German Development Minister Gerd Müller announces the launch of ALF, the new initiative of the ministry with Incofin IM and German bank KfW.

The Agri-Finance Liquidity Facility (“ALF”) is a debt facility investing in sustainable agri-enterprises in mainly Africa and Latin-America, funded by KfW/BMZ and managed by Incofin IM as the Alternative Investment Fund Manager.

With a size of EUR 40 million, the facility will support actors in the sustainable agri-food value chain in developing and emerging countries to maintain their operations during and after the Covid-19 crisis. The capacity for investments has been extended to other agri-finance lenders and their investees in order to be as broad and inclusive in its impact as possible.

To offset the pandemic’s negative impacts on the sustainable agricultural production sector, KfW approached Incofin IM to develop a proposal for an emergency liquidity facility initially targeted for investees of the Fairtrade Access Fund (FAF). After reviewing the proposal, it was jointly decided to expand the focus of the facility to other agri-finance lenders, principally members of the CSAF (Council of Smallholder Agricultural Finance), and their investees to be as broad and inclusive in its impact as possible. This will allow the facility to be as much inclusive as possible and to generate further impact.

 

Covid-19 caused a drop of more than USD 500 of the annual income

Covid-19 disrupted global food systems, testing the resilience of farmers who already receive the least value for their contributions to agri-food value chains. Many farmers, forced to harvest with significantly reduced personnel, lost quality and volumes of their crops.

As household budgets shrank, the sustainability of a product lost its strength as a purchasing argument. Fairtrade sales suffered a blow. On average, this meant a drop of more than USD 500 in smallholder farmers’ annual incomes, representing a substantial impact on their household economies.

 

Launching video ALF

The case of Safe Water Enterprises, from Kenya to Cambodia

COVID-19 has put a break on the vast majority of businesses around the world. Logistical chains are broken, borders are closed, planes cannot fly, people can hardly move. This has created huge disruptions in many sectors, including hospitality, tourism and any industry relying on imports or exports. Meanwhile, the sectors that work to produce a basic good, embedded in domestic economy dynamics and serving local populations, are not only surviving… some of them are even growing faster than expected. This is the case  for the local, small scale agriculture production. Incofin has noticed that their agricultural partners, compared to other investees tend to face less portfolio at risk.

Also water businesses that provide drinking water access to local populations seem to manage well in these times. Since the start of the pandemic, Incofin, along with its partner Danone Communities, has been monitoring a number of water businesses around the world to better understand the impact of COVID-19 on their operations.

This article is part of a series of articles titled “Water Businesses in COVID-19 times, even more needed, even more wanted“. Today we explore the realities faced by a specific type of water businesses, the Safe Water Enterprises (SWE), or most commonly known as water kiosks. Because of COVID-19 campaigns people are becoming more sensitized to the importance of a strong immune system, drinking water consumption from Kenya to Cambodia is in fact increasing and water kiosks are there to provide it while reinventing themselves.

Six key conclusions can be drawn from the water kiosk in COVID-19 times:

  1. Since the pandemic started, safely managed drinking water was promoted as an essential good and water businesses were promoted as crucial “COVID-19 fighters”. 
  2. Despite decreasing purchasing power from clients, drinking water consumption from low income population has been going up across the world. The majority of safe water kiosks managed to preserve or even increase their revenues during the crisis. 
  3. Safe Water Enterprises’ decentralized operating structure is made of numerous points of sale, close to local production for local consumption, this allows to spread the risk.  
  4. The Safe Water Enterprise business model has proven to be able to adapt in contexts of crisis: some businesses accelerated the implementation of the delivery service, others also focused on accelerating digital payment solutions, using mobile applications or water ATMs.  
  5. Thanks to their grass roots nature, Safe Water Enterprises have been powerful amplifying agents of the WHO messaging overall and played the role of last mile health agents in local communities. 
  6. By cumulating a strong social impact and a proof of financial resilience, Safe Water Enterprises are the perfect partners for impact investors looking to support self-sufficient businesses in need of capital and know-how to bring their contribution to  UN SDG 6 on “ensuring availability and sustainable management of water and sanitation for all”.  

