Live Green Issue 06 by Kenya Climate Innovation Center

LIVE GREEN

LIVE GREEN ISSUE 06 OCT - DEC

Emerging business models in tackling climate change @KenyaCIC

2 5 8 ClimateInnovationCenter

www

ISSUE 06 OCT - DEC 2018

Asset financing for cold storage solutions

Leveraging on Public Private Partnerships

Advocating for sustainability in the banking sector

www.kenyacic.org

LIVE GREEN

LIVE GREEN ISSUE 06 OCT - DEC

Asset financing for cold storage solutions by Mercy Mumo

Climate change and global food systems go hand in hand in presenting challenges in produce preservation. The situation presents a triple challenge. First is population increase, next is the increase in production of fresh produce and lastly the growing demand for food. Inspira farms has been designing cold storage solutions for markets in Africa, Asia and Latin America. With the increasing food demand, there is need to reduce food losses. On average between 30%-40% of the food produced in developing countries goes to waste. This affects the income of farmers who are the producers and contributes to

@KenyaCIC

greenhouse gas emissions. The easiest and sustainable way to curb and reduce the waste is through post-harvest storage. InspiraFarms has been operating in the cold storage solutions business for the last six years. They came up with a unique business model of manufacturing and financing cold storage, ripening chambers and pack houses that run on solar or single phase grids especially for the rural areas where most large scale farming happens. “The idea was to come up with more efficient solutions that can run off grid and allow farmers to reduce wastage on

produce,” noted Jack Luft, Head of Corporate Partnerships. The storage ranges from 30m2 to the longest which is 1600m2. They are designed to be flexible and movable. “Our business model is more of a hire purchase agreement where we provide financing collateral for up to three years with repayment in intervals of 6 months,” he adds. In the beginning, it was a bit difficult to access asset financing for agribusiness products form the mainstream financial institutions due to the issue of security. The asset financing options were not too many at the time. InspiraFarms therefore had to figure out a model to penetrate the cold storage market. “The best way was to secure the loan with the asset.” Pushing the product has been a lot easier especially with the add on services such as technical training on use and maintenance. The company’s storage solutions also offers an ice bank to maintain the temperatures and humidity. This discourages the use of diesel generators as the system stores power using the ice which is built up during the day. “Power outages do not affect the system as we have managed to programme the technology to accumulate ice during off peak hours. This assists in reducing energy consumption by 33%,” added Luft. Being a new company manufacturing heavy capital goods has not been easy. Brand recognitions and security of the clients has been a challenge. Having multi-unit installations in different areas has proven to be successful in creating awareness about the products. InspiraFarms has so far installed 22 cold storage units in Kenya and 10 pack houses of 120m2 in Rwanda. The company’s asset financing facility has given flexibility to clients in that it allows the procurement of the full unit

ClimateInnovationCenter

www

form one place. In terms of warranty, InspiraFarms provides technical training for the systems to maximise the use of the facilities. “We have a team with a wide range of experience across the value chain,” he said. There are clear opportunities for growth for cold storage solutions in the domestic market. To be efficient and maintain the quality of farm produce, companies continue to invest in cold storage to improve the quality of fruits and vegetables for local consumption and the export market. This goes as long way in reducing post-harvest losses and increasing revenues.

Kenya Climate Innovation Center Strathmore Business School, P.O. Box 49162-00100 Nairobi, Kenya. +243703034701 About KCIC The Kenya Climate Innovation Center (KCIC) provides holistic, country-driven support to accelerate the development, deployment and transfer of locally relevant climate and clean energy technologies. KCIC provides incubation, capacity building services and financing to Kenyan entrepreneurs and new ventures that are developing innovative solutions in renewable energy, water and agribusiness to address climate change challenges. Editor Mercy Mumo info@kenyacic.org Contributors Graham Benton Sarah Makena Alise Brillault

www.kenyacic.org

LIVE GREEN

LIVE GREEN ISSUE 06 OCT - DEC

Lisha Bora puts mobile application into good business use By Graham Benton

LishaBora manufactures high-quality dairy products, provides best farming practices, and co-manages dairy outputs through our partnerships with dairy traders in the informal sector. It’s mission is to improve the profitability, scalability and sustainability of smallholder dairy farming in the informal sector. “We are the only company in Kenya partnering with dairy traders, micro-

