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

Under the first pathway, which represents business-as-usual, demand for cooling will more than triple by 2050, driven by growth in global population and wealth, more extreme heat events, and growing access to often-inefficient cooling solutions among low-income households. This would almost double cooling-related greenhouse gas emissions (in comparison to 2022 levels), pushing the sector’s emissions to an estimated 7.2 billion tons of CO₂ equivalent (CO₂e).

The alternative, a sustainable cooling pathway, would consist of “passive cooling strategies, low-energy and hybrid cooling that combines fans and air conditioners, rapid adoption of high-efficiency equipment and accelerated phase-down of hydrofluorocarbon (HFC) refrigerants.” This pathway could meet the rising demand for cooling solutions, while cutting the sector’s climate impact by nearly two-thirds (in comparison to the levels expected in 2050) to around 2.6 billion tons of CO₂e — and saving up to $43 trillion in cumulative energy and grid costs.

The solutions and technologies that could achieve this second pathway largely exist. However, achieving the climate goals related to clean cooling will require much more than identifying solutions and developing new technologies. It will require markets to build the right incentive structures to deliver sustainable cooling at scale to the households that need it most.

Accomplishing this goal will be a tall order, but the clean cooling sector has the advantage of leveraging the experience gained in both the off-grid solar and clean cooking industries. Each of these sectors has had to overcome similar challenges, from ensuring product affordability and understanding consumer behavior, to enabling accessibility and developing products that fit consumer needs and infrastructure constraints — especially at the last mile.

WDI (NextBillion’s parent organization) recently published a paper that explores some key considerations that have been pivotal to the success of both the off-grid solar and clean cooking sectors. Among these factors, innovations in business models aimed at mitigating the affordability challenge have been particularly transformative for both industries, and this sort of innovation will also play a critical role in the development of the clean cooling sector. In this article, we will specifically focus on the role of Pay as You Go (PAYG) finance in accelerating scale and impact in clean cooling.

Consumer Financing and Beyond

PAYG models have become a powerful tool to increase access to energy in low- and middle-income countries. By allowing customers to pay according to their usage or in small, regular installments, these models match the cashflow constraints of low-income households, bringing products like off-grid solar and clean cooking within reach. There is every reason to believe the same will be true for clean cooling. As others have shared on NextBillion, there are many lessons to be learned about what makes PAYG work in both design and implementation. But considering PAYG as just a consumer financing tool understates what it actually does.

PAYG models shift the entire incentive structure for providers. Instead of being rewarded for selling as many appliances as possible, they earn their revenue by delivering customer outcomes such as reliable electricity, or clean and convenient cooking. In traditional sales and distribution models, the provider’s financial interest ends when they make the sale: Whether the product is used or gathers dust in a corner is largely irrelevant to them. The PAYG business model operates very differently. When revenue is dependent on sustained use, PAYG businesses have a direct commercial interest in what happens after the sale.

PAYG wasn’t the first attempt at solving this problem in the clean cooking sector. The “tool and fuel” model — which integrated the sale of stoves with the ongoing sale of specialized fuels designed for use with those stoves — was based on the same principle. But “tool and fuel” models have been difficult to scale. Carbon financing also shifts provider incentives by rewarding usage rather than acquisition, but it does so indirectly due to the involvement of third-party payers. It is primarily PAYG models that have shifted the sector’s focus toward sustained use, by creating a direct commercial relationship between the provider’s revenue and the customer’s outcome.

However, the lesson for clean cooling isn’t simply that PAYG offers a scalable consumer financing solution: The lesson comes from what happened next, after the PAYG approach was applied to clean cooking.

Having a real-time connection with customers through the Internet of Things (IoT) technologies that power PAYG models opens up opportunities for business model innovations that improve the customer experience. For example, M-Gas, a Kenyan PAYG provider of Liquid Petroleum Gas (LPG), uses mobile network-connected smart meters to charge its customers as they use the stove. The meter also alerts M-Gas when a customer’s fuel levels are running low, and technicians are dispatched to replace the cylinder before the customer is even aware. This kind of proactive customer service reduces the likelihood that customers will revert to more polluting technologies like wood or charcoal for some or all of their cooking — a behavior known as “fuel stacking.” M-Gas’ model represents one attempt to address this behavior, which has resulted in the continued use of polluting fuels among cookstove owners, and poses a significant obstacle to the clean cooking sector’s efforts to advance the transition to more efficient and climate-friendly cooking solutions.

The Clean Cooling Parallel

The emergence of fuel stacking demonstrated that one of the clean cooking sector’s key assumptions was incorrect — i.e., that households will move up the energy ladder in a linear way when provided with access to cleaner, more efficient cooking technologies. Human behavior is more complex than that, and there are a multitude of reasons why households might stack fuels.

It also demonstrated another key business reality: When the effective price of a product decreases, households have the choice to either consume more of it, or to use that money to consume more of something else. What they choose depends somewhat on the type of product. For example, demand for cooking is relatively fixed — decreasing the cost of cooking fuel doesn’t cause households to consume more of it beyond a certain point, because the demand is constrained by things like the cost of ingredients and the nutritional needs of the family.

The clean cooling sector has often made a similar assumption: that when a household is provided with access to a more efficient cooling solution than they’re currently using, their energy consumption, and consequently their cost of cooling, will go down. And in fact, both the business as usual and sustainable cooling pathways outlined by the UNEP assume an increase in energy efficiency due to technology improvements.

