The GSMA Innovation Fund moderated two Masterclasses in 2024 on ‘Debt Finance’, led by Cauris Finance, for the Fund’s portfolio across Southeast Asia and Africa. While the two one-hour sessions could not fully cover all there is to know about debt financing, Alec and Azer, and their guest speaker Dylan Terrill, Chief Business Officer at Asaak, provided valuable insights on how startups in low- and middle-income countries (LMICs) should approach debt financing.
The is a guest blog written by Alexander Raia, Managing Director at Cauris Finance.
Debt financing is often viewed as a tool reserved for mature, growth-stage businesses. However, our experience at Cauris Finance, an Africa-focused impact credit fund, has demonstrated that debt can be a powerful enabler even for early-stage companies, including those operating in emerging and frontier markets. When approached responsibly, debt can complement equity financing, provide critical working capital, and help scale innovative solutions that deliver impact in these challenging environments.
At Cauris, most of the businesses we invest in are at the Series A stage or earlier. These companies are frequently tackling significant challenges, such as driving financial inclusion and expanding access to essential services. Many are social enterprises operating in complex environments where traditional financing is limited. To lend effectively in these contexts, we focus on building partnerships, not just executing transactions. This means working closely with entrepreneurs to align financing with their needs, tailoring repayment structures, and offering ongoing technical assistance to help manage debt facilities responsibly.
Through our Investor Readiness Technical Assistance (TA) Programme, we recently partnered with the team at the GSMA Innovation Fund to deliver tailored support to dozens of their portfolio companies across Africa and Southeast Asia. These companies face unique challenges in navigating debt financing, so we designed our Debt 101 and Debt 201 Masterclasses to address their needs. These sessions provide actionable insights on structuring debt responsibly, managing loan facilities effectively, and aligning financing strategies with long-term business goals. By equipping early-stage businesses with these tools, we aim to help them unlock the transformative potential of debt as a growth enabler.
As Simone Hinrichsen, Insights Manager for GSMA Mobile for Development shares: “Partnering with Cauris Finance was a valuable opportunity for our portfolio companies to unpack the often opaque subject of debt financing. Cauris’s expertise, coupled with their willingness to share real-world insights as both a lender and a partner to their borrowers, has provided our startups with a clear understanding of the dos and don’ts of managing debt. Hearing directly from a lender—and from their borrowers who have successfully navigated these challenges—made the training sessions uniquely practical and impactful.”
A focus on LMICs
For companies in LMICs, debt financing is both an opportunity and a challenge. While it can unlock growth, it also requires a nuanced approach in navigating risks like currency volatility, market instability, and limited access to technical expertise. Tailored debt facilities, coupled with supportive lenders who understand the complexities of these markets, are essential for success.
Through initiatives like our Investor Readiness Technical Assistance Programme and partnerships with an organisation like the GSMA, we are committed to helping early-stage companies unlock the transformative potential of debt financing. Through our TA training, we identified a number of key insights for early-stage borrowers to consider.
Insights for early-stage companies using debt financing
1. Understand the role of debt in your growth strategy
Debt isn’t a one-size-fits-all solution. It is best used for targeted needs like growing a loan book, acquiring assets, financing working capital, or funding projects with predictable cash flows. However, it is critical to ensure that repayments will not strain your business or jeopardise operations.
2. Find the right debt investor
Early-stage companies need more than just capital—they need a supportive partner. The right debt investor brings market expertise and alignment with long-term business goals. Look for lenders who understand your industry and operating environment, are willing to tailor solutions to your needs, and can provide guidance to help navigate challenges and ensure sustainable growth.
3. Tailor debt to your needs
Securing the right debt facility requires careful consideration of size, terms, and structure. Over-borrowing can create financial strain, while under-borrowing may limit growth. Additionally, ensure that repayment schedules, covenants, and borrowing bases align with your cash flow cycles.
4. Build financial discipline early
Lenders value consistent, accurate reporting. It is vital to establish robust systems to track financial performance, comply with covenants, and manage cash flow. Early financial discipline strengthens your current operations and builds credibility with future investors.
5. Access technical assistance
TA programs like Cauris’s Investor Readiness series are valuable resources for entrepreneurs new to debt financing. From understanding loan agreements to developing repayment strategies, technical assistance helps early-stage companies build confidence and capability in managing debt.
6. Consider currency risks
For businesses in emerging and frontier markets, currency volatility can pose significant risks to debt repayment. Startup founders should evaluate their options for hedging foreign currency exposure and ensure your financial models account for potential fluctuations. See Cauris’s take on currency volatility here.
7. Stay prepared for due diligence
Early-stage companies often underestimate the depth of due diligence required for debt financing. It is crucial to prepare detailed financial records, robust cash flow forecasts, and supporting operational metrics to meet lender requirements and demonstrate your business’s readiness.
8. Think long-term
Debt is more than just a short-term financing solution. Thoughtfully structured loans can align with your long-term growth goals, providing the capital needed to scale while preserving equity for future rounds.
9. Learn from experienced borrowers
Gaining insights from companies that have successfully managed debt facilities can be invaluable. Hearing first-hand experiences—like those shared by Cauris’s portfolio companies during the Debt 101 and 201 training—provides practical knowledge on what works and what to avoid.
10. Understand the cost of debt
Debt is rarely limited to the headline interest rate. Be sure to account for fees such as origination costs, commitment fees, prepayment penalties, and currency hedging expenses. Understanding the true, all-in cost of debt is critical to evaluating whether it fits your business correctly.
Azer Songnaba, Chief Investment Officer of Cauris Finance, explains: “LMICs are home to some of the most innovative and impactful businesses, but accessing the right financing remains a challenge. Debt can be a game-changer for early-stage companies, but it requires careful planning and a strong partnership with the lender. Our TA training focuses on equipping entrepreneurs with the tools to not only secure debt, but to manage it effectively, ensuring it drives sustainable growth. These conversations are critical in unlocking the full potential of early-stage businesses in challenging environments.”
About Cauris Finance
Cauris is an Africa-focused impact credit fund. We specialise in supporting socially impactful fintechs that finance African SMEs and entrepreneurs, bridging the critical funding gap in the region’s “missing middle.” With a commitment to inclusive growth and expanding financial access, we prioritise investments that support small businesses, job creation (including for youth), gender equity and climate action. Cauris integrates cross-cutting gender and climate lenses into its investment approach, championing the empowerment of women, sustainable climate solutions and equitable economic development.
About the GSMA Innovation Fund
The GSMA Innovation Fund accelerates digital tech solutions that are addressing key global challenges. Through grant funding and tailored venture building support, the GSMA Innovation Fund enables innovators in LMICs to scale and amplify social and environmental impact.
The GSMA Innovation Fund is currently funded by UK International Development from the UK government and the Swedish International Development Cooperation Agency (SIDA), and is supported by the GSMA and its members.
