Build Flexibility into the Loan Agreement

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Quantifying sustainability costs and optimizing station finances is foundational for our mission to drive financial sustainability for small water enterprises. Since the completion of this research, we have incorporated the findings into the financial management of our entire business model. Our water stations now collectively contribute to a partially subsidized, centralized maintenance team and maintenance reserve fund, which have been instrumental in supporting the stations and the communities they serve.

However, even with these efficiency gains, the two stations were still not generating enough surplus to meet the original loan terms. Thus, following the reevaluation of our station finances, Safe Water Network Ghana requested a loan restructuring with our donor. We worked with them to convert half of the original loan amount to a grant, which meant the final capital structure included 65% grant funding and 35% loan financing. This approach reduced the ratio of debt to capital, which improved the financial stability of the two stations and increased their ability to meet their debt obligations. In addition, our lender worked with us to design better terms, such as a substantially lower interest rate with suspended payments during the free water mandate that the government of Ghana issued in response to the COVID-19 crisis. Our lender agreed that sustainability costs should take priority over loan japan whatsapp number data repayments.



The restructured loan terms included an income participation approach in which loan payments are based on a fixed percentage of the revenue surplus, after stations have paid their operating expenses and sustainability costs. These loans have no fixed term and conclude when the stations generate enough surplus to cover the principal and interest. This approach provides flexibility for enterprises with varying operating expenses and revenues due to market conditions like seasonality and power fluctuations. By anchoring payments to cash flow, stations are not required to make payments in months where expenses exceed revenue.

Flexibility can also be incorporated through extensions and grace periods. For instance, in 2019, we partnered with an institutional donor for a loan to upgrade nine of our stations with 54 water ATMs. ATM technology not only drives revenue by increasing collection efficiency, but it also has social benefits: It provides 24/7 access to safe water and provides additional financial flexibility and personal security by expanding payment options to include mobile money, rather than requiring cash. In structuring that loan, we took lessons from our 2014 experience, using partial grant funding and spreading the loan over many stations, which provides a larger pool of revenue to make payments and keeps the debt-to-capital ratio low. We also employed rigorous financial reporting in our projections and justification for the loan. Lastly, we built in flexibility for the payment schedule by including an optional two-year extension. We owe this flexibility to the generosity and patience of our donors: In the SWE sector, it is important to work with concessional lenders who are mission-aligned, since margins are low and there are many challenges that can impact repayment.