However, given a more efficient and cheaper cooling solution, it is possible, maybe even likely, that a household will choose to consume more cooling, reducing the impact of energy efficiency gains. This “rebound effect” might mean running a room air conditioner for more hours in the day, in more rooms, or at a lower temperature to increase the family’s comfort. Or it might mean that, after using a more efficient refrigerator that is cheaper to operate, a household decides to buy a bigger one to store more food, which locks in a higher baseline level of consumption. The rebound effect is often more pronounced in low-income contexts where households already consume less than their preferred levels of energy. A study from China found that acquiring an AC unit with energy efficiency labeling actually increased household energy consumption by 17.2% annually, and by almost 22% during summer months.

The PAYG Data Dividend

Managing the rebound effect, much like managing fuel stacking, requires providers to know how customers are using the appliance, and to be incentivized to act on that insight. In business models based on asset sales, there is limited incentive to understand and influence how the product is used once the sale has been made. Traditional incentives exist, such as the desire to earn repeat business and generate positive word-of-mouth promotion, but PAYG models that tie revenue directly to the customer’s experience are much more powerful. Building the technical, financing, and customer service networks and infrastructure to enable and incentivize this ongoing customer focus in PAYG business models in the clean cooling sector will take significant time and investment. But as the clean cooking industry is demonstrating, it’s also an investment in the sector’s long-term development.

The clean cooking providers that have gotten the most out of the PAYG paradigm are those that have recognized that real-time data on customer behavior is a strategic asset that supports better customer outcomes and improved retention. The ability to capture real-time data also lays the foundation for digital measurement, reporting and verification (dMRV), as carbon financing mechanisms mature and seek higher levels of quality and integrity. Bboxx‘s experience in Kenya, Rwanda and the Democratic Republic of the Congo shows that by combining IoT-enabled smart meters in LPG cylinders with AI-driven analytics (via the Bboxx Pulse platform), it is possible to build and scale a real-time picture of how customers cook and pay over time. That data enables Bboxx to generate credit scores for customers who have no formal financial history, which unlocks financial inclusion-related benefits that can extend well beyond clean cooking. It also allows Bboxx to adapt pricing to enhance affordability, and predict when customers are at risk of reverting to polluting fuels, which creates the opportunity to intervene.

ATEC’s Cook to Earn model, piloted in Bangladesh and Cambodia, takes things a step further. ATEC’s IoT-enabled induction cookstoves track cooking activity through mobile network-connected devices, which generate carbon credits verified under Gold Standard’s dMRV methodologies. ATEC and FairClimateFund, which purchases and then trades the resulting carbon credits, share up to 70% of this carbon credit revenue directly with households using ATEC cookstoves through mobile money, effectively turning sustainable cooking into a source of household income. It is a model that demonstrates how PAYG data infrastructure, carbon financing and direct financial incentives can be brought together to deliver sustained use and verifiable emissions reductions.

Now is the time to build the right incentives

The PAYG experience in clean cooking provides practical insights for entrepreneurs and investors in the clean cooling sector. PAYG not only unlocks affordability, it eventually shifts the entire incentive structure away from one-time sales, and towards achieving outcomes that the customer values, such as convenience and reliability.

Business model innovations developed by M-Gas, Bboxx, ATEC and others demonstrate that the PAYG paradigm can move customers past the upfront affordability challenge. These approaches show how digital data can be a catalyst for improved customer experience and retention, energy efficient behavior change, financial inclusion, and verifiable outcome financing. Clean cooling will need to develop its own versions of these data and business model innovations — and the sector should invest in the infrastructure to do so now, in order to create the conditions to accelerate that innovation.

The need for clean cooling is clear, and the technology to deliver it largely exists. The impact opportunity is also immense. The question is whether the market system that emerges will have the right incentives to deliver clean cooling at scale, and to reach those who need it most. As seen with off-grid solar and clean cooking, this is more difficult than it appears — and as the world contemplates a future where cooling our homes may further heat our planet, it’s more important than it may first seem.

Colm Fay is an independent consultant and a Research Fellow at the William Davidson Institute (WDI); Ekta Jhaveri is a Program Manager in the Climate-Health sector at WDI; Rajat Chabba is Senior Director of Innovation and Partnerships at WDI.

Photo credit: iStockPhoto

The agency played a central role in funding gender-specific programs, integrating gender across its work, and conducting gender research and analysis — an approach that was codified into law with the Women’s Entrepreneurship and Economic Empowerment Act of 2018. It also built capacity and coordination in the public and private sectors and across civil society, preserving lessons, advocating for gender equality, and putting the need to address violence against women firmly on the global agenda. 

Without that anchor, the movement toward gender equality in international development risks fragmentation and regression. But this moment also opens space for the field to decide what comes next — including what financial inclusion should actually prioritize.

For the financial inclusion sector, the answer is clear: We must sustain the progress we’ve made toward gender-intentionality in how we design, fund, regulate and evaluate financial systems. And we must continue to move away from “male universality” — the assumption that male experience is the default — taking seriously how identity, circumstances, needs, behavior and environment shape what people actually need from financial products and services. 

Preserving this momentum is not simply a matter of values. It is a matter of evidence.

What the Field Has Learned — and the Risks of Forgetting

Over the past couple of decades, gains in women’s account ownership, mobile access and use of digital financial services have been significant. 

Yet these gains have been uneven and incomplete. Gender gaps persist across access and use — particularly in sub-Saharan Africa and South Asia — and many women remain excluded from the full benefits of formal finance.

