But as the twice-delayed compliance deadline looms at the end of 2026, a potential flaw threatens to undermine the legislation. 

To meet strict EUDR data requirements, major commodity buyers are turning to remote sensing and satellite AI to prove that their cocoa, coffee, palm oil, soya, timber, cattle and rubber are deforestation-free.

But what happens when an algorithm misreads the landscape? More importantly, what happens to the vulnerable small farmers who are abruptly cut out of the market due to this sort of error?

If the industry relies solely on automated compliance without human input and context, we risk creating a massive “leakage” problem, where deforestation-linked goods are simply rerouted and sold to countries with no anti-deforestation laws. Overreliance on algorithms may ultimately clean up European corporate markets and spreadsheets while quietly pushing smallholders and deforestation itself into the shadows of the grey market. That isn’t the intended aim of EUDR, but it’s a very real possibility. 

The Limitations of Automated Compliance

The Earth Observation sector is in the middle of a golden age, as satellites and data analytics tools enable canopy and other landscape changes to be mapped from space with astonishing precision. For buyers hoping to avoid sizeable EUDR non-compliance fines, this capability offers a viable solution: They can now conduct risk mitigation without ever having to set foot in the plantation. 

However, satellite algorithms have a key limitation: they can identify changes in forest cover but cannot determine intent or causality, nor can they account for complex realities on the ground. 

In my work at MosaiX and the Earthqualizer Foundation, I bridge the gap between digital innovation and local realities every day. By helping global fast-moving consumer goods brands and supply chain partners navigate EUDR compliance using tools like satellite imagery and land plot mapping, I’ve seen firsthand the limitations of these technologies. When satellite data is processed blindly without human insight and local context, it oversimplifies complex geographies. For a small farmer wrongly accused of deforestation who lacks the resources to prove their innocence, a false positive can be devastating.

The Illusion of Compliance and the Threat of Leakage

Under the EUDR, the law is unyielding: Any plot of land deforested after the December 31, 2020 cut-off date is permanently barred from the EU market. And while the law states that companies must mitigate “non-negligible” deforestation risk before a product can enter Europe, it leaves the actual response entirely up to the discretion of the corporate buyer. Faced with a red pixel indicating tree-cover loss and no response protocol issued by EUDR, the path of least resistance for a corporate buyer is often to immediately exclude the supplier entirely rather than investigate. This creates the illusion of compliance, but it is a failure in the context of sustainable development. 

When small farmers are frozen out of premium, regulated markets, they do not simply pack up their tools and stop farming. Survival dictates that they find another buyer. So instead, they are often driven into “leakage markets” — i.e., regions or buyers with lower environmental standards, less scrutiny and lower prices. In these grey markets, deforestation continues while the farmers risk being pushed into poverty.

We cannot achieve environmental sustainability by sacrificing social equity. We need to design systems that keep smallholders and small suppliers included in sustainable markets and allow for their re-entry, rather than erecting algorithmic walls they struggle to climb.

Three Ways to Prevent Supply Chain Exclusion in the EUDR Era

To ensure regulations like the EUDR achieve their goals without over-reliance on satellite technology, we must fundamentally shift how supply chain data is managed and applied. Companies need to move beyond simple automated compliance and exclusion and prioritize social equity alongside environmental protection. Here are three steps companies aiming to comply with both the letter and the spirit of the law can take to bridge the gap between orbital tech and human geography. 

1. Anchor monitoring systems to accurate, up-to-date baselines: Companies must ensure that deforestation alerts are generated from verified, current land-use baselines rather than outdated or generic datasets. Weak baseline maps lead to overwhelming false positives, as they struggle to distinguish between a protected natural forest and an active agricultural plot. This often results in misdirected resources and unnecessary supplier friction, ultimately penalizing those at the very bottom of the supply chain. Monitoring systems must also enable precise supplier attribution, with traceability that connects the full supply chain directly to a specific plot of land. Without this granular traceability, automated alerts drive inaccurate accountability — resulting in blanket bans on entire regions or cooperatives, rather than targeted corrective action.

