Paying bit-by-bit

A majority of households without toilets tend to be poor or extremely poor. These customers rarely have the ability to purchase a toilet up front, as they do not usually have enough savings to buy with cash. The Sama Sama team knew that this issue would be especially pronounced in northern Ghana when we began selling Sama Sama-branded toilets, which are relatively expensive compared to lower-quality, less durable products on the market.

Designing a payment plan

The Sama Sama team dedicated itself early on to understanding how best to tackle the cash-constraint problem. We started by engaging with a leading emerging-markets finance consultant, Amplify Markets, to assess sanitation financing options in northern Ghana. This included an in-depth analysis of external financing options, mostly from national and rural banks, microfinance institutions (MFIs), cooperatives, and Susu groups (informal loan clubs). Sama Sama assessed these groups’ willingness and ability to provide sanitation loans to toilet customers and suppliers. This assessment helped narrow the list of potential partners and, eventually, Sama Sama focused on piloting a relationship with a local bank.

Challenges and setbacks

Despite an initially promising relationship, the Sama Sama team quickly ran into unforeseen challenges. The bank’s strict lending criteria made it difficult to get loans approved for Sama Sama customers, especially because the toilet product was not an income-generating asset. In addition, many Sama Sama customers were reluctant to take on formal debt. As a result, more than six months into this partnership, only one toilet loan had been approved. In the face of these obstacles, the Sama Sama team changed course to focus on developing an internal financing model that would provide more control over this critical component of the business model. This decision was made possible by partners like the Helmsley Foundation, through providing seed capital, and Kiva, which granted Sama Sama one of its first-ever direct-to-social-enterprise loans.

Trying out different terms

We initially offered repayment terms of 12 and 18 months, but found that the resulting monthly payments were still too high for certain households. In July 2019, we added the option of a 24-month payment plan, enabling a household to put a 300 GHS deposit down with 24 monthly payments of 38 GHS each, around $7 per month. By September 2019, 17 percent of households selecting an installment plan opted for this new 24-month schedule.

Ultimately, Sama Sama pulled back on the 24-month payment option in February 2020 because the modest increase in sales that resulted did not outweigh the additional working capital demands placed on the business. Nonetheless, installment payment plans continue to be a key ingredient in Sama Sama’s success. 85% of the enterprise’s sales are made to customers who pay through an installment plan. This type of financial solution will become increasingly important as Sama Sama continues to grow its business.

Credit assessment issues

Because an installment plan is essentially a loan to the household, it is important for Sama Sama to be able to determine the ability of a customer to pay over that time period. In the beginning, we made these determinations through a manual creditworthiness assessment. This was a cumbersome process and many customers struggled to provide the required information. A year later, in spite of the inefficient process, the Sama Sama customer base quadrupled, but it became imperative to adopt a faster and more reliable means of assessing customer creditworthiness to continue scaling into new market territories.

To address this issue, we partnered with Entrepreneurial Finance Lab (EFL) to explore a new, mobile-based psychometric credit-risk model. Sama Sama sales agents could easily perform the assessment in the field through a 30- to 45-minute survey administered to the customer on an Android smartphone. The survey enabled Sama Sama to evaluate the respondent’s attitude on key dimensions such as fulfilling obligations and community connections and trust. These factors were weighted and combined into an algorithm to produce an estimate of the household’s willingness to repay. If the household scored above a predetermined threshold, then they were approved for an installment payment plan.

The EFL partnership allowed us to more efficiently assess our customers’ creditworthiness while making the process easier and more enjoyable for them. This initial experience has allowed us to pivot to creating our own assessment model, which we are currently developing with customer data and repayment information gathered from the field. This model will be critical as we balance our drive to provide equitable access to high quality WASH services with our goal of creating a financially viable enterprise in northern Ghana.