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Robust data systems great tool to support asset financing, say innovators

By Simon Jee Duchatelet, Investment Associate and Nzinga Broussard, Senior Director, Analytics   |   Posted 6th December 2021

Building robust systems that collect and track data from an early stage can help businesses be prepared when raising debt, according to innovators with experience in asset and customer financing.

Innovators and entrepreneurs were exchanging ideas at a GIF-hosted workshop where they identified data related to unit economics, and on how assets are performing, as crucial for scaling – with all agreeing they need significant investment to be truly effective.

Attendees included representatives from GIF’s portfolio who are exploring solutions around asset or customer financing to grow their business and impact, investors, and development finance institutions that are already financing such activities or actively supporting this emerging space. Most representatives had experience in the smart metering business, specifically in settings where clients (utility companies, individuals, or households) are often unable to afford the upfront costs of smart meters, despite the benefits this technology can generate.

For utility companies, these benefits include increased capacity to collect revenues, and greater visibility over the distribution of water or energy services including the ability to identify theft or leaks/breakdowns. For individuals and households, the core benefit is the use of technology like Pay-As-You-Go for at-home water or energy, which allows them to prepay at any time, for any amount, and improve their household budget. This reduces the risk of disconnection due to missed payments and reduces the likelihood that disconnected residents will turn to unreliable, low-quality, expensive substitutes.

Risk management was a hot topic during the workshop, with all agreeing foreign exchange risk, scaling risk, and regulatory risk are common challenges. Grant financing early on to test a model was considered a huge positive if it does not distort the market or impact market expectations (if prices are subsidised).

When discussions turned to taking on debt financing for the first time, innovators recommended starting small to demonstrate clients’ ability to repay. Many said the key is to adapt the financing to the needs of the business model, or cash flow needs, and to have flexible lenders in place that offer the types of debt that can grow and evolve with a company.

The challenge of how to demonstrate evidence of impact on end users was raised by several attendees, given it can be difficult to show the positive impact of an innovation on end consumers when the clients are utility companies or distributors. One proposed solution was for innovators to work with the utility companies to gather data that demonstrates impact on the end-users — specifically around debt repayment and the timely payment of utility bills. It was noted that these outcomes should be straightforward to produce given they make up a huge part of the datasets gathered by utility companies.

The workshop was part of a series of learning events hosted by GIF. Startups from GIF’s portfolio were given the opportunity to engage with stakeholders and reinforce their asset or customer financing strategies; with GIF continuing to seek opportunities to support our partners who are developing activities related to asset financing – still an emerging finance mechanism for innovations with consumers in low-income countries – through venture support or follow-on funding, for example.  

Registration is open for our next learning event on scaling agricultural innovations happening on 8 December 2021.