But laying the groundwork alone will not deliver transformation. As AI moves from a research frontier to a practical tool for governments and service providers across the Global South, MDBs are confronted with a harder challenge: What will it take to actually deploy AI at scale in LMICs, and are they set up to finance that?

Investing in components rather than systems

The AI investment landscape within MDBs today is wide but thin. There are pilots, such as an AI tool for tax administration in Armenia, responsible AI experiments with municipalities in Chile, and innovation challenges for road safety in Asia. There is infrastructure, such as data centers in Thailand and Azerbaijan, broadband expansion across West Africa, and digital identity programs in the Philippines. There are enabling environments, such as cybersecurity support across dozens of countries, regulatory sandboxes, and AI policy advisory.

Each of these initiatives is valuable, and they span across the “AI stack,” including AI applications themselves; enablers like policies, regulations and digital public infrastructure; and foundational technologies like internet access, data and compute infrastructure, and digital devices. Taken together, however, they show that MDBs are still in the discovery phase, investing in components rather than systems, and in pilot programs intended to demonstrate feasibility rather than programs that aim to scale.

What’s largely missing is a financing approach that connects AI use cases to the underlying foundations they depend on (i.e., the enabler and foundational technology components of the full AI stack), and that moves from proof-of-concept to national-scale deployment within a coherent MDB program.

What scaling AI actually requires 

It will take more than funding individual use cases and building data infrastructure to achieve large-scale AI deployment in an LMIC context. Large-scale AI roll-out will require MDBs to get five things right simultaneously, spanning across multiple sectors and working with government ministries that rarely plan together. These include:

• Use cases that are technically sound, locally adapted and designed for the realities of end-users in often under-resourced environments — e.g., community health workers with basic smartphones or smallholder farmers with intermittent connectivity.

• Data foundations or interoperable platforms that connect to existing government systems, with governance arrangements that determine how data is collected, stored and used.

• Compute and connectivity calibrated to the deployment context. Consider a national deployment of AI in healthcare: If it can only run in urban environments, it hasn’t solved the problem of access across the country.

• Devices such as smartphones and tablets in the hands of frontline workers. This remains the most consistently underfinanced layer in the stack, despite being the final link in the chain that decides whether AI-based systems reach traditionally excluded communities or not — and despite the fact that smartphone ownership across LMICs stands at 50%, and just 24% in Africa (as of 2024).

• Enabling policies such as data protection regulations, procurement frameworks, and sector-specific guidelines that allow governments to deploy AI responsibly and at speed.

Many MDBs’ digital and AI strategies articulate these layers clearly but fall short on operationalization. In practice, ensuring that an AI strategy can be effectively executed means addressing these layers in a single, cohesive program as opposed to having them spread across separate projects, teams and financing instruments.

What an AI system with large-scale public benefits could look like 

Consider what an integrated approach might look like in primary healthcare, a sector where the development case for AI is strong, and the infrastructure gap — including both ill-equipped facilities and constraints on provider availability and capacity — is well-documented.

The goal of such an approach would be to create a system that gets ahead of illness instead of just responding to it. Every citizen, regardless of where they live, would receive continuous, personalized health support. That would include preventive care through ongoing monitoring and early detection, delivered by community health workers at people’s doorsteps.

Achieving such an ambition would mean investing across a suite of interconnected AI use cases rather than a single tool, including:

• A clinical decision-support system that helps community health workers diagnose conditions accurately in low-resource settings.
• An administrative layer that reduces the documentation burden on those same workers, enabling them to spend more time with patients and less on paperwork.
• A referral coordination tool that ensures that patients who need higher-level care actually get to the right facility, and that their records follow them.
• A patient tracking system that enables longitudinal monitoring, flagging individuals with deteriorating health or those who have missed critical follow-ups.

Individually, each of these use cases makes an interesting pilot. Taken together, they make up a transformational system.

However, building this system requires a shared infrastructure: a unified data platform that interoperates with the government’s existing health information systems to link a person’s longitudinal health data to their existing national ID, enabling continuity of care between providers and informing the government’s population-level research; data protection regulations that govern how patient data is collected and used; and devices in the hands of every frontline worker.

In addition to infrastructure, capacity building must be a core investment. Community health workers need to be genuinely equipped to use these tools on an ongoing basis, and government health teams must have the ability to manage, evaluate and own these systems without relying on external technical partners to keep them running. At both the grassroots and local governance levels, this requires structured, continuous support that reflects varying levels of digital literacy and local language needs, while accommodating the often-unpredictable realities of fieldwork.

At the same time, project timelines need to shift to ensure that solutions do not become obsolete before they are even launched. With AI performance doubling every seven months, having a six-to-12-month lead time from approval to first deployment, rather than the two-plus years typical of large MDB operations, matters enormously. And active technical support cannot end at go-live; it must continue through the scale-up phase. This can help governments avoid vendor lock-in and dependence on a single provider, manage data governance, and progressively own these systems over time.

Five shifts worth considering to scale systematic AI implementation

Moving from experimentation to systematic AI financing at scale is more an institutional challenge than a technical one. It involves rethinking how MDBs frame ambition, scope programs, structure financing, run operations and deliver advisory services, and includes the following five shifts.

From component funding to sector transformation: This shift reframes the question from “what AI investment can we structure?” to “what would it take to transform this sector through AI?” That reframing shapes everything downstream, including the scope of the program, the mix of instruments, the partners involved and the metrics of success.

Across the full stack, in a single program: This shift requires an institution to take stock of what already exists in a country (e.g., internet connectivity, data systems, workforce capability, regulatory environment) and build a curated set of investments that address the specific gaps between where things are and where they need to be for AI to work at scale.

Financing calibrated to scope: Compute infrastructure, data platforms and AI applications have fundamentally different risk profiles and cost structures — from tens of millions of US dollars for sub-national phases to billions for a national rollout — and a one-size financial instrument is unlikely to serve all three well.

Procurement and operations designed for AI realities: This shift requires procurement that: prioritizes digital public goods, reusable building blocks from comparable countries and MDB-developed tools; treats interoperability as a non-negotiable requirement; and avoids vendor lock-in. It also requires lead times under 12 months; project durations that account for active support beyond the launch date; and evaluation frameworks that capture adoption, use and deployment.

Deep technical advisory front-loaded: This shift involves helping governments: understand AI’s cost reality from the outset; make smart early decisions on model selection, dataset localization and the use of existing digital public goods; and manage the risks that are specific to AI, such as data interoperability failures, low user adoption, and systems that work in pilots but cannot sustain themselves after project financing ends. Two areas deserve particular attention:

• Supporting governments in choosing the right AI architecture: MDBs must help governments work through on-the-ground realities such as network connectivity in rural areas, the processing capability of devices used by frontline workers, power infrastructure, and available budgets. These factors inform choices between frontier, cloud-enabled large language models; offline-capable, cost-effective small language models; or AI-in-a-box solutions that may be equally or more effective depending on the context.

• Helping governments understand the sovereignty stakes of AI procurement: AI procurement carries strategic implications that physical infrastructure never did, and most governments are ill-equipped to navigate them. MDBs should help governments think through where data will be stored, where compute will reside, and who will control the models underpinning critical public services. These decisions, once locked in, are costly and difficult to reverse.

The development opportunity in AI transformation 

MDBs have been helping to build the infrastructure layer of the digital economy across the Global South for years. The next step is to ensure that the communities this infrastructure was built for actually benefit from AI transformation at scale.

AI can extend diagnostic reach in healthcare, strengthen agricultural advisory, and improve government service delivery across other sectors and societal needs, while supporting evidence-based policymaking — at a scale and cost few other interventions can match. As the 2030 deadline for the Sustainable Development Goals approaches, LMICs continue to face an estimated US $4 trillion annual SDG financing gap. AI alone won’t close that gap, but used well, it can make every dollar of development financing go further.

Kunal Walia is a Partner at Dalberg Advisors.

Photo credit: Urupong

Consider a four-year-old dried food cooperative CARE worked with in West Africa: It has active export contracts to the European Union, audited financials, and a defaulted loan rate of zero. Its immediate financing need is $40,000 in working capital to meet seasonal demand. Yet it has struggled to acquire this funding, as there are few commercial products designed for that ask. The cooperative is too large for microfinance, too small for micro, small and medium enterprise (MSME) funds, and too aggregated for direct equity. So the capital does not flow.

This challenge goes beyond one cooperative. It affects an entire asset class that the impact investing field does not name, size or build products around: aggregated MSMEs. These consist of individual enterprises that have joined together to contract and borrow as one, either formally as a cooperative, or informally through a producer association or collective enterprise that brings multiple individual MSMEs together around a shared market, value chain or commercial activity.

At CARE, we work across all of these different forms of aggregation, and see them emerging across low- and middle-income markets. We help these MSMEs organize and strengthen their businesses, often leveraging funding from the savings groups we help them join or organize. We also support them through other producer and enterprise networks, and connect them to financial institutions and markets. As a result, we’ve had a direct view of both the investment opportunity these aggregated enterprises represent, and the reasons many funders are missing this opportunity.

The Asset Class Hiding in Plain Sight

Aggregated micro, small and medium enterprises exist in sectors like renewable energy, digital commerce and the care economy, but they have primarily been concentrated in agriculture, trade, processing and related services. Whatever their focus area, these aggregated MSMEs sit in a structural gap that current investing architecture has not been designed to fill, with loan needs that typically range from $500 to $50,000.

