These failures are commonly explained in terms of weak institutions, limited community ownership or insufficient funding. However, after building and leading the early operations of Max TapWater, a social enterprise providing a piped water system to rural households in Bangladesh, I realised the deeper reason is far simpler: Organisations underestimate the complexity of water systems’ operations. Keeping a system running reliably demands unglamorous day-to-day service delivery, revenue collection, preventive maintenance, customer service, staff incentives and rapid repair of any mechanical issues — and all of that takes time, resources and discipline.

Yet despite longstanding awareness of the need to treat water as an ongoing service, investment in the sector continues to prioritise capital infrastructure over the operational and maintenance budget needed to sustain it. This is a pattern that perpetuates system failure rather than preventing it. Pipes are often laid faster than the maintenance systems, finances and supply chains required to sustain them. In many cases, when donor funding ends, the infrastructure remains, but the water stops flowing.

We learned these pitfalls first-hand at Max TapWater, where I led the early development of a water utility grid that connected 10,000 clients. Our early assumptions and the mistakes we made when building this multi-site rural water enterprise taught us what actually keeps the water flowing beyond the grant period.

The common failure pattern in rural water supply

Before starting operation, we observed multiple rural water systems throughout Bangladesh and noticed a recurring set of challenges, which often involved prioritising the delivery of assets over the delivery of services.

First, in our experience, infrastructure often accounted for a majority of the budget, leaving little room for operations and maintenance costs. Instead, these activities were treated as an afterthought. While operations and maintenance plans existed on paper, they were rarely backed by realistic budgets, clear accountability or routine execution, leading to gradual system decline. This led to delayed repairs, customers skipping their bill payments due to poor service, inconsistent water quality, and increasing system downtime. Minor issues such as leakages or pump inefficiencies were not addressed early, and gradually escalated into major failures.

Second, we observed that local entrepreneurs-turned-operators were assigned every responsibility. These implementers, who often received helpful but insufficient classroom training, were left to manage everything, such as revenue collection, daily operations, water quality monitoring and repairs, and customer complaints. Without continuous support and clear systems, this often led to inconsistent service, delayed repairs and gradual system deterioration.

From our observations, we found that the missing elements of these water systems often involved continued on-the-job support, simple operational systems and clear performance routines. Without these tools, operators struggled to translate training into standard and consistent practice of service delivery.

Additionally, community engagement — a key aspect of maintaining a successful water system in areas that are unaccustomed to these services — was treated as a one-time activity, rather than something built through consistent service reliability. We found that engagement typically focused on initial mobilisation, where community leaders helped amplify key messages, but it was not always sustained in a structured way once operations began. This created a gap between initial expectations and actual service delivery. When service was inconsistent or issues were not resolved promptly, users gradually lost trust in the system.

In running our own early pilots, we found that a lack of community engagement led to lower willingness to pay, reduced usage of the service, and in some cases a return to previous water sources, such as contaminated wells and rivers. As trust declined, so did willingness to pay, further reducing the resources available for maintenance. Over time, this weakened financial viability and reduced the accountability for maintaining service standards. Learning from our mistakes, we worked to develop a stronger system. We found that trust and engagement were only sustained when communities experienced reliable, responsive service on an ongoing basis.

Our early assumptions — and where they failed

When we began building our rural water utility, we were not immune to a number of assumptions. We believed that:

• Communities would quickly accept paying for potable water;
• Affordability studies would translate cleanly into tariff compliance; and
• Donor expectations were in line with community needs

Reality challenged all three.

In the early phase, resistance to paying for water was strong. The prevailing belief was simple: “Water is free!” Even when households valued safe water, converting that value into consistent payment required more than logic or awareness. We went door-to-door to explain the value of our services to customers, tailoring our communication to the audience. Still, locals remained sceptical, only gaining interest after observing that others in their community were receiving consistent, safe water delivery.

Tariff collection also proved more complex than anticipated, especially in low-income settings with irregular cash flow. Affordability studies we conducted prior to designing the scheme indicated that households could and would pay the proposed tariff. Yet compliance remained inconsistent. What the studies did not capture was the social complexity of collection: The fact that operators lived within the communities they served made the enforcement of overdue accounts personally and socially costly. And when one household defaulted without consequence, others followed. Piped water schemes cannot simply shift their customer base when customers refuse to pay, and our limited staff capacity made timely follow-up on overdue accounts difficult. Meanwhile, the lean staffing inherent to wide-coverage operations like ours made it structurally difficult to sustain the follow-up required to prevent customer default.

Max TapWater is funded through a blended finance model, and donor expectations added further tension, as reporting often centred on systems installed rather than services reliably delivered. In practice, donors tracked KPIs that were either premature or disconnected from operational reality. For instance, we were asked how many organisations had replicated our model — a question that may be relevant five years into a programme, but that wasn’t realistic while we were still stabilising our first systems. We were also pressed on whether revenues had recovered the capital cost of infrastructure. This payback calculation for community water enterprises required far deeper financial modelling than the reporting framework allowed. These expectations created pressure at exactly the wrong moment, diverting attention from the operational work that would actually determine long-term sustainability. Additionally, operations and maintenance received little strategic attention, and donors were more accustomed to project delivery than utility governance, and rarely anticipated the long-term consequences of this gap.

The pivots that changed everything

What eventually worked was not a single innovation but a series of deliberate shifts in how we designed and ran the system:

• Flexible, service-focused pricing: We moved away from affordability surveys and instead used a service-based pricing model to set our rates. We developed a tiered tariff structure based on household size, rather than a single flat rate for all users, to better reflect expected water consumption and improve perceived fairness. This redesigned pricing used a unit economics model that explicitly accounted for electricity, direct labour and maintenance (routine service and repair) costs, while allowing some margin to fund ongoing monitoring, staffing and governance. This ensured that day-to-day operations and maintenance were financially covered, reducing reliance on external funding and enabling consistent service delivery. This pricing model was paired with clear communication about how our service’s reliability and quality met WHO standards for drinking water quality, reframing payment as a value exchange rather than a fee. Instead of presenting tariffs as a charge for access, we communicated what households were receiving in return: reliable daily supply, reduced time and effort in water collection, improved health outcomes (i.e., minimizing exposure to water-borne diseases) and responsive maintenance support. This shifted user perception: Rather than paying for water, they were paying for an essential service and improved standard of living.
• Governance as infrastructure: We treated governance requirements as operational infrastructure rather than an institutional formality. We established clear accountability for service uptime, water quality and customer response. Through explicit role clarity and robust systems, we were able to reduce downtime and increase service quality. We assigned dedicated technicians for routine maintenance and rapid fault response, supported by a roster of service providers and a structured fault-reporting system. In parallel, we established consultation guidelines and delegated financial authority at the field level, reducing bureaucratic delays in decision-making and enabling faster repairs. This combination of clear ownership, structured reporting and decentralised decision-making led to fewer service interruptions and greater adherence to quality standards.
• Trust built through reliability, not awareness campaigns: Community trust did not come from workshops or awareness campaigns. It came from water flowing consistently, day and night. Once households experienced 24/7 safe water, behaviour changed. Payment compliance improved and complaints became more constructive; reliability proved to be the most effective way to build trust.

Practical lessons for other practitioners in rural water access

One of the most important lessons we learned is that sustainability is not a strategy statement.

It’s an operational discipline built through pricing realism, governance alignment, effective maintenance routines and delegating financial authority at the field level.

Academic business models and financial projections were useful at first, but they failed during implementation, as they were detached from how people actually interacted with the system. Sustainability was only achievable when unit economics, governance and field execution were aligned. To our surprise, the key to sustainability was consistent execution rather than untested innovations.

Our experience also highlighted some other key lessons for entrepreneurs, NGOs and donors working in rural water and similar service sectors:

• Design fee structures for operations, not optics: Both under-pricing and over-pricing erode trust.
• Build operations and maintenance systems before scaling: Expansion magnifies weaknesses faster than strengths.
• Treat governance as core infrastructure: Clear accountability prevents silent system decay.
• Earn trust through reliability, not persuasion: Service quality changes behaviour more than communication messages.
• Measure uptime, not installations: What gets measured gets maintained.
• Accept slower early growth for long-term viability: Sustainability rarely scales at the speed donors expect.
• Sustainability is a holistic approach: Sustainability needs to be addressed not only from the enterprise perspective, but also from the ecosystem perspective.

The work of providing safe, reliable water is a continuous journey. Systems evolve, communities change and infrastructure ages. But our experience reinforced a simple truth: Water systems last only as long as the operational discipline behind them.

If the sector is serious about sustainability, it must commit to building the systems that keep services running long after the initial infrastructure project ends.