Experience across product design, policy reform and consumer protection points to a clear reason for this inconsistent progress: Access alone is not enough. 

The evidence for this conclusion is consistent across regions and income levels:

• A well-designed, women-centered financial product fails when it ignores the barriers presented by discriminatory social norms related to women’s mobility, control over income or decision-making power. 
• The rise in digital tools is undeniable — and uneven. And providing tools without safeguards can increase women’s physical, social and economic risk. For instance, women with smartphones are often more exposed to frauds, scams and gender-based violence and take longer to recover, discouraging use and damaging trust. 
• Policy and regulatory reforms enable women’s access to financial services, but sustained gains depend on complementary changes in provider behavior, consumer protection and social norms.

Importantly, this same body of evidence has also established a clear business case for women’s inclusion within formal financial systems:

• Women are, on average, at lower risk of default and have greater loyalty. They also represent a high-growth, untapped market, and financial institutions could capture $700 billion in revenue by better serving them. 
• Gender-diverse C-suites have above average profitability and value creation.
• Companies with diverse leadership are consistently associated with stronger financial performance, innovation and brand outcomes.
• Policies, products and investments that close gender gaps can drive economic growth by increasing women’s labor force participation, boosting productivity and expanding entrepreneurship: This can strengthen global GDP substantially, generating increases of up to $7 trillion from closing gaps in work and leadership alone, and $22–28 trillion with full equality.

This business case matters, but it does not automatically overcome institutional inertia, embedded norms or weak data systems: To navigate those challenges, the support and guidance of agenda-setting funders is necessary. And indeed, much of this evidence base was built because major donors, particularly USAID, funded and mandated it. With USAID’s closure, that research is ending, and the data, institutional knowledge and funding that sustained it are all at risk. The quiet erosion of this evidence base has already begun. 

Building evidence is costly, but it’s a key driver of the movement toward greater gender equality in financial inclusion and other sectors. Without this evidence, organizations are more likely to optimize for short-term returns, and serving women gets deprioritized because the returns take longer to materialize and the upfront investment is higher. This perpetuates the exclusion of women, and in a world where sex-disaggregated data is still not the default, this exclusion is often structurally invisible.

Meanwhile, significant barriers to women’s financial inclusion remain, and the evidence base underlying the business case still needs to be expanded, strengthened and maintained. What the field does next will determine whether financial inclusion builds on what it has learned — or reverts to old business models that center men, in the absence of incentives to do otherwise.

Why This Moment Is Different

The post-USAID environment presents three interrelated challenges for women’s financial inclusion.

First, there is a loss of institutional knowledge. The departure of experienced practitioners, combined with the fragmentation of shared learning systems, threatens the continuity of gender-intentional practice. What has been learned is not lost, but how we learn from one another and rebuild our community is uncertain. 

Second, the funding landscape is shifting. New and emerging development actors are filling parts of the financing gap. This diversification is not inherently negative — but it does change incentives, expectations and accountability structures in ways that are not always transparent. For example, unlike OECD-DAC donors that report against standardized transparency and gender equality frameworks, development finance providers like China do not participate in these reporting systems, limiting the availability of comparable data on financing terms, safeguards and gender-related outcomes. For service providers and other stakeholders in women’s financial inclusion, this is an opportunity to hold our shared values as guiding principles as we engage with a new landscape of funders. 

Third, there is less money overall. No single donor or philanthropy can replace the scale of what has been lost from USAID’s funding. Scarcity creates pressure — to move faster, to simplify, and to prioritize scale over substance. In that environment, gender equality, consumer protection and harm reduction are often among the first considerations to be treated as optional in financial services. In tighter funding and political environments, stakeholders will narrow their focus toward interventions with easily measurable or immediate returns, while longer-term investments in gender equality, labor rights, consumer protection and harm reduction become more vulnerable to retrenchment. At the same time, not enough gender data exists — or it exists but hasn’t been leveraged well — to drive investment dollars into these longer-term interventions. 

Together, these dynamics create a real risk of regression.

The Responsibility Now Rests with Practitioners

Ultimately, this is more than a funding crisis; it is a test of professional accountability.

Without a dominant donor like USAID setting standards — however imperfectly — the burden of upholding human dignity, equity and rights increasingly rests with those of us who design, implement, regulate and evaluate financial inclusion efforts. Donor requirements and funding helped institutionalize gender intentionality across the sector, particularly in areas markets do not naturally prioritize on their own: data collection, experimentation, measurement, consumer protection, accountability, and reaching populations that are harder or slower to serve. This moment places greater responsibility on the field itself to preserve the values, evidence and accountability structures that made progress possible. 

Economic systems center men by default due to the persistent myth of gender neutrality. Inclusive finance solutions that lack a gender-inclusive lens simply perpetuate this myth. If there ever was a moment to re-center the way economic systems function — to center all the unique ways people identify — this is it. When women are centered, benefits accrue more broadly, to households, communities and economies.

Moving Forward: What the Future of Financial Inclusion Must Become

For much of the past two decades, financial inclusion has been defined by a simple progression: from informal to formal, from cash to accounts, from exclusion to inclusion in the financial system. The underlying assumption was straightforward: If a person has an account, they are included.