@KenyaCIC

entrepreneurs in the informal dairy sector, to digitize their businesses and formalize the $1.2 billion in cash payments to smallholder farmers,” says Graham Benton, Managing Director. LishaBora’s differentiator is the business management mobile application for traders, which digitizes the milk collection and payment processes. Twice a day, every day of the year, a dairy trader collects on average

30- 60 farmers’ milk, aggregates, transports, and then sells it in urban centers to restaurants and stores. The trader then records the amount of milk in a notebook, a completely manual process that is repetitive and prone to errors. At the end of each month, they pay the farmers with cash in envelopes. Farmers in this informal setting face cashflow issues because informal traders are unable to provide short-term credit, hindering farmers’ ability to buy dairy feeds when they have depleted their stock. Short-term credit is a benefit only seen in the formal sector. The dairy industry in Kenya is decentralized and fragmented with over two million smallholder farmers, 85% of which are in the informal sector. Contributing to 7% of Kenya’s 70 Billion USD GDP, equating to almost 5 billion USD annually, smallholders supply 70% of Kenya’s dairy products, making them key players in Kenya’s agriculture industry and entire economy. LishaBora’s business management mobile application launched in July 2017 digitizes the record-keeping and payment processes for the 10,000 dairy traders active in the informal dairy sector of Kenya. Instead of manually writing down every milk collection, traders can enter the information into LishaBora’s app. The application then conducts all accounting calculations for each farmer, automating the process and reducing the number of former error-prone, manual calculations. From LishaBora, collecting this data and conducting payouts, these farmers and traders in the informal sector are building long-term financial histories, making them bankable and building credit. “By digitizing this process and effectively collateralizing the milk, the dairy trader is enabled to sell LishaBora’s high-impact products through our mobile application on short-term, low-risk credit. This creates a new revenue stream for the trader and solves the cash-flow issues facing the farmers, while offering both the farmer and trader business analytics about their long-term growth and productivity,” notes Benton.

ClimateInnovationCenter

www

LishaBora is the only company partnering with dairy traders in the informal market to provide high-quality products and services to smallholder farmers. Competitors include feed manufacturers and distributors, such as Pembe, however, they do not work directly with farmers or traders. Others would be dairy cooperatives in the formal market which collect, process, and package milk such as Fresha. These organization are limited in their scope and do not offer best farming practices workshops like LishaBora. Startups similar to us would be iProcure, a supply chain management company for agribusinesses, and Sidia, a business management company for entrepreneurial agri-vets, however, neither of these companies directly target dairy traders or reach the informal market. They also do not target multiple points in the value-chain, but rather target one specific link. “LishaBora’s approach is systemic in nature because we are working throughout the entire dairy value chain. We provide inputs and best farming practice workshops, and co-manage outputs for Kenya’s smallholder dairy farmers to enable better farm management and unlock credit and banking solutions,” says Benton, adding that by manufacturing quality- assured dry-feeds and sourcing trusted animal health products, they improve access to inputs and reduce costs for smallholders. To date, LishaBora has worked with over 700 farmers. An internal study done with a pool of our customers showed that farmers net profits increase by 78% after switching to the dry-feed products accompanied with precise measuring tools and a farming practices workshop. Since partnering with LishaBora, dairy traders have seen their revenues increase 25-50% by selling our products to their farmers through the mobile app using short- term credit. Traders can now focus on growing their business without having to worry about daily accounting and farming payouts.

www.kenyacic.org

LIVE GREEN

LIVE GREEN ISSUE 06 OCT - DEC 4

Understanding business models in the climate change space By Mercy Mumo Looking at the climate change space generally, the sector by nature is new. A lot of the things in the sector are new especially from a business model perspective. KCV works with a mixture of models such as B2B, hire purchase and pay to go. The technologies and products may not necessarily be new as some of them have been around for a long time. For instance, solar energy has been there since time immemorial, the only add on is the new innovations in energy storage and use spread across the sectors. The uptake of these technologies is increasing. The shift to renewable sources of energy is slow but gradual. Another example is the use of biogas which has been in existence for a long time. New ways of commercializing it are coming up including add-ons to these products which makes it crucial to alter business models in the sector. Bringing in the new technologies or products in this space is capital intensive and new expertise is also required to ensure that the innovations are able to scale. Hydroponics is also not a new concept but companies like Hydroponics Africa Limited are finally doing it in such a way that people can afford it. What these companies are doing is improving the supply chain, breaking down the products into sizes that people can afford and trying to increase the utility of these products. “Coming up with these additional products makes it easier for the consum-