However, their financial behavior is becoming increasingly visible. For instance, Root Capital’s track record over two decades demonstrates that aggregated agricultural enterprises can be a viable lending segment when financing models are designed around their realities. As an impact investor, it has provided debt financing to hundreds of agricultural MSMEs, including some that aggregate smallholder producers, and evidence from its portfolio shows that many of its borrowers (42%) later gain access to commercial finance.

This ongoing traction with funders shows that the aggregated MSME segment includes viable borrowers with evidence of successful repayment. The missing piece is a recognition from other impact and commercial asset managers of these enterprises’ investment potential.

Why the Gap Persists

The impact investing field has organized itself around instruments rather than enterprise types. Conferences debate first-loss structures, guarantees, viability gap funding and concessional debt mechanics. Far less attention is paid to the question of what asset class those instruments are designed to serve, including at the bottom of the value chain. In the investment structuring conversations I sit in, the debate is almost always about the design of the instrument: where first-loss capital sits, how guarantees are priced, how the tranches stack. The questions of which borrower segment the deal is meant to serve — or whether anyone has even defined the segment — rarely come up.

The result is a market with sophisticated supply-side architecture but a less-developed demand-side infrastructure for aggregated MSMEs. The market lacks widely adopted underwriting standards specific to this asset class, as well as shared methodologies for sizing the addressable market, and for pricing and compensating the origination work required to quantify these borrowers’ informal economic activity so they can become investable. Of course, there are real frictions — like high transaction costs, currency risk, weak legal enforceability and limited exit pathways — that compound the problem and reduce investors’ incentive to solve it. These are not insurmountable, but they remain unaddressed because impact investing has not yet widely recognized aggregated enterprises as a distinct investable segment.

A recent piece in NextBillion by leaders at Pangea Africa and Social Finance International made an important contribution to the conversation around strengthening the broader impact investment pipeline, by proposing a financing model for business advisory service providers serving African MSMEs. The argument here goes one level deeper: Before investment facilitation can scale, the asset class itself needs to be defined. This requires a shared understanding of the enterprise type, common approaches to underwriting and measurement, standard risk and return characteristics, and the infrastructure to connect capital with investable opportunities. Without these shared definitions and connections, capital providers may continue to view these enterprises as fragmented, high transaction-cost opportunities that do not fit their established investment models.

What Building the Aggregated MSME Asset Class Requires

To build this asset class, the impact investing sector must focus on the three key priorities that would change the status quo and make aggregated MSMEs more visible and accessible to investors: formal definitions, underwriting standards and pricing the origination function.

First, a formal definition of the asset class — with sizing data — is needed. This will require a credible global sizing of the addressable market, along with consistent reporting categories that allow capital allocators to compare risk, return and performance across investment opportunities (including across geographies and aggregation models), and that facilitate portfolio construction at scale. The SME Finance Forum provides a useful precedent: By collating official MSME definitions and related data across economies, it has made a highly diverse segment more visible and measurable, even though national thresholds for what qualifies as a “micro, small or medium” enterprise vary. The Global Impact Investing Network, Convergence and leading development finance institutions already perform similar field-building functions across the capital ecosystem by convening market actors, developing common frameworks and aggregating data, making them well-placed to establish shared definitions, sizing methodologies and reporting categories for aggregated MSMEs.

Next, we need to build underwriting standards for aggregated enterprises, not just individual ones. Aggregation changes the underwriting calculus in ways that traditional MSME credit models do not capture, because characteristics that exist at the collective level — group governance, cooperative financial discipline and verified repayment behavior — become material indicators of creditworthiness that may stand alongside or in place of some indicators used to assess individual enterprises. These signals should be formalized into standard underwriting frameworks that ultimately apply to both impact investors and commercial lenders, so capital providers can assess aggregated MSMEs’ creditworthiness and price these loans more consistently, extending the pool of available capital beyond specialist lenders.

Finally, it is imperative to price in the origination layer. The work of moving enterprises from early-stage and financially underserved into investable form is typically financed by donor-funded technical assistance and business development services rather than through a market mechanism that explicitly prices the origination function. These funding sources will remain important, but they should be only one part of the financing model, particularly as concessional resources become scarcer. Origination has a price that ought to be considered, structured into deal architecture, and rewarded as a critical component of the capital deployment process. If the functions that create investment-ready enterprises remain uncompensated, they will continue to be underprovided despite the value they create for capital providers. Origination fees, technical assistance funding structured within deal architecture, and performance-based payments tied to capital deployment are all workable models worth exploring.

A Working Example of How to Finance Aggregated MSMEs

My perspective on how best to finance aggregated MSMEs comes from leading CARE’s Rise platform. At the heart of Rise is a simple observation: Many financially underserved microenterprises become investable when they are aggregated through savings groups, producer organizations or cooperatives and connected to financial institutions as a visible, assessable pipeline.

CARE has enabled access to savings groups for over 30 million people across 67 countries, with about 25 individuals in each group — many of whom use these funds to establish individual and group enterprises. Aggregating these MSMEs into producer associations, cooperatives and other organized enterprises creates an investable unit that can be assessed, strengthened and connected to commercial finance. These aggregated MSMEs form a pipeline through which enterprises can access growth capital from financial institutions, and enter commercial value chains by engaging with input suppliers and buyers.

We work in both directions to build this pipeline: On the MSME side, CARE helps enterprises strengthen governance, achieve investment readiness and digitize their financial records. On the funder side, we work with financial institutions, buyers, governments and local partners to improve market access and connect enterprises to appropriate financial products. Where aggregated MSME markets have not yet matured, we use instruments such as time-limited first loss guarantees, origination incentives and structured technical assistance to help bridge the costs of market entry. Taken together, these activities (among others) perform the origination function by transforming fragmented enterprises into investment-ready opportunities.

Our results illustrate what building an asset class looks like in practice. For instance, CARE partnered with Kazi Yetu, a Tanzanian tea social enterprise, to help women tea farmers move beyond primary production into value addition and formal markets. As part of this effort, members of some of the local savings groups we facilitated evolved into a cooperative that collectively invested in tea processing, developed stronger demand linkages through an auction, and participated in a women-led processing factory. The cooperative increased its income by 546% by selling processed tea rather than green leaves, and the Government of Tanzania committed to replicating the model through five additional processing factories. Women also gained stronger links to formal business registration systems and financial services, making future access to capital more feasible.

In Vietnam, CARE supported women coffee farmers’ efforts to organize into producer groups, leading to the formation of the Ara Tay Cooperative, which leverages regenerative agriculture, enterprise development, technical assistance, market intelligence and commercial partnerships to move producers into higher-value specialty coffee markets. As part of this work, we recruited an international coffee expert to provide onsite coaching in processing and roasting techniques, enabling the cooperative to meet specialty coffee standards and compete nationally. Rather than financing individual farmers in isolation, this aggregated approach led to the creation of a commercially viable cooperative enterprise capable of producing, marketing and selling higher-value products.

In both cases, CARE performed the aggregation, enterprise development and market linkage functions that helped turn fragmented producers into viable, investable enterprises. Yet despite the value it created for market actors, our work was subsidized by donor funding rather than financed as part of the investment process. These experiences support our broader conclusion: Building an investable asset class requires more than financial instruments. It requires deliberate investment in aggregation, enterprise readiness, standardized underwriting and origination. Once those market functions exist, guarantees, blended finance and commercial capital become considerably more effective because they are financing enterprises that have already been organized into a form the market can recognize.

Conclusion

The aggregated MSME asset class is not waiting to be invented. The borrowers exist, the demand is documented, and the capital is sitting on the sidelines waiting for a market to receive it. What remains is the work of defining the asset class, building standards around aggregated enterprises, and pricing the origination work that makes deployment possible.

That work is unglamorous, but it is the precondition for everything else. Until the field treats these enterprises as an asset class, the impact investing market will keep recycling through the same deals, and cooperatives, producer associations and savings-group-graduated enterprises will remain systemically overlooked.

Dr. Adanna Chukwuma is Associate Vice President for Economic Growth and Private Sector Engagement at CARE USA.

Photo credit: Sebastian Soto

Given the natural alignment between the region’s smallholder-driven supply base and its growing supermarket demand, one might expect smallholder farmers to be among the primary beneficiaries of formal food retail’s growth. Yet despite this growth, the formal retail market remains inaccessible to many smallholders, as a range of barriers prevent them from supplying these vendors. The agricultural production is present; the coordination is lacking.

As part of the FCDO’s Africa Food Trade and Resilience programme, which aims to increase intra-African food trade and improve smallholder income and resilience, AGRA and TechnoServe ran a “Kenyan High-Value Market Pilot” to test what is required in practice to link regional smallholder suppliers to formal retail markets.

We took a market-based approach, partnering first with Kenyan supermarkets and the aggregators that supply them to understand their procurement needs and the barriers that prevent them from sourcing from smallholders. Our pilot was then able to use this knowledge to support smallholders in reaching real sales opportunities, with the aggregators consolidating and coordinating supply from multiple producers to allow the supermarkets to source at scale.