Saif Islam is a development and social enterprise professional with over a decade of experience designing, financing and operating water, sanitation and health services in low- and middle-income countries.

Photo credit: Pluca

Africans have led their own support system development, ensuring it uniquely suits their needs. For instance, most African consumers lacked bank and credit card access, creating major payment pain points. Local innovators and entrepreneurs prioritized solving these by leveraging mobile phone access.

By 2025, over $2 trillion flowed through mobile money wallets globally, and 74% of those transactions were African. Mobile money transfers created a new industry — Fintech 1.0.

Next, African startups like Flutterwave and Paystack created API tools, forcing traditional banks to compete with mobile-first fintechs. Such startups built venture successes that attracted fintech investments from around the world — Fintech 2.0. But who built and funded the tech infrastructure for Africa’s tech industry transactions?

Instead of government-backed and charitable institutions taking the lead, time and again it was Africa’s own diaspora who left the continent to learn, earn and return as entrepreneurial leaders. They have driven its tech infrastructure, innovation and commercial success.

The Impact of an African Tech Pioneer

One exemplary African tech infrastructure pioneer was Mo Ibrahim, a Sudanese-born engineer. Frustrated over British Telecommunications’ “bureaucratic lethargy,” Ibrahim founded his own design consultancy firm, Mobile Systems International (MSI). When he saw his MSI clients paying dearly for country licenses to build and operate mobile systems, he encouraged them to secure licenses that were readily available in African countries, like Uganda, where younger demographics promised higher adoption rates.

Because Ibrahim’s clients spurned his advice, he assembled his own stellar team within MSI to pilot his vision, dubbing it Celtel. As his team negotiated telecom licenses in Africa, they adhered to transparent governance policies to prevent corruption — a key concern of commercial and development sector partners. Their pre-paid air-time innovations sidestepped cashflow issues and became the foundation upon which the mobile money industry was built.

Still, lenders who routinely funded mobile industry infrastructure elsewhere were so leery of Africa that they either refused to engage, or they required so much collateral that they undermined progress. Instead of depending on such wary lenders, Ibrahim sold his U.K. design firm to fund Celtel’s growth.

By 2005, the company was successfully “bridging the digital divide” in 13 countries, with millions of subscribers, thousands of employees and hundreds of millions in USD revenues. Clearly, Celtel had achieved impressive results in both development and financial goals, yet funders remained skeptical about expanding their support.

“We had to do round after round of fundraising, usually for short-term funds, just to keep the business afloat. It got frustrating,” Ibrahim told the Harvard Business Review in 2012. “Financial institutions simply didn’t see Africa the way they saw, for example, India and other emerging market economies. They thought Africa was riskier as a market; they all but discounted the consumer populations as simply too poor to be good customers; and they didn’t trust local governments to support honest business growth.”

So Ibrahim and team explored a public listing to finance Celtel’s rapid growth, which prompted unsolicited offers to buy the entire company. In 2005, they accepted Kuwait-based Mobile Telecommunications Company (MTC’s) offer to buy six year-old Celtel International for $3.4 billion. This deal retained Celtel management for long enough to complete their mobile network rollouts across Africa without funding constraints.

As Ibrahim put it, “Ironically, the same banks that had insisted on our entire assets as collateral a few months before now agreed to finance that enormous transaction for MTC secured only — surprise, surprise — by those very assets. Despite all we had built, they considered an African company less valuable than a company in almost any other part of the world.”

After the Celtel exit, Ibrahim launched Satya Capital to help other African founders navigate these dangerous funding waters. His financing challenges inspired him to invest in other African entrepreneurs facing the same barriers his team had endured. When his former Celtel colleagues Moez Daya and Tsega Gebreyes finished their Celtel growth rollout, they left MTC and joined Satya Capital to help tech innovators build African economies. Their timing was perfect.

Africa’s Tech Ecosystem Emerges

When the U.S. financial services industry stalled out in 2008, it lost its luster for top-of-the-class African diaspora, so they began looking homeward — where some countries were reporting among the world’s highest economic growth rates. There, they saw emerging opportunities to build a more promising future for the continent’s youth.

Among them was Nigeria-born Funke Opeke, who left her telco executive office in New York to bring the broadband capacity to West Africa that empowered the youth whose innovations built some of Africa’s most successful fintech startups, including Flutterwave and Paystack. Their ingenious approaches resonated with Africa’s tech-savvy markets and international investors.

By 2024 African startups had emerged as sector leaders, founding payment platform ventures that sprinted past billion-dollar valuations, with asset-light burn rates much lower than infrastructure companies like Celtel. Since then, a host of African investors, like Satya Capital, have nurtured an army of young tech founders in a robust field where pan-African tech collaboration has taken root — supporting a home-grown ecosystem.

LoftyInc Allied Partners exemplifies this African-led ecosystem cycle. Its African-born partners co-founded Nigeria’s Wennovation Hub in 2010 and the Afropreneurs Angel Group in 2011, while most of them were still earning grad school degrees in the U.S. and U.K. They collaborated with African tech hub and business angel group founders, co-launching pan-African organizations that now represent hundreds of tech hubs and thousands of angel investors. LoftyInc’s portfolio companies gained global investor attention, which inspired me to partner with them to establish their Delaware-registered venture investing arm, LoftyInc Capital Management in 2017.

Hundreds of LoftyInc’s seasoned mentors matured into successful angel investors who invested in LoftyInc Capital’s seed stage venture capital funds as limited partners; their expertise enhances venture fund values and exits. LoftyInc’s private sector funds have not only created African jobs and prosperity, they have also returned top-tier profits.

Across the continent, another successful cycle has emerged, as African entrepreneurs, mentored by LoftyInc partners, have become seasoned angel investors, and some now manage their own seed funds, like Future Africa. They reinvest their profits into the next crop of venture teams, attracting new investors from an ever-widening network, which sustains their ecosystem.

An Ecosystem Built to Last

Will this ecosystem endure?

After Africa birthed its first billion-dollar ventures between 2019 and 2024, it suffered from the trifecta of COVID, the Nigerian government’s decision to allow the Naira’s value to float freely, and massive cuts in foreign development funding. Early global investors who stuck their toes in the water are watching closely, balancing potential risks against their fears of missing out. As they wonder whether to double down, local venture fund managers are now attracting African sovereign wealth and pension fund interest.

Three membership groups exemplify the scale of development impact this startup ecosystem has achieved:

• AfriLabs represents over 500 of Africa’s most robust tech innovation hubs, operating in 53 countries, supporting millions of aspiring entrepreneurs.
• The African Business Angel Network, ABAN, connects over 5,000 private investors and 75 angel groups in 37 African countries, along with the diaspora.
• The African Private Capital Association, AVCA, coordinates Africa-facing venture capital and private equity investors who collectively manage over US $1.5 trillion in assets.

These entities conduct independent industry research, advocacy and professional development programs. Their networking events create global opportunities to collaborate on training programs, strategic partnering and policy lobbying. Their African-led programs add value, reduce risks and build scale. They represent mostly local, U.S. and European interests, but Asian and Middle Eastern investors are gaining ground.

There’s no need to wonder whether this ecosystem can survive tough times and scale up: It already has. Its resilience reflects the massive, untapped growth potential in the startups that are driving African economic development, offering plenty of room for foreign funders who co-invest equitably, seeking mutual benefits that do not impede African leadership or economic development.

Marsha Wulff has pioneered African investing since 1997; she co-founded LoftyInc Capital Management in 2017 and authored African Ngenuity: An Investor’s Guide to a Vital Tech Ecosystem in 2025.

Photo credit: Tina Basson

Against that backdrop, African climate tech might look like a bright spot, with the sector raising roughly $5.66 billion since 2019 and a record $1.18 billion in 2025. Dig deeper, though, and the shine fades.

The problem is not just in the numbers. We analysed Africa’s broader climate finance landscape and found that beneath the totals, there is a thin layer of capital piling into a handful of companies and countries, while the capital stack that should be enabling the emergence of a more balanced market has missing layers that are deepening Africa’s climate finance crisis.

The symptoms of Africa’s broken climate finance system

Once you see the climate finance market as a system with multiple layers and different structural elements, the sector’s most-discussed problems stop looking like separate complaints and start looking like natural symptoms of the same systemic failures. Those failures include:

Deal volume falling as totals rise: Despite the growth in overall funding, transactions dropped to 151 in 2025 from a peak of 199 in 2022. More money going into fewer deals means larger cheques going to fewer, often larger and better-established companies. The shifting mix of financial instruments points the same way, with debt growing from just 8% of total climate tech funding in 2019 to 54% of this funding in 2025, favouring companies with more physical assets that can pledge these assets as collateral, and leaving earlier-stage, less asset-heavy ventures with fewer options.

