Going back to the basics
By Ai-Lin
The solution is important, but it’s even more important to go back to the basics to ask ourselves why.
I grew up in an educational system that encourages students who can find out the right answer most efficiently. It is the same case in the work environment, where results are more important than the processes. After having some discussions with our client, we quickly identified the key issue of our client’s business is the lack of suitable investors. Therefore, we started our researches on possible solutions, including a variety of potential investors. The data collection was a very pleasant journey. I immersed myself into the fascinating world of impact investing and micro finance. With the support of Professor Flammer, we started with a good foundation in terms of which prospective impact investors have presence in Africa, and the concepts of impact generated by a non-profit organization. Most importantly, instead of narrowing down to the source of funding, we need to identify the business model of our client’s organization.
It is hard to fully describe the impact investors by a single model. Instead, there are lots of different forms of impact investors. Some impact investors are willing to support small amounts of funds and take on higher defect risks, while some others mainly focus on granting larger funds to more sophisticated organizations with proven credits. Impact investors may also differ from their source of funds and targeted borrowers. For example, MICROVEST supports borrowers through Responsible Financial Institutions (RFI). MICROVEST identify RFIs by disciplined screening to manage the potential risks. On the other hand, Kiva is more like a platform that helps matching the lenders and borrowers. Farmers can apply a loan through Kiva, and then the loan will go through an approval process. Once approved, lenders will crowdfund the loans online. After learning the variety of impact investors, we figured out that the next step of our project is to identify the business model of our client’s organization to help them find the optimal solutions.
After presenting our findings to our client, we are humbled to receive positive feedback and his willingness to share his business plan with us. I really appreciate the trust by our client and the privilege of being a part of his business. It was like reading a design diagram of a building that was yet to be built. Our client’s goal is to help coordinate 50 individual farmers and collectively facilitate the loan to transfer gas irrigation pumps into solar energy pumps. The estimated impact would be the energy savings and incremental harvests from farmers.
To test our hypothesis that the solution to our client’s business is to find a suitable impact investor, we were excited to connect with industry professionals. It was an eye-opening experience to learn directly from Root Capital’s CFO and Head of Lending about their business and criteria of target selection. There are still some missing pieces that we may need to figure out before moving forward. How will the impact be calculated and distributed to farmers and investors? What’s the average size of loan? How may the business be sustainable? Who is responsible for purchasing, installing and maintaining the pumps? How to allocate and collect the grants to individual farmers? We started to connect the dots and frame the profit model together with our client. The solution is important, but it’s even more important to go back to the basics to ask ourselves why. I believe that by breaking down the problems into small pieces, we will see a clearer whole picture soon.