Over four months, the program facilitated the sale of 63 metric tons of smallholder produce, with a projected annual volume of 586 metric tons, based on advanced orders and the trajectory of supply agreements. Through aggregators, smallholder producers are now supplying previously inaccessible supermarkets.

From our experience working closely with aggregators and supermarkets in this pilot program, we identified some key constraints that limit market linkages between smallholder farmers and formal retailers. Below, I’ll explore those constraints, and share some of the approaches we developed to address them.

The five missing links between farmers and formal retail markets

The program identified five key “missing links” that separate farmers from formal retailers: market information, quality, supply and logistics coordination, cross-border trade, and financing.

Market information: In our experience, buyers and suppliers require more than an introduction to begin working together. Concerns over non-payment, non-delivery and quality failings make new relationships risky. Moreover, supply, demand and price variation create challenges for medium- and long-term planning.

To facilitate new partnerships, we screened, vetted and matched buyers and suppliers, taught smallholder-linked suppliers how to present their products and negotiate prices with formal retailers, and facilitated coordination to match buyer demand with smallholder production.

As buyers and suppliers continue to interact and build trust through networking and trial and error, there is opportunity for private innovators, industry associations, development organizations and governments to develop digital or low-tech market linkage solutions (e.g., a market actor directory showing historical transactions and reviews from prior trading partners) to lower coordination barriers and facilitate further partnerships.

Quality: To meet the requirements of high-value retailers, smallholders needed to make immediate improvements to their produce quality, with more sophisticated refinement likely needed over time. In our pilot program, the changes needed to meet current formal retail requirements were relatively minimal, and we were able to facilitate them by training smallholders to improve their post-harvest handling practices and use food-grade crates to minimize produce bruising.

As formal retailers across the region continue to face food safety scrutiny, further quality criteria are likely to become differentiators, if not requirements, for suppliers. The program assessed smallholders against the Kenyan Good Agricultural Practice standard to identify farm-specific actions to improve food safety and traceability. For example, smallholders were trained to document pesticide application timing to ensure a sufficient gap between application and harvest.

As high-value retail produce quality expectations evolve, investment for the necessary training and equipment for smallholders may come from buyers looking to strengthen their supply bases, farm associations improving their members’ commercial viability, development partners, or some combination of the above.

Supply and logistics coordination: The price and availability of logistics services, particularly for cross-border trade, remain a key constraint. For many suppliers, inconsistent produce volumes make it difficult to secure regular, cost-effective transport, while fragmented supply increases inefficiencies across the value chain.

In our pilot program, what proved effective was coordinating suppliers to aggregate volumes and align delivery schedules to buyer demand. This planning allowed suppliers to fill truckloads, reduce per-unit transportation costs, and provide the predictable supply desired by formal retail customers. Aggregating supply also facilitated access to cold-chain logistics, to maintain quality and deliver over longer distances.

Private sector actors can profit from providing these shared logistics and cold-chain services on a fee-for-service basis. Improving access to these services would not only reduce costs and losses but also enable more suppliers to participate in regional trade.

Cross-border trade: We worked with aggregators in Tanzania to supply Kenyan markets — a process complicated by non-tariff barriers to trade. By organizing a stakeholder forum and a workshop at a one-stop border post (where regulatory officials maintain a presence), we allowed traders to sit down with regulators to understand cross-border trade requirements.

From working with these parties, we observed a clear desire for stronger regional government coordination. Suppliers and buyers alike want access to regional market opportunities, and expect their governments to see not only the fiscal benefits of customs revenue, but also the benefits of neighborly cooperation to food system resilience.

In these conversations, traders and regulators highlighted practical opportunities to improve the efficiency and predictability of border crossings, such as the implementation of the East African Community’s harmonized sanitary and phytosanitary regulations, and the consolidation of border interactions under a lead agency. Both parties agreed that regional horticultural shipment procedures should be adjusted to make it easier to consolidate consignments in one container, facilitating smallholder farmers’ access to regional markets.

Financing: Both buyers and suppliers sought financing to meet working capital needs and fund necessary investments. During the pilot, we introduced market actors to financial service providers and provided loan application support, but longer-term solutions are needed at greater scale.

Many smallholder-linked aggregators lack the formalization (e.g., record keeping, governance, succession planning) required to access funding. In response, lenders should partner with technical assistance providers to overcome these access barriers and build a pipeline of bankable businesses. Aggregators’ relationships with established market actors remain an underutilized avenue for unlocking finance; financiers can leverage these relationships to develop or more widely deploy tailored value chain financing products for agriculture (e.g., tripartite arrangements, supply chain financing). Solutions like technical assistance and value chain financing unlock banking services to businesses that would otherwise lack access, while reducing financier risk. The financial institutions that pursue them stand to grow while simultaneously improving portfolio risk.

The road to formal market inclusion for East African smallholders

Formal food retail is expanding in East Africa, with Kenya’s supermarket sector growing from $9.6 billion in 2022 to $12 billion in 2024, and modern outlets gaining traction across Uganda, Rwanda and other countries. At the same time, regional coordination is gaining momentum, with intra-East African Community (EAC) trade growing from $12.1 billion in 2023 to $19.3 billion in 2025, and the EAC reaffirming its commitment to regional integration earlier this year. Even as non-tariff barriers persist and implementation lags policy ambition, corridor upgrades (e.g., road capacity expansions, digitized border procedures) and harmonized regulations are creating a plausible backdrop for predictable cross-border sourcing. The opportunity to link smallholder farmers to the predictable revenue streams of high-value retailers has never been more accessible.

Smallholder suppliers have long been excluded from high-value markets due to constraints in quality, coordination, logistics, border processes and access to finance. Our pilot demonstrates that these are not structural limitations: They are system constraints that can be addressed.

As the program has shown, there is no longer any doubt about whether smallholder suppliers can serve formal markets. The question now is whether we can build the systems that allow them to do so consistently and at scale.

Daniel Njiwa is Director for Inclusive Markets, Trade and Finance at AGRA; Kris Ansin is the Country Director at TechnoServe for Kenya, Tanzania and Uganda; Audrey Tsoi is a Fellow with TechnoServe.

Photo credit: Dragos Condrea

The solution is often framed as hinging upon mini-grids, which many view as a key pathway toward universal energy access. With some estimating that mini-grids will need to account for 40% of all installed capacity, there is growing pressure on the private sector to step up and make the necessary investments in this technology. Mini-grids are also an attractive energy access option for policymakers, as they can ultimately be connected to the state utility to provide a national grid, which is seen as the gold standard for electrification.

But this focus on mini-grids may be distracting policymakers in both the public and development sectors from faster, more cost-effective solutions, resulting in misallocated resources and slower progress.

Below, I’ll explore why mini-grids — despite being a good solution in some areas — have a number of under-reported constraints, and why emerging alternative solutions may present a more realistic path toward universal energy access. For the purposes of this article, I am focusing on AC (alternating current) mini-grids that are compatible with the national utility, and that usually include a central generating site connected to households by distribution lines.

Understanding the Downsides to Mini-Grids

Mini-grids have a number of downsides that are often overlooked in the discussion around energy access:

They are slow to develop: Mini-grid projects typically require a 20-year concession agreement, due to the longevity of their generation and distribution infrastructure, and the time they usually need to generate a return that will attract investors. These agreements prohibit others from selling electricity by the kilowatt-hour (kWh) and building a distribution network, creating a localized monopoly for these projects. However, governments are understandably cautious about agreeing to 20-year, legally binding concession contracts, for fear that they will be exploited by private sector companies or their investors, some of whom have been seen to leverage these agreements to generate overly generous returns. This leads to multi-year negotiations, which causes delays and results in large project set-up costs.

They are expensive for most rural and peri-urban areas: The 666 million that still remain unelectrified will mostly end up using their newfound energy access for lighting, phone charging, a fan and perhaps a TV. Only a few will be able to afford fridges, washing machines or air conditioning. In Africa, average consumption for residential customers on existing mini-grids is between 6 and 8 kWh/month, and for commercial users it is between 13 and 40 kWh/month. Based on my calculations, using data from the African Mini Grid Developers Association, the average cost per mini-grid connection is $1,734, and the average OPEX (i.e., operation costs such as salaries, repairs and maintenance) per connection, per month is $1.75. Hence, a mini-grid project seeking to generate a pre-tax return of 10% (the lowest return most investors will accept, given the risk) needs to generate $173.40/year, or around $14.50/month. Adding on OPEX of $1.75 gives a required revenue of $16.20/month. So even if electricity usage averages 10 kWh/month, an optimistic estimate which assumes significant commercial usage, the project would need to sell its electricity at a minimum price of $1.62 per kWh. This is far higher than what most African mini-grid customers pay, and what most regulators would allow.

At Bamboo Capital Partners Access to Energy (BCP), our recent experience has shown that mini-grid connection costs are falling to close to $1,000 per connection. But that still requires the mini-grid to charge customers $1/kWh to generate a 10% return for investors, and for larger electricity customers this pricing is not competitive with a diesel generator set, or installing their own solar generator. Yes, subsidies can bring down the price per kWh, but the scale of subsidies needed to electrify 666 million people with mini-grids is unaffordable, and private sector capital will always be wary about whether high subsidy rates will continue for the long term.

