Engaging the private sector: a strategic lever for development

Given the scale of development challenges and the need to mobilise new sources of funding, the private sector has now emerged as a strategic partner in achieving the SDGs. In 2025, LuxDev adopted a new framework for engaging the private sector, ensuring the rigorous use of the funds entrusted to it. This report examines the foundations, practices and achievements of an approach that places innovation, measurable impact and shared responsibility at the heart of the Agency’s work.

In 2025, the 4th International Conference on Financing for Development, held in Seville, highlighted the scale of the funding required to achieve the SDGs: nearly USD 4 trillion in additional investment would be needed each year until 2030. Faced with this funding gap, which public resources alone cannot bridge, the Sevilla Commitment reaffirms the need to mobilise all available levers – both public and private – to support the achievement of the SDGs.

In this context, the private sector, recognised as a driving force for sustainable development, inclusive economic growth and the creation of decent jobs, appears to be a key player alongside official development assistance. In addition to its investment capacity, its business models enable activities to continue beyond traditional funding cycles. Thanks to their organisational structures, companies also possess a capacity for innovation and scaling up that is difficult for public actors alone to replicate. The latter, as guarantors of the direction, coherence and regulation of development policies, remain nonetheless indispensable to ensuring a truly inclusive and sustainable impact. This complementarity now makes joint action essential.

With this in mind, LuxDev has chosen a specific approach: mobilising local companies through a model of engagement. In the countries where it operates, the Agency partners with impact-driven businesses that are not merely recipients of one-off support, but are fully co-responsible for achieving the objectives of the projects and programmes it implements. This approach supports business models capable of generating lasting effects across entire value chains – including suppliers, producers, employees and end customers.

During the 2025 financial year, it was formalised through a new engagement modality developed based on the initial results of the LuxAidBusiness4Impact project, launched in 2023. This initiative includes three private sector engagement funds that provide companies with the financial resources they lack to commercialise, accelerate or scale up innovative solutions.

In Rwanda, BioMassters, co-financed to the tune of EUR 334,000 as part of the LuxAidBusiness4Impact project, illustrates how private sector engagement can contribute to the development of sustainable solutions. The company is tackling a major challenge: households’ heavy reliance on wood and charcoal for cooking, which is a source of domestic pollution and puts pressure on
forest ecosystems.

BioMassters is rolling out an innovative business model based on the distribution of high-performance pellet stoves and the sale of locally produced pellets – which are cheaper than coal. A cashback scheme, funded by carbon credits, encourages households to adopt the solution. Thanks to this initiative, more than 5,400 users have already adopted these clean stoves and report an improvement in their living conditions: a verified increase in their income, significant health benefits due to the sharp reduction in their exposure to smoke, and more. The success of this business model is helping to structure a local value chain: the production of pellets from biomass waste, the creation of green jobs, and a reduction in CO₂ emissions and pressure on forest resources.

BioMassters is therefore not merely deploying a technology: it is establishing a sustainable model that combines climate impact, economic inclusion and improved living conditions. As such, it contributes directly to the Agency’s objectives and aligns with the efforts of the SFERE project, which aims to restore degraded forest landscapes, improve livelihoods and develop sustainable energy value chains in north-western and eastern Rwanda.

To ensure the quality of its partnerships with the private sector, LuxDev has drawn up an operational guide based on the lessons learned from the LuxAidBusiness4Impact project and inspired by international best practice. This tool aims to ensure that public funds entrusted to the Agency benefit only actors whose activities and objectives are aligned with development priorities.

In accordance with the principles set out in this guide, any company applying for a partnership must undergo a due diligence process, which enables the Agency to mitigate the risks associated with a proposed project or partner. To be eligible for co-financing, the applicant must not only demonstrate that it does not fall foul of any exclusion criteria through a KYC (Know Your Customer) assessment, but also meet requirements that ensure the quality of the proposed solution and comply with prudential criteria that act as a safeguard against potential negative human rights and environmental externalities.