 

Since the pandemic started, safely managed drinking water was immediately promoted as essential to maintain a high immune system, playing a crucial role in the fight against COVID-19

Water is essential for good health – it is the largest single constituent of our bodies (about 60% on average) and is vital for us to live and function well. Water helps to maintain normal physical and cognitive functions with an intake of at least 1.6-2 liters per day as advised by various international public health organizations including the World Health Organisation (WHO). Proper hydration is the fundamental pillar for the optimal development of the most important physiological functions that occur in our body. Staying hydrated, as well as other good practices like sleeping, exercising and eating well keeps people healthy and in a better position to fight off any illness.

When people get sick, it is also essential to keep providing them enough quantity of safe water. When people go through fever (COVID-19’s main first symptom), risk of dehydration is high, and more specifically in the risk groups (older people, children and pregnant women). Drinking water is also good to soothe throat irritation. Given the above, it goes without saying that promoting access to safe drinking water is an even more imperative need during the COVID-19 times that we are in.

 

Demand for water during COVID-19 is increasing

Despite decreasing purchasing power from clients, it seems that drinking water consumption from low income populations has been going up across the world. The majority of water kiosks managed to preserve or even increase their revenues during the crisis. They provide a unique and affordable way to access safe drinking water for vulnerable populations for whom buying 1.5 liters packaged water for example is too expensive and who have no other affordable options except boiling untreated water extracted from boreholes putting their health at risks.

Most SWEs have seen their volume of water sold increasing every month since the beginning of 2020. Some SWEs witnessed a sales decrease in April due to lock down restrictions, but by showing strong adaptation of their delivery model, also these businesses noticed that on a year-to-date basis (from January to May 2020), their volumes are above last year’s performances.

 

Supply remains sound thanks to the decentralized business model

The decentralized model of SWEs has been their key strength to face the crisis. Water kiosks’ operating structure is made of numerous points of sale, close to local production for local consumption, each kiosk reaching about 3,000 to 5,000 people. The consequence of such organisation is that the risk is spread. Even if one kiosk has to close, it will have a very low impact on the overall capacity to supply water. 

Furthermore, most water kiosks organize their network in clusters, where a sub-group of kiosks are supervised by a regional office whose role is to support kiosks’ operational needs, helps them to develop outreach strategies to deepen their outreach, ensure water quality at all times, and lead marketing and awareness campaigns to boost sales. With such a set up, in case one kiosk was to run into difficulties, the cluster structure would easily allow an agile reorganization 

We need to think of these kiosks as franchisees: a local entrepreneur is on the ground operating the kiosk, and is strongly supported by her/his network. When COVID-19 started, it was clear that to remain convincing towards clients, water kiosks had to be exemplary in their implementation of “good behaviors” to fight COVID-19. This is where the power of the franchise business model kicked in. Most SWEs approached their entrepreneurs through their regional managers to instruct them to implement appropriate social distancing measures and guide them on business continuity measures. They were able to continue providing drinking water and to make an income for themselves.

Naandi, in India, showed exemplary business continuity and innovation reflexes during the first weeks of the crisis. To ensure proper maintenance in areas touched by lock down, where its team might not be able to travel, Naandi quickly put together a database of all local entrepreneurs who met their quality and expertise criteria and could support any kiosk facing maintenance issues.

 

An agile model, proven able to adapt in contexts of crisis

The SWE model covers the whole value chain, from water extraction to payment collection.

We have seen a fast transformation of the business models to adapt to new consumer behaviors. Some businesses accelerated the implementation of the delivery service, like Oshun in Senegal, or Jibu in Kenya, by collecting and activating consumers databases and overcoming logistic barriers. Others also focused on accelerating digital payment solutions, using mobile applications or water ATMs without contact between consumer and operator.

In India, in the context of a strict lockdown, people are looking for a home delivery service and e-commerce. At Naandi, everything was done to keep the contact, albeit mostly virtual, with consumers and to get their feedback. Today, Naandi is in the process of developing an app for consumers to place their orders more easily and during the lockdown, they continuously communicated around health and safety via Whatsapp, SMS or phone calls.

 

Safe Water Enterprises, last mile health agents in local communities

Dealing with water should imply abiding by the highest standards of hygiene and purification rigor. SWEs’ first priorities were to protect the health of their workers and to lead by example.  Many SWEs provided trainings related to Water and Sanitation to their staff to inform on how to stop the spread of the virus. They quickly adopted WHO recommendations, by making hydroalcoholic gel and masks available to all staff and train them on measures of social distancing.