2. Implement an alert response protocol grounded in human-verified data: While the EUDR mandates zero tolerance for deforestation, corporate buyers shouldn’t treat an algorithmic red flag as an automatic suspension. Detection should trigger a conversation and a field verification, not an immediate ban. Automated screening must activate a clear response protocol for high-risk tree-cover loss alerts. This protocol should include on-the-ground verification to establish the true context of the clearing — determining whether it represents an actual land-use conversion, a natural event, or third-party encroachment along disputed land boundaries. Ultimately, automated alerts flag risk; field verification determines accountability.

To execute this verification fairly and interpret satellite data accurately, companies must invest in localized partnerships. Collaborating with local implementation experts and community organizations provides the nuanced knowledge required to investigate alerts thoroughly, ensuring that strict regulatory compliance doesn’t come at the cost of unjust supplier exclusion.

3. Shift from supply chain exclusion to Recovery and Re-entry Programmes: Perhaps the most significant flaw in the current EUDR compliance landscape is the lack of a route to redemption. Fearing massive fines for non-compliance, risk-averse corporate buyers are reacting with blanket, permanent expulsions of the smallholders themselves. Instead, companies should look to collaborate and pioneer Recovery and Re-Entry Programmes. By providing a structured pathway for suppliers to acknowledge responsibility, restore affected areas and safely regain market access, these programmes transform a rigid compliance risk into a genuine opportunity for landscape-level rehabilitation.

Conclusion 

The EUDR is a landmark piece of legislation, and satellites and AI have given us indispensable visibility into our supply chains. But at the end of the day, they are only tools. 

Laws and satellites do not save forests; people do. Getting compliance data from space is an incredible first step, but it fails without accurate baselines and verifiable, on-the-ground action. 

Priscillia Moulin is Director of Strategy for MosaiX’s Europe branch and Senior Advisor to both Inovasi Digital and Earthqualizer.

Photo credit: Matthew de Lange

Now, for the first time, a synthesis of portfolio evaluations involving British International Investment, Proparco, FinDev Canada and FMO, undertaken by Kore Global, provides portfolio-level evidence on the outcomes and impact of these DFIs’ gender-lens investments at scale. The synthesis provides a strong validation of the 2X Criteria framework as a screening tool for gender-lens investing. The evaluations consistently show that meeting the 2X Criteria is a strong predictor of positive outcomes for women as employees, leaders, entrepreneurs and consumers. Moreover, entities that meet the Criteria’s threshold for the representation of women in leadership have especially strong gender outcomes.

Although these findings may not be surprising, this new body of evidence also provides insights into a less discussed area: how and why some investments achieve deeper and more meaningful gender outcomes than others. For example, it highlights:

• The specific client-level factors and mechanisms that enable or hinder progress on gender outcomes;
• The extent to which leadership commitment, internal accountability and organisational culture shape gender outcomes; and
• The importance of a client’s internal gender expertise in enabling meaningful change.

As gender-lens investing continues to mature — and as a growing number of investors seek to go above and beyond the 2X Criteria — understanding these drivers of success is critical. By identifying not only what works but why, and under what conditions, investors can deploy capital more strategically and support deeper, more sustainable impact.

Using Behavioural Science to Predict Gender Performance

To truly drive gender-smart business practices, it isn’t enough to just set targets; we need to understand the behavioural science behind why investees (companies, funds, financial institutions, etc.) adopt or fail to adopt gender-smart practices and behaviours. Kore Global’s analysis showed that the investments with the strongest gender outcomes were not concentrated in one region or sector. Instead, we found that the top performers across the 81 investments we evaluated shared a set of common enabling factors, which included internal Capabilities, external Opportunities and a clear Motivation to prioritise gender equality: the three components of the COM-B model for behavioural change.

Using this framework to understand what drives investees’ gender-responsive business practices, our evaluation identified four factors that drive gender equality outcomes (see Figure 1 below).

Figure 1: Enabling factors driving gender-smart behaviours and practices

Looking at three case studies from FinDev Canada’s portfolio evaluation, we can see how these factors lead to transformative changes in gender-smart business behaviours and practices.