@KenyaCIC

ers to find value in these models,” notes Paul Ohaga, Chief Investment Officer at Kenya Climate Ventures. People are now taking the old technologies and finding a way of increasing the utility. Biogas has been there for ages only that it has taken time to be commercialized. Sistema.bio has seen the potential of biogas and looked for ways to commercialize it. They have looked into the supply chain, they are doing inflatable packaging bags which are easy to manufacture therefore the logistical costs are reduced. “The company is trying to enhance the utility of biogas to make it a viable investment for the end user. They are providing utilities such as hay cutters for the livestock, water pump, cooking energy so that people can embrace the technologies around climate change. Attempts to break down these products into sizes that people can afford have been successful. For example, the cook stove sector has seen the emergence of products tailored to fit different markets. Services such as pay as you go have facilitated low income households to afford clean cooking options depending on the customer profile. Adopting these models comes with challenges. One of the biggest challenges is businesses in the climate space is that a lot of the technologies and products are capital intensive. They are not the usual fast moving consumer goods. Consumer financing ends up being the model to be

able to enhance the value to customers to increase adoption, they have to find ways to make the products affordable and attractive. “A lot of the businesses are built around the premise of consumer financing being available because their value is long term,” noted Ohaga. Market adoption is also a challenge. Convincing consumers to try out new products is not easy. Most products and services in the climate space are new and the biggest market for these products tends to be in the rural areas, and not so much in the urban areas, where the knowledge and purchasing power is not high. These cannot provide enough market to become sustainable. “The people in this target market experiment less and tend to rely more on referrals and how best it worked for somebody else,” he adds. In some cases, adoption of the products may require behavior change which most times is not easy to achieve and might take longer. The other challenge that the busi-

ClimateInnovationCenter

www

nesses face is people. Start-ups in the climate space are new and finding the right people with the technical skills for the product or service is key in pushing for adoption. “This is one of the challenges that we are trying to bridge because people are more inclined to support a business that is backed by an investor. Lending our name to the business brings some form of security,” notes Ohaga. Moving forward, there is a future of business models in the climate change space. Pivoting towards mainstreaming models which include supply chain, manufacturing, distribution and marketing will go a long way in supporting start ups to scale. KCV is uniquely placed to work with companies whose business model is being tested as compared to other investors who want the business model to be proven from the onset. “We are designed to deal with that ambiguity through business model enhancement by taking the risk to fund the business.”

www.kenyacic.org

LIVE GREEN

LIVE GREEN ISSUE 06 OCT - DEC

Leveraging on Public Private Partnerships By Sarah Makena The success of an economy cannot be driven by one sector. The state and non state actors have to both be involved in driving the development of the economy. This can be done through the individual efforts of the sectors or through collaborative effort by the state and non state actors. Public private Partnerships (PPP) have been one of the most forward looking initiatives in the development of the Kenyan economy. Over the years it has been proven that the level of service delivery by the private sector has been superior as compared to that of the public sector. The public sector has been viewed and true to it has a responsibility to provide public goods and services. As much as the public sector has made strides in providing services there have been questions on the quality of services that they have provided and in areas where the government should be getting returns then there are minimal or low returns from the services they provide. Among other things the private sector comes in to improve services where the public sector has failed and also to create a business case in areas where the public sector has failed to raise one. One would remember that the collaboration of the private and public sector was strengthened during the tenure of retired President Mwai Kibaki where he introduced the presidential round tables with the private sector. This was with the recognition of the role that the private sector was playing in the development of the economy and also recognizing that

@KenyaCIC

the government had lessons to draw from the private sector. In the spirit of the Constitution of Kenya 2010, the Public Private Partnerships Act was enacted in 2013 that defined the dynamic of Public Private Partnerships. This was a solid legal framework that would ensure that the interests of both the Public and Private Sector are protected with maximum benefits to both sectors. The spirit of PPPs is in line with having the private sector provide public services but at the same time the public sector retaining the strategic control so as to protect the interests of the citizens which is their core responsibility to the people. Kenyans development agenda is focused on improving basic services which means improving transport, water and sewerage, telecommunication, power and social services. In this regard to reduce the funding gap, increase and create new sources of investment capital the partnership between the public and private sector is inevitable. Public Private Partnerships in Kenya are in line with the countries development blue print, Kenya Vision 2030 whose target is to transform the country to a middle income industrialized country. Public Private Partnerships have opened avenues for the private sector to work with the government in improving service delivery. One of the sectors that was among the first to benefit from PPPs is the health sector in Kenya where private institutions both locally and internationally have partnered with the public sector to improve health services.