The Series A cliff: Partech tracks how many seed-stage African startups convert to Series A. Conversion rates peaked with the 2019 cohort at around 24% after 12 quarters, meaning one in every four enterprises raised series A rounds within three years from the seed round. However, for the 2022 cohort, this graduation rate has dropped to 6.5%. This drop-off happened not because of a lack of good enterprises, but because of dwindling Series A support to early-stage enterprises. Founders who should be closing a $5 to $10 million round are instead stacking a third seed extension, onto bridge financing, onto a convertible note … until the cap table breaks. This is exactly what the fabled “missing middle” looks like from the entrepreneur’s perspective.

Sectoral lopsidedness: Energy investments dominate the climate funding market, while climate-vulnerable sectors are starved of capital. Clean energy, specifically off-grid solar and pay-as-you-go models, has attracted the majority of African climate tech equity, accounting for approximately 59% of 2024 climate funding ($423 million). Based on our analysis, e-mobility represents a further 15%, concentrated in Kenya and Nigeria. Meanwhile agritech, which dominates the seed pipeline with over 1,200 active startups across the continent, attracted only $88.6 million in equity funding in 2024 — a 38% year-on-year decline — before increasing its share marginally to $93 million in 2025.

Concentration by geography and scale: A significant part of climate capital flows to large infrastructure projects and a handful of proven names, most of them in energy and e-mobility. The same clustering shows up across the map. For instance, Briter’s CATAL1.5°C report shows that climate tech activity remains anchored in Kenya, Nigeria and South Africa, the markets with the deepest capital pools, clearest regulation and densest investor networks, with Kenya’s 2025 lead driven largely by climate megadeals involving d.light and Sun King. Similar trends were seen by the Climate Policy Initiative, which found that three regions, Eastern, Western and Northern Africa, together received 71% of total climate finance in 2021/2022, leaving Southern Africa and Central Africa with 9% and 8% respectively. This concentration is not merely a matter of investor preference: It reflects differences in regulatory clarity, in institutional capacity (e.g., the support of local lenders and climate-focused accelerators), and in DFI presence.

Foreign dependence: International investors made up 70% of the active VC investor pool in Africa in 2025, and the Climate Policy Initiative finds that domestic actors account for only about 10% of all African climate finance flows. Capital that’s foreign is capital that evaporates quickly when politics or currencies wobble.

Investor affinity bias: Half of the top 50 most-funded climate tech companies on the continent are led by expat founders. Among the sector’s top five most-funded startups, which between them have raised 44% of all African climate tech capital deployed since 2019, not one was founded by an African or a woman. When the pattern is set by foreign capital with foreign reference points, African founders with deeper market knowledge and stronger community relationships are screened out before the first meeting.

The currency mismatch: Most funds are dollar-denominated, while the businesses earn, and hold liabilities, in local currency. And as a report by Stears and the African Private Equity and Venture Capital Association found, the offshore-dollar system and the domestic-currency system “did not really come together as they developed.” Depreciation then quietly erodes returns — even on deals that perform.

Trapped domestic savings: Africa is not short on long-term money. Its pension funds hold enormous pools of capital, with government bonds making up roughly 90% of portfolios in Ghana and 50-60% in Nigeria and Kenya. The continent’s own savings are sitting in sovereign debt, walled off from the climate transition by regulation, by the currency mismatch, and by the absence of local-currency, appropriately sized vehicles to receive them. The top layer of the stack exists, but it has nowhere to plug into.

These symptoms are indicative of what a broken capital stack with a missing layer looks like. But what’s missing from the current capital stack, and what would a more effective system involve?

Understanding the Broken Capital Stack in African Climate Finance

A working climate finance market hands capital along a chain, with multiple links representing different types of finance at different stages. An effective capital stack needs at least four layers working in sequence: grants and concessional capital at the riskiest end (Layer 1); catalytic or first-loss capital that makes a deal investable (Layer 2); commercial equity and debt at scale (Layer 3); and local institutional money as the long-term holder of this debt and equity, via liquid and relatively less risky investments made through public markets (Layer 4). That hand-off of risk across these layers is the whole point of blended finance. In Africa, layers two and three are largely absent. The continent has grants and concessional capital at one end, and late-stage debt (e.g., mature companies funded by banks and DFIs) and infrastructure funding from governments and DFIs at the other. What is missing is the middle: the catalytic layer that converts a promising but unproven company into something a commercial investor will back, and the growth equity market that should sit just above it.

The chain also keeps breaking between links. For instance, blended finance is supposed to be the mechanism that unlocks commercial capital, and on paper the continent looks like a leader: It captured about 40% of global blended-finance transactions in 2024. But the actual dollars behind those deals are estimated at just over $6 billion, a sliver of the roughly $277 billion Africa needs in climate finance each year. The instinct in impact investing is to count deals and mistake them for capital, but it’s clear that the market is busy without being deep.

What’s more, blended finance in Africa often substitutes for private capital rather than catalysing it. Convergence’s data shows sub-Saharan Africa’s private-sector mobilisation ratio sitting around 1.8, suggesting that just under half of the commercial financing mobilised by each dollar of concessional capital in the region has come from the private sector, with the rest coming from development sector funders and philanthropic investors. That percentage sounds respectable until you read the finding alongside it: Deals in the region tend to close largely because development finance institutions and multilateral banks are investing in the fund, which suggests their presence may be crowding private money out rather than drawing it in.

When the catalytic layer becomes a substitute for commercial capital, the rest of the stack never forms. Commercial investors never learn to price the risk for themselves, because a development finance institution always shows up to absorb it. That, in our view, is the real reason blended finance underperforms in Africa. The problem is one of design, not goodwill.

The encouraging part: the stack can be built, and the problem can be fixed

On the plus side: The missing layers are starting, in places, to appear — and they show that the concept of a four-level capital stack can work when it is designed rather than improvised.

In March 2026, Persistent reached a first close on a $70 million Africa Climate Venture Builder Fund, deliberately structured with first-loss protection and a separate venture-building facility so that institutional investors — i.e., pension and insurance funds, and other domestic financial institutions — could participate in early-stage African climate without taking on early-stage African risk alone. The same month, FSD Africa Investments and Allied Climate Partners anchored the African Transition Acceleration Fund with $50 million in catalytic capital, aimed at moving projects toward bankability rather than standing in for commercial money indefinitely. Both are small in comparison to the need. But both use catalytic capital to build the next layer instead of replacing it.

Africa does not lack money, ambition or entrepreneurs; it lacks the structure that turns capital into deployed, durable investment. Closing that gap is the defining task for everyone in this ecosystem, and it will take catalytic capital that ignites commercial and local money rather than replacing it, vehicles built in local currency for the savings already sitting on the continent, and the patience to build each missing layer deliberately.

Gagandeep Bakshi is Senior Director, Impact Investing at the William Davidson Institute (WDI) at the University of Michigan. Santosh Singh is Managing Director, leading the energy and climate practice at Intellecap. Note: WDI is NextBillion’s parent organization.

Photo credit: wabeno

But one obstacle remains: how to front the capital required to meet a tsunami of demand.

It’s an all-too-common problem. Across Africa, founders are tackling some of the world’s most difficult development challenges with cleantech solutions that require significant capital expenditure. Nearly two-thirds of people in Africa work in agriculture, yet yields lag global averages — challenges that can be addressed by biodigesters and cold-storage units that boost productivity for farmers and small businesses. Rapid urbanization means 1.4 billion people will need clean, resilient and reliable transportation by 2050 — and in response, electric motorbike fleets now operate across the “boda-belt” (the East African motorcycle-taxi corridor). And carbon-removal technologies are crucial to slowing global warming, which is expected to hit African economies the hardest — a reality that has led to the proliferation of carbon-removal projects in the Rift Valley.

These ventures are critical commercial investments that are helping secure the future prosperity of Africa.

But though the continent’s emerging businesses are gaining traction in these and other sectors, with subsidies scarce, these companies must still show commercial viability. Many already do: Electric two-wheelers offer lower lifetime costs than petrol alternatives; solar irrigation can cut farmers’ energy bills by up to 80%; and Kenya’s geothermal baseload positions it as a promising future site for energy-hungry industries such as direct-air carbon capture, data centers and green-ammonia production.

Access to consumer finance has widened markets further. For instance, AI-enabled underwriting and mobile money platforms have put previously unobtainable products within reach of cash-poor households with no formal credit history. Lease-to-own solar kits, PAYGo pumps and per-use battery swaps — often with embedded financing built in — also generate the predictable, recurring revenues that attract venture investors.

Yet beneath this wave of innovation lies a capital architecture that is still too shallow to enable the scale these firms now require.