For instance, Naandi, a water kiosks network touching more than 300,000 clients around India, quickly set up an internal management committee in order to reinforce organizational alignment. The work of this committee has led to designing new communication channels and guidelines as well as redefining the roles and responsibilities within the team, implementation of safety measures, sharing inspirational stories from the field across the network, dispelling fake news and sharing ways to manage their well-being.

 

Thanks to their grass roots nature, SWEs have been powerful amplifying agents of the WHO messaging overall. For instance 1001fontaines Cambodia, a network of around 200 kiosks mostly located in rural Cambodia, has sent their consumers text messages to educate them on the WHO sanitation guidelines. 1001fontaines Cambodia has also partnered with UNICEF to distribute free bars of soaps in rural areas.

 

Meanwhile in Mexico, the testimony of EcoAlberto underlines how close SWEs are to the local community and how their proximity allows them to operate as a last mile health agent: “In a context where the community is not precisely aware of what preventive measures they can adopt, our team made the difference. Each time our staff implemented WHO advised behavior in front of our clients it had a positive impact and a change of habits of our clients.

EcoAlberto has donated 30,000 liters in 4 communities via the bulk system reaching approximately 900 people who were lacking safe drinking water access. Many other SWEs took specific actions: Jibu in Uganda gave water to hospitals and to orphanages, while Oshun donated water to NGOs taking care of babies. Waterkiosk Limited for example distributed in partnership with Bilal Kenya pedal operated hand washing stations to communities along the coastal region in an effort to curb the spread of COVID-19.

 

SWEs are active and resilient players in their community

Water kiosks or SWEs are providing one of our most precious and basic goods on this planet: water. The fact that they succeed during a global crisis in continuing delivering their service proves their strong resilience.

Awareness campaigns made people, including the most vulnerable ones, understand the importance of clean drinking water to preserve their health. Through a decentralized model, a deep outreach and agility, water kiosks established a customer recognized brand, as proven by the sales increase since the first quarter of the year.

They have also shown that in a difficult and disrupted business environment, they can adapt and continue to operate, using new home delivery strategies and digital payment solutions to maintain their revenues and cash flows. Additionally, water kiosks have proven their true and original nature as social businesses, playing the role of the last mile health agents in those parts of the world where basic facilities can be miles away.

By cumulating a strong social impact and a proving financial resilience, SWEs are the perfect partners for impact investors that look to support self-sufficient businesses in need of capital and know-how in order to contribute to the UN SDG 6 “ensuring availability and sustainable management of water and sanitation for all”.

 

Incofin IM, together with Triodos Investment Management, BlueOrchard, Developing World Markets, Microvest, Oikocredit, responsAbility, Triple Jump and Symbiotics signed a Memorandum of Understanding (MoU) for coordination in response to COVID-19 to support the microfinance sector.

 

Together, these nine investment originators and fund managers in impact investing have about USD 15 billion of assets under management in financial inclusion, invested in more than 80 emerging and frontier markets across Africa, Asia, Eastern Europe, the Middle East, the Caucasus, Central Asia and Latin America.

Measures taken locally to reduce the spread and impact of COVID-19 can affect clients, operations and liquidity of Microfinance and SME finance institutions. The Memorandum aims to coordinate efforts in the provision of ongoing refinancing in a responsible manner, thereby enabling these institutions to adequately respond to temporary changes in business conditions.

The MoU notably emphasises: “Microentrepreneurs and SMEs will form a vital basis for social and economic recovery. Supporting Financial Inclusion and preservation of the strong foundations that have been built over recent years is therefore of vital importance. This calls for enhanced cooperation within our sector. We have learned from previous experience that through transparency and close cooperation we can best help our partners and our own organizations through challenging times.”

The MoU is not legally binding but forms a strong basis for coordination over the coming months, with pragmatism, transparency and tolerance as key principles. The MoU also serves as a basis for dialogue with other stakeholders, such as multilateral and development finance banks and policy makers.

The signatories welcome additional impact fund managers to join the initiative in the coming weeks, as many have expressed interest. Strong alignment among market protagonists is the best possible way to safeguard the interests of impact investing, and ultimately the social impact and benefits that the sector offers to low income households and small businesses in low- and medium-income economies.

Incofin is pleased to announce the third edition of its Impact Newsletter.

We are convinced that in order to build sustainable businesses, managing social performance the same way we manage financial performance makes good business sense. This enables institutions to better understand the needs of their clients and to be more results and outcomes oriented, leading to increased business performance.

Discover the most recent updates on impact in our third Impact Newsletter.