There is an opportunity for entrepreneurs to leverage on PPP opportunities in the economy to expand their businesses. This means the private sector looking into opportunities that they could work with the public sector to improve service delivery, increase the level of employment and even increase the returns from the projects. In the climate change space there are various opportunities for PPPs for example in the efforts for increasing access to energy to the various areas in the country. There are regions that have proved uneconomical for connection to the main grid which has resulted to the government opting for off grid solutions that include partnership with the private sector to increase the level of connectivity. The Kenya Off Grid Solar Access Project (KOSAP), is one of the projects that has been commissioned by the government as part of increasing the level

ClimateInnovationCenter

www

of electricity connectivity in the country. This project has presented various opportunities for Public Private Partnerships in the bid to have universal access to electricity by 2020. This is just one of the projects that presents opportunities to the private sector to partner with the government in economic development projects. PPPs might just be one of the ways that will accelerate economic development through structured partnership of the public and the private sector. The collaboration of the two sectors has allowed for improved services delivery and increased jobs in the market and also strengthening of the legal and policy framework for engagement of the public and the private sector. Any strategic business at this point should be looking at opportunities that expand their business opportunities like Public Private Partnerships.

www.kenyacic.org

LIVE GREEN

LIVE GREEN ISSUE 06 OCT - DEC

Emerging Trends in Prepaid Water Provision By Alise Brillault

It is often said that innovations are one of the keys to fighting climate change. While this thinking is typically applied to technologies, such as finding new methods of harnessing renewable energy, what is also important is innovation in the business models of green tech companies. By conducting business in an original way, such enterprises can potentially reach more customers, be more efficient, and secure creative sources of

@KenyaCIC

financing. One trend happening in the climate change space is the proliferation of prepaid and pay-as-you-go goods and services. This has been applied to the provision of solar energy for some time now, but recently this method of payment is gaining traction in water management as well. In Ghana, a pilot program called Safe Water Network installed in certain villages pre-paid “smart”

meters that were unlocked with SMS codes activated by mobile payments. The program was a success in that users cut down on their water usage and the provider cut down on costs; they no longer had to spend time going from house to house to check the meters and accept paymentsoften times encountering property owners who either weren’t at home or didn’t have the money to pay their bill. As a result, there was less water waste in addition to greater efficiency in the way the company was doing business. This is beginning to catch on in Kenya, as two KCIC clients, Maji Milele and SwissQuest Water Supplies, offer services in prepaid water. Prepaid water would be particularly well-suited to Kenya, given the country’s already strong mobile money infrastructure in place with M-Pesa. Enterprises such as these can help to cut down on Kenya’s problem with non-revenue water. One of the reasons why non-revenue (waste) water, or NRW, accounts for a whopping 42% of water in Kenya can be partially attributed to an overreliance on the state to provide water essentially for free. This, according to research from KCIC, “has caused a situation of unsustainable water institutions in the country due to lack or insufficient revenues from the provision of water in the country.” It is thus important for Kenya to start embracing more solutions from the private sector and/or public-private partnerships- and prepaid and pay-as-you-go methods are showing to be promising solutions. Additionally, one of the biggest challenges facing the green economy is a lack of access to financing. However, an emerging trend in this realm is what are known as “green bonds”- essentially normal bonds but whose proceeds are allocated exclusively for projects with environmental benefits. Globally, green bonds have been rapidly growing in the past few years; in 2016, 81 billion USD in green bonds were