The capital challenge for cleantech ventures in Africa

Cleantech ventures are capital-hungry. Rolling out electric vehicle (EV) charging stations, distributing solar pumps or building biochar plants requires large upfront investment and substantial working capital. Equity can back early pilots, but it becomes painfully expensive as companies scale.

In asset-financed models like PAYGo solar, venture investors — sitting at the riskiest tier of the capital stack — absorb the brunt of demand volatility, currency devaluations and default risk. But the risk of default for products across the asset-based finance sector varies widely. Top-quartile PAYGo appliance operators post loss rates of around 11% at 48 months, compared with 27% among weaker players (according to our internal analysis at KawiSafi Ventures) — a gap shaped by market conditions, product mix and repayment cultures.

This spread raises perceived risk, making equity scarce. And even where equity is available, many funders cautiously price it for the weakest performers, making it expensive even for founders operating fundamentally sound businesses. As a result, equity funding for African cleantech deals has been drying up since 2022, especially at the seed stages of financing. Total funding fell 35%, from $296 million to $192 million between 2023 and 2024.

Debt has rushed to fill this gap. In 2025, cleantech attracted $627 million of debt financing, representing 38% of the continent’s overall debt funding and a 226% year-over-year increase from 2024. While the movement toward debt capital is a positive signal for the ecosystem and suggests a maturation in the size and types of deals getting financed, it remains highly concentrated within a few, large deals. And despite conventionally being a cheaper source of capital, it is being priced for equity-like returns. Debt deals between $250,000 and $1 million fell from 90 to 21 between 2022 and 2025, and where debt capital does exist, rates run from 10% to 27%, despite well-managed operators posting single-digit default rates.

Africa’s capital market is therefore not broken for everyone — but for the majority of cleantech ventures that have not reached scale, founders must choose between heavy dilution and expensive liabilities, stalling businesses at exactly the moment they need to grow.

The case for Off-Balance Sheet Special Purpose Vehicles

If equity and conventional debt fall short, what remains? Increasingly, African cleantech firms are turning to off-balance-sheet financing via special-purpose vehicles (SPVs) as an alternative means of securing upfront liquidity to finance growth.

In this model, receivables or usage-based revenues — typically the stream of small, regular installments customers pay for their devices (see below for full categorization) — are sold to a separately incorporated legal entity, the SPV. Since it’s a separate entity, it is legally isolated from the parent company’s balance sheet and shielded from its creditors in the event of insolvency. External investors then lend to the SPV against those ring-fenced customer cash flows, and the proceeds pass back to the parent company as upfront capital. The parent company continues to collect customer payments as before, but now it directs them to the SPV, and investors underwrite only those cash flows and not the parent company’s broader balance sheet.

The appeal of this financing structure is clear. Off-balance-sheet structures protect founders from dilution, improve leverage ratios and free up working capital. For investors, they provide short-duration (one to five years), diversified, asset-backed cashflows. For businesses, they mobilize private capital into climate-resilient solutions that would otherwise struggle to secure affordable financing.

However, not all SPVs are created equal. The success and underlying structure of an SPV depends on the predictability of future cashflows and the intended use of the funds.

In practice, three main models for generating future cashflows dominate: fixed-installment leases, usage-based assets and carbon-credits linked-cashflows. Each has its own mix of predictability, liquidity needs and foreign exchange exposure.

Source: Author interviews with founders.

Several African pioneers have already shown how powerful these structures can be. D.light, to take one example, has raised five SPV-based receivables facilities since 2020, totaling about $840 million — an inconceivable figure in the absence of off-balance sheet structures. This financing is expected to extend pay-as-you-go solar to roughly 10 million people across East Africa within two years.

Sun King has structured two SPVs to house landmark local-currency securitizations in Kenya, the latest a KES 20.1 billion ($156 million) issuance backed largely by commercial banks. The deal is expected to finance approximately 1.4 million solar products and smartphones in Kenya.

Elsewhere, Sistema.bio (a KawiSafi investee) reached a $53 million first close on FarmCarbon in March of this year, backed by BNP Paribas Asset Management Alts, British International Investment and Shell Foundation. The vehicle uses forward carbon-credit purchase agreements to pre-finance biodigester deployment, channeling capital directly to smallholder farmers. FarmCarbon aims to mobilize more than $1 billion over the next decade and finance over 90,000 Sistema.bio digesters across Africa, Asia and Latin America.

Towards deeper capital markets

While SPVs have enabled venture capital investors (VCs) to back firms with credible unit economics and proven demand, the foundations for this financial innovation remain fragile. Currency volatility, uneven repayment behavior, illiquid capital markets and a thin voluntary carbon market all pose systemic risks. SPVs can help, but only as part of a broader shift towards deeper capital markets.

For now, most SPVs remain costly, specialized and hard to scale. Arrangement fees — paid by capital-hungry companies to investment banks — can run into the millions. And unfamiliarity forces investors to demand heavy over-collateralization — i.e., more receivables sold into the facility than the value of securities issued — as well as additional credit enhancements such as cash reserves and first-loss tranches. Demands for consistent, auditable and standardized data on the underlying receivables performance adds further burden. Together, these frictions make receivables financing prohibitively expensive for all but the largest originators, and the broader movement risks stalling.

Yet these early efforts point toward a much bigger prize: country-level receivables utilities — pooled facilities organized by asset type — that buy standardized portfolios from multiple originators and issue asset-backed securities at scale. Designed prudently, such platforms promise economies of scale, genuine diversification and access to domestic institutional capital through well-structured asset-backed securities, ideally denominated in local currency.

The demand for this sort of platform is there, and Mozambique’s Rooftop Solar Financing Facility, announced in early 2025, points to how this can evolve: The facility is a $20 million vehicle purchasing PAYGo receivables from several different solar distributors, and recycling its amortized capital into working capital for firms too small to tap bank loans themselves.

History warns investors against bespoke complexity. Social impact bonds have not yet scaled to their potential due to high transaction costs, while the sub-prime mortgage crisis in 2008 showed how opacity, adverse portfolio selection and inconsistent reporting can destabilize markets and destroy trust. Receivables financing needs to avoid both traps. Standardized contracts and liability agreements, robust credit risk management, pre-qualified debt servicers and standardized rules for how cashflows flow to investors could help cut due diligence costs and turn one-off structures into a repeatable asset class. Additionally, shared data schemas  — i.e., common templates for how project and performance data is recorded and reported — could ensure that investors, companies and rating agencies are all working from the same information in the same format, rather than conducting bespoke data collection for each deal. Initiatives such as PAYGo PERFORM are beginning to build the comparability required for investors to approach these portfolios with confidence.

But even then, risks persist. “Diversified” pools can still move together during currency shocks, global supply chain disruptions or elections. Foreign exchange exposure remains even with local-currency issuance, when supply chains touch the dollar or renminbi. Stricter know-your-customer (KYC) requirements may sideline informal customers, and divergent securitization laws limit cross-border pooling.

The path to deeper capital markets therefore lies in the plumbing: transparent data, enforceable legal frameworks, and predictable and consistent debt servicing. With these foundations, receivables financing could move from a niche innovation to a scalable asset class able to attract international and domestic sources of institutional capital.

The case for cautious optimism

Assuming continued growth, receivables financing is unlikely to close Africa’s $277 billion annual climate-finance gap on its own. This asset class could scale to low multi-digit billions annually from an estimated $708 million in 2023 — modest at the macro level, but potentially transformative for off-grid solar, EV charging and productive-use assets.

The longer-term goal is the shift from VC-funded pilots to commercial, infrastructure-like growth. To realize this growth, domestic pension capital will need to be mobilized. These pools remain heavily weighted towards government bonds, and they are largely absent from private-sector risk today. Repeated issuance, proven performance histories and consistent transparency, granularity and discipline could gradually draw these pools of capital in. Done well, off-balance-sheet financing could become a cornerstone of Africa’s cleantech transition.

Julia Lawson-Johns is an MBA candidate at Harvard Business School, focused on the intersection of climate innovation, financial inclusion and the energy transition; Amar Inamdar is an investor, scientist and entrepreneur, and the Managing Director of KawiSafi Ventures.

Photo credit: arthon meekodong

Yet these critiques and new approaches typically come from impact investors and intermediaries themselves, not from entrepreneurs — who still often lack the ability to provide feedback on common investor practices, even when the downsides of those behaviors are widely acknowledged across the sector.

As a result, founders of mission-driven companies have no choice but to live with the consequences of how impact investing is practiced today. Founders pitch to investors, answer due diligence requests, and then wait. They wait for decisions and, if the decision is positive, they wait for the disbursement. After the disbursement they manage investor communications and reporting, often navigating the complexities of multiple impact measurement and management indicators, data collection methodologies and data collation platforms. They may or may not receive the necessary non-investment support they need from their investors, including access to networks.