We now know this framing is flawed. Instead, the sector should be focused on a more holistic progression, which includes:

• Shifting from formality to quality: Whether a service is formal is less important than whether it is useful, safe and empowering. Inclusion should be judged by whether financial services help people do what they need to do — manage risk, smooth income, invest and exercise control of their financial lives.
• Moving from individual accounts to collective strength: Economic security is rarely individual. For many people, especially women, resilience is built through community — through savings groups, shared resources, reciprocal support and collective risk management. Financial inclusion frameworks must reflect how wealth and security actually function, not reduce their focus to what one person holds alone.
• Moving beyond transactions toward livelihoods and shared value: Finance is not an end in itself. It is a tool that should support work, childcare and long-term economic participation. The next phase of financial inclusion must connect financial services to jobs, families, value chains and livelihoods, creating shared value that is both socially grounded and economically viable.

Finally, this shift demands a change in how the field measures success. What we choose to measure reflects what we value. Moving toward quality, community and livelihoods makes measurement more complex — but also more honest. Investing in better data and being more open to learning across institutions is not optional if financial inclusion is to remain credible.

The post-USAID era is being written now, and our sector must understand the implications of the new reality we’re operating in. This moment demands a deliberate commitment from all of us to reject “one-size-fits-all” approaches and unite around bold, concrete actions in support of inclusive financial systems. It also requires us to hold one another accountable to the highest standard, and to commit to measuring what actually counts, not just what is easiest to count — despite the resource-constrained environment. The future of inclusive finance depends on that commitment.

Julia Arnold is a researcher, strategist and consultant specializing in women’s financial and economic inclusion; Sara Seavey is a gender equality and social inclusion consultant with extensive experience in inclusive economic growth and women’s financial inclusion.

Photo credit: Wirestock

Late last year, I joined a group of around 40 social entrepreneurs, researchers and ecosystem support organizations for the Social Enterprise World Forum’s Rural Social Enterprise Gathering in Malaysia. The event involved a multi-day immersion into the lives and work of community-led ventures in rural Malaysia, offering a rare opportunity to learn from ventures rooted in indigenous knowledge systems, ecological stewardship and local resilience.

My participatory engagement with these ventures involved conversations with founders, walks through farms and once-forested areas, and deliberations over how tradition intertwines with modernity. Each of these ventures offers lessons on how practitioners and policymakers can best support rural social enterprises — not only in Malaysia, but globally. In the article below I’ll share lessons learned from five ventures: Tonibung, LJD Corporation, DumoWongi, Kokoriu and Pace ‘A Voi.

Tonibung: Engineering Appropriate Technology for Rural Communities

Tonibung began as a youth mobilization effort in the aftermath of the 1998 East Asian financial crisis, and quickly transitioned into a nonprofit focused on electrification efforts in the Malaysian state of Sabah. In the words of its founder, Adrian Lasimbang, Tonibung aims to “leave no one behind” when it comes to energy access. The organization is deeply rooted in the indigenous Dusun community’s “Tagal” principles of sustainable resource management — a term that refers to prohibitions on the extraction of natural resources.

During my immersion with Tonibung, I saw a number of energy innovations, such as micro-hydro and biogas systems. But what stood out was the organization’s ingenuity in making these technologies appropriate for the local reality. Although Tonibung’s technology solutions were inspired by innovations developed in other Global South locations — micro-hydro from Nepal and biogas from Sri Lanka — they were contextualized to meet the unique challenges of operating in Sabah. As a result, they featured several practical design choices: For instance, due to the region’s hilly topography, the organization deployed repeater stations and communication protocols into its micro-hydro units, to overcome communication challenges between turbines and village-level control stations.

Tonibung’s work has also shaped a transition in Sabah towards community-led micro-manufacturing as a pathway for development. Its pioneering role in inspiring technological experimentation in this area has spurred other ventures in Sabah to follow suit. This has extended beyond inspiration to practical support, as the company has leveraged its facility to provide a shared tinkering space for other innovators, and its founder has contributed technical expertise to support the development of other micro-manufacturing units. For example, Tonibung facilitated LJD Corporation’s efforts to develop a machine that turns plastic waste into jewelry.

LJD Corporation: Turning plastic waste into tourism products

Founded in 2022, LJD Corporation is a rural social enterprise that transforms plastic waste into souvenirs, such as jewelry, inspired by Sabah’s local colors, flora and fauna. It is based in a village near the Kayu Madang landfill, which receives nearly 1,000 tonnes of waste every day, making the need for sustainable waste management visible and urgent.

During my visit, I got to engage with LJD’s founder, Saila Saidie, and young women trained to produce magnets, keychains, jewelry and other products from plastic waste. What stood out most was Saidie’s ingenuity, as she had iterated the company’s production process through countless experiments with moulds and machines, developing a novel micro-manufacturing unit with silicone moulds that can be remodelled for newer designs. This approach, which LJD is currently in the process of patenting, allows for creative flexibility and material efficiency.

Since these manufacturing units can be used in individuals’ homes, LJD’s model fosters a decentralized, technology-enabled circular economy. By reimagining waste as a resource, the enterprise creates livelihood opportunities for young women in its community.

DumoWongi: Commercializing indigenous herbs and edible flowers

Started in 2019, DumoWongi fosters the home-based cultivation of native herbs and edible flowers. By focusing on backyard and indoor farming, it allows women to generate income from home, making entrepreneurship accessible within the everyday routine of life.

DumoWongi commercializes its products through two channels: supplying herbs and edible flowers to hotels and retail stores, and upcycling textiles like tablecloths with natural dyes derived from its plants. I got to create a handkerchief myself with natural dyes during the visit. What stood out most was founder Irene Mositol’s structured approach to community organizing and aggregation: DumoWongi starts by training participants on plant identification and gardening, then provides them with starter kits that include farm tools and seeds. The women then cultivate the plants in their own backyard, with DumoWongi providing ongoing support with organic farming practices and quality assurance. Once harvested, the company aggregates the produce for processing and sale.