As the support provided is also conditional upon the achievement of clearly defined results, it fosters a genuine culture of impact measurement within organisations. Designed to verify that the public funds entrusted to the Agency bring about tangible improvements in the living conditions of the target populations, this approach is also strategic for the companies themselves. Indeed, an increasing number of partners recognise the value of a detailed understanding of the importance created by a product or service and use this data to refine their offering, strengthen customer relationships and guide their growth decisions. The Agency’s reporting indicators, which focus on the relevance and added value of a solution, now help to shape the growth trajectories of the supported actors.

Ambroise KIENTEGA, Technical Assistant for the LuxAidBusiness4Impact project in Burkina Faso, explains how he supports Burkinabe and Malian entrepreneurs co-financed through commitment funds from Luxembourg Development Cooperation.

Results of a pioneering initiative

In 2025, the LuxAidBusiness4Impact project confirmed its central role in mobilising the private sector in support of development. In total, its three engagement funds attracted 1,700 applications. Subsequently, 26 projects were selected and co-financed, representing a total investment of EUR 10.5 million, of which EUR 4.9 million granted from the Luxembourg Development Cooperation. These initiatives have improved the living conditions of 15,000 people and contributed to no fewer than 13 SDGs.

As a mobilisation tool that supports the scaling up of innovative initiatives, the LuxAid Demonstration Fund provided co-financing to 12 pioneering companies in Senegal, Rwanda and Kosovo in 2025. Working in multiple sectors, the recipients share a common ambition: to propose business models that drive sustainable change.

In Senegal, for example, Kaoplast is tackling plastic pollution by structuring a waste collection, sorting and recycling value chain. By creating a genuine circular economy around plastic, the company generates stable income for hundreds of waste collectors and supplies the local industry recycled raw materials. Thanks to co-financing of EUR 350,000, Kaoplast plans to increase its collectors’ income by 15% and recruit an additional 200 by the end of 2026, produce 300 tonnes of pellets, and avoid 800 tonnes of CO₂ per year.

Supporting innovative initiatives at an earlier stage of development, the LuxAid Challenge Fund (LCF) co-financed, in 2025, seven high-impact projects in Benin and four Kosovar enterprises tackling urgent challenges. 

Among them, Qendra Profesionale për Gjithëpërfshirje (QPGJ) is developing a pioneering solution to address the shortage of professional assistants to support children with special educational needs in schools. The company has designed a training programme combining online theoretical courses and practical placements. This hybrid programme, accessible nationwide, opens up new opportunities for young adults – most of whom come from rural areas and are unemployed – and while responding to strong demand, with 1,200 applications for 120 places available in the first year. With the support of the LCF, QPGJ will train a further 75 assistants and directly assist as many children.

The Business Partnership Facility: a decade of engagement

The Business Partnership Facility (BPF) – the first private-sector engagement fund established by the Luxembourg government and the third fund under the LuxAidBusiness4Impact project – supports innovative collaborations between companies based in the European Union and entities established in developing countries. It entered its 10th year of operation in 2025. Since its launch, 54 projects have been implemented in more than 20 countries, representing a total investment of EUR 15.5 million, including EUR 5.3 million in co-financing from Luxembourg Development Cooperation. These initiatives have created 2,229 jobs and improved the living conditions of more than 100,000 people, illustrating the impact that innovation, entrepreneurship and development cooperation can generate when their objectives align. These projects are built on close partnerships between European companies and local stakeholders, fostering the transfer of know-how and the adaptation of solutions to the contexts in which they are implemented.

The BPF thus enables companies to test, adapt and roll out innovative solutions whilst sharing the risks associated with their development. It has notably supported IBISA, a Luxembourg-based insurtech company, in deploying a climate insurance solution. Initially tested in Niger, the scheme was subsequently extended across West Africa, where it now enables some 2,500 herders to safeguard their incomes and livelihoods against climate-related risks, notably through an automated payout mechanism that is faster than traditional insurance systems.

On a different note, the BPF also helps to develop key sectors through projects with a strong local impact. In Côte d’Ivoire, for example, support for the Luxembourg-based company BCE and its Ivorian partner SGM helped launch the NCI channel, the country’s first independent and pluralistic audiovisual media outlet, which now reaches nearly 500,000 households. The project has created approximately 100 direct jobs since 2019 and trained around 50 local professionals, now serving as a replicable model for other markets.