The penetration rates are too low: With low consumption and dispersed households in rural areas, the cost of the distribution lines becomes a large part of the system cost, making it uneconomic to serve these households. Based on the mini-grids that BCP has seen, as the manager of World Bank-funded energy access programs in Haiti and Madagascar, the penetration rates on mini-grids are often no more than 20% of the households in the concession area. This is not enough revenue to keep up with the rising costs of providing mini-grid electricity: While power generation assets like solar PV, batteries, inverters and controllers are seeing continued cost declines, with battery storage costs in particular falling by 36% between 2022 and 2025, the materials used in distribution lines are seeing real cost increases, especially as copper prices continue to rise. For rural mini-grids, this results in an overall cost increase for isolated customers.

The good news: there are now alternatives to mini-grids

Despite these challenges facing mini-grids, the broader outlook for energy access in Africa is improving, as a number of alternative electrification approaches have become more widespread and more affordable. These alternatives were not available five years ago, when many of today’s mini-grid projects were being conceived. In 2020, battery storage costs were almost 57% more expensive than in 2025, making the goal of serving 100% of customer need with solar uneconomic. As a result, diesel generator sets were needed to cover peak loads, and due to the economies of scale of these generator sets, a centralized site was needed to make their usage economic. But now, with the decline in battery costs, covering 100% of electricity needs with solar generation is possible in many countries, allowing less centralized, more distributed generation.

These alternative solar electrification options now include:

Solar Home Systems (SHS): These had long been dismissed by policymakers as not “real” electrification, as they only enabled lighting and did not give a path to increased use for commercial activities. However, a modern 12W SHS can deliver all the lighting and phone charging that a household needs for less than $80. Larger 50W systems can supply 3 to 4 kWh/month, enough to cover the needs of most rural families. While they’re traditionally sold as consumer products, several private sector projects in Africa are providing access to these devices through a utility-run “Energy as a Service” (EaaS) approach, where the assets are owned by the utility and customers pay a regular fee to use them. This allows the utility to incorporate these products into its offerings and extend its services to more remote customers — an approach BCP is currently funding and testing in Mozambique and Madagascar. This EaaS model can even enable utilities to reach the many households in Africa that have a combination of low consumption (less than 1 kWh/month), and high distance (more than 30 meters) between other households.

Solar generators: Cost reductions in the key components of solar generators have reduced their prices, so standard off-the-shelf solar generators are available in inverter sizes between 300W and 10 kW, costing between $300 and $6,000, and able to deliver between 15 and 250 kWh/month, allowing almost all businesses to be supplied by solar generators. The recent GOGLA report on Solar Generators in Nigeria showed median consumption for households and MSMEs at 7.4 kWh/month and 7.5 kWh/month respectively. According to my estimates, as long as these solar generators are sized correctly, they will deliver electricity to customers at between 35 and 16 cents/kWh without any subsidy. This is usually lower than the cost customers would pay to a mini-grid, even after subsidies.

Mesh grids and nano grids: Though these technologies are variations on the mini-grid approach, they keep their generation facilities as close as possible to electricity users, reducing the need for, and cost of, power lines and other distribution assets. Both of these approaches essentially consist of a solar generator whose power is shared between a small number of interconnected households located nearby.

Mesh grids typically use DC (direct current) power to connect users to the point of electricity generation/storage, and also to interconnect distributed batteries and share battery capacity. Inverters are installed at the point of usage to provide AC power. Although LED lighting and IT equipment uses DC power, most equipment is sold to accept AC, as this is the prevailing means of electricity distribution — hence, AC is essential for any productive use. DC distribution has the advantage of being safer to install and much harder to steal from interconnecting cables. But it requires a maximum working distance of 25 meters between the generator and the household, so mesh grids can typically only connect five or six households per generator/battery. The cost per connection is typically $450 for rural areas, and where there are clusters of houses, which is often the case, the penetration rate can exceed 50%.

Nano grids distribute AC power at the standard voltage (230V or 110V) over a small area. Their advantage is that the maximum distance between the generator and the connection can reach 100 meters, and there is no requirement for an inverter at each location. So they can service more households from one battery than DC mesh grids, which has cost advantages in areas of low demand. However, their higher voltage makes safety an issue, and theft of AC power is easier than DC. Their cost per connection is also around $450.

The advantage of the above approaches is that they:

• Reduce the need for a formal concession agreement: As generation assets are easier to move than distribution assets, less exclusivity is required to attract private sector investment. The regulator can also allow more competition to control pricing, while still enabling the private sector to earn a return that will attract investment — and no land needs to be acquired. These factors allow for much faster installation, with many fewer administrative procedures.
• Require less grants: In an era of steep reductions in aid, grants have become more difficult to get. The focus needs to be on getting the most electrification for each grant dollar. Using a combination of the above technologies, BCP’s estimates show that funders should be able to finance the provision of adequate electricity with grants of less than $300/connection, which is about half the current rate for mini-grid grants in Africa.
• Lead to higher penetration rates: The population density of rural sub-Saharan Africa is about 30 people per square kilometer, according to my estimates. At 6.9 people per household, this means the average spacing between households is around 480 meters, if homes are uniformly spaced. While the average hides a variety of different household densities in different locations, it shows how important it is to reduce distribution costs in a rural setting. Mesh grids and nano grids work best where there are clusters of houses which can be served with one battery/PV array. This is often the case in rural Africa. From my experience there are often clusters of 10 to 30 households, separated by several hundred meters from other clusters.

The World Bank, GEAPP and various country governments are working to test these concepts. Mesh grids are part of the Distributed Access to Renewable Energy Scale-up (DARES) program in Nigeria, which includes five mesh grid developers. Mesh grids are being developed in Haiti, supported by the Global Energy Alliance under a program managed by BCP. Solar home systems, used to supply EaaS, are being tested in Senegal, Sierra Leone and Malawi and piloted by BCP in Madagascar and Mozambique, where a call for proposals covering innovative grids has attracted additional solutions involving Energy-as-a-Service and mesh and nano grids. Meanwhile, solar generators are building sales rapidly throughout Africa, demonstrating that they can usually supply electricity to small businesses at a lower cost than mini-grids.

Maximizing the Impact of Grant Support

Drawing from BCP’s experience across a range of electrification programs, the table below represents indicative benchmarks for electricity consumption, the cost to profitably provide a new connection, and the grant support needed to attractive private sector investment as debt or equity across different technologies. While every project is unique and actual figures may vary by region and by context, these estimates help illustrate the relative economics and scalability of the various approaches discussed above.

Chart: Types of electrification approaches and funding needed

The 666 million people who still lack energy access represent about 130 million households. Based on the estimates above, I calculate that if these households were electrified exclusively with mini-grids, it would require $78 billion in grants and $52 billion in additional investment. For a mixed technology solution, the funding needs would amount to $27 billion in grants and $21 billion in additional investment.

In 2023, total aid to Africa was around $65 billion — a number that aid cuts have reduced substantially in the subsequent years. This makes mini-grids too expensive to consider as the primary solution for bringing electricity to excluded households across the continent.

To reach universal electrification by 2030, we need to move faster and recognize that aid money is limited. I suggest that this requires a different approach:

• Incorporating SHS as EaaS, solar generators, mesh grids and nano grids into the mix of tools available.
• Providing the electricity needed now, instead of building systems that won’t have all their capacity used for several years into the future. With declining real costs for solar power generation, it makes sense to postpone expenditure where possible.
• Leveraging the private sector to evaluate the most cost-effective way to provide the electrification needed in the short term to allow economies to expand. Policymakers should be technology-neutral, and should give the private sector freedom to determine the best way to achieve universal electrification via whichever emerging technologies meet customer demand with the lowest amount of grant support.

The energy access landscape in Africa has changed, and a grid-based approach built around centralized generation and remote distribution may no longer make sense in many markets. New funding limitations necessitate a new strategy, one that new technologies are ready to enable: It’s time for the sector to examine these alternative approaches.

Stewart Hicks is a senior advisor to Bamboo Capital Partners Energy Access which is implementing World Bank-funded off-grid electrification programs in Haiti, Madagascar, Mozambique, Burundi and Niger.

Photo credit: MDV Edwards

That conclusion is wrong, and the same mistake is being repeated across global health, including in areas like dialysis and medical equipment, reinforcing a Catch-22: The business models capable of meeting enormous clinical need are capital-intensive and operationally demanding, which means they typically stall out or get absorbed into grant-funded programs rather than growing into commercially viable operations. Investors and other funders read that as evidence that there’s no money in the system to pay for the services, and so the financing those businesses need to reach commercial traction never arrives. 

Once that conclusion takes hold, it becomes self-fulfilling. As a result, businesses that might have thrived while improving patient outcomes never get the chance to prove themselves.

Medical oxygen is where we can show that this Catch-22 can be broken — that the money is in the system, and the business models to unlock it do exist.

Why the catch-22 can be broken for medical oxygen

After COVID, the assumption across much of the global health community was that the challenge of providing medical oxygen had been largely solved. Billions were invested to expand production capacity — from oxygen concentrators to large-scale generating plants — and infrastructure that was genuinely inadequate a decade ago became meaningfully better. Yet the Lancet Global Health Commission on medical oxygen security found that 91% of people in sub-Saharan Africa still lack reliable access when they need it. While COVID-era investments significantly expanded oxygen production, these efforts stopped short of getting it to patients’ bedside with guaranteed reliability.