DumoWongi continues to innovate, developing unique new colors and scents which are infused into soaps and oils, demonstrating how indigenous botanical knowledge can be converted into high-value product offerings. By decentralizing production and centralizing processing and marketing, it achieves flexibility and scale while preserving ecological sustainability in the supply chain.

Kokoriu: Cultivating food sovereignty through indigenous land stewardship

Kokoriu was started by Angelen Daransun in response to her community’s need to travel two to three hours inside the forest to get a majority of their food. To change this, the company led local community members in an effort to convert three acres of forest land into a shared space for cultivating food and preserving indigenous seed varieties, with the goal of achieving local food sovereignty.

The enterprise began as a home cultivation project in 2020, and only grew into a community effort when local residents began seeing tangible results. Today, Kokoriu’s work is supported by Malaysian government grants and development sector funders, and the company has expanded to include a nursery for local plants and an aquaponics system. These facilities support the creation of herbal and wellness products like teas and natural deodorants, which are sold in cafes and retail outlets in peninsular Malaysia.

What stood out most for me was Kokoriu’s grounding in the indigenous resource management principle of Gompi-Guno, which means “use and protect.” This philosophy guides its regenerative agricultural practices — only using necessary forest area for cultivation, and rotating plots every few years to allow natural vegetation to regenerate. By integrating eco-wellness education, home stays and walking trails into its model, Kokoriu is opening new revenue streams while celebrating indigenous knowledge and ecological stewardship.

Pace ‘A Voi: Wellness through Stingless bee honey

Mariana Rampungan started Pace ‘A Voi in 2018 by turning a personal study of the benefits of honey into a community-based “kelulut” (stingless bee) enterprise. Pace ‘A Voi trains community groups to build and maintain hives, forming a decentralized network of stingless bee processors in rural Sabah. This has created multiple variants of honey, each reflecting the unique flora surrounding the individual hives. One of the most striking moments I experienced during my field visit was sampling these variants directly from the bee hives to compare the taste of honey from adjacent kelulut hives and notice the distinct flavor profiles.

Much like DumoWongi, Pace ‘A Voi blends decentralized production with centralized processing and marketing. Beyond honey, the company is unlocking the full potential of stingless bee cultivation. This includes creating food products around bee bread (a naturally fermented food made by bees), royal jelly and propolis, a coating produced by bees to seal and protect their hives, which can be used to extend the shelf life of food items. By developing a range of food and functional products from stingless bee cultivation, Pace ‘A Voi demonstrates an indigenous-informed approach to resource use that prioritizes stewardship and value maximization, similar to the practices seen in Kokoriu and Tonibung.

Key learnings for supporters of rural social enterprises

In observing these businesses, I identified three key learnings that are relevant to policymakers, practitioners and others who aim to support rural social enterprises.

1. Embed indigenous resource management principles in enterprise design: Across the cases of Tonibung and Kokoriu, indigenous principles such as Tagal and Gompi-Guno emerge as foundational to enterprise design. More than just being formally codified, they are woven into everyday practices, guiding decisions around resource use, regeneration and community stewardship. This illustrates the impact of embedding sustainability deeply within the venture’s ethos, rather than treating it merely as an add-on. With these values at the core of their work, these enterprises are able to deliver even more benefits to their community and environment.

2. Decentralize production, centralize innovation and create market linkages: A recurring pattern across multiple enterprises, such as DumoWongi, LJD Corporation and Pace ‘A Voi, was the use of decentralized, home-based production paired with centralized marketing, product testing and distribution. This approach allows for flexibility at the producer level, while enabling quality control and scale when going to market.

Centralization does not just occur at the level of individual enterprises, but also through ecosystem-support intermediaries. During my visit, I also interacted with Juddy Binti Lasius, the founder of Moyog Innovation House, which supports e-commerce startups, such as Koondos, that aggregate and market products produced by different social enterprises in Sabah. Such platforms are essential for creating market linkages between rural ventures and consumers, and there are opportunities to further support them. For example, they could be strengthened by drawing inspiration from global digital commons-based platforms like Good Market, which emphasizes community data ownership and control and a direct relationship between vendor and consumer — in contrast to multinational e-commerce platforms that concentrate power.

3. Foster seamless engagement between entrepreneurs, support organizations and government: One of the most refreshing observations from my field visit was the visible collaboration between the rural social entrepreneurs, the enterprise support organization SCENIC (which organized these visits), and local government. These stakeholders maintained responsive feedback loops: For example, when DumoWongi highlighted issues with marketing and visibility to SCENIC, they immediately contacted a deputy minister’s team and helped the business secure a booth at an exhibition with hotel chains. Meanwhile, local government agencies support rural social enterprises by procuring their products and services for official events. This coordination also extended to the co-creation of new market opportunities. For instance, SCENIC and government leaders collaborated with Pace ‘A Voi to develop experiential eco-tourism offerings, such as beekeeping visits and honey tasting.

Due to their remote location, rural social enterprises face unique structural constraints in areas such as logistics, networks and market access. An integrated ecosystem in which entrepreneurs, support organizations and local government actors collaborate to navigate these barriers and pool resources is absolutely critical for rural social entrepreneurs to thrive and scale.

Sreevas Sahasranamam is a Professor at the Adam Smith Business School, University of Glasgow.

