The relationships between the mother business entity and the local ones can be designed to suit the specific context. At one end, it can be the simple vendor-client transaction exemplified in the use of an ISP by an independent cyberkiosk. At the other extreme, the local entities can be wholly owned branches of the company. In between lie the rich possibilities of a franchising arrangement.

The mismatch between the financial requirements needed to set up a system of this level of sophistication and the ability of the end-clients to pay for its services is probably the reason why few such facilities have been attempted so far. UNEP's Industry and Environment Volume 25 No. 2 April-June 2002 - Article "Making Development a Good Business" presents a detailed analysis of this problem and identifies the kinds of capital investments required to address them. A copy of the article can be viewed at http://www.devalt.org/newsletter/newopening.htm

While most of these functions require non-trivial resources in the form of skilled professionals, infrastructure and institutional systems, the missing link in most developing countries is finance. Lack of financing systems remain the principal barrier to the rapid deployment of ICT in the non-metropolitan areas of the Third World.

This paper addresses the particular set of issues relating to how a national ICT facility might be financed, both for the mother unit and for the local enterprises. It does not, however, address the building of infrastructure to provide the "pipelines" or "highways" that are generally seen to be necessary to deliver ICT for Development services and products for two reasons:

1. Powerful models already exist to provide a roadmap for these initiatives. The Universal Service Provision Fund and the ATT Mainland Ozark Model are two examples of how public funds were mobilized to cover the cost of supplying universal telecommunications in rual and remote locations in the US. The Tennessee Valley Authority (TVA) is a third example of how highly subsidized financing (with interest rates of 1% to 2% and long periods of moratoria) were made available to encourage the setting up of both the electrical and telecom backbones in the American hinterland.

2. ICT affords immediate and rapid solutions for development. Their deployment is greatly hampered by the cost of building the required infrastructure, a lengthy, costly and complex task. The benefits of these technologies needs therefore to be provided without the installation of large-scale centralized infrastructure, the possibility of which has been demonstrated by a number of on-the-ground programmes.

The focus of this paper is therefore on the financing of initiatives that either use existing infrastructure or set up decentralized means for power and / or connectivity.

Investing in a Commercially Viable ICT Service

The first premise, based on limited but credible experience, is that it is possible to set up an ICT facility that can, over time, become commercially viable even in economies with relatively low incomes and little purchasing power. Such a facility needs:
 

This means that considerable capital investment is needed at the startup and early stages until the venture has reached breakeven. Such initial capital must be accessed at low cost and on relatively easy terms to enable the business to build up its operations and capacity utilization before it achieves positive cash flow. Although no actual enterprise on the ground has achieved breakeven, plausible business plans show that with sufficient numbers (of information products and users) profits can gradually build up to a stage where further growth can be financed through commercial investment capital.
Activities

           = Scalable and Sustainable Solutions

Actors

With the current dearth of financing systems available, these are probably the best descriptions of the trajectories that will have to be followed by successful ICT enterprises attempting to connect remote, off-grid communities to the global village.

The first part of this paper has addressed the critical issues of essential organisational, financial and operational structures for sustainable social entrepreneurs. It has also identified the current sources of funding available to such initiatives and proposed a basis of how funds for essentially social benefit versus private benefit should be sourced.

The structures identified are essential components of any enterprise that has the commercial capacity to be self-financing after the viability phase, either through internally generated funds or through financial market mechanisms. We now address the Funding structure necessary to nurture and allow social entrepreneurs to achieve sustainability and scale.

As noted during the panel discussion at WSIS on "Innovative Financing Mechanisms for ICT4D: - Venturing beyond the ‘Forever Pilot’ Syndrome", current mechanisms for financing social entrepreneurs engaged in the ICT for development field are inefficient and generally doom such efforts to a perpetual start-up mode. Many of the issues were surfaced and discussed during the panel discussion.
Problems with current mechanisms include:

To resolve these impediments, a Mega Fund was proposed at WSIS, aggregating funds from Governments, Bilateral, Multilateral and other donors for ICT4D. We endorse this proposal but recommend a more broadly conceived mechanism. The Mega Fund – with a proposed working title of The Hope Digital Fund (HDF), should be composed of two sub-funds. The HDF for Social Advancement (HDFA) and the HDF for Sustainability (HDFS). This separation would allow the funding of social entrepreneurs through the most appropriate financing vehicles for the social and for the commercial components of a social enterprise.

The HDFA would be funded by Bilateral, Multilateral, Foundations, and Corporate Responsibility Programmes (Donors). Its objectives would be to bear the start-up costs incurred by social entrepreneurs to build the infrastructure components and capacity building necessary to establish their business and normally paid for by society as a whole. The need for these funds has been previously discussed in this paper. These funds would be in the way of grants to the social entrepreneur.

The HDFS would be funded by Donors and importantly by Corporations and the Financial Markets, and these funds would provide 2nd Stage and later funding in