The bottleneck is no longer production capacity, but the Missing Middle: the absent layer of local businesses that handle logistics, maintenance, monitoring, training, and clinical support between the plant and the patient. As HealthPort founder Dr. Aishat Adeniji put it in a recent podcast hosted by Oxygen CoLab, even a hospital with 10 cylinders in stock can’t guarantee that a patient will be able to get oxygen at 2:00 a.m. without someone solving for “the last metre, not the last mile.” The evidence bears this out: Independent research led by Karolinska Institutet and Makerere University found that oxygen concentrators supported through services-based models were functional 95% of the time, against around 25% for equipment under standard procurement (in which equipment is owned and maintained by the facility) — even on the same wards. Meanwhile in Uganda, oxygen-as-a-service provider FREO2 maintained 100% oxygen uptime at partner facilities despite 215 power outages across these facilities in a three-month period. This suggests that the difference isn’t in the equipment: It’s in who is accountable for keeping it running. 

Building that accountability is the way to break the Catch-22. And where it has been built, the results speak for themselves.

Working business models with paying customers 

Over the past five years we’ve been lucky to work with a handful of local operators who have implemented services-based models for medical oxygen delivery. In this approach, a local operator takes performance responsibility for the full delivery chain (equipment, maintenance, distribution, clinical training, back-up supply, remote monitoring), and bills the facility post-service for what its patients use. The facility focuses on patient care, while the operator is accountable for uptime.

This model works for health facilities and their patients, but it can be financially punishing for operators without sufficient scale — especially when their access to affordable capital is limited. These businesses face high costs, covering customer acquisition, equipment and material purchases, and ongoing operating expenses, but post-service billing means they can work for weeks or months before facilities pay. For their customers, this is a feature, not a bug: Post-service billing is good for health facilities. They pay for what their patients use, after the fact, with no money upfront — a benefit that’s particularly important for facilities with thin budgets, which is where most of the public-sector need lies. But the working capital gap it creates limits scalability because, in many low- and middle-income (LMIC) markets, high commercial interest rates mean capital financing costs force operators to price for margin and require payment up front. This pushes pricing beyond what most health facilities can afford, and the addressable market shrinks to the private facilities that can absorb those terms — while excluding the public facility market that could offer a pathway to greater scale, along with the patients with the most unmet need. Our supplier mapping in Nigeria found that roughly 83% of oxygen SMEs serve private hospitals and clinics — roughly twice the share serving public primary care or maternity centers. These numbers provide a very clear signal of how the capital environment shapes who these businesses sell to.

HealthPort has been running a services-based model across hospitals in Nigeria for five years, with support from Oxygen CoLab and others that has allowed them to price for affordability, rather than survival, from day one. According to the company’s operating data, this has enabled HealthPort to deliver oxygen services at price reductions of up to 70% relative to prevailing market prices, and oxygen availability at its customer health facilities has moved from roughly 10% of clinical demand to 100%, including during surge periods. Retention across health facility customers is above 95%, and demand is outpacing capacity, with a waitlist for providers in as-yet-unserved regions. Meanwhile, HealthPort’s revenue from hospital customers has grown sixfold over three years, doubling in 2024 and tripling in 2025.

HealthPort shows what happens when the right capital lets businesses adapt their models to health facilities’ needs and deliver at prices those facilities can absorb: Latent demand becomes paying demand. Once supply became reliable and affordable, clinicians who had been rationing an unreliable supply started making clinical decisions they had previously been unable to make, and oxygen use at HealthPort’s customer facilities increased up to threefold. 

Businesses like FREO2 and HealthPort have paying customers and growing revenue — these are not programs being kept solvent by donor grants (Oxygen CoLab’s support to these companies ended early this year). And our mapping suggests that other oxygen businesses could follow, with the right market conditions and the right capital behind them.

What catalytic capital has to do differently 

However, the businesses that could fill the Missing Middle in medical oxygen don’t fit the capital structures that currently exist. Development finance institutions have transaction economics that push toward larger deals, and a business at pre-scale stage falls well below the threshold where per-deal due diligence costs are recoverable. SME lending requires financial documentation, governance structures and collateral profiles that early-stage health businesses haven’t had the time or support to build.

But solutions to this mismatch exist, and volume guarantees and blended-finance vehicles have de-risked suppliers and changed buyer behavior in health markets before. For example, MedAccess and Unitaid’s work with the East African Program on Oxygen Access combined volume commitments with demand-generation support from the Clinton Health Access Initiative to scale local oxygen production and distribution across Kenya and Tanzania, crowding in capital from local and international investors. 

However, these instruments work best in the environment they were designed for: centralized procurement and large multinational deals. Extending them to reach decentralized, last-mile SMEs will require three shifts in how catalytic capital is designed: 

• Pooled due diligence: Due diligence costs need to be spread across portfolios of SMEs in the same sector rather than borne on a per-deal basis; the economics of small-deal investing are otherwise unworkable. 
• Working capital built in: Operators facing working-capital gaps need bridging finance to be built into deals from the outset — not just equipment financing, which is what most oxygen-related capital has addressed. Trust-based philanthropic funders (Segal Family Foundation and Ripple Foundation among them) have shown what this flexibility can look like in practice, providing the kind of unrestricted and patient support that allows organizations like FREO2 to build the commercial track record that lets them take on larger and more structured catalytic capital, the kind they could not have absorbed at an earlier stage.
• Bundled support: Technical assistance addressing financial systems and governance should be embedded in the investment itself, available as part of the deal’s structure rather than required as eligibility criteria the business must satisfy beforehand.

We’re not alone in seeing the need for such a shift. Kaodili Udeh, Head of Regional (Africa) investments at MedAccess described the logic in our recent podcast: “Instead of supporting one large manufacturer at a time, we can support a portfolio of smaller manufacturers within the same sector. And what this does is it diversifies risk, but it also reduces transaction costs, because there are commonalities between the different SMEs, and so you can spread the due diligence costs around.”  

These instruments are catalytic precisely because they’re designed to be temporary — to build the track record and scale that make commercial and domestic finance possible.

Why Capital Alone isn’t Enough to Scale Oxygen Markets

But even well-designed capital won’t get oxygen markets to scale on its own, because it’s the conditions businesses operate in that determine whether the unit economics work.

In Nigeria, imported pharmaceuticals enter at 0% duty and oxygen therapy devices at 5%. Seamless steel cylinders (the primary container for distributing medical oxygen), on the other hand, carry an effective tariff of 60%. This isn’t a result of some deliberate design; it’s simply a residue of a system that categorized cylinders as industrial equipment rather than medical infrastructure. Even with the right capital and the right delivery model, a business can still find its unit economics unworkable inside that tariff structure.

The same challenge extends to regulation and market intelligence. Many regulatory frameworks written for industrial gas producers create market entry costs that medical oxygen SMEs can’t absorb. Nigeria’s National Agency for Food and Drug Administration and Control is responding directly to this need, evolving its capacity for the regulation of medical gases to facilitate the appropriate entry of new businesses into the market. In terms of market intelligence, this challenge manifests as a tendency among investors to support the same small group of well-established businesses, since they lack visibility into how smaller or younger enterprises are navigating these market conditions. In response, supplier mapping (the kind of exercise that identified roughly 14 credibly investable businesses out of over 100 we assessed in Nigeria) is the type of work that makes it possible for capital to reach the right companies rather than the most visible ones.

The key to success in these and other efforts to create an enabling environment for medical oxygen is coordination: Catalytic funders must deploy capital alongside policy reform and market intelligence, while governments base their procurement efforts on maximizing uptime rather than just acquiring equipment. And each of these activities must be treated as part of the same investment thesis rather than a separate lane of activity.

A decision point for catalytic funders of medical oxygen

Medical oxygen isn’t the only area where enormous clinical need coexists with businesses too capital-intensive to reach scale without financing designed to fit them. The same pattern traps a whole class of services. Biomedical equipment maintenance fits it exactly: 40-70% of medical devices in LMIC hospitals are broken or unused, and though local service businesses exist, the financing has never been structured to let them scale. In dialysis, to take one example, fewer than 2% of people with end-stage kidney disease in sub-Saharan Africa currently receive treatment, and the operators who deliver this service reliably are locked into out-of-pocket private markets because no one has built the financing that could enable them to reach government purchasers.

Oxygen is where the working models are in place, the evidence now exists, and governments in countries like Nigeria and Uganda have shown that they have the political will to act. If catalytic capital can be structured to fit in this sector, the same architecture will become available in other health-related sectors that are dealing with similar challenges.

The global health sector has been calling for a shift from aid to investment for years; designing the right type of capital is the last piece to executing that shift, and the success of this effort will determine whether this new investment-centric model is successful. That is the challenge — and the opportunity  — facing catalytic funders now.

Disclosure: Both authors are members of the Oxygen CoLab team and employed/contracted by Brink (part of Africa Practice), which supported HealthPort and FREO2 with grant funding and technical assistance, and worked directly with NAFDAC, Karolinska Institutet and Makerere University on the projects described in this article. Oxygen CoLab was funded by the UK’s Foreign Commonwealth and Development Office between 2020-2026.

Alex Losneanu is Innovation Director at Brink; Jason Houdek is an independent global health consultant focused on medical oxygen access and health-market development in sub-Saharan Africa.