Photo credit: faizzaki

As part of our programmes at LEAP Africa, we support early- and mid-stage social entrepreneurs by strengthening their leadership, organisational capacity and ability to scale. We routinely meet founders who’ve secured pilot customers, hired small teams and demonstrated early impact, yet remain stuck, unable to scale. This bottleneck is prevalent across the continent, from South Africa’s funding shortages and talent retention issues to Nigeria’s regulatory voids and infrastructure gaps.

This challenge persists despite rapid sectoral growth. Africa’s social entrepreneurship ecosystem now comprises an estimated 2.18 million enterprises generating significant economic activity. At the same time, persistently high youth unemployment — averaging 8.9% across the region as of 2023 and sometimes exceeding 40% in high-burden countries such as South Africa — has heightened expectations that social entrepreneurship will deliver both jobs and social impact.

To help African social enterprises deliver on these high expectations, accelerators, incubators and fellowships have proliferated across the continent over the past decade, fuelling optimism that entrepreneurship can emerge as a key driver of development. Yet a pressing question lingers: Are these existing support models actually aligned with what African social innovators need today?

Assessing Current Social Entrepreneur Support Models in Africa

To address this question, LEAP Africa, with support from partners at the William Davidson Institute (WDI, NextBillion’s parent organisation), conducted a needs assessment between March 26 and April 14, 2025 to better understand where current support models succeed, and where they fall short. We gathered insights from social entrepreneurs — including alumni of enterprise support programmes — as well as from funders, accelerators and other ecosystem actors. 

The survey received 89 responses from actors operating across 18 African countries, including Nigeria, Kenya, Cameroon, Liberia, the Democratic Republic of the Congo, Rwanda and South Africa. A small number also operated in countries outside Africa, including the United States, United Kingdom and United Arab Emirates.

Of the respondents, 83% were active social innovators or entrepreneurs, including 25% who were alumni of LEAP Africa’s Social Innovators Programme, Youth Enterprise Fund and Sahara Impact Fund — programmes that have collectively supported over 290 fellows across Africa. The rest of the respondents played other roles in the ecosystem: 6% were from accelerators or incubators, 3% were from funders or investors, and 8% were other ecosystem actors, including educators, consultants and researchers.

Our goal in this assessment was to uncover ecosystem-wide patterns: where support succeeds, where it falters, and what shifts are needed to achieve more lasting impact. What stood out most in this survey data was not just the persistence of familiar challenges, but how consistently different actors described the same disconnects, often from opposing sides.

Funding remains the central constraint, but not in isolation

Across stakeholder groups, access to funding emerged as the most persistent and urgent barrier. Among active social innovators in our survey, nearly nine in 10 identified funding as their primary challenge, and more than 90% cited it as the most critical form of additional support they needed. Alumni of enterprise support programmes echoed this, with almost half naming funding access as the single most impactful component of their fellowship experience.

This aligns with broader ecosystem research. The Aspen Network of Development Entrepreneurs (ANDE), for example, has consistently highlighted early-stage capital as a bottleneck for impact-driven ventures in Africa, particularly those operating in underserved or non-traditional markets, while acknowledging that this is often tied to gaps in business readiness. Our findings reinforce this, suggesting that funding constraints are symptoms of deeper structural gaps rather than standalone problems.

Funders and investors who participated in the study were clear: While an entrepreneur’s impact ambition matters, these intentions are not enough to motivate a funding decision unless the enterprise also demonstrates organisational readiness. They emphasised financial documentation, regulatory compliance and evidence of traction as non-negotiables. 

The result is a familiar mismatch: Social entrepreneurs often prioritise narrative, mission and early visibility, while investors focus on systems, structures, numbers and risk signals. Without targeted support to bridge this divide, even high-potential ventures may remain locked out of capital.

Investor readiness must go deeper than pitching

Pitch training is now a standard feature of enterprise support programmes, and with good reason. In our study, both entrepreneurs and accelerators rated pitching skills highly, especially at the enterprise’s early stages. But funders were more ambivalent, rating pitch training as useful but insufficient on its own.

What they valued more was due diligence readiness: the often invisible work of building financial discipline, governance structures and operational clarity. This mirrors findings from the International Trade Centre, which show that small businesses with robust financial management and the capacity to present a compelling business plan are better positioned to secure investment and adapt to market trends.

Too often, enterprise support programmes simulate investor interactions rather than providing entrepreneurs with genuine engagement opportunities. In practice, this leaves founders underprepared for the months of scrutiny that follow a genuine investment conversation. Our findings suggest a shift is needed, from preparing founders to perform well on demo days, to preparing them to withstand rigorous due diligence — while also ensuring that capital is ready to engage with early-stage social ventures in ways that match their realities.

As one investor in our survey noted, “I believe aspects of investor readiness programs, especially on due diligence, should be handled by investors directly.” Embedding investors into capacity-building sessions on due diligence, financial modelling and compliance could help demystify expectations on both sides and reduce friction in the funding process.

Investor-readiness support, which focuses on preparing entrepreneurs for due diligence, financial modelling and governance expectations, remains crucial. Complementing this with capital-readiness support — helping investors understand early-stage social ventures, their operational realities, and flexible funding approaches — can further reduce friction in the funding journey.

The ‘messy middle’ is where ventures stall and support thins out

Another consistent insight across stakeholder groups was the vulnerability of ventures in what funders described as the “messy middle”: the space between early validation — including business model, product-market fit and initial traction — and sustainable scale. While seed funding and mentorship are often available when ventures enter programmes, fewer enterprise support programmes provide sustained guidance, resources and other support as ventures grapple with operational complexity, team growth and market expansion.