ClimateInnovationCenter

www

issued- almost double the amount of the previous year. The most common issuers are commercial banks, corporate banks, and development banks. With regards to public policy, China and India have been the first countries to create guidelines for green bonds; in other countries, such as in the U.S., private sector entities like the Stock Exchanges have been the ones to provide some leadership and consistency for investors and issuers. In Kenya, a joint initiative to develop guidelines for this emerging market has recently been undertaken by the Kenya Bankers’ Association, Nairobi Securities Exchange Climate Bonds Initiative and Financial Sector Deepening Africa, the Dutch development bank FMO, and the International Finance Corporation. In their report, they outline the benefits for issuers as getting additional sources of green financing and attracting a strong and diversified investor demand, while for the investors they cite the balance of financial returns with environmental benefits. As green bonds are a relatively new concept in Kenya, the goals of the project include researching green bond potential in the country, developing a network of licensed verifiers, promoting green Islamic finance, creating a fundraising mechanism to allow the participation of smaller banks, and using Kenya as an example to expand the program across the East Africa. Prepaid water provision and green bonds are just some of the emerging trends in the climate change business space. While prepaid water has the potential to expand water access to lower-income or isolated communities, green bonds can make possible the realization of larger climate-friendly projects.

www.kenyacic.org

News in pictures

LIVE GREEN

LIVE GREEN ISSUE 06 OCT - DEC

Participants at the policy dialogue on renewable energy held in September, 2018.

Winners of the Climate LaunchPad National Finals in September, 2018.

Mobitech exhibiting during the annual SME conference in September, 2018.

Students from Mt. Kenya University during the Open Day in September, 2018

Students from Strathmore University during the career fair in August, 2018.

@KenyaCIC

Dignitaries at the launch of the Association of Sustainability Practitioners in Kenya at Radisson Blu in August, 2018.

ClimateInnovationCenter

www

www.kenyacic.org

LIVE GREEN

Advocating for sustainability in the banking sector By Mercy Mumo

Courtesy Daily Nation

The Kenya Bankers Association (KBA) has been engaging banks to deepen their employees understanding on the concept of sustainable finance. For the past three-years, bank personnel as a result of the sustained work undertaken by the Association, have an appreciation of creating

@KenyaCIC

long term value for their society, economy and environment. KBA has achieved this end by developing an e-learning platform that has facilitated trainings for bank staff to understand why sustainability is imperative in their day-to-day operations. KBA was funded by DEG –

LIVE GREEN ISSUE 06 OCT - DEC

ISSUE 06 OCT - DEC 2018

German Investment Corporation and FMO – Dutch Development Bank to ensure the successful roll-out of the training. The course has six modules namely: An Introduction to Sustainable Finance and the Kenyan Sustainable Finance Principles; Social and Environmental Risk Management in Financing Activities; Introduction to Understanding a Bank’s Direct Environmental and Social Footprint; Sustainable Finance: A New Frontier with Financial Growth Opportunities Overview of Good Practice in Governance for Sustainability and Reporting Performance and lastly Recap on the Kenya Sustainable Finance Principles. To date more than 28,000 bank employees have interacted with the platform with more than 24,000 completing the six-module coursework which has been certified by IFC, UNEP- Finance Initiative, DEG and FMO, and reviewed by Cambridge University. One of the key challenges in institutionalizing sustainability has been the lack of presence of sustainability practitioners in the banking sector. Most banks have seen the importance of incorporating sustainability and have gone ahead to recruit personnel for the role. “Sustainable Finance is still a relatively new concept and the training has enabled bank staff to have an in-depth understanding of the concept,” observed Ms. Roselyne Njino KBA Senior Communications Officer. South Africa is one of the countries that is leading in green investment innovation. Nigeria on the other hand was the first country where the Central Bank issued a

ClimateInnovationCenter

www

directive on sustainable banking principles. The Sustainable Finance Initiative (SFI) which was established in 2012 acts a blueprint for commercial banks to have initiatives that promote sustainable development. The SFI Principles are grounded in three main priorities, namely, equipping the financial services sector to perform optimally in the area of comprehensive risk management; enhancing business practice, leadership and governance; and promoting industry growth and development by fostering a culture of innovation and inclusivity enabled by new technology. One of the key business models that has been financed by the banking industry is M-kopa Solar which the Commercial Bank of Africa (CBA) was keen to finance without any resistance. The Standard Chartered Bank has also expressed its commitment under the Renewable Energy and Environmental Finance (REEF) to finance projects in solar, water and biofuels in Africa. In addition, KBA introduced the Catalyst Awards to recognize and promote banks and other financial sector players that demonstrate the SFI Guiding Principles. The award was started three years ago to ensure that banks are actively implementing the Principles effected by the banking industry in 2015. “The awards are also meant to create awareness on sustainability and make the industry feel part of a cause that is worth undertaking,” said Ms. Njino.