Sistema.bio Partnered with CCA to Develop a Special Purpose Vehicle for Consumer Financing
Sistema.bio is a clean cooking enterprise that provides biogas infrastructure used as reliable clean cooking fuel and productive energy by smallholder farmers. Operating out of Mexico, Columbia, India, and Kenya, the company is able to leverage B2C sales and local partnerships to reach consumers in 30 different countries. Since its inception in 2010, Sistema.bio has been able to install their technology on 30,000 farms benefiting over 180,000 people.
Eighty percent of farmers are unable to afford clean cooking products through cash purchases. To address this issue, Sistema.bio has developed flexible in-house financing options that have demonstrated a clear impact on the market and a potential for growth. The customizable financing programs, in addition to at-home installation and high-quality products, makes a comprehensive offering and is a key driver for the company’s success.
However, to increase financing for farmers, a larger program with greater potential to scale is needed. As such, the Clean Cooking Alliance’s (CCA) Venture Catalyst program teamed up with Sistema.bio to support the development of a first-of-its-kind off-balance sheet financing structure for biodigesters. The main objectives of this partnership were to:
- Develop strategy and financial models to support the structure of a Special Purpose Vehicle (SPV) in order to raise dedicated funding for an in-house lease-to-own program in Kenya;
- Provide legal and accounting support to define the costs, tax implications, risks, and processes related to SPV;
- Improve Sistema.bio’s collection and reporting across existing credit operations;
- Develop a point-of-sale financing platform to allow for more customized payment plans; and
- Create investor communication materials to support the initial pitch, including an investor deck, investment memo, financial model, and legal brief.
Using the outputs of this project, Sistema.bio has initiated investor conversations to set up the SPV and also identified gaps to make the SPV operations more robust. Due to changes in the collection and reporting process, as well as the new point-of-sale program, Sistema.bio have seen clear improvements in its credit portfolio and rollout of digital product development. As an example, the Kenya portfolio has been able to reduce PAR90 by half in the last 12 months. Financial models built for the SPV have been used to improve operations and financial and data management. In addition, the support from CCA led to additional support for this work, including significant pro bono legal support. Ultimately, this project will enable Sistema.bio to dramatically grow its lending base in existing markets, as well as expand distribution networks into new regions.
“We came up with a structure that could really de-risk the way working capital flows to support private sector clean cooking initiatives. In retrospect, now that a lot of the work is done, CCA’s VC program will be able to show massive financial leverage from its grant support. But at the time it was not so obvious, and it was incredibly impactful that they were willing to take a risk to make this happen.”
– Alex Eaton, CEO, Sistema.bio