This gap matters. Across Africa, 54% of startups fail overall, according to a 2020 report based on data from 2010 to 2018. The report analyzed 500 ventures from 32 countries, and found that these failures are often linked to funding shortages, weak infrastructure and limited management expertise — challenges that intensify in the scaling phase. In other words, capital without capacity can be destabilising. The World Economic Forum’s 2025 The State of Social Enterprise report underscores this reality, highlighting a critical need for strategic support to help budding African social enterprises build resilience and successfully cross the “valley of death.”

Accelerators and incubators in our study reinforced this point, highlighting the need for periodic impact assessments, continued advisory support and stronger post-programme engagement. Short-term interventions may spark momentum, but long-term accompaniment is what helps ventures convert opportunity into enduring resilience.

‘Relational capital’ still underpins everything

Despite differences in perspective among the diverse stakeholders in our survey, there was striking agreement on one point: Relationships matter. Mentorship, peer learning and networks were consistently rated as high-impact components of entrepreneur support programmes by entrepreneurs, programme alumni, funders, accelerators and incubators alike.

For founders operating in fragmented and resource-constrained environments, access to people often determines access to opportunity. Trusted mentors help entrepreneurs navigate uncertainty, networks open doors to markets and partners, and peer communities provide learning that no curriculum can replicate.

This emphasis on relational capital also shaped preferences around programme delivery. Across stakeholder groups, in-person or hybrid formats were strongly favoured over fully virtual models. While digital delivery can increase reach, respondents stressed that physical convening builds trust and depth in ways that online sessions often cannot.

Information asymmetry is an early — and underestimated — barrier

Beyond capital and capacity, another issue surfaced most clearly among ecosystem actors working close to the ground: lack of access to information. Several respondents pointed to basic gaps in awareness around business registration, documentation requirements and funding opportunities.

This insight reframes how we think about “readiness.” Many entrepreneurs are not excluded from funding because they are incapable, but because they are disconnected from information pipelines. Addressing this requires more than advanced training: It calls for clearer orientation, simplified resources and proactive outreach, especially for founders outside established urban hubs.

Can entrepreneurs pay, and should they?

The survey also revealed that the question of programme affordability remains sensitive. Entrepreneurs expressed caution about paying for fellowships (i.e., structured, time-bound programmes that provide mentorship, training and networking), while alumni of LEAP Africa’s enterprise support programmes and participants from accelerators and incubators were more open to the idea, as long as the value proposition and differentiation were clear. Suggested price points were modest, typically under $200, and respondents consistently emphasised the importance of scholarships, tiered pricing and subsidised options.

The issue is not whether support should be free or fee-based by default, but whether programmes deliver outcomes that founders value — such as credible pathways to funding, high-quality mentorship and applied learning — without excluding those they are intended to support.

Are we ready to deliver what social innovators need?

Taken together, these findings suggest that Africa’s social enterprise support ecosystem is not failing — but they also highlight clear opportunities to deepen the relevance, extend the reach and enhance the impact of these programmes. Many programmes excel at offering inspiration and early-stage exposure, but their support could often be strengthened by providing the depth, continuity and integration founders need to grow sustainably.

Readiness, then, is not just about expanding the number of accelerators or increasing funding pools. It is about redesigning this support around real entrepreneurial journeys by:

• Making funding access a core function, not an aspirational outcome, by brokering relationships and supporting compliance and documentation.
• Deepening investor readiness, with hands-on training that reflects actual due diligence processes.
• Supporting the messy middle, through sustained advisory engagement beyond short fellowship cycles.
• Placing relational capital at the centre, recognising that mentorship and networks are not add-ons but foundational infrastructure.
• Reducing information asymmetry, especially for founders operating outside dominant ecosystems.
• Balancing rigour with accessibility, ensuring that cost structures do not reinforce exclusion.

Social innovators across Africa are already doing the hard work of building solutions in complex environments. But if Africa’s social innovators are expected to solve complex development challenges, ecosystem actors must rethink, redesign and reengineer the support they provide, working with these innovators themselves to develop systems that match their needs — even if it means changing familiar programme models.

Amabelle Nwakanma is Director of Programmes and Partnerships; Akolade Oladipupo is Monitoring, Evaluation, Research and Learning (MERL) Coordinator; Abdullahi Ibrahim is Acting Manager, Programmes & MERL; and Chukwuemeka Okeke is Senior Programmes Coordinator at LEAP Africa.

Photo credit: PeopleImages

Each of these roles is necessary, and together they reflect a sector that is engaged and serious about progress. Yet when their efforts are not intentionally aligned, essential components of inclusive finance — capital, product design, data and market access — fail to reinforce each other. Pilots stall before they can scale, risks accumulate rather than being absorbed across partners, and communities remain exposed to shocks that a coordinated response could help mitigate.

The Barriers to Multi-Stakeholder Alignment Are Real

Many of the systems underpinning inclusive finance were not built for multi-stakeholder alignment. Institutional partners often operate under different mandates, timelines and risk tolerances, shaped by their own internal priorities and performance frameworks. Even when organizations pursue the same goal, coordinating efforts can be a challenge.

These structural constraints hinder innovation and weaken responsiveness. When capital is tied to institution-specific KPIs and budget cycles, when data and insights aren’t shared broadly, and when partnerships are defined around narrow roles rather than shared results, even the best-intentioned initiatives struggle to gain momentum.