Founders in Focus: The State of Impact Capital, a research initiative by Acumen and the William Davidson Institute at the University of Michigan (WDI), aims to change this dynamic and shift power towards entrepreneurs and companies.

The research collects data via a survey that centers the experiences of founders and C-suite executives across Africa, Asia and Latin America who have raised capital in 2024-2025. WDI and Acumen built this survey from conversations with founders and investors and a brief yet focused literature review. Every question targets real pain points that entrepreneurs — and pioneering impact investors familiar with their challenges — shared with us during our survey design phase, including issues like timeliness, communication, network access, and the burdens of due diligence and impact reporting. Founders in Focus also invites entrepreneurs to rate their investors on these key operational practices and identify gaps in non-investment support.

This research is unique, in that it aims to flip the script on the typical investor/entrepreneur feedback loop. Instead of focusing on what entrepreneurs need to do differently to attract investment, it gives founders the opportunity to capture their experiences with investors — both the good and the bad — in a structured manner that can generate rigorous and independent evidence and inform actual change in the investing ecosystem. Unlike internal investor feedback forms that can lead to biased results and that are typically limited to an individual investor’s portfolio, this multi-sector and multi-geography survey is run independently by WDI. We are a solutions-driven organization committed to maintaining rigorous methods, sharing our findings and connecting key stakeholders in the entrepreneurship ecosystem. We designed our survey to produce trustworthy, comparable data that aims to reveal gender-, geography-, and sector-level patterns. 

By pooling many entrepreneurs’ lived realities, we aim to move the conversation beyond isolated stories to highlight patterns that investors, enterprise support organizations and intermediaries can act on, including good practices they can replicate. 

So, if you’ve had a great investor, tell us why! But if you’re dealing with excessive data requests, harsh terms and complex reporting requirements, coupled with radio silence from the investor whenever you seek clarification or support, tell us that too. 

Founders, now is your chance to raise your voice and spark meaningful change. Instead of having yet another one-off, private conversation about the woes of raising impact capital, then hoping that change will come, take 20 minutes to add your views to this survey. WDI ensures that your survey responses will be anonymized and your confidentiality safeguarded from all investors, including Acumen. During analysis, we will aggregate your data with data from your peers, and we will only generate private, investor-specific “report cards” when three or more investees provide feedback on the same investor, which helps further ensure anonymity.

The survey is open through June 26. Add your feedback today, and stay tuned for more updates as we assess the resulting data: We’ll share insights from the survey (excluding the ratings received by individual investors) in the coming months.

🔗 English survey: https://umich.qualtrics.com/jfe/form/SV_b7bGY7obe1HMWjk

🔗 Encuesta en Español: https://umich.qualtrics.com/jfe/form/SV_cNK5EPdH1Yp6PlA

Yaquta Fatehi is a program manager with the Impact Measurement and Management team at the William Davidson Institute at the University of Michigan (NextBillion’s parent organization).

Photo credit: ThitareeSarmkasat

After transitioning from that environment into the development sector — and stepping into roles that involved planning, supporting and assessing not-for-profit initiatives across seven countries in South Asia — I noted a jarring structural anomaly. Whether these projects were driven by civil society, UN agencies, corporate social responsibility (CSR) funds or government entities, a feedback loop was almost entirely absent. The reason for this difference is simple: In a traditional business, the consumer and the payer are the same entity. In the non-profit world, the payer (the donor) is entirely disconnected from the consumer (the beneficiary). Because the beneficiary has no financial leverage, they cannot vote with their wallet to signal whether a service is actually effective.

This severed feedback loop exposes the core vulnerability of the global development ecosystem. Since its efforts are not anchored to a revenue-generating model, both the concept of financial sustainability and the measurement of actual impact remain significantly hazy. This challenge is compounded by the sheer cascade of actors involved in bringing services to the beneficiary. In many countries, governments face a severe deficit in last-mile operational capacity. To bridge this gap, the state routinely leans on stretched, non-specialized resources or ad-hoc volunteer networks to execute core public services.

In India, for instance, public agencies frequently draft rural schoolteachers to manage massive national exercises like voter list revisions and election logistics, or rely on commission-based volunteers for complex public health outreach. Similarly, across sub-Saharan Africa and parts of Latin America, governments heavily outsource the delivery of maternal healthcare tracking and agricultural extension programs to underfunded community volunteers and non-governmental organizations (NGOs).

This logistical constraint is even more pronounced for international agencies and overseas donors. Because UN agencies, foundations and high-net-worth philanthropists function primarily as funders and development architects, they must plug into these same fragmented public service cascades, inheriting the exact same structural vulnerabilities as national governments. When the frontline actors at the delivery end of these cascades lack the specialized professional expertise, formal institutional support or intrinsic motivation required for such exhausting tasks, the system buckles — and both the quality of the actual service delivery and the reliability of ground-level reporting are fundamentally compromised.

While a decentralized network that leverages NGO support is essential for reaching remote geographies, this need has inadvertently fostered a flawed assumption: that because these communities are resource-scarce, the intervention model must rely on perpetual grants. But even at the furthest edges of the delivery chain, development cannot remain a permanent handout. Funding should act as a starter motor, strategically deployed to ignite the internal economic and social forces that allow a community to sustain itself over time.

The development sector widely acknowledges this necessity. Yet faced with the immense complexity of engineering true local independence, the system often defaults to discussing “financial sustainability” in theory rather than funding it in practice. True risk capital earmarked for building local government ownership, community fee-for-service models or market integrations remains rare. 

Ultimately, the sector faces a telling litmus test: How many community initiatives launched over the last few years would survive if external funding were paused tomorrow?

The survival tactics of NGOs

Across the Global South, mid-level and community-based NGOs often function as the default operational conduits for reaching both remote rural areas and rapidly expanding, marginalized urban populations. 

While they enter the space driven by deep empathy and localized mission statements, they must eventually navigate a highly distorted funding system. Because they are entirely dependent on short-term, project-based grants, organizational survival becomes an ongoing negotiation. This creates a profound structural paradox: In the relentless scramble to survive, NGOs are routinely forced to compromise their strategic sustainability. 

To navigate this flawed incentive structure, NGOs typically lean toward one of three distinct tactics:

• The Articulators: These organizations excel at communication and can translate chaotic field realities into digestible narratives. However, to survive, they often master the art of donor subservience. Their primary skill becomes speaking the exact language institutional donors want to hear. They curate showcases and generate narratives that make funders feel their capital was well spent, often regardless of whether the intervention achieved actual, long-term benefits for the community.
• The Gap Fillers: These implementers possess incredible grit and the crucial operational capacity to work in the most challenging areas — whether in deep rural pockets or urban slums. They take on the arduous, often thankless assignments that governments and larger multilateral donors are either unable or reluctant to handle directly. Yet in their compulsion to survive, they become trapped as permanent, inexpensive labor for the system, endlessly delivering services without the bandwidth, funding or time to challenge the root causes of the issues that need to be solved.
• The Data Providers: These entities have strong analytical capabilities and exist almost entirely to undertake studies, triangulate data and publish reports. Their strength lies in their ability to rigorously document the challenges of the sector. However, driven by the need for continuous research grants, their function morphs. Many of them become dependent on providing data and case studies that advance their funders’ deeper agendas, rather than having the financial freedom to pursue disruptive research that might eliminate the need for the intervention entirely.

While no single funding model defines an NGO, the deeper realities of the funding system force a vast majority to let these tactics dictate their operations.

Why financial sustainability remains a misnomer

However, while they may help NGOs keep the lights on, these survival tactics largely reduce the concept of long-term financial sustainability to a buzzword. In the real world, these mechanisms perpetuate six deeply entrenched, systemic issues:

• The impact-measurement disconnect: Standard project planning frameworks are fundamentally ill-equipped to track long-term success. While they excel at measuring immediate outputs — such as the number of workshops held or clinics built — there is rarely a rigorous mechanism to quantify actual sustainable impact and directly correlate it with the project’s activities. The development sector often lacks the tools to isolate whether an intervention permanently altered a community’s trajectory or merely provided temporary relief.
• The grant cycle Catch-22: There is a severe temporal mismatch between funding logistics and field realities. Most projects are tightly bound to one-to-three-year funding cycles. Even when extended, they are mostly treated as new interventions, with the mandatory introduction of a new budget, remapped timelines, etc. However, genuine impact — whether behavioral change, economic growth or systemic health improvements — rarely materializes within a three-year window. Organizations cannot prove systemic impact without sustained funding, and cannot secure sustained funding without proving this impact.
  
