MSMEs do not have access to affordable, good quality clean energy solutions as options to kerosene lighting, disposable batteries, poor quality Chinese products, or waiting for the capital-intensive grid to arrive. Barefoot Power uses its knowledge of cleantech and energy efficient lighting and its knowledge of kerosene markets to identify and unleash micro energy markets. Free business development support helps these SMEs plan and execute, including business plan templates and access to free open-source business management software such as www.openerp.com
Our processes are low-documentation, as our first loans are often very small - $10,000 for an importing SME, or $100 for a micro-entrepreneur. If the MSME repays this successfully within the expected 1-4 month period, a larger sum can be lent to scale up the business. Time is not wasted in assessing business plan ideas - kerosene lighting is in all countries, so one business plan is used, adapted to local conditions, and learnings are propograted around all partners. Rapidly establishing a MSMEs to communicate well, secure first sales, place deposits and repay the loan replaces higher documentation due diligence procedures and business plan assessments - the BAF often writes the business plan for the MSME to fill out local details.
The product in the container acts as the collateral - as its value increases, separate bank accounts are established, and BAF staff are embedded as "policemen" into the importers to help sales and keep an eye on financial controls and enhance financial capacity (our open source accounting software, rolled out for free, will also help)
With our hybrid structure of both a supplier/identifier of innovative technologies that can reduce poverty, and a debt investor in MSMEs, BAF makes its profit from distributing containers of product to market, enabling us to charge nothing to investors for fund management, nor to MSMEs who we train in micro-energy business. As other businesses are found that are highly replicable, brainchilds of social entrepreneurs like us, we can add on non-energy businesses to this Trade Finance Fund. As investors get braver and extend their loan terms to BAF's MSMEs from 6-12 months to 1-3 years, longer term investments can be made in villages, opening up more possibilities.
Bank and microfinance loans are often of fixed amounts for 1-2 years. Our experience of selling solar and LED lights has shown without doubt that first sales can be tiny, but soar quickly, and exhaust existing working capital. Banks and microfinance loans are suited for established, stable businesses that grow slowly - they are highly unsuitable for high growth rates of 50-200% per year that typify our experiences. Our micro supplier credit / Venture Debt model is tailored to meet the increasing capital needs of the MSME.
Financial intermediaries are unable to link MSMEs to appropriate finance, and their business development services are often relatively expensive, so we provide these services, for free, from our own staff, embedded in major partners, and visiting regularly to minor partners. This competition will decrease the price of such services as other replicate our model.
SME importers can extend the credit their receive as local currency micro supplier credit to micro enterprises. The period of the loan for the SME is only 1-2 months because their customers can sell our products for cash, so currency risk is very limited. Investors' funds are repaid in USD. Local investors will start to replace BAF credit, and women can be targeted.