Photo credit: Three Spots

Despite this drop in direct grants, official providers and multilateral development banks managed to mobilize a historic US $77 billion from the private sector in 2024. And broader multilateral development bank mechanisms have already pushed total private capital mobilization in developing economies past $100 billion, reaching $108.7 billion that same year. Yet this has not made everything easy for grant-seeking organizations. Private donors are far more demanding, often insisting on unique and measurable value propositions before capital is unlocked.

The emergence of precision-based capital

These changing funding realities are evident in how private capital is increasingly bypassing broad, open-ended thematic areas like public health or universal education, zeroing in instead on high-impact, technical interventions. Where government aid once funded the construction of a village clinic or the creation of a gender equity campaign, a private donor now funds the deployment of an AI app that detects tuberculosis just by listening to a cough on a mobile phone, or a digital passbook that makes government subsidies more easily accessible for marginalized girls.

Skeptics raise some valid concerns about this shift. Focusing strictly on niche projects might overlook the complex, interconnected realities of poverty. There is also a real danger that chasing easy-to-measure metrics will wipe out the deep, holistic community work that has always been the development sector’s forte. Besides, this shift is not seamless, as many NGOs and traditional field teams lack the specialized skills or inclination to adopt such corporate frameworks.

However, the fact remains that the overall pot of official development assistance is rapidly shrinking. This fundamental restructuring of global finance often makes the traditional, more comprehensive approach to development mathematically impossible. For organizations seeking to unlock private capital, targeting high-impact, outcome-driven interventions is not about abandoning intersectionality or ignoring the overlapping causes of social issues. Rather, it is about identifying strategic leverage points within a complex system to catalyze broader development.

Embracing the shift to private funding priorities

With their typical commitments to funding broad thematic areas, most development organizations — from large UN agencies to small community-level NGOs — tend to cover a wide range of activities. While this inevitably causes duplication, it is also seen as a prerequisite to ensuring substantive impact. For instance, while one UN agency might be the dedicated lead for reproductive health, several others will invariably include overlapping mandates like safe motherhood within their expansive portfolios.

These wide-spanning mandates of donors and fund-channeling agencies have, in turn, pushed implementers in the field to expand their own bandwidths as well. For decades, multilateral institutions’ request for proposal processes have been known to prioritize comprehensive, multi-sectoral approaches, inadvertently putting more specialized organizations at a disadvantage.

Now, as funding decisions become increasingly competitive and performance-driven, institutional donors and private investors are evaluating implementing NGOs less on the breadth of their mandates and more on the distinctiveness of the outcomes they can credibly deliver. Does this mean development organizations must narrow their scope of engagement? In many cases, yes — but not by compromising their missions. Rather, it means shedding activities that are not aligned with the outcomes they are uniquely positioned to deliver.

The methodology for achieving this can be found in key corporate strategies the development sector has long avoided. It requires understanding the principle of positioning: the ability to identify an unfulfilled, critical demand that maps directly to the organization’s offerings. And it demands a defined niche: the ability to demonstrate how those offerings fulfill the need better than any other entity within the larger ecosystem. While many in the sector have considered these concepts to be corporate jargon, incompatible with development-focused initiatives, it is high time we accept that taking some pages from the corporate playbook does not dilute a social mission: Instead, adopting these practices can enable the sector to stay relevant and survive.

Admittedly, this pivot is not without friction. The pressure of precision-based capital runs the risk of pushing NGOs away from their core missions, as they pursue more easily quantifiable metrics. Focusing on a niche project or goal that meets an unfulfilled societal demand and intersects with the organization’s core competency is an effective safeguard against this sort of mission drift. If an NGO can successfully execute this pivot, funders stop seeing it as just another interchangeable grant-seeker, and start seeing it as a proven expert in its field, whose specialized knowledge — backed by deep community ties, firsthand skills and a genuine dedication to the cause — make it a uniquely valuable partner.

Real-world examples of niche specialization

Consider the trajectory of Water.org, which perfectly illustrates how the corporate principles of strategic positioning and niche specialization function in tandem. In its early days, when it operated under the name WaterPartners International, the organization functioned much like a traditional NGO, relying on donor grants to directly fund and construct community wells — an increasingly unsustainable approach to scale through grant finance alone.

Establishing the positioning: The organization recognized the need to identify a specific, undisputed leadership area. So it pivoted from being a generic provider of rural water infrastructure to positioning itself as a pioneer in water microfinance. This required an honest recalibration of its portfolio; secondary, non-essential activities were shed so that all remaining community initiatives could be realigned to support this single, powerful identity.

Claiming the niche: To turn this positioning into a distinct reality that could attract private capital, it developed a highly specialized service called WaterCredit. Instead of asking donors to fund concrete and pipes, it asked philanthropic and corporate investors to guarantee microloans that empowered families to install their own water taps and toilets. This specialized financial instrument carved out the organization’s new niche: a distinct value proposition that turned vague philanthropic goals into a quantifiable social and financial return.

Critics often argue that precision programming of this type ignores the intersectional realities of development — that you cannot fix water access without addressing gender equity or climate change. However, claiming a niche does not mean denying this intersectionality; it means approaching complex systemic issues through a highly focused, measurable lens. WaterCredit drastically reduced the hours women spend fetching water, thereby tackling systemic gender inequities — but it did so through a targeted mechanism that private capital could actually underwrite. By turning water access into a data-rich financial asset like small loans from local microfinance institutions, with easy-to-track interest and repayment rates, it offered private capital a risk-return-impact equation that was clear, predictable and measurable at scale. Thanks to this shift from a broad mandate to a precise niche (along with the star power brought by co-founder Matt Damon), Water.org unlocked massive amounts of private capital, helping disburse US $8.2 billion in loans and reaching 92 million people.

Many others have also successfully adopted a strategic niche. For instance, Sanku was originally founded to sell a patented, specialized technology solution: a remotely monitored “Dosifier” that retrofits onto small-to-medium sized rural flour mills to automatically inject precise, safe amounts of micronutrients into flour as it is ground. When it later decided to pivot to a hybrid for-profit/non-profit model, rather than becoming a broad, multi-program NGO organizing an array of nutrition-focused projects, it built out its programming within this existing niche. It now provides millers with the tools, training, incentives and business models to fortify their food with lifesaving nutrients, creating a highly sustainable model that improves nutrition outcomes without raising consumer prices. Sanku’s specialized model is now reaching over 73 million people with fortified staples. It has set a new strategic target to reach 100 million people by 2028, and recently expanded with a nutrient premix factory in Ethiopia’s Kilinto Special Economic Zone.

New Story is another inspiring example. By moving from traditional construction to 3D-printed housing for low-income families, it created a high-tech niche that attracts private R&D-focused capital rather than relying on fluctuating aid budgets. Its innovations have reduced structural printing time to under 24 hours, compared to the weeks or months it can take to manually build a house. By treating housing as a scalable product instead of a manual project, the organization has helped house thousands across Latin America, and it built the world’s first community of 3D-printed homes in Mexico — at a price point that significantly increased the impact of every dollar spent. New Story was named one of Fast Company’s ‘World’s Most Innovative Companies’ for its work in de-risking R&D for housing finance and land development.

Clear value propositions are not just for established organizations. Whether it’s a rural women’s group painting murals in their village to combat domestic violence, or a bikers’ club sprinkling seeds to grow forests, any entity seeking resources for development or social impact work must prove its worth, and show why its work is special. The larger the entity, the more challenging this becomes — especially when it involves rationalizing a wide array of ongoing projects and activities.

The making of niche-focused NGOs

Transitioning from broad operations to a highly specialized niche is a fundamental pivot in both thinking and action. Such a realignment cannot happen in a vacuum, executed solely by NGOs themselves: It requires international policymaking and fund-channeling agencies to facilitate the process by earmarking risk capital and updating their selection protocols to favor specialized core competencies over generic, multi-purpose proposals. It also requires funders to help upskill NGO leadership and program teams in financial modeling, risk profiling and outcome-based design, so they can successfully migrate from traditional grant writing to structuring underwriteable projects. Instead of funding another generic project cycle, global fund aggregators like the UN need to finance development organizations’ core realignment towards Impact Breakeven, allowing NGOs to streamline their programmatic portfolios without facing immediate financial collapse. To make this feasible, one strategic linchpin could be the introduction of what I call “Transition Capital” — i.e., funds earmarked to cover the hidden costs of expert consulting and market analysis while an organization restructures its way of planning and operating.

Fortunately, the architects of global development finance are already setting the stage for this shift. This is visible in initiatives like the World Bank’s Private Sector Investment Lab and the International Finance Corporation’s highly targeted outcome bonds, such as the reforestation-linked outcome bond in the Amazon region, a specific financial instrument where returns are tied directly to audited, measurable success.

But despite this progress, a glaring gap remains. At one end of the spectrum, top-tier multilateral fund mobilizers — organizations that structure financial frameworks to attract private capital rather than deploying their own funds — are speaking the language of risk-adjusted returns. However, at the regional and country level, many organizations still remain anchored in conventional planning, where risk profiling is treated as a peripheral compliance checkbox. To bridge this divide, national governments and the regional hubs and local offices of multilaterals must evolve beyond their roles as compliance managers, acting instead as the strategic mentors required to help local implementers navigate this paradigm shift.

