[MUSIC] Now we're going to look at business model innovation. A common definition of business model innovation is the development of new, unique concepts supporting an organization's financial viability, including its mission, and the processes of bringing those concepts to fruition. I like this definition because you can apply it to any organization or project, not just a business. Why is business model innovation important to innovative finance? Because the way things have been done for decades, or centuries, isn't necessarily the most efficient or the most sustainable. And by borrowing from other sectors and using new types of revenue streams, we can work towards scale and sustainability and, of course, impact. Let's go back to our Vodacom example. Everywhere in the world, contracts were how you got cell phone service. By changing just the way the business model was set up, switching from contracts to prepaid, cellphone companies suddenly expanded the size of their market drastically to include anyone that could afford small amounts of data or minutes at a time. This Pay As You Go model has been used by social enterprises worldwide to open up access to the base-of-the-pyramid customers that cannot afford high upfront costs. They can achieve this by monetizing assets and pulling in diverse revenue streams, like we discussed earlier. This business model is applicable in multiple areas. Take, for instance, energy access. M-Kopa has created a pay-as-you-go solar solution that works via mobile payments. Previously solar systems were sold upfront to base-of-the-pyramid customers, requiring them to put down large percentages of their income with no guarantee that they would work years down the line. By co-opting the pay-as-you-go model, M-Kopa opened up their market of potential clients and the number of individuals that can afford safe and clean energy. The company has now reached over 500,000 customers in East Africa. In Uganda, driving a motorcycle taxi, or a boda boda, it's one of the best available jobs for young men with little education. Take home earnings are up to $5 a day in a country where 65% of the population lives on less than $2 a day. However, most drivers do not have savings and cannot obtain financing to purchase their own motorcycle. So they get stuck in what we call the rental poverty trap. They're forced to rent their bike indefinitely from landlords who can take at least half of their profit and can remove the motorcycle at any time. Tugende solves this problem with a fair, transparent lease to own model, allowing drivers to take ownership in 19 months or less with payments just 20% more per week than the average rental rate. They also provide health and life insurance, training, and support throughout the lease. Upon completion, ownership doubles take home profits for their customers and gives them ownership of a valuable asset. In the water sanitation hygiene sector, Sanergy provides sustainable, dignified sanitation solutions in informal settlements throughout Nairobi. Sanergy designs and manufactures low cost, high quality Fresh Life Toilets, with easily manageable waste cartridges. Waste cartridges from the sanitation units are collected by Sanergy on a regular basis and transported to a centralized facility for treatment and reuse. Waste is then recycled and used to produce organic fertilizer and insect-based animal feed, which are both in short supply in Kenya. Sanergy operates through a franchise network of Fresh Life Operators who maintain and operate the toilets across Nairobi. The operators are micro-entrepreneurs that purchase the toilets using financing provided by Sanergy. Sanergy thus provides an end-to-end solution to integrate the entire value chain to provide the sustainable solution. Residents can pay-per-use for the toilets, or pay weekly or monthly subscriptions. Rates are competitive relative to other sanitation services offered in informal settlements. One of the biggest challenges for companies operating on a rent to own or pay-as-you-go model is raising the debt capital they need to buy solar home systems or motorcycles upfront. These companies' business models are relatively new and most traditional lenders are not comfortable providing them with debt that they see as high-risk. Additionally, such lenders do not have the resources or capabilities to assess the credit risk of these companies and their portfolios. However, all of the companies we've talked about today have a significant asset which can be leveraged, and that asset is data. For Tugende, drivers often pay their installments weekly through mobile money. This data can demonstrate the credit risk of each customer and, more generally, of Tugende's entire customer portfolio. Enter Lendable, a debt platform designed specifically for asset financing and pay-as-you-go companies in Sub-Saharan Africa. Using data-driven risk models to understand and quantify credit risk of portfolios of asset financing and pay-as-you-go companies, the company is able to structure a secured note for investors. Lenders effectively purchase the credit contracts between a company, like Tugende and its customers, enabling Tugende to finance more motorcycles. This is not the first time this model has been tried. This model has been applied for decades in the asset-backed securities market in the US. You probably think of that and get a little bit scared due to the financial crisis. [LAUGH] And don't worry, this model has its weaknesses. However, when applied in this manner, the credit risk of individual loan is transparent to investors and they can monitor it in real-time. This type of financing structure has been used for over $3.5 million worth of deals in Sub-Saharan Africa, from investors such as SunFunder, Deutsche Bank and Oiko Credit. And is estimated to facilitate over 20 million in capital in the energy access industry in 2017. By combining data and its technology platform, Lendable hopes to scale the use of this model to increase the flow of capital to asset financing or pay-as-you-go companies across Africa. The example of the models we've presented here all focus on solving a fundamental challenge in an issue area by bringing together different kinds of partners, experimenting with different business models, or trying to leverage new resources such as big data. I hope these examples will inspire you as you start brainstorming your innovative finance design. [MUSIC]
