

While Bab Amal has delivered significant and lasting outcomes, certain procedural and administrative processes, extended its timeline and required additional financial resources to navigate. These experiences underscore the importance of continuously refining regulatory frameworks to enable faster, more cost-effective implementation of high-impact programs such as Bab Amal.

As other evidence-driven initiatives emerge across Egypt, lessons learned from Bab Amal can be applied to help maximize their potential impact of public policy. Similarly, the Egyptian government’s growing commitment to improving policies around scientific evidence and data-driven approaches bodes well.

One notable example is the Egypt Evidence for Policy Accelerator, a collaboration between the Information and Decision Support Center (IDSC), the National Institute of Planning (INP), and the International Initiative for Impact Evaluation (3ie). This initiative seeks to bridge the gap between science, policymakers, and civil society, complementing the work of the Egypt Impact Lab in advancing evidence-informed policymaking.

Additionally, several initiatives inspired by Bab Amal hold great potential for national, regional, and global replication. Among them is the partnership between SFSD and Bank Nasr, which is currently testing micro-equity financing – an innovative microfinance model that has shown promising results in Egypt.

Another significant initiative involves a collaborative effort between the Ministry of Social Solidarity, 3ie, SFSD, J-PAL, the Egyptian Food Bank (EFB), UNICEF, and other partners. This project evaluates the impact of a holistic early childhood development approach, integrating access to nurseries with labor market interventions. The goal is to assess how expanding childcare access can enhance women’s workforce participation while simultaneously supporting children’s cognitive, psychological, and nutritional development.

With the collective efforts of key institutions such as the Ministry of Social Solidarity, SFSD, the Economic Research Forum (ERF), the International Food Policy Research Institute (IFPRI), 3ie, J-PAL, IDSC, and INP, Egypt has a unique opportunity to become a global leader in bridging the gap between science and public policy. By fostering multi-stakeholder partnerships, the country can set a precedent for collaborative, evidence-based policymaking that is both scalable and internationally replicable.

At this stage, the highest priority is to continue strengthening the civil society ecosystem to ensure these efforts remain on track and achieve long-term impact. Given the significant improvements in Egypt’s civil society landscape in recent years, there is strong optimism that this progress will continue. Case studies such as Bab Amal, alongside other promising initiatives, serve as beacons of hope, demonstrating the transformative potential of evidence-based policymaking when supported by enabling regulatory frameworks and collaborative partnerships.

Unleashing the Power of the Arab Third Sector

To maximize its impact, the third sector in the Arab region can draw lessons both from successful global nonprofit models and from regional examples such as Bab Amal. When governments view CSOs as partners in achieving development goals rather than threats to political stability, they unlock new possibilities for system change. Key to this shift is the dismantling of regulatory barriers that limit access to technical capacity building, funding – both domestic and international – and fostering civic engagement.

Stronger interregional collaboration among governments, the private sector, and CSOs could further enable the Arab nonprofit sector to replicate global successes such as those of BRAC that have been scaled globally. Through evidence-based initiatives like the Program Targeting the Ultra Poor, BRAC has significantly reduced extreme poverty and has built a model that is now replicated in more than fifty countries.

Similarly, India’s Pratham has built an education program (Teaching at the Right Level) that improves literacy and numeracy among primary students and is now adopted widely in Africa. Intermediary organizations that unite actors across the ecosystem can also help. Innovations for Poverty Action and the International Initiative for Impact Evaluation have shown through their research how nonprofits can influence evidence-based policy. By conducting impact evaluations and equipping policymakers with actionable data, their work has served to benefit millions. Given the economic, social, and cultural links across the Arab world, these kinds of scalable interventions should become second nature.

Funding remains a major barrier. According to an analysis by the Johns Hopkins Bloomberg School of Public Health, global nonprofits typically generate around 40 percent of their revenue from service fees, 30 percent from government sources, and the remainder from philanthropic giving.Footnote ¹² This diversified funding base enables nonprofits to expand their societal contributions, including significant job creation. However, this model is not replicated in the Arab world, where CSOs often receive little to no financial support from governments, severely limiting their ability to scale and drive development. To unlock the potential of the Arab third sector as a key driver of social innovation, systemic regulatory reform is essential – particularly in the five policy areas outlined in the next section.

Areas for Policy Reform

Simplifying Legal and Administrative Barriers. One of the most significant challenges facing Arab CSOs is the complexity of legal and administrative requirements for registration and operation. In many countries, lengthy approval processes, excessive government oversight, and unpredictable regulatory enforcement discourage CSO formation and expansion. Egypt’s Law No. 149 of 2019, while an improvement over previous regulations, still presents challenges such as restrictions on foreign funding that limit CSOs’ ability to form partnerships and secure resources.

To enable civil society to flourish, registration and approval mechanisms must be streamlined to ensure a clear, transparent, and efficient process. Governments should introduce fast-track approval systems for high-impact, evidence-based initiatives, particularly those that align with national development priorities and the SDGs. Furthermore, regulatory frameworks should be reformed to ensure consistency and reduce unnecessary administrative burdens on CSOs, allowing them to focus on delivering impact rather than navigating legal obstacles.