At the end of this first decade, the BPF has demonstrated its ability to transform pilot initiatives into sustainable solutions, which continue to be rolled out on a larger scale.

A replicated approach

Building on the experience gained through LuxAidBusiness4Impact project, LuxDev is now replicating this private sector engagement approach in selected bilateral cooperation programmes.

In Vietnam, for instance, the company Mekong Herbals contributes to the objectives of the Finance for resilience project. This initiative aims to improve the resilience of farmers and small businesses in the Hue region, which are particularly exposed to the effects of climate change and to evolving market trends that favour organic products. In this context, the Agency is applying a market systems development approach to ensure that agriculture remains a sustainable source of livelihood. Viable agricultural value chains, offering strong potential for women’s inclusion and adaptation to climate change, have thus been identified. Among these, the hibiscus value chain was selected. A partnership has been established with Mekong Herbals, a Vietnamese processor and exporter seeking to source high-quality flowers.

As part of this co-financing arrangement, which combines funding from Luxembourg Development Cooperation and the company’s own investment, Mekong Herbals has committed to encouraging producers in Hue to adopt sustainable practices. This is notably reflected in the provision of five-year supply contracts with guaranteed purchase prices, the delivery of training, and the establishment of a nursery and an organic fertiliser production unit. This partnership demonstrates the private sector’s ability to generate sustainable business models and to strengthen the resilience of rural communities.

In the Sahel region, the private sector has been particularly mobilised to achieve the objectives of bilateral cooperation programmes implemented in the training and employment sector.

In Senegal, for example, the Laiterie du Berger has helped build strong pathways to integration by contributing to the Niary farm-school project. The result of a partnership between the Dagana Vocational Training Centre, the Kossam SDE cooperative and private sector stakeholders, this institution has enabled the training and integration of 144 young women in small-scale farm management and dairy production. The company has not only contributed its sector-specific expertise to the project, but has also tailored the training content to market needs and facilitated the integration of beneficiaries into an existing value chain, making this initiative a lever for employability and entrepreneurship rooted in the local economy.

The Sustainable and inclusive growth in Kosovo project has also engaged with the private sector by supporting an innovation grant scheme for Kosovar businesses.

Co-financed by the Grand Duchy of Luxembourg and implemented in collaboration with the Kosovar Ministry of Industry, Entrepreneurship and Trade, this scheme supports the development of innovative solutions such as Andrra App, a platform now enhanced by artificial intelligence. This application combines, within a single Albanian-language tool, menstrual cycle tracking, family planning, pregnancy advice and parenting support, transforming the way Kosovar families access reliable information on health and well-being.

Murielle HERMOUET, Resident Representative for LuxDev in Bamako, reflects on the LCF experience in Mali and on how the private sector approach is now integrated into cooperation programmes.

Building on the experience gained through its private sector engagement funds, LuxDev is now in a position to take the next step. The objective is to scale up this type of engagement and ensure its sustainability. It is no longer solely a matter of co-financing impact-driven enterprises, but also of structuring and investing in funds or private financial intermediaries to mobilise capital towards activities that make a tangible contribution to development objectives.

This indirect investment approach aims not only to support a wider range of stakeholders, but also to foster the emergence, within the Agency’s portfolio, of funds and companies capable of attracting investors whilst preserving their social, environmental and economic intentionality. To this end, LuxDev has also established or supported technical assistance facilities targeting these stakeholders. The SSNUP (Smallholder SustaiNability Upscaling), for example, assists them in structuring their business model, improving their governance, and strengthening performance monitoring or impact measurement.

Furthermore, LuxDev intends to capitalise on Luxembourg’s expertise in investment funds for the benefit of local financial markets, as illustrated by the project Support to the development of Kigali International Finance Centre in Rwanda. This strategic direction will nonetheless remain guided by the Agency’s mission. Mobilising private capital only makes sense if it generates tangible, inclusive and sustainable results for local communities. As its portfolio of companies expands and its partnerships strengthen, LuxDev will thus be able to implement an approach in which the private sector becomes both an operational partner and a financial partner, working towards sustainable development.