Charm Impact has partnered with Signify Foundation to support the next phase of the peer-to-peer investment platform’s loan rollout to early-stage clean energy entrepreneurs.
Charm Impact provides debt financing to early-stage clean energy entrepreneurs in developing markets. Signify Foundation’s capital will be embedded alongside private investors, but take a subordinated position. In this way the funds will incentivise private investment into projects with a perceived higher risk.
Gavrield Landeau, Charm Impact co-founder explained investing into early stage companies in developing markets with new business models serving low-income customers is considered risky because of the potentially high default risk. “On top of that we have to bridge the perception of risk, based on preconceived notions of the geographies we operate in, and the actuality of the risk associated with the loan.”
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Scaling up local clean energy access in Africa and India
As borrowers repay their loans investors are repaid first, and in the case of a default the capital from Signify Foundation takes the “first hit”. “By having this buffer between the default risk and the investor it makes the investment a lower risk for an investor and then incentivises them to enter the market,” said Landeau.
The level of risk and impact determines how much money Signify Foundation attaches to a particular loan, with the formula determined by Charm Impact’s credit risk model. “This is typical around 35-40% of the loan. So for every £1 Signify invests, we expect on average £1.50 to be catalysed by private investors. As companies prove to be reliable borrowers and develop a credit history through successful repayments, the amount of capital from Signify will be reduced as the size of the risk buffer is no longer warranted.”
Funding early-stage clean energy companies could change the energy transition landscape
Charm Impact focuses on supporting early-stage companies that are providing clean energy to communities in developing economies that lack access to electricity and clean cooking. There is a dedicated focus on supporting local entrepreneurs and an investment lens for gender diversity.
Since its founding in 2018, Charm has been supported by Innovate UK’s Energy Catalyst programme, Energy 4 Impact’s Crowd Power initiative and the Good Energies Foundation. With 10 active loans across West Africa, East Africa and India and no defaults across the portfolio, Charm’s go-to-market model has been refined and is now ready to scale.
Landeau pointed out they work in a market niche handicapped by a significant lack of capital for early-stage local entrepreneurs. “Our business model is predicated on a focus of making profitable small scale loans to social enterprises at the earliest stage of their commercialisation journey.
“In parallel we are seeing a lack of companies at a later stage that are at a relevant size and scale to meet the needs of existing large investors, causing a pipeline squeeze. If we have any hope of achieving the Sustainable Development Goals (SDGs), and in particular DSG 7, we need more companies that can grow … to achieve impact at scale. Companies taking loans from Charm are able to grow in a commercial manner, creating a credit history and credit score along the way. This essentially nurtures the pipeline of companies for later-stage investors, opening up the market and reducing inequality in the funding landscape,” he said.