  This Catch-22 is compounded by the endline fallacy. Endline evaluations are typically conducted as the final activity within the grant period to produce an end-of-project report. Assessing a project’s long-term survival on or before the funding ends is a logistical absurdity. It is simply too early to know whether the intervention actually worked well enough to bring about sustainable outcomes.
• The straitjacket of donor approvals: The system inherently penalizes agility. Once a proposal is approved and funds are committed, the intervention is locked into a rigid framework. Field realities are highly fluid, yet there is shockingly little scope for multiple course corrections or strategic value-adds.
  
  This rigidity is driven by a combination of logistical lag and institutional fear. Logistically, the time it takes for ground-level monitoring data to travel up the reporting chain to the donor’s desk means that by the time a required pivot is identified, it is often too late to implement timely tweaks. Institutionally, this inflexibility is reinforced by the ecosystem’s power dynamics. Many NGOs hesitate to even propose necessary course corrections, fearing that donors will interpret the request as a sign of poor initial planning or implementation weakness.
• The silo effect and resistance to collaboration: Because a majority of community-level NGOs are fiercely competing for a severely limited pot of donor funds, the ecosystem inherently discourages true partnership. When collaborations are necessary, they are mostly designed to satisfy donor consortium requirements on paper rather than to integrate services on the ground. In reality, implementers operate in protective silos, leading to duplicated efforts and the complete loss of the systemic advantage that a truly collaborative footprint would provide. Consequently, even when isolated projects achieve their immediate goals, the sector fails to build the cumulative momentum necessary to alter the broader economic landscape.
• The trap of parallel infrastructure: The sector routinely equates financial sustainability with building isolated, parallel systems. Driven by the need to showcase direct, branded impact, many NGOs burn through millions in grant capital trying to run their own private charity schools, independent clinics or proprietary supply chains. This approach ignores the massive infrastructure already established by the state. When the grant cycle inevitably ends, the NGO structures collapse because they were never integrated into a permanent macroeconomic or governmental framework. True financial sustainability requires leveraging and improving existing state or market systems, not competing with them using fixed-term grants.
• The overhead myth and the capacity deficit: Finally, the absence of a market-driven bottom line distorts both measurement and management. Without the ruthless clarity of revenue, impact indicators — both qualitative and quantitative — become rather malleable, naturally conforming to fit the desired narrative of the grant rather than the reality on the ground. Compounding this lack of accountability is the sector-wide conviction that generating a surplus or factoring in realistic administrative and overhead fees above a meager 5 – 10% is somehow unethical.
  
  This artificially imposed poverty cap makes it nearly impossible for small and medium-sized implementers to attract or retain sharp, high-tier management talent. Furthermore, NGOs — especially the medium and small ones — desperately need rigorous training in business management, supply chain logistics and financial modeling. Yet unfortunately, the standard donor norm is to exclusively fund direct implementation. At best, donors sanction a negligible fraction of project funds for routine capacity building, which rarely goes beyond basic administrative compliance.

To break this cycle of self-preservation, the sector does not need better grant proposals with tighter logical framework templates and better compliance metrics. It needs a whole new grant deployment model that treats self-reliance not as an aspiration, but as a mandatory financial milestone.

Proposing the ‘Diminishing Grant Framework’

To break the cycle of dependency, we must rethink how to calculate the return on investment of grant capital. We cannot expect small and medium-sized implementers to spontaneously adopt self-sustaining business models if the capital funding them continues to reward traditional, box-ticking aid.

To ensure that impact is real, substantive and capable of scaling, we must artificially engineer a financial feedback loop between the donor, the implementer and the outcome. This could be achieved through a singular, overarching structural shift: an approach I call the “Diminishing Grant Framework.”

In this framework, donors would need to abandon the static, all-or-nothing funding cliff. Instead, capital would be phased to steer projects toward “Impact Breakeven” — the precise point in the full project lifecycle where the intervention’s generated value (the monetized financial worth of its services, local cost-sharing or integrated revenue streams) completely replaces grant dependency. This disciplined tapering would allow donor funding to safely recede to absolute zero without collapsing the intervention. 

The methodology of the framework

Expecting a complex, community-level intervention to achieve this Impact Breakeven within a three-year window is often an operational impossibility. Furthermore, institutional donors are rarely willing to commit capital beyond a typical mid-term duration horizon without first testing the implementer’s capacity and the project’s worth. 

Therefore, the Diminishing Grant Framework would need to be structured around realistic, data-backed milestones rather than arbitrary deadlines. Under this model, an implementing NGO would calculate the practical, long-term timeframe required to reach financial sustainability in the true sense. The funding would then be structured into a rigorous Phase 1 (typically three years) delivered on a diminishing scale — for instance, the NGO would receive 100% of its core funding in Year 1, ideally tapering it down to around 70% by Year 3, depending on the nature of the project. (In my work managing development projects, I have seen that a 30% reduction over three years serves as the ideal operational stress test: It is deep enough to force the NGO to build and test its resource-generation machinery, but gentle enough that it doesn’t cause the project to collapse before it can mature.)

To survive this tapering of grant capital, the implementer would be categorically required to pitch a strategy that generates other resources to fill the widening funding gap. The key goal would be for the total value and footprint of the project to continue to grow even as the donor’s financial footprint recedes.  

To secure this initial capital, the NGO’s grant proposal would need to be designed in distinct, phased horizons. First, the proposal would need to lay out a highly detailed roadmap for Phase 1 that culminates in a logical interim milestone. This would ensure that even if subsequent funding never materialized, the initial intervention would leave behind a functional, viable asset rather than a collapsed half-measure. 

Second, if Impact Breakeven cannot realistically be achieved by the end of Phase 1, the NGO proposal would be required to include an outline of Phase 2 built on the outcome of Phase 1. This outline would need to explicitly illustrate how the project is envisioned to proceed and scale if conditional funding for Phase 2 is eventually unlocked.

As Phase 1 progresses, the NGO would be expected to use real-time field learnings and emerging market opportunities to turn that Phase 2 outline into a detailed, actionable follow-up proposal before the initial three-year funding cycle concludes. By proving the concept and demonstrating the capacity to generate partial, self-sustaining revenue during this initial period, the NGO would vastly de-risk the intervention.

The transformative change expected

If some of the larger donors institute this model, it would immediately trigger a domino effect across global development, systematically dismantling the entrenched gaps in how the sector operates. These impacts would include:

• The mandatory monetization of impact: As grants gradually diminish, NGOs would be pushed out of their comfort zones. They would no longer be able to rely on their standard activities to justify their existence. Impact would transform from malleable jargon into a verifiable economic asset. NGOs would be forced to establish rigorous, direct cause-and-effect chains, proving how specific project activities translate into monetized value — whether that is increased earnings for the beneficiary, recruitment fees for placing skilled youth in jobs, or the quantifiable cost-savings in public healthcare due to induced behavioral change. If the savings generated for public systems and priorities are substantial, they can allow the NGO to propose that a project grant be transitioned to longer-term government funding.
• The death of the one-year funding cliff: This framework would phase out the era of short-sighted, one-year projects. Even in scenarios where a donor is structurally limited to providing only a single year of funding, the framework dictates that the implementing NGO must present a multi-year strategy from the outset, articulating exactly how resources for subsequent years will be generated, and from whom. This pressure would, in fact, serve as the much-needed catalyst for genuine donor-donor, NGO-government and NGO-NGO collaborations. More importantly, the blueprint for these collaborations would read more like a multi-year business plan than a traditional charity project.
• The eradication of silos and parallel infrastructure: The NGO sector has market dynamics, intense competition and capital crunches just like the corporate world. The difference is that corporations have learned to use strategic alliances to circumvent these barriers, while NGOs very often remain trapped in their siloes. That’s why, under this framework, the need to generate shared value and fill the funding gap would force organizations to abandon the urge to build isolated, proprietary charity systems. Instead, they would have the incentive to work towards dovetailing their activities with those of others, while tapping existing infrastructure to engineer win-win, cost-effective integrations. Apart from leveraging public health and government education systems, this could even include partnering with the sales and distribution networks of corporate entities trying to tap into new rural markets. 
• New demand for top-tier development management: This kind of rigorous programmatic and financial planning cannot typically be executed by traditional charity managers. The framework would necessitate a new caliber of high-tier leadership capable of planning, pitching, evaluating and managing complex, revenue-generating supply chains. This pressure would finally break the sector’s overhead myth: Larger NGOs would be forced to build this expertise into their in-house skill sets, while smaller grassroots organizations would find smart ways to engage specialized consultants to navigate the transition. Ultimately, this would open an entirely new professional arena — likely prompting the emergence of specialized curricula in business schools to train this new generation of NGO managers.
• Redefining the timeline of evaluation: Finally, the framework would force a change in donor behavior, permanently correcting the project endline fallacy. Because the true monetized impact of incremental value can only be measured over a realistic, extended period, donors would have to abandon the practice of evaluating financial sustainability before the grant ends. They would be pushed to rethink endline evaluations, funding them as mandatory follow-ups or standalone assessment projects years after the initial capital was deployed.

