SDG Impact Finance Initiative, with the support of Convergence, awarded a proof-of-concept grant of USD 200,000 under its Innovation Window to offgrid.finance. Offgrid.Finance channels blended commercial and climate capital to growing SMEs in developing markets to make access to commercial low-emission and productive-use clean technology more accessible, and generate a significant tangible climate change mitigating and resilience impact.
SMEs often face difficulties in accessing capital due to a lack of collateral and high transaction costs associated with borrowing. This issue is particularly acute in emerging countries, where limited access to capital stifles job creation and restricts SMEs' ability to withstand medium-term risks and shocks. In countries such as Kenya, SMEs account for 50% of total economic activities and generate between 70% and 90% of employment opportunities. SMEs play a crucial role in the economy, and their challenges have significant developmental impacts.
Offgrid.Finance sets up vehicles (‘Pop-Up SPVs’) that address the access to finance problem through deploying large-ticket size institutional capital to smaller-ticket SMEs, encouraging them to invest in clean technology assets. The Vehicle bundles up groups of SME clean technology loans to ensure a consistent risk-return and impact profile for the lenders. In the case of SMEs defaulting, cleantech assets will serve as collateral, mitigating the risks for lenders. Furthermore, Offgrid Finance employs low code technology to automate lending processes, resulting in efficient loan origination and credit risk management, as well as more affordable financing for clean-tech SMEs compared to traditional banking sources.
Design question and learning potential for the market: How can a blended finance instrument be designed to offer affordable loans to SMEs for the acquisition of clean and productive-use technology?
Offgrid.Finance launches a new mechanism that blends commercial and climate capital through a low-cost, sell-managing “Pop-Up SPV.” The vehicle offers 6-month inventory finance loans to clean tech SMEs backed by clean tech assets that serve as collateral and reside in the digital warehouse of Offgrid Finance during the loan outstanding period. The SPV used purchase and sales orders to verify the volume of cleantech assets and delivery timelines.
Due to the SPV's self-managing nature, Offgrid.Finance can charge a management fee that is lower than traditional SPVs. Moreover, the SPV's lending process is automated using technology, further reducing the borrowing costs for SMEs. Additionally, the vehicle is highly replicable. Offgrid.Finance aims to extend beyond its current market in Kenya and roll out $100 million of annual debt finance to establish over 20 'Pop-Up SPVs' within five years across emerging markets worldwide.