Streamlining these processes will not only encourage the establishment of new organizations but also enhance trust between CSOs and governments, paving the way for a more collaborative and efficient development ecosystem.

Creating an Enabling Financial Environment. To ensure a financially resilient civil society, regulatory reforms should focus on expanding domestic funding opportunities and creating incentives for corporate and individual philanthropy. Governments should introduce tax exemptions and deductions for donations to CSOs, ensuring that businesses and individuals are encouraged to contribute to social development initiatives. Additionally, foreign funding restrictions should be revised to strike a balance between national security concerns and the need for global partnerships and financial sustainability.

Further financial flexibility should be provided by allowing CSOs to generate revenue through service fees, government contracts, and social enterprises, as seen in successful international models. BRAC, for instance, has demonstrated how financial sustainability in the nonprofit sector can be achieved through social enterprise models that generate revenue while serving development goals. Replicating such models in the Arab world would reduce dependency on unstable external funding and create self-sustaining nonprofit ecosystems.

Removing Restrictions on Data Access and Research. A robust evidence base is essential for effective policymaking and program design, yet many Arab countries impose legal and procedural barriers to CSOs’ ability to collect, analyze, and share data. Without reliable data, CSOs struggle to measure impact, improve interventions, and advocate for policy changes that reflect on-the-ground realities.

Regulatory reforms should guarantee CSOs the right to conduct independent research and impact evaluations, removing unnecessary restrictions on data collection and sharing. Governments should also establish clear and transparent legal provisions for access to public datasets, ensuring that CSOs can align their work with national development priorities and optimize resource allocation.

By integrating data-sharing mechanisms between CSOs and government agencies, policymakers can make better-informed decisions based on real-world insights. Strengthening legal protections for research collaborations between CSOs, universities, and global institutions will ensure that the Arab third sector can benefit from scientific innovation and international best practices.

Enabling Multi-Sector Collaboration. The ability of CSOs to partner with governments, businesses, and international organizations is fundamental to their success. However, legal restrictions in many Arab countries prevent CSOs from forming joint ventures with private-sector actors and government entities. These barriers limit their access to funding, expertise, and infrastructure, preventing the development of large-scale, impactful initiatives.

Some Arab countries have begun implementing reforms to facilitate multi-sector partnerships, such as Saudi Arabia’s National Center for the Non-Profit Sector (NCNPS) and Abu Dhabi’s Authority of Social Contribution (Ma’an), which support third-sector collaboration and funding mechanisms. However, such models remain the exception rather than the norm, and regulatory restrictions on CSO participation in public–private partnerships (PPPs) continue to hinder development progress.

Governments should amend legal frameworks to encourage structured partnerships between CSOs, businesses, and state institutions, particularly in priority areas such as poverty alleviation, health care, and education. This includes clarifying legal guidelines for joint ventures, ensuring that CSOs can receive and manage private-sector funding transparently, and removing legal ambiguities that discourage collaboration. By enabling multi-sector cooperation, Arab countries can unlock synergies that drive sustainable, large-scale change.

Institutionalizing Evidence-Based Policymaking. For regulatory reforms to be truly impactful, governments must integrate CSO-led research and evaluation into public policy. In Egypt, initiatives like the Egypt Impact Lab and the Evidence for Policy Accelerator have demonstrated the value of embedding data-driven approaches in policymaking. However, many governments in the region still lack institutionalized mechanisms for CSOs to contribute research and expertise to national development strategies.

To address this, regulatory reforms should mandate systematic collaboration between government agencies, CSOs, and research institutions. Legal provisions should be established to integrate evidence-based recommendations into policy frameworks, ensuring that national policy discussions are informed by data rather than political considerations.

Additionally, governments should support the scaling of proven, evidence-based models, such as Bab Amal, which have shown long-term success in poverty alleviation. Strengthening the legal framework for evidence-based policy adoption would foster an environment where effective social programs are continuously refined, expanded, and sustained.

Conclusion

The Arab third sector holds immense promise in addressing pressing socioeconomic challenges, yet its impact remains constrained by restrictive regulatory environments, financial limitations, and barriers to collaboration. Unlike in regions where civil society plays a vital role in development, many Arab countries impose onerous legal and administrative processes that stifle CSO growth and restrict access to essential funding and partnerships.

By implementing targeted regulatory reforms, governments in the Arab world can remove bureaucratic obstacles, create a stable financial environment, enhance access to data, foster multi-sector collaboration, and institutionalize evidence-based policymaking. A thriving third sector is not a luxury; it is a necessity for sustainable development. By streamlining legal processes, expanding financial flexibility, facilitating data access, and encouraging structured collaboration between civil society, government, and the private sector, Arab governments can unlock billions in untapped development capital, create stronger and more inclusive social protection systems, and empower CSOs as key drivers of economic and social transformation.

Regulatory reform is not just about removing barriers; it is about building an ecosystem where civil society can innovate, expand, and meaningfully contribute to national development goals. The time for change is now; Arab policymakers must act decisively to reshape the future of civil society, ensuring that the third sector reaches its full potential as a pillar of sustainable progress.