Rafode Limited receives Early Stage Financing from KCIC
One of the biggest hurdles that entrepreneurs face is accessing capital in the market. As most commercial investors see SMEs as being too risky to finance, it prevents the businesses from receiving necessary funds to be able to scale up. In order to mitigate this issue, Kenya Climate Innovation Center (KCIC) developed an Early Stage Financing mechanism (ESF) in order to fill this gap. The most recent recipient is Rafode Limited, a KCIC client.
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KCIC invests in Rafode through Early Stage Financing
Rafode is a non-deposit taking microfinance institution in Western Kenya that seeks to expand access to renewable energy for the rural poor. As solar lanterns, solar panels, and clean cookstoves are often times unaffordable for the bottom-of-the-pyramid consumers, Rafode offers such products to its clients through monthly payments.
KCIC decided to offer the ESF funding to Rafode due to their strong potential for growth. They have proven their business concept and have an experienced management team. Furthermore, their elaborate marketing strategy allows them to reach a wider population, which expands their impact as they increase profitability.
De-risking early-stage enterprises
Early Stage Financing (ESF) is a loan that KCIC offers to some of its clients who have moved beyond the grant stage but are still working on becoming “investor-ready.” In addition to offering them the much-needed financing, ESF helps climate entrepreneurs reduce their risk margin. If a commercial entity sees that an enterprise has already received a loan and successfully paid it back, they will be more likely to trust the business.
Furthermore, KCIC wants to encourage its SMEs to move away from the “grants-only” mindset as they grow. Some startups feel that they can grow their businesses just by earning grants- thus becoming dependent on them. However, the only real way to scale up an enterprise is through commercially-oriented capital. As a result, KCIC offers Early Stage Financing in the form of a loan rather than a grant to its enterprises that meet certain criteria.
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Increasing access to renewable energy through Early Stage Financing
“It’s really exciting to see that we are signing another case of 5 million Kenyan shillings, which will go into what we call results-based financing. Which basically means, as people uptake more cookstoves, more money is available to the enterprise,” explains Edward Mungai, CEO of Kenya Climate Innovation Center. In other words, part of the funds are available to the enterprise now, and after demonstrating positive results, they will be able to receive the remaining funds.
“This is just another indication of the innovativeness of KCIC and the services that we provide to our enterprises,” Mr. Mungai goes on. “Together with our subsidiary, Kenya Climate Ventures, we are keen to see Rafode succeed with this innovative type of financing; it will not only give more Kenyans access to affordable renewable energy solutions, but it will also help the country become more resilient to climate change.”
By: Alise Brillault