A high-velocity blueprint for funding this shift is already operational in India through the Skill Impact Bond: It pays implementing NGOs for highly specific employment-related outcomes, forcing them to shift from generic training modules toward focused, measurable execution models in order to get paid. With this instrument, the National Skill Development Corporation (NSDC) and its partners act as risk capital providers, offering upfront capital to implementing organizations. Investors recoup their capital, plus a financial return, from outcome funders when a program meets its rigorous, audited milestones on the ground. To date, the Skill Impact Bond has trained over 34,000 youth (74% of whom are women), achieving a 76% job placement rate and 62% retention rate, significantly exceeding national benchmarks.

Fund aggregators like the NSDC are ideally placed to promote this new mindset among NGOs. Sitting strategically in the middle of the aid hierarchy, global development banks, multilaterals and national agencies form a vital channel that can speak the language of precision-based capital while retaining deep community-centric intuition. Moreover, they have the scope to smoothly integrate tools for competitive analysis and market gap assessments into conventional grant templates, theory-of-change matrices and logical frameworks.

The aid era rewarded breadth. The era of precision-based capital rewards distinctiveness. Development organizations that can clearly answer why they are better positioned to deliver a specific outcome will successfully navigate this transition. More importantly, they are the ones that will define the next generation of social impact.

DISCLAIMER: The views and recommendations expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of any other organization or individual.

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

Photo credit: peshkov

The workhorse of this market is the entry-level solar energy kit, a category that accounts for more than 80% of the industry’s affiliated sales: a panel, a battery, and a charge controller that powers lights and charges phones, which ESMAP’s widely used Multi-Tier Framework for energy access classifies as Tier 1 access. Because few off-grid households can pay cash upfront, companies sell these systems through pay-as-you-go (PAYGo) financing. The household gradually pays off the asset through small payments made on fixed schedules, but the model is deliberately forgiving: A customer who runs short of cash loses service until the next top-up rather than losing the asset. Sector analysts have identified this repayment flexibility as a core feature of PAYGo.

Yet even with these financing alternatives, affordability remains an issue. World Bank research finds that only 22% of unelectrified households can afford the monthly payment for a Tier 1 solar kit purchased via PAYGo.

The energy access conversation in Africa is usually framed around deployment. Flagship efforts such as Mission 300, the World Bank and African Development Bank initiative to connect 300 million people by 2030, are defined by connection targets, cost reduction and rural reach. These are necessary goals. But they address a logistics problem, and logistics is not where the model strains.

For companies working at the last mile, the binding constraint is the time it takes for a household to repay an asset. PAYGo may remove the affordability barrier for customers, but for solar businesses, it introduces a new challenge: the problem of time. A solar home system a household cannot buy for cash can instead be paid off over 18, 24 or 36 months. The price for the consumer is spread out, but the cost of waiting is added to the provider’s balance sheet — and from there it spreads to the company’s investors.

In my years leading at Izili Group, a last-mile energy access business operating in markets from Nigeria and Senegal to Madagascar, I watched this time transfer shape everything: company performance, investor conversations and the quiet pressure that builds between the two. Much of the capital that supports energy access presents itself as patient, willing to wait for these PAYGo assets to be repaid. But in practice, it often behaves otherwise.

Understanding the Mismatched Timelines in PAYGo Solar

The industry’s performance data tells a story of steady maturation. Benchmarks from GOGLA’s PAYGo PERFORM initiative show that customers repay an average of 72% of the financed solar system’s value at 2x the contract term. That is not a lender losing 28 cents on every dollar: Contracts are priced with partial repayment in mind, and GOGLA’s monitor shows leading firms strengthening their unit economics at exactly these levels. What the benchmark reveals is pace: The industry measures recovery at twice the contract term because that is how long the cash takes to come back.

These numbers describe a model that works, but slowly. PAYGo portfolios mature over time, shaped by irregular incomes and lumpy household expenses — e.g., the harvest that comes in late and the school fees due each term — each of which pulls cash away from their PAYGo installments for weeks at a stretch. GOGLA’s latest cohort analysis found that “time itself is a risk factor,” as longer repayment horizons expose companies and customers alike to greater uncertainty.

But though value in this business accrues over years, not quarters, the capital that’s financing PAYGo solar companies rarely exhibits similar flexibility. Loans to PAYGo operators typically come with fixed repayment deadlines and fixed interest, often in dollars or euros, while revenues arrive in naira, shillings or other local currencies. That currency gap carries real risk: When a local currency weakens, the company’s debt grows overnight because the money it’s bringing in from customers is worth less, even if collections stay perfectly on schedule. And when a portfolio’s repayment curve stretches after a poor harvest, the debt schedule does not stretch alongside it. The mismatch is structural: capital with fixed demands, financing a business with flexible cash flows.

This mismatch is dangerous because of how the model consumes cash. A PAYGo company pays for hardware today and recovers the money over years, so every new customer widens the gap between cash going out and cash coming in. GOGLA’s monitor shows that the median firm still operates at a loss, with financing costs rising. For these companies, continuous access to capital is not fuel for growth. It is an operating requirement, like diesel for a generator.

The Impacts of Short-Term Capital on a Long-Term Business Model

That is why the recent pullback in funding to the sector has been so damaging. Total investment in off-grid solar companies fell 30% from 2023 to 2024, to roughly $300 million, and although funding stabilized at $315 million in 2025, the number of companies receiving any investment fell 41%, from 97 to 57. GOGLA’s own analysis draws the causal line explicitly: It attributes companies’ exits from the market directly to the funding contraction, and mentions that other surviving firms are experiencing financial distress that may require them to restructure before they can raise funding again. Meanwhile, some key players have pursued consolidation, including Ignite’s acquisition of ENGIE Energy Access, one of the sector’s largest operators, and Izili Group’s acquisition of Qotto. And all of this unfolded while recent customer cohorts were showing improving repayment performance, according to the same GOGLA monitor. When the capital stopped, companies with strengthening fundamentals did not simply slow down. They disappeared or were absorbed.

The deeper problem is one of matching the investor to the product. Energy access in Africa has largely been financed like venture capital; GOGLA notes that the sector’s startup funding moves with wider African venture capital trends. But the business behaves like infrastructure: It resembles water systems, rural roads or telecom towers far more than software. The assets are tangible. Revenues are modest but durable. Social returns arrive immediately, while financial returns build slowly over years. Nobody expects a toll road investment to achieve an exit in five years, yet solar portfolios serving the same populations are routinely held to that timeline.

When capital built for quick returns meets a business built for long-term engagement, the business adjusts in ways that damage both its economics and its mission. Companies tighten credit approval prematurely, shrinking the customer base that installment financing exists to serve. They cut field service teams to reduce costs, even though service quality is what keeps customers paying. They withdraw from harder markets first, writing off distribution networks and customer relationships that took years and real money to build, and forfeiting the scale on which the model’s economics depend. Each decision is rational in the short term. Yet each undermines the company’s fundamentals because, in this model, installments drive demand, service drives repayment, and scale drives average cost down.

Capital that understands time

Better-aligned capital already exists, and it is instructive to look at how it is structured. Results-based financing pays companies for verified connections rather than promised growth, and it has moved from pilot to policy: More than $900 million has been committed to the off-grid solar sector, over half of it in the past few years. The largest single example is the $300 million off-grid solar component of Nigeria’s World Bank-backed DARES program. In procurement, All On’s Demand Aggregation for Renewable Technology program pools equipment orders and provides working-capital finance for distributors, reducing equipment costs significantly due to its concessionary financing solution and bulk pricing negotiations with suppliers. CLASP’s Productive Use Financing Facility uses targeted subsidies and grants to make income-generating appliances such as solar water pumps and refrigerators affordable, helping to align the amounts a customer repays with the earnings the asset produces.

However, these programs, valuable as they are, mostly restructure international and donor money. The more consequential shift is in who is providing the capital. GOGLA’s 2025 investment data shows local currency transactions reaching a record 47% of sector investment, with domestic commercial banks in Nigeria, Tanzania and Madagascar financing off-grid solar for the first time.

In Nigeria, InfraCredit’s local currency guarantees have mobilized domestic pension funds and insurers into off-grid energy bonds: By the company’s account, roughly ₦12 billion has been deployed across five local developers, reaching more than 28,000 beneficiaries. The logic of these investors is structural, not sentimental. A Nigerian pension fund holds decades of obligations in naira, so it can hold a multi-year naira asset to maturity without being forced to sell or refinance at a fixed date. A dollar-denominated fund holding naira-based obligations lacks this flexibility, because it earns its return in dollars while its portfolio companies earn theirs in naira. So if the naira loses value, this inflates the debt these companies hold, as the very currency their customers pay in no longer holds enough value to cover these obligations, even when collections continue on schedule. Additionally, portfolio companies in dollar-denominated funds must exit on a set schedule, too often precisely when capital has dried up and refinancing is hardest — which is exactly what happened across the sector during the funding contraction in 2024. African institutional capital is not inherently more patient or more generous. But it is structurally matched to the PAYGo business model: It lends in the currency customers pay in, on timelines its own liabilities can hold to term.