• Dedicated resources and structures for gender integration: These enable investees to build gender expertise, embed gender considerations into decision-making, and achieve stronger gender outcomes. For example, LAFISE Investment Management, manager of the Central American Small Enterprise Investment Fund IV (CASEIF IV), appointed a dedicated Sustainability and Gender Officer and developed tailored gender action plans for portfolio companies. Similarly, Climate Fund Managers (CFM), through its Climate Investor One fund, adopted a group-wide gender policy and fund-level action plan, providing a clear framework for integrating gender considerations into its operations and investment.
• Systems to collect and use sex-disaggregated data: Robust data systems enable investees to understand where women are or are not being reached, identify gaps, and adapt their strategies accordingly. Ecobank, for example, upgraded its monitoring systems to better track women entrepreneurs in sub-Saharan Africa across its customer base and portfolio. These gender-disaggregated insights helped strengthen the business case for serving women-owned businesses and informed the design of products and services under its specialised banking programme Ellevate, which has reached over 73,000 women entrepreneurs to date.
• Clear understanding of the gender context and business opportunity to focus on women: This understanding enables investees to move beyond compliance and recognise and act on the commercial and development opportunities associated with a gender-responsive approach. For instance, Ecobank’s Ellevate programme was built on the recognition that women entrepreneurs represent an underserved and commercially attractive market segment, which could be reached by combining financial products with leadership development, training and market access. Similarly, CFM leveraged practical frameworks such as the Women’s Empowerment Principles to deepen its understanding of gender dynamics in the climate infrastructure sector and identify opportunities to strengthen both inclusion and climate resilience.
• Senior leadership buy-in, commitments and values: Leadership commitment plays a critical role in sustaining momentum and signalling that gender equality is a strategic priority. In the case of CASEIF IV, senior leadership commitment was instrumental in embedding gender considerations throughout the investment process. At Ecobank, senior gender champions and dedicated governance structures have ensured that women’s economic empowerment remains a strategic priority across the bank’s operations. Meanwhile, CFM’s leadership commitment, reinforced through engagement with FinDev Canada and the adoption of the Women’s Empowerment Principles, has embedded gender equality within the fund manager’s broader ESG and climate strategy.

By focusing on these four factors, investors can provide targeted support to their investees to move from abstract intentions to concrete behaviors, ultimately strengthening both gender outcomes and business performance.

Why Does this Matter?

This synthesis highlights how meaningful advances in gender equality aren’t just an accident of where a company is located or what sector it operates in; they are driven by the intentional choices that businesses make to embed gender-smart practices into their daily operations. By prioritising these deliberate strategies — grounded in their gender-related capabilities, opportunities and motivations — businesses can create lasting gender outcomes that go beyond basic compliance.

DFIs and values-aligned investors alike can build on these four enabling factors to strengthen the integration of gender considerations across the investment process, thereby deepening impact across their portfolios. For example, these factors can be integrated into sourcing and due diligence processes to prioritise deals with the greatest potential for positive gender impact. They can also be incorporated into deal structuring as targets for investees, or in the delivery of tailored technical assistance support.

Encouragingly, we have seen that DFIs are already beginning to adjust their gender-lens investing approaches by turning evaluation findings into a blueprint for better results. These institutions are now refining their strategies to reflect COM-B factors: from tightening up screening and due diligence, to investing more heavily in client support and advisory services. By leveraging evaluation insights, DFIs are now better able to identify high-impact opportunities that will drive real change for women globally.

By sharing these insights, we hope to support investors’ efforts to move beyond screening with GLI frameworks such as the 2X Criteria, to actively shaping the conditions that enable deeper and more transformative gender outcomes.

More details about these examples can be found in FinDev Canada’s published case studies.

Katie Turner is an independent consultant with over 15 years of experience in gender-lens investing; Jenny Holden is a Principal Consultant at Kore Global.

Photo credit: Jacob Wackerhausen

Twenty-five years after the Abuja Declaration called on African Union members to allocate 15% of public expenditure to health, roughly 96% still fall short. As a result, as governments are taking on greater operational responsibility in an attempt to strengthen their health sovereignty, they face the dual challenge of dealing with more limited fiscal space, while also attempting to replace the diminishing support structures that were initially provided by external entities.

For decades, core operational functions in the African health sector, which include planning, procurement, cold-chain logistics and last-mile distribution, have often been supported or co-managed by external partners, including bilateral donors, multilateral health funds and international NGOs. Their support has gone well beyond financing. In many cases, these partners embedded technical staff directly within government systems, covering functions such as supply chain planning, procurement oversight and data management. 