The world’s most pressing systemic challenges cannot be solved by organizations that are perpetually teetering on the edge of financial suffocation, propped up by short-term grants. If we are serious about achieving actual financial sustainability and clearly measured impact, we must accept a hard truth: The development sector does not need more charity. It needs a fundamentally new architecture.

Rajat Ray is a Social Innovations Advisor with over 40 years of cross-sectoral experience spanning multi-laterals, international civil society organizations and multinational advertising.

Photo credit: nito100

The World Bank defines DPI as “an approach to digitalization focused on creating ‘foundational, digital building blocks designed for the public benefit.’” Within this broad umbrella term, our research has focused on two of the three broadly accepted categories of DPI: instant payment systems (IPS) and open finance (the third category is digital identity). IPS are networks which consumers can use to send payments in close to real time across financial institutions, while open finance networks enable consumers to share their transactional financial data with other firms in a secure way that’s under their control, in order to access other services such as credit.

Our conclusion from researching IPS and open finance schemes around the world suggests that Nilekani’s dictum is incomplete. DPI may not require deep pockets — but it does require long ones. In other words, sustainability at scale depends less on upfront funding than on how ongoing costs are allocated over time. This makes DPI sustainability fundamentally a governance issue, centered on how pricing policies are set and adapted to distribute long-term costs across an ecosystem in a credible way.

Three levers of DPI sustainability

Across IPS and open finance, three policy levers determine whether DPI can be sustained over time:

• Pricing rules — who pays, how much and under what conditions
• Participation mandates — who must join and contribute
• Governance and ownership — who sets and adjusts the rules

These levers operate together to allocate costs across three groups: participants, end users and government. Sustainability arises when this allocation remains credible over time — especially as systems scale, risks evolve and new use cases emerge.

From deep pockets to long pockets

The expansion of IPS and open finance has been rapid: More than 120 instant payment systems are live globally as of 2025, and close to 100 jurisdictions have made commitments to open finance.

The upfront costs of these deployments, while not trivial, are typically manageable, and usually involve mainly the capital expenditures to design the initial system and develop related software and governance systems. IPS infrastructure can cost upwards of a few million dollars, and early open finance implementations have ranged from single-digit millions to tens of millions annually. These amounts are relatively modest: To put this in perspective, a single large bank in India such as ICICI or SBI spends hundreds of millions of dollars each year on IT, and large tech companies globally are investing trillions in new data center capacity. In this context, Nilekani’s observation still holds: DPI indeed does not demand deep pockets at the outset.

But focusing on upfront costs obscures the real challenge. DPI systems generate ongoing expenditures that grow with scale and usage. These include:

• Continuous investment in system capacity and resilience
• Rising costs of fraud detection and mitigation
• Costs of regulatory oversight and dispute resolution
• Expansion to new use cases and sectors

Experience from DPI systems such as Brazil’s Pix shows that fraud management alone can become a major and rapidly increasing cost for the ecosystem. These expenditures are distributed across operators, participants and regulators — and they persist indefinitely.

This is what we mean by long pockets: not the capacity needed to finance large initial funding, but credible mechanisms to finance a long tail of costs over time, while maintaining incentives for participants and trust among users.

Who pays for DPI in the long-term, and how?

If sustainability depends on long-term cost allocation, the key question becomes: Who pays, and how?

Historically, retail payment systems — the infrastructure that enables the transfer of electronic funds — operated on a “club good” model: Banks funded them as a collaborative initiative from which they also extracted benefits. Banks funded the shared infrastructure — the central IT switching software, and the hardware and interfaces used by participants — collectively, and they expected to recover costs through fees charged to users. This model aligned incentives: Banks had an incentive to keep the costs of the infrastructure low, but also not too low, since they were funding it. It also relied on a relatively closed ecosystem.

Over the past decade, that model has shifted. The entry of non-bank players — fintechs and mobile network operators — has made voluntary cost-sharing more complex, while incumbent banks have often been slow to collaborate. In response, central banks in many countries have taken a more active role: mandating participation among certain types or sizes of financial institution, shaping pricing rules, and in some cases owning or operating IPS infrastructure directly.

At the same time, in many markets outside of India, development partners have supported early-stage DPI through concessional funding, and by providing open-source solutions covering the suite of interoperable services involved in DPI — both of which help to lower the initial barriers to setting up this infrastructure.

This combination of public leadership and expanded participation has often been accompanied by explicit pricing mandates, especially for end users. In a sample of IPS launched since 2016, more than half include such mandates, with a majority of those setting consumer prices at zero.

Open finance has followed a similar trajectory. Early regulated open finance or open banking regimes typically prohibited charging for data exchange. Instead, governments and large financial institutions funded the initial implementation. Over time, however, regulators have begun allowing more diverse pricing approaches — especially as usage scales, industry and consumer benefits are demonstrated, and costs become more significant.

Pricing as the core allocation mechanism

Because no DPI system is truly “free,” pricing policy is ultimately about allocating costs across stakeholders. This is the central governance challenge for DPI.

Three broad pricing approaches are emerging:

• Zero-price models, often supported by government subsidies or cross-subsidization by financial institutions with other income streams
• Cost-recovery models, where participants or users pay directly
• Hybrid models, combining free and paid elements across use cases or thresholds

Each of these approaches reflects different policy priorities and trade-offs.

In IPS, zero-price models can accelerate adoption, but they may favor large incumbents able to cross-subsidize, or well-funded entrants. Cost-recovery models may improve sustainability, but they risk excluding smaller players. Hybrid approaches — such as offering person-to-person payments for free if the amount falls below a certain threshold, while charging merchant fees — attempt to balance these objectives.

In open finance, similar patterns are emerging. Basic data access may remain free to promote innovation, while premium APIs offering high-volume usage or additional data or data analytics services may be priced at fixed rates or at open-market pricing. These high-volume users include financial service providers (e.g., lenders) that buy greater access to the open finance scheme, which lets them access a borrower’s full transactional data across other providers in the scheme as part of a credit scoring process authorized by the customer: They have both a business case for this data, and enough revenue to pay for it. These models may present challenges to larger institutions due to set-up costs, but they increasingly aim to distribute costs more equitably as ecosystems expand.

Convergence of IPS and open finance

IPS and open finance are often discussed separately, but in practice they are converging. Payment initiation is now a core feature of many open finance systems, while data exchange underpins advanced payment use cases.

This convergence creates new possibilities for cross-subsidization in DPI:

• Revenues from payments can support data infrastructure
• Charges for data access can help fund payment systems

Different jurisdictions around the world are experimenting with different approaches to this cross-subsidization. In some cases, payment initiation is free while data exchange may be monetized; in others, the reverse applies. Hybrid models are increasingly common, reflecting local policy priorities and market conditions.

The key insight is that financial sustainability is no longer confined to a single system: It is a property of the combined DPI ecosystem.

Sustainability over time: adapting the pricing model

A critical lesson from open finance is that pricing models must evolve as systems mature. In the early stages, concentrating costs on governments and large incumbent financial institutions or tech platforms may be the simplest way to launch a system. But as participation broadens and transaction volumes increase, this approach becomes less viable — and less equitable. Over time, costs must be distributed more widely across participants and use cases.

This requires governments to build adaptive mechanisms into their DPI that allow pricing and funding arrangements to change. Therefore, a sustainable DPI typically combines:

• A credible, long-term (five year +) funding horizon, giving participants confidence in system continuity
• Diversified funding sources, reducing reliance on any single group
• Adaptive pricing rules, capable of responding to growth and new risks

These features emphasize adaptability: Static models — whether fully subsidized or rigidly cost-recovery based — are unlikely to remain effective as systems scale.

A mindset shift for regulators

If pricing is central to the sustainability of this infrastructure, then DPI requires a shift in regulatory thinking.

In networked sectors such as electricity and telecommunications, regulators routinely set tariffs to balance investment, efficiency and access. In contrast, financial regulators have traditionally focused on risk management and consumer protection, often avoiding direct involvement in pricing.

DPI challenges this approach. Because pricing rules shape adoption, competition and long-term viability, they cannot be left entirely to operators or market forces. Nor can they rely indefinitely on implicit or explicit subsidies.