A growing investor class calibrated to PAYGo solar’s time horizons does not lower the bar for operators. Energy access companies must keep earning trust with customers and investors through service quality, transparent reporting and customer protection. The sector has built its own discipline mechanism for this: The PAYGo PERFORM standards, developed by GOGLA, CGAP and the World Bank Group’s Lighting Global program, give companies and investors shared definitions for measuring repayment and customer ownership, so that a portfolio in Dakar can be compared credibly with one in Antananarivo. But accountability runs both ways. For companies to build trust in difficult markets, the capital behind them must continue to flow for long enough that their efforts translate into repayment, ownership and sustainable operations.

The lesson from my years in this sector is not that it lacks “patient capital.” It is that much of the capital that is labelled as “patient” is actually not — a gap that is now visible in funding data, in company failures, and in markets quietly abandoned. The next phase of energy access will be financed by capital designed for the timelines the PAYGo model demands: blended structures that absorb early volatility, results-based funding that rewards verified outcomes over promised speed, and domestic institutions whose liabilities match the sector’s horizons. Electricity access in Africa is a public good delivered through private enterprise. If we want it to endure, the capital behind it must be built to wait.

Kolawole Osinowo is a Senior Research Fellow at the FATE Institute and a Public Voices Fellow Tackling Poverty, a partnership of Acumen and The OpEd Project.

Photo credit: Yuliia Kaveshnikova

Between the first loan we at Villgro guaranteed and the company’s eventual IPO, there was a credit ladder that BharatRohan had to climb rung by rung: accounts receivable financing from a second lender, a non-convertible debenture from a third, a follow-on loan from Caspian Debt without any guarantee, a warehouse credit line, and finally a bank overdraft provided at the lowest interest rate in the entire journey. Each rung was reached by successfully repaying the previous one.

While grants and equity dominate the conversation in impact finance, our experience shows that debt is often the most practical tool for enterprises that need moderate amounts of capital, i.e., between US $50,000 and $300,000. Debt has high potential to bridge this missing middle of capital needs — too large for a grant, too small and early for most equity investors. At the same time, debt providers face real and perceived risks around the creditworthiness of the sector or enterprise. That’s where a guarantee from a trusted intermediary to repay the loan in case of default can make that debt accessible.

However, across the 12 enterprises we initially supported through this model of guarantee-backed debt, we learned that a guarantee alone is not a silver bullet; the harder work is solving the problems that keep enterprises stuck. From our work, we have identified four major problems that must be addressed — two of which involve the enterprises, with the other two related to the lenders. I’ll highlight those challenges below, sharing some key takeaways for the ESOs and other intermediaries that provide debt guarantees and other support to these businesses.

Problem 1: Customers are not confident in the enterprise’s product

Guaranteeing loans to enterprises can only take you so far. For many of these entrepreneurs, who are often selling technologies that would increase customers’ long-term revenue in exchange for a high upfront cost, the product itself may need additional financing support to give customers the confidence to invest in it.

Take the case of Raheja Solar. They developed solar drying technology to help smallholder farmers — primarily women in cooperatives — preserve produce, as processed goods can earn significantly higher margins. While the model was effective in the long-term, farmers faced a risk that made them less likely to buy the dryers: They did not know if their increased margins would be enough to justify the investment. Since they had to take a loan to buy the dryers, they needed to have confidence that a market would be available to generate enough revenue to pay off the loan.

To address this concern, we structured a two-sided financing intervention: One element consisted of a guarantee-backed loan to the farmers and cooperatives from Samunnati, a lender specializing in farmer-producer organizations, so they could afford to buy the dryers. This was further supplemented by a guarantee from Raheja Solar to buy all the dried produce sold by the farmers, which was paid for by an additional Samunnati loan guaranteed by Villgro.

The results, according to Raheja Solar, included 36 solar dryers installed at six farmer producer organizations, 240 farmers with access to the technology, and approximately $450 in additional annual income per user. Raheja’s demonstrated model, along with Villgro’s guarantees, attracted two other Indian lenders who gave additional end-user financing. The positive reviews from pilot customers helped drive sales of these solar dryers in new geographies.

Takeaway for intermediaries: When an enterprise’s sales are stalled, the instinct is to find more capital for marketing. But working directly with customers often reveals that the barrier is market uncertainty; they do not know if they can recoup their initial investment in the product. We must solve this market confidence problem before financing can flow.

Problem 2: Enterprises reach for equity when debt would move faster

Impact enterprises at a growth inflection point often default to raising equity. The reasoning is understandable: Debt feels risky to entrepreneurs amidst uneven revenue, and equity investors seem like a more attractive option for securing growth-stage capital without the burden of monthly payments. What these entrepreneurs don’t realize is that debt can be a good choice, especially when time is of the essence.

SNRas Systems provides a good example of the advantages of debt capital. They developed the BlueBox, a nano-recirculatory aquaculture system that the company estimates can increase fish egg hatching rates from 70% to 95%. The enterprise had retail contracts, a clear path to expansion, and a strategic acquisition opportunity that would help them reach new supply chains and market segments. The only thing missing was $60,000 in working capital, and they needed it within weeks, not months.

An equity round would have taken far longer than the opportunity allowed. So in 2023, we at Villgro guaranteed a commercial loan from Caspian. SNRas used the working capital to complete the acquisition, expand into live fish transportation, and open four new retail stores. This unlocked exceptional revenue growth, from $72,000 in 2023 to over $1 million by 2025, according to information the company shared with Villgro. The enterprise has since raised over $1.2 million in debt and equity from multiple institutions without the need for a guarantee.

Takeaway for intermediaries: Rather than wait months for an equity round and miss a vital market opportunity, debt is faster, allowing the enterprise to meet key deadlines and reach scaling milestones that make them more attractive when equity investment becomes the right fit. Intermediaries may need to clarify the advantages of debt capital to entrepreneurs, addressing their concerns, explaining why equity isn’t always the best option, and helping them build a capital stack that’s suited to their current and future needs.

Problem 3: The lender perceives risk the enterprise doesn’t actually carry

Enterprises that are genuinely creditworthy but operate in sectors that lenders have no framework to assess face another challenge for accessing debt: For lenders, low visibility means high risk. They perceive the operational and financial risk of these enterprises as high and mis-priced because of their own lack of exposure to the market. As a result, they reject loans to entrepreneurs working in sectors like aquaculture engineering or biocomposite materials, because no one at the lender has ever underwritten debt to those types of companies before.

Take the example of Spectrus Sustainable Solutions: By 2023, they had been producing biomaterials from bamboo fibers and agricultural waste for eight years. They had a consumer brand on Amazon, inbound business-to-business orders from large corporates, two consecutive years of profitability, and over 1,000 product SKUs. But none of that mapped to a standard credit assessment, which prioritizes metrics like interest owed on existing loans, and current assets/liabilities, making it difficult for the company to obtain debt capital. Thanks in part to a default guarantee provided by Villgro, a lender, Nabkisan, was willing to provide a $125,000 loan. But what changed the lender’s understanding of the sector and willingness to stay engaged was our ongoing relationship with both parties: Villgro’s regular check-ins with Spectrus, aimed at documenting its repayment performance and addressing other potential concerns, and our explicit discussions with Nabkisan about how the enterprise’s risk profile compared to the lender’s initial assumptions.

Spectrus repaid the loan ahead of schedule. A major commercial bank, HDFC, subsequently extended a $300,000 unsecured loan at market rate with no guarantee required. The best part was that we were not involved in this transaction; Spectrus got the loan with a repayment record that spoke for itself.

Takeaway for intermediaries: A guarantee changes lender risk exposure, but it does not automatically change lender understanding. That requires deliberate engagement — repayment updates, risk profile discussions and sector context — throughout the loan cycle. It’s important to help lenders update their calibration of the sector based on evidence.

Problem 4: The loan sizes are too small to make it worthwhile for lenders

Even when an enterprise operates in a known and lendable sector, they may still receive a “no” if the loan size is too small. For lenders, the economics of small-ticket loans are unfavorable, leading them to focus on larger tickets.

BharatRohan faced this issue with its first small working capital loan of $30,000. For Caspian Debt, the operational cost and effort of underwriting did not justify approval, even with a guarantee. So Villgro assembled a complete due diligence file and shared it, along with a curated pipeline of lendable clients, with Caspian. The information reduced their operational costs, for the BharatRohan loan and more broadly, making it more feasible to offer a loan of this size.

We deliberately selected Caspian Debt because their ticket size range could accommodate BharatRohan’s future needs. That thinking paid off; as mentioned earlier in this article, BharatRohan received a second, larger loan from Caspian without needing a guarantee.

Takeaway for intermediaries: For small-ticket loans, it’s helpful to reduce the lender’s operational burden directly with a complete, curated due diligence file and a pipeline of similar enterprises, to reduce operational costs and make the economics work. While our role as ESO is to support social enterprises, lenders may also require support, as they must see a risk-return proposition that fits their mandate.

Conclusion

Across these enterprises, Villgro provided the same financial instrument, a first-loss guarantee, each time. What changed was the problem the guarantee was designed to solve — along with everyone’s willingness to design an intervention around the problem rather than around the instrument. 

Guarantees are not new and have been used for risk reduction for many years. Combining this well-understood instrument with ways to address the specific problem faced by the social enterprise is the key to addressing gaps that guarantees or technical assistance alone cannot bridge.

Srinivas Ramanujam is the CEO of Villgro Innovations Foundation.

Photo credit: PRASANNAPiX