However, this has not always happened in an integrated manner, resulting in duplication and fragmentation, as multiple implementers have often supported the same functions independently, creating overlapping activities and parallel systems. As financing arrangements evolve and a greater share of responsibility shifts toward governments, a deeper capacity gap is becoming clear: Many governments do not yet possess operational sovereignty over their own health systems, i.e., the ability to finance, coordinate and optimize core functions.

This is a critical limitation. Strengthening these mission-critical functions, especially those that involve the healthcare supply chain, will be essential to ensuring the long-term resilience and effectiveness of the continent’s healthcare systems.

That does not mean governments must operate every function themselves. Rather, they must be strategic in deciding which functions they are equipped to operate, which they must outsource to specialized service providers, and which may need to remain supported by external partners due to insufficient government resources. This process of assessment and coordination represents the first time many governments are exercising real stewardship over their national health supply networks, based on their unique needs and institutional capacity. 

Nigeria’s National Health Products Supply Chain Strategy offers a useful example. To bring together previously fragmented, donor-led supply chains, the strategy adopted a managed outsourcing model that integrates private third-party logistics providers into zonal hubs, enabling the system to operate as a unified whole. The model was designed to improve reliability across key commodity groups, such as HIV/ARVS, malaria treatments, TB commodities, vaccines and reproductive health products.

Nigeria’s efforts in this area do not stand alone. In 2012, facing a crisis where health facilities experienced contraceptive stock-outs for up to 83% of the year, the Senegalese Ministry of Health transitioned from a traditional pull system, where individual facilities had to request and wait for resupply, often leading to delays, to a government-managed “informed push distribution model” (IPM). By leveraging private third-party logistics providers to deliver contraceptives directly to facilities on a fixed schedule, shifting the logistics burden from facility staff to trained professionals, the government reduced the proportion of health facilities experiencing stock-outs from more than 80% to less than 2%, while simultaneously reducing yearly distribution costs by 36%.

However, for most African nations, these remain islands of excellence rather than the continental norm. The shift from government as provider to strategic orchestrator of the healthy supply network highlights an important stewardship gap. Unlike the specialized units managing Nigeria’s National Health Products Supply Chain or Senegal’s IPM, many ministries do not yet have the full visibility needed to understand what their logistics systems (which span government, private sector and development sector actors)  actually cost, or how they perform. In many cases, for instance, fragmented, disease-specific supply chains were often shaped by historical vertical programming approaches, whereby HIV, malaria, TB and other programs developed and operated separate supply chains rather than an integrated system, obscuring the true price of delivery. Without this end-to-end visibility, governments are left unable to justify outsourcing decisions, negotiate performance-based contracts, or ensure that public resources are delivering real value for money.

Furthermore, the institutional muscle required to manage these transitions is often underdeveloped. Supply chain oversight is frequently split across multiple agencies, making integrated models difficult to coordinate. Even when the will exists, financial risks, like unpredictable government payments, discourage the private providers whose services are needed to bridge the gap. Additionally, if governments take on a larger procurement portfolio without strong internal audit and compliance functions, this can increase their exposure to waste, fraud and conflicts of interest, which can erode public trust if not proactively managed. 

Efforts to consolidate these fragmented structures into cost-efficient and resilient health supply networks can be supported by focusing on seven practical areas:

