Three Lessons to Maximize the Impact of Innovative Finance
Posted: Thu Feb 13, 2025 3:42 am
Ultimately, these loan pilots pushed us to maximize efficiency and provoked innovation that benefited our entire portfolio. Furthermore, we learned that there are ways of structuring a loan agreement that can improve the likelihood of repayment for organizations like SWEs that face multiple risks and varying cash flow. First, we found that rigorous financial reporting is the foundation for developing manageable terms in a loan and that partial grant funding, below-market interest rates and local currency denomination are important components of a successful loan. It is also important to build flexibility into the loan terms so that payments can be based on cash flow and borrowers can use extensions for unforeseen circumstances. Lastly, we learned that operational policy and co-creation with the community help mitigate risk and improve service delivery. We’ll discuss each of these insights in detail below.
Keep Debt to Capital Ratio Low and Invest in Rigorous Financial Reporting
In 2014, a private individual donor provided a loan of US $105,000 to finance infrastructure at two water stations that served 18,000 people in two Ghanaian communities. The loan was facilitated through Safe Water Network Ghana, but it was intended to be repaid through revenue from both stations. The loan covered capital investment and aimed to catalyze private capital to offset the upfront costs of expanding water access — a goal of sector-wide interest. The loan terms included a 10% interest japan whatsapp number data rate, a 12-year term and Ghanaian cedi denomination to protect against currency devaluation.
However, the loan had a 71% debt-to-capital ratio — since higher ratios signify a greater risk of default, this is one measure of these enterprises’ limited financial sustainability. Simultaneously, the stations faced operational challenges like high electricity costs, higher-than-anticipated ongoing maintenance expenses and low collection efficiency. As a result, the two stations soon ran into repayment issues.
We experimented with multiple responses to these challenges. For instance, to increase revenues, we adopted new technologies like pre-paid meters and automatic water dispensers (ATMs). For ATMs, each customer receives their own radio frequency identification (RFID) card — a device that uses radio waves to establish users’ identities. With these cards, customers can top up their accounts using mobile money and retrieve water at the station at any time. Some customers could also purchase piped water connections installed directly into their homes, collecting water from them at any point using a pre-paid meter. These optimizations increased water stations’ revenue collection from 66% to 100%. We also installed solar panels, which enabled us to reduce stations’ electricity costs per liter of water produced by 35%. We scaled these innovations across our stations to improve operational margins across our entire portfolio, even for stations that were fully grant-funded. To address the high cost of long-term maintenance, we embarked on a multi-year project to quantify the total costs of sustainable water supply, including ongoing maintenance and complete replacement of the water treatment technology. We refer to these expenses as sustainability costs.
Keep Debt to Capital Ratio Low and Invest in Rigorous Financial Reporting
In 2014, a private individual donor provided a loan of US $105,000 to finance infrastructure at two water stations that served 18,000 people in two Ghanaian communities. The loan was facilitated through Safe Water Network Ghana, but it was intended to be repaid through revenue from both stations. The loan covered capital investment and aimed to catalyze private capital to offset the upfront costs of expanding water access — a goal of sector-wide interest. The loan terms included a 10% interest japan whatsapp number data rate, a 12-year term and Ghanaian cedi denomination to protect against currency devaluation.
However, the loan had a 71% debt-to-capital ratio — since higher ratios signify a greater risk of default, this is one measure of these enterprises’ limited financial sustainability. Simultaneously, the stations faced operational challenges like high electricity costs, higher-than-anticipated ongoing maintenance expenses and low collection efficiency. As a result, the two stations soon ran into repayment issues.
We experimented with multiple responses to these challenges. For instance, to increase revenues, we adopted new technologies like pre-paid meters and automatic water dispensers (ATMs). For ATMs, each customer receives their own radio frequency identification (RFID) card — a device that uses radio waves to establish users’ identities. With these cards, customers can top up their accounts using mobile money and retrieve water at the station at any time. Some customers could also purchase piped water connections installed directly into their homes, collecting water from them at any point using a pre-paid meter. These optimizations increased water stations’ revenue collection from 66% to 100%. We also installed solar panels, which enabled us to reduce stations’ electricity costs per liter of water produced by 35%. We scaled these innovations across our stations to improve operational margins across our entire portfolio, even for stations that were fully grant-funded. To address the high cost of long-term maintenance, we embarked on a multi-year project to quantify the total costs of sustainable water supply, including ongoing maintenance and complete replacement of the water treatment technology. We refer to these expenses as sustainability costs.