Silos also limit visibility into what is happening beyond individual functions. A funding decision may make sense inside a single organization, or a product may perform against internal metrics, even as barriers elsewhere in the value chain quietly erode results. This makes it harder to pinpoint where bottlenecks are occurring, why impact fails to materialize or how resources could be redirected more effectively.

FINCA and FLUID: A Case Study in Collaborative Innovation

FINCA’s partnership with FLUID responds directly to these barriers, providing an example of how incentives, learning and execution can be aligned to overcome organizational silos.

FLUID is a fintech startup that works to increase income and economic resilience for farmers in Africa, by providing customized input packages that boost yields, while ensuring fair market access. Its model combines technology, data and infrastructure to bridge the gap between traditional finance and agricultural communities. Our collaboration grew out of an early catalytic investment in FLUID by FINCA’s impact investing arm, FINCA Ventures, which supported FLUID’s early-stage growth and sparked a chain reaction across FINCA’s broader teams and networks.

The groundwork for this collaboration had been laid by FINCA’s Poverty Eradication Lab team, which was applying research and human-centered product design to explore how to ease African farmers’ cash-flow constraints and risk exposure. That work pointed to the need for a more holistic, in‑kind financing approach that combined inputs, services and market access. The initial investment in FLUID reflected that need, leading to a successful joint pilot that generated a financing model that is now creating value for farmers and investors alike, while also establishing the conditions for closer collaboration between our two organizations.

As our respective efforts converged, the relationship shifted beyond a traditional investor‑company dynamic. FLUID’s technology and commercial networks access gave FINCA’s Poverty Eradication Lab an opportunity to test the products it was developing under real-world conditions, and our pilot program leveraged each organization’s strengths to co-develop an integrated financing offering for rice farmers in Ghana. Instead of conventional cash loans, participants would receive an in-kind package of inputs, mechanization services, agronomic training and guaranteed market access, with repayment for these services and inputs tied to their harvested produce.

FLUID’s platform provided the digital backbone — capturing granular data, supporting credit assessment for in-kind financing and enabling real-time adjustments — while its teams handled delivery. FINCA’s Poverty Eradication Lab funded the pilot and the associated learning needed to test the model in practice. At the same time, FINCA and FLUID’s combined teams explored ways to engage our respective strategic partners across the financial inclusion ecosystem to support and expand this work.

Alignment Built for Pressure, Not Perfection

On the ground, the FINCA-FLUID integrated financing approach is already demonstrating how combining finance, inputs, services and market access can reduce risk in smallholder agriculture by tackling volatility at its source rather than after losses occur. In northern Ghana, 77 farmers joined the initial pilot last year, achieving 23% higher yields, income gains of up to 140% and 95% repayment at the end of the harvest cycle.

Encouraged by strong first-season results, FINCA and FLUID expanded the model into a second season, increasing participation, acreage, and engagement from women and youth. Yet a sharp drop in rice prices, driven by currency movements and weaker demand for local production, reduced farmer incomes and revealed a critical vulnerability at the point of sale.

In the second season, 63% of participating farmers saw weaker outcomes, and only 32% earned positive net income after repaying all costs, although average net profits would have remained positive under first-season pricing conditions. Despite this, farmer participation remained high, with participants still earning average incomes more than 30% higher than those of farmers outside the program.

Rather than undermining the model, this stress test clarified where the system needed to be improved. By combining financing, delivery and data into a single effort, FINCA and FLUID were able to adjust the pilot by strengthening off-taker arrangements, refining the product design and increasing resilience to future shocks.

The lesson is straightforward: Even well-designed products are tested by forces beyond any one organization’s control. The real test of collaborative innovation is not whether the initial plans hold, but whether partnerships are built to learn, adapt and improve under real-world conditions.

What It Takes to Make Synergy Work 

Beyond confirming the viability of an integrated approach to agricultural finance, the FINCA-FLUID pilot points to broader insights about tackling complex challenges that apply far beyond agriculture and our two organizations.

Even when stronger coalitions emerge, collaboration without the right tools and financial infrastructure can only go so far. Many inclusive finance providers have been slow to move past conventional lending models built around static credit assessment, rigid repayment schedules and limited use of real-time data — a framework for managing risk that has changed little over the decades. These approaches do not reflect the irregular cash flows, production risks or market volatility that low-income entrepreneurs navigate every day. The people inclusive finance seeks to serve are resourceful and entrepreneurial, and providers must match their ingenuity with similarly innovative financial tools.

However, agile product design is only part of the equation. Across emerging markets, the providers serving low-income populations depend on capital that is scarce, expensive and poorly matched to their operating realities. Under these conditions, sustaining affordable finance is difficult, regardless of product quality. Addressing this challenge will require providers, investors and partners to rethink how capital is sourced and structured, introducing greater flexibility and risk-sharing.

Finally, better outcomes depend on internal alignment, because fragmented organizations cannot build cohesive partnerships. Organizations must treat data as connective tissue, making it easier to adapt quickly and manage risk collectively. As collaborative partnerships build trust and iterate, they must prioritize transparency and shared decision-making, creating space to surface mistakes and learn from them collectively.

Inclusive finance will not achieve its goals through isolated efforts. The barriers are systemic, and they demand systemic solutions. The foundation for these solutions is there. What comes next depends on how boldly and collaboratively we choose to build.

Seth Spiro is Chief Product Officer at FINCA; Moustapha Seck is the Founder and CEO of FLUID.

Photo credit: Sashkinw