• Design a people-centered healthcare service delivery strategy: Operational sovereignty must begin with an understanding of where and how people actually access healthcare, and how it is financed. And if these functions depend on entities across the public, private for-profit or private not-for-profit sectors, designing a workable strategy requires a whole-of-market approach. Governments must align their health supply networks with customer journeys, which may include service delivery at clinics, pharmacies or community programs. This integration ensures that systems are not just theoretically sound, but responsive to demand and resilient during real-world disruptions.
• Build a segmented health supply network with tailored distribution channels: Governments should move away from one-size-fits-all distribution models. Different products and types of medical equipment, from vaccines to laboratory commodities, have different handling requirements and servicing/maintenance needs. It’s important to intentionally design segmented supply networks that match product needs with the most cost-effective delivery channels.
• Clarify what governments now own: As governments take on greater responsibility to pay for the provision of health services, ministries must clearly define the core functions they can sustain, which may include regulation, financing, integrated financial and operational planning, procurement oversight, contracting, payment management, data governance, performance monitoring, and quality assurance. More importantly, they must determine how they expect to steward the entire network, with a clear focus on affordability and equitable access. In the absence of explicit role definition, governments risk inheriting responsibilities without the institutional structures needed to manage them effectively. Clear ownership strengthens accountability and establishes the foundation for sustainable outsourcing and partnership models.
• Establish cost and performance visibility across the network: Governments cannot continuously optimize resources without a clear understanding of how their systems perform. Establishing baselines for delivery performance, service reliability and true end-to-end logistics costs enables ministries and network actors to identify inefficiencies, adapt operating models, improve services, and drive down costs in line with evolving priorities. It also supports evidence-based planning, rather than allowing decisions to be driven by assumptions or short-term budget pressures.
• Strengthen sourcing, contract management, digital oversight, and compliance and oversight assurance capabilities: Ministries must build capacity in strategic sourcing, contract design and vendor management. Equally important is strengthening internal assurance functions, such as auditing and compliance processes to deter waste, fraud and abuse. Global good and digital platforms such as Logistics Marketplace are already in place to support this shift. Funded by the Global Fund, in partnership with the Gates Foundation, this innovative digital platform centralizes the discovery of logistics providers and streamlines the procurement of logistics services, making it easier for key stakeholders — including governments, non-profit and development organizations, manufacturers, wholesalers, and retailers — to find, assess and engage logistics providers.
• Align regulations, procurement and financing with whole-of-market goals: Policy frameworks must enable partnerships, not constrain them. This means moving to performance-based contracting, where incentives reward transparency and service reliability rather than just the speed of disbursement. Predictable payment systems are also foundational for attracting capable private partners.
• Reorient external support to build stewardship models: Technical assistance must evolve from parallel implementation to governance building. Instead of donors running delivery systems, they should prioritize building the capability of national governments to oversee them. Long-term sovereignty depends on institutional capability, not short-term implementer support.

The costs of fragmented logistics systems are increasingly difficult for health systems to absorb. True health sovereignty will not be measured only by the size of a national health budget, but also by whether a country’s health system has a properly managed supply chain, where products move seamlessly because the state has mastered the art of stewardship. The next phase of health sovereignty will depend on how effectively governments steward the markets and systems that support public health delivery.

Scott Dubin is the Creator of Logistics Marketplace, a first-of-its-kind global good, designed to strengthen health and humanitarian supply chains in low- and middle-income countries. 

Photo credit: Jacob Wackerhausen

This situation has contributed to a global financing gap for micro, small and medium-sized enterprises (MSMEs) that is estimated in the trillions (as of 2018), rising significantly when informal enterprises are included — numbers that highlight the scale at which economically active but undocumented businesses remain underserved by traditional credit systems. The problem is not that these borrowers exhibit poor financial behaviors, and it’s not even that there’s a lack of data about their financial activities. It’s that credit assessment systems aren’t designed to capture and interpret the data that’s generated by their financial decisions.

using alternative data to boost financial inclusion

A common misperception about financial inclusion is that underprivileged groups don’t generate useful data. In practice, informal economies generate a diverse set of economic signals: These include mobile money transactions, airtime and utility payments, merchant activities, and platform-based transactions (i.e., e-commerce and social commerce). According to research conducted by the Global Partnership for Financial Inclusion, alternative data from cellphone usage, transaction histories and other elements of a customer’s digital footprint can increase loan access when integrated into risk assessment models. However, it can be challenging for lenders to acquire access to this data — and to establish how it fits into their existing credit system. They typically need to establish (often-costly) partnerships with third party providers to obtain this data, and these providers still may lack data on many of the customers they’re hoping to serve.

Additionally, most credit systems are built around structured, standardized data inputs such as formal credit bureau records, bank transaction histories, and documented income and collateral. Informal market data, in contrast, is typically spread over multiple lending, payment and e-commerce platforms, varying in format and frequency, difficult to verify, and only loosely linked to formal identity systems. As a result, even when data is available, it is challenging to employ in traditional credit models.

Fintech innovation has attempted to overcome this gap by incorporating alternative data based on behavioral and transactional criteria into credit assessments, and in some cases, this has allowed first-time borrowers to acquire credit. However, these approaches are often layered onto traditional credit models rather than replacing them. The underlying systems built around fixed credit scores, formal identity verification and stable income assumptions remain unchanged. As a result, while these models improve visibility into borrower behavior, they do not fundamentally change how creditworthiness is assessed. Without rethinking how systems interpret fragmented and irregular data, access improves at the margins, but it won’t completely solve the problem of getting credit to previously excluded borrowers.

