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Key Takeaways from GSMA's Webinar: Digitalising Innovative Finance - Receivables Financing and Revenue Share Models

Bridgin and UNDP CAP Financial Aggregation Reports

What is the role of digital technology in enabling access to innovative financing instruments for early-stage start-ups, SMEs, and service providers in emerging markets?


What are receivables financing and revenue-shared models, and under what conditions can they unlock smart capital for these impact-driven companies?


These were some of the high-level questions that GSMA’s latest webinar -on the 29th of May- aimed to answer. We had the pleasure of participating in the conversation, alongside a fantastic line-up of speakers:


✔️ David Ekabouma, GreenMax Capital Group

✔️ Jim Chu, Untapped Global

✔️ Jonathan Green, BasiGo

✔️ Krishna Swaroop, Sun King

✔️ Njeri Kara, Nithio

✔️ Harbhajan Singh, CredAble

✔️ Zach White, GSMA

✔️ George Kibala Bauer, GSMA


This was a lively and insightful exchange, drawing from various experiences of services providers, investors, and companies. 


Here are five key messages we are taking away: 


1. Companies providing access to essential services on credit need access to better-fitted capital – especially smaller ones


These companies solve barriers to the adoption of essential services and products by providing finance solutions to end-customers, but that makes them asset-heavy and capital-intensive by design, as reminded by Jonathan from BasiGo.


We joined several participants in explaining that such businesses tend to have limited access to capital that fits their growth model and working capital needs . Traditional on-balance traditional loans, typically, tend to create a liquidity mismatch for Paygo companies.


Furthermore, smaller, local companies might not always have high-growth profiles, but they generate large volumes of cash flows, as mentioned by Untapped. This, combined with the data they produce and the digital infrastructure they thrive on, opens unparalleled opportunities to finance them differently through cash-over-assets solutions.


2. Data is the real gold mine 


Simply put: given it introduces predictability, data reduces perceived risk.

 

Every speaker consistently highlighted the significance of developing data-driven solutions that facilitate the understanding of business models and the prediction of cash flow generation patterns.


This extends beyond financial data to encompass any quality data that helps to understand predictable payment behaviours around a pool of assets, or growth trajectory. This includes operational data, demographic data, or even geospatial data - as we observed in the example of Nithio’s analytical tool.


Those portfolio and business health metrics carry a strong investment potential. For instance, in India, where businesses have a larger digital footprint and access to advanced financial infrastructure, these metrics have facilitated the emergence of more customer-centric financial products that are better suited to businesses’ need, as CredAble’s experience demonstrated. In Africa, even typically risk-averse commercial banks have begun to tap into digital data - leveraging for example Mobile Money data for credit assessment, as GreenMax noted. 


For companies, this is a call to use sophisticated data collection tools to track their business performance, but also to be more intentional in the way they become familiar with data, understand their portfolio financial performance and finetune their understanding of such data-driven reporting, as emphasised by SunKing and Nithio.


Both Bridgin, through its receivables performance analytical tool, and PaygOps, our ERP platform with advanced data collection functionalities, can be leveraged with such objectives in mind.


3. Receivables financing has strong barriers to entry for smaller companies - unless it’s carried out through aggregation


In 2023, SunKing announced they had closed a $130M securitisation deal led by Citi. Krishna, their CFO, shared insights and tips for newcomers to this financial method.


His conclusion is crystal-clear: securitisation is a solution perfectly fitted to the profile of Paygo assets, but it is a scale business that requires either 1) large individual volumes to amortise upfront costs or 2) an intermediation solution through an aggregation platform, like Bridgin. A conclusion aligned with BasiGo’s own experience, who were not yet at a stage where they could consider setting up their own off-balance sheet facility, as their CFO and Co-founder explained.


We shared our own perspective dealing with the legal aspects of off-balance sheet transactions. While being a costly and complex aspect of the development of Bridgin, it also turned into an opportunity: as we have invested in legal-as-a-service agreements and infrastructures, we can now offer them as legal solutions to several investors and companies, amortising capital costs across multiple deals at the benefit of smaller players (traditionally ineligible to securitisation).


4. Innovative financial models require a great dose of education


Such data-driven approaches to capital require a shift in investors' conventional wisdom regarding financing, as rightly underscored by Untapped’s CEO, Jim Chu. This opinion was reinforced by SunKing's experience, with Krishna noting that eight out of the twelve months needed to complete their securitisation deal were dedicated to educating investors about the structure of their cash flow profiles and refining their own understanding of the off-balance sheet nature of the deal.


Participants shared views on how to accelerate that shift in mindset: 


  • Frame those innovations in a way investors can relate to. Recourse, for instance, could be found in the presence of payment automation mechanisms that guarantee collection.

  • Use solid risk-mitigation tools. Data is there to fill the gap between perceived and actual risk. In the words of David Ekabouma, robust data helps to remove or reduce the discomfort linked to the asymmetry of information. We also mentioned the importance of pushing wider adoption of back-up servicing, which is fundamental to the dissociation of asset and company risk.

  • Encourage stakeholders working on such topics to have a common vision and voice about innovative financing.

  • Draw inspiration from contexts where those models work. Data-driven financing solutions have largely taken off in less conservative ecosystems, such as the US. Such examples can easily be used as case studies to fast track discussions in emerging markets. 


5. Cooperation between stakeholders is key 


In this complex financial value chain, competition will emerge. Yet, the legal, technical and financial sophistication of cash over assets deals leaves lots of room for joint initiatives and cooperation to take place. 


We’d go as far as saying that without it, the industry will not harness the full potential of such initiatives - and highlight that a challenge we overcame with Bridgin was to educate investors on our positioning of enabling partners, rather than owner of an in-house investment capacity.


The catalytic role of DFIs, as partners that can improve affordability of capital with positive spillovers (and a faster conversion of investors to those new financing methods, cf. point 4), was also discussed; as well as the role local banks have to play, especially in their ability to provide local currency financing. 



Thanks again to GSMA for inviting us!



Watch the webinar recording here. And reach out if you would like to pursue the conversation, and understand how Bridgin can help to address some of the key aspects mentioned above regarding data, risk management and aggregation.


 

About Bridgin


Bridgin is Solaris Offgrid's Receivable Financing Solution. Conceived as an online trading platform for accounts receivables, it allows distributors of essential services to unlock liquidity over assets through the sale of their outstanding invoices to investors, offering investors a unique chance to tap into a previously untapped asset class at a lower risk.

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