This raises institutional questions. In some contexts, financial regulators may need to develop new capabilities to oversee pricing and market structure. In others, there may be a case for involving competition authorities or establishing specialized digital economic regulators.

The appropriate model will vary by country, but the underlying requirement for DPI regulation is clear: Credible, legitimate governance must underpin pricing decisions over time.

Conclusion

The distinction between deep pockets and long pockets in DPI is important to understand, as these systems continue to gain traction globally. The challenge is not simply to fund initial deployment, but to establish durable mechanisms for allocating costs as systems grow and evolve.

This makes sustainability a core question of governance: how pricing rules are set, who participates in funding, and how these arrangements adapt over time. The answers will differ across countries, reflecting policy priorities and market conditions. But the question itself can no longer be avoided.

Without long pockets — and the governance structures to manage them — DPI cannot sustain the scale, trust and innovation on which its promise depends.

David Porteous is the founder and CEO of Integral: Governance Solutions; Rafe Mazer is the Director of Fair Finance Consulting.

Photo credit: metamorworks

The financial institutions serving these communities face their own barrier: limited access to lower-cost capital. Without it, they cannot grow their water and sanitation loan portfolios or offer the rates that make borrowing genuinely affordable for households.

Blue bonds address this issue directly. They raise capital from institutional investors, including pension funds, insurers and mutual funds, and channel it through a development bank to local lenders. When designed effectively, they can reduce a lender’s cost of funding, allowing them to offer lower interest rates on the household loans that can put toilets, water tanks and safe water connections within financial reach for more families.

In my work at Water.org, I engage with financial institutions across Latin America, and I’ve seen how steady, well-managed lending systems create space for new ways of financing household water and sanitation solutions. Peru’s two recent blue bond issuances illustrate this clearly. These transactions were built on lending practices that had matured over many years, shaped by the decisions households make every day, and by the approaches used by the financial institutions that serve them. Water.org supported this process by working alongside partners to identify the water and sanitation needs of the communities they serve, developing loan products to meet those needs, and helping to build the bridge between those local lending systems and institutional capital markets.

For more than a decade, we have partnered with Peru’s network of Municipal Savings and Credit Banks (Cajas Municipales de Ahorro y Crédito, or CMACs) to strengthen the systems that help people finance water solutions at home. This support has included training loan officers, refining products so payments align with household budgets, and improving how institutions track and report loan performance. As these systems became stronger, CMACs saw steady demand: Families regularly borrowed to install toilets, showers, water tanks, and household water or sanitation connections. These borrowing patterns created the kind of consistent, well-performing lending portfolios that investors look for.

Development banks play a particularly important role in this structure. Most CMACs are too small to access capital markets directly, and a development bank’s credit rating and established investor relationships help secure more favorable terms than CMACs could obtain on their own. By the time COFIDE (Corporación Financiera de Desarrollo), Peru’s national development bank, began exploring a bond issuance to support this lending, the foundations were already in place. The CMACs had established, well-performing portfolios, and the Peruvian Federation of Municipal Savings and Credit Banks (Federación Peruana de Cajas Municipales de Ahorro y Crédito, or FEPCMAC) had coordinated system-wide reporting practices that made loan performance clear. The opportunity was to scale what was already working, bringing in more affordable capital so these lenders could expand their lending and lower the interest rates families pay on water and sanitation loans. Together, these elements directly informed the structure of Peru’s first blue bond, and created the clarity investors needed to participate with confidence.

The First Blue Bond Issuance: Meeting the Market Where It Was

In September 2024, COFIDE issued a one-year, S/100 million blue bond in Peru’s national currency. Issuing in local currency was a deliberate choice: It matched the currency of the underlying household loans, avoiding the foreign exchange costs that come with borrowing internationally, and allowed CMACs to benefit from more favorable interest rates than international markets would have offered. COFIDE charged a below-market structuring fee — 25 basis points on the first bond and 20 on the second, compared to the typical industry starting point of around 1% — and passed the full benefit of its financing rate through to the CMACs without adding a spread.

Investor response was enthusiastic: Demand reached S/217 million against a maximum offering of S/100 million, meaning the bond was oversubscribed by more than two to one, with pension funds, public sector entities, mutual funds, insurers and brokers all participating.

COFIDE, working with FEPCMAC and Water.org, designed the bond’s structure around the preferences of Peru’s domestic investors. Initial plans called for a three-year instrument, but pre-launch feedback from investors gathered through a roadshow in Lima pointed toward a shorter term. The response confirmed that investors recognized the strength of what Peru and its partners had built: The partnerships between COFIDE, the CMACs and Water.org had created a lending system that was transparent, consistent and ready for capital market financing.

What made that response possible was the quality of the lending portfolios behind the bond. Years of household-level financing through the CMACs had created a consistent data record — including loan types, volumes and repayment patterns — that COFIDE could present transparently to investors. Because CMACs already tracked this information in detail, investors could see clearly how the capital raised would be used, and what kind of borrowers it would reach.

This issuance expanded what CMACs could offer households. With lower-cost capital, institutions could reduce interest rates on water and sanitation loans, making it more affordable for families to install these solutions. Even a modest reduction in interest rates can make the difference between a family moving ahead with a toilet or water connection — or continuing to wait.

The Second Blue Bond Issuance: Continued Confidence

In October 2025, COFIDE returned to the market with a second blue bond, sized at S/120 million, and oversubscribed 1.13 times despite competing with several other bond offerings that came to market the same week. This second issuance reflected continued confidence in the lending portfolios behind the bond. The structure was familiar to investors, the reporting remained clear, and the underlying household loans maintained steady demand from families for financing water and sanitation improvements at home. The first bond’s impact also helped establish that confidence: According to the Andina news agency, it enabled more than 91,000 people to obtain access to safe water or sanitation, while offering investors a clear picture of how households used these loans and the difference they made.

The interest rate for the second blue bond priced at 4.53% through public auction, down from 4.72% on the first bond. That rate is what COFIDE pays to bondholders, so a lower rate means cheaper funding for COFIDE, which it passes to CMACs, who can in turn offer lower interest rates on their own household loans. The fact that investors accepted a slightly lower yield was another indicator of their growing confidence in the bond’s structure and track record. Demand again came from a broad base of domestic investors: pension funds (42%), public sector entities (23%), insurance companies (16%), mutual funds (15%) and financial institutions (4%).

Both bonds supported lending through the same six CMACs, headquartered in Arequipa, Huancayo, Cusco, Ica, Piura and Trujillo. With the second issuance, more households in these communities, particularly in rural and peri-urban areas, can access the financing they need to install safe water or sanitation solutions at home.

Practical Insights for Practitioners

The conditions that made Peru’s blue bonds possible took years to build. But the lessons from these successful issuances are transferable to practitioners and policymakers in other markets. These lessons include:

• Strong lending systems create the conditions for new financing pathways: The blue bonds were possible because the CMACs already had established portfolios with steady demand. The issuances were built on lending activity that was already functioning consistently.
• Market alignment shapes outcomes: Early discussions among COFIDE, FEPCMAC and Water.org explored different structures, but investor feedback pointed toward a one-year bond issued in local currency. Designing with those preferences in mind opened the door to a broader group of domestic investors.
• Clear reporting drives confidence: Because CMACs tracked loan performance in detail, COFIDE could show investors exactly how many loans had been made, how they were repaid and who they reached. That transparency gave investors the information they needed to participate with confidence.
• Collaboration strengthens the entire system: FEPCMAC’s coordination, COFIDE’s leadership in structuring the issuances, and Water.org’s technical support each played a distinct role in building a system that investors could assess and trust.
• Local capital can help reach more households when systems are ready: The blue bonds expanded lending that was already serving thousands of families. Their success demonstrates that, with strong systems in place, financial institutions — whether development banks, savings cooperatives or microfinance lenders — can tap local capital markets to reach more households with lasting water and sanitation solutions.

Learning from Peru’s Blue Bond Experience

Peru’s experience shows what becomes possible when lending systems are steady and well managed. Households use affordable financing to install toilets, water tanks and safe water connections at home. Lenders grow consistent, well-performing portfolios. Investors gain access to assets they can evaluate with confidence. Together, these elements show how local capital can play a meaningful role in getting safe water and sanitation to the families who need it most.

Across the region, I’ve seen how long-term system-building creates space for these financing pathways to develop. In Peru, progress came from developing water and sanitation lending capabilities by emphasizing coordination, loan performance and reporting, so investors could engage with confidence and more families could obtain access to these vital solutions. Other markets can learn from Peru’s approach, as blue bonds continue to emerge as a viable tool for expanding access to safe water and sanitation for families across the region and around the world.

Rocio Cavazos is Vice President, Africa and Latin America at Water.org.

Photo credit: AndreyPopov