Building a Credit Assessment System for Informal Markets

While working as a product manager at Qore, a banking-as-a-platform solution provider that enables lenders to reach excluded borrowers, I was involved in building Recova, a credit assessment and decisioning system designed to support lending in markets with limited formal financial data. This challenge is particularly evident in markets like Nigeria, where a large share of adults remain excluded from formal credit despite active economic participation. According to World Bank research, a key barrier to reaching these customers is their lack of reliable credit histories and formal financial records, which makes is difficult for borrowers to be assessed using traditional credit models.

Recova had the same limitation as other credit assessment systems, as many of its borrowers didn’t have standard credit histories. But their financial behaviors were easy to see in their mobile money transactions and payment activity. To understand and assess these behaviors, the system added: transaction-based indications from digital payment activity; rule-based risk frameworks that could function with insufficient data; and flexible scoring models that let lenders change risk limits depending on the situation.

However, in building Recova, we learned that for many lenders, the key challenges in serving these borrowers did not involve data input, but rather system architecture. We realized that this architecture needed to address three key issues:

• Identity Fragmentation: Borrowers often operated across multiple financial channels — such as cash, mobile money and informal networks — without a formal identity. This made it difficult to consolidate this financial behavior into a borrower’s profile.
• Data Reliability: Available data was often incomplete or inconsistent, and lending systems could not assume its accuracy, which required decision models that could function despite this uncertainty.
• Risk Interpretation: Traditional lending models interpret income variability as risk, but this variability is common in informal economies. As a result, the system needed to distinguish between actual financial instability and expected fluctuations in income and behavior.

Recova did not totally address these issues, because they reflect structural constraints that cannot be resolved within the scope of the product. However, it continues to successfully serve lenders across Africa by enabling credit decisioning in informal markets through flexible, context-aware algorithms that take these borrowers’ circumstances into account, rather than simply feeding their data into the lender’s established credit scoring models.

Credit Access in Informal Economies Is a System Design Challenge

Building Recova brought to light the fundamental problem with the way current lending systems are structured: Making it easier for people in informal economies to get credit isn’t just about getting more data; it’s also about changing how credit assessment systems obtain and understand the transactional data generated by informal borrowers. To tackle this, the industry needs to stop thinking about lending as a simple data problem and start thinking of it as a layered system design problem, where several constraints must be handled by the various layers of the credit assessment system at the same time. These constraints include:

• The Data Layer: The challenges facing this layer aren’t defined by a lack of resources, but by fragmentation and inconsistency. Credit assessment systems in informal economies leverage financial signals from mobile wallets, bank accounts, informal savings clubs and transactions with merchants, but these signals don’t always match the system’s requirements in terms of data structure or frequency. This makes it difficult for traditional systems, which rely on clean and standardized inputs, to interpret them effectively. As a result, simply aggregating more data does not improve decision-making, unless the system can reconstruct meaningful patterns in a borrower’s financial behavior from incomplete and irregular inputs. What is required is a shift toward systems that: actively interpret data to identify borrowers’ behavioral consistency; adapt to changing inputs by incorporating alternative data rather than just relying on a fixed data set; and attempt to make sense of partial financial histories rather than rejecting these applicants due to lack of data.
• The Identification Layer: This layer presents a greater challenge than the data layer, since financial behavior cannot be effectively utilized for credit assessment without a trustworthy method of linking this data to individuals or businesses. In many informal markets, individuals use various IDs, like phone numbers, wallets or unofficial business names, which are not consistently connected. This fragmentation hampers the creation of relevant credit histories and leads to the repeated reassessment of the same individuals as if they were new entries. To tackle this issue, we need systems that move beyond static identity verification and instead gradually establish identity by associating behavioral patterns and transaction histories with individual borrowers over time. This would allow them to develop credible financial identities through usage, rather than solely through documentation.
• The Trust Layer: In informal economies, trust is established in a fundamentally different way than in formal markets. Instead of being verified by formal institutions, it is built through relationships, frequent interactions and community validation. This difference is often missed by traditional credit systems, since they focus only on signals that can be legally verified and acknowledged by institutions. As a result, they’re overlooking a large group of potential borrowers whose dependability is often showcased through consistent conduct in small-scale transactions, engagement within local networks, and informal recommendations. To integrate these alternative markers of trust into credit systems, it is necessary to transform social and behavioral trust into structured inputs without oversimplifying the process, thus effectively connecting relational credibility with formal financial evaluation.
• The Risk Layer: Conventional lending models struggle to adjust their risk assessment processes to include informal borrowers. The basis of traditional credit systems is reliability, which borrowers demonstrate through consistent financial activities and stable earnings. In contrast, borrowers in informal economies exhibit greater instability, with income sources that fluctuate due to external disturbances, market trends and seasonal changes. While this variability is often viewed as a marker of significant risk, it can also suggest resilience and flexibility. A more effective approach is to substitute fixed stability measures with dynamic assessments that examine how individuals adapt to changes over time, recognizing patterns of long-term reliability, consistency and resilience despite short-term fluctuations.
• The Incentive Layer: This layer ultimately determines whether any of these systems work in practice. For credit systems to be effective in informal markets, all players must perceive obvious benefits in operating and utilizing these systems. Borrowers need confirmation that supplying their personal financial information will lead to significant access to credit; lenders must believe that the signals they get from borrowers are trustworthy; and intermediaries like fintech platforms and data providers/aggregators need to have a reason to offer accurate and consistent information. When these incentives don’t line up, the quality of the data deteriorates and adoption slows, putting the whole system at risk. Building an effective credit assessment infrastructure requires lenders to incorporate real advantages for all stakeholders into the system, and to be open to feedback on how well these incentives are working. If they don’t, people are less likely to keep using the system over time.

Understanding the challenges inherent to each of these layers leads to a critical insight: Credit systems in informal economies cannot be designed as linear pipelines. They must operate as adaptive systems, in which data informs identification, identification enhances trust, trust determines risk, and risk decisions reinforce incentives. This interwoven design reflects the real economic activity in informal markets.

Some aspects of this design strategy are already evident in digital lending and mobile financial ecosystems. However, they are frequently deployed as isolated data upgrades without identity resolution, or updated risk models without trust integration. The creation of a more functional approach depends on greater system-level coherence: creating infrastructure that allows all the layers of a credit assessment model to grow together.

Why Financial Inclusion Requires More than Data

The next step in financial inclusion will be based less on how easy it is to get more borrower data, and more on how well systems are built to understand this data. There is plenty of financial activity and signaling in informal economies, but the data this activity produces is still not in sync with credit systems that were created with formality, uniformity and traditional assessment standards in mind. If these systems are not adapted, large groups of economically active people will continue to be excluded from access to formal credit — not because they are untrustworthy, but because the system can’t properly assess their trustworthiness.

To design a better credit assessment system for these markets, providers need to go beyond small fixes and take a more integrated approach, in which data, identity, trust, risk and incentives are all seen as interconnected layers of a single system. These layers must be brought into line with the realities of informal economic life before credit systems can start to accurately identify and support the people they have long excluded.

Ayokunmi Sodamola is a technology professional working at the intersection of AI, human-centered design and system architecture.

Photo credit: Wirestock

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

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

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

The common failure pattern in rural water supply

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

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

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

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

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

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

Our early assumptions — and where they failed

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

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

Reality challenged all three.

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

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

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

The pivots that changed everything

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

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

Practical lessons for other practitioners in rural water access

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

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

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

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

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

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

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

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

Photo credit: Pluca

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

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

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

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

The Impact of an African Tech Pioneer

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

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

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

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

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

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

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

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

Africa’s Tech Ecosystem Emerges

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

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

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

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

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

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

An Ecosystem Built to Last

Will this ecosystem endure?

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

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

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

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

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

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

Photo credit: Tina Basson

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

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

The symptoms of Africa’s broken climate finance system

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

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

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

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

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

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

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

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

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

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

Understanding the Broken Capital Stack in African Climate Finance

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

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

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

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

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

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

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

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

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

Photo credit: wabeno

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

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

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

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

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

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

The capital challenge for cleantech ventures in Africa

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

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

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

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

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

The case for Off-Balance Sheet Special Purpose Vehicles

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

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

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

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

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

Source: Author interviews with founders.

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

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

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

Towards deeper capital markets

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

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

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

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

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

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

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

The case for cautious optimism

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

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

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

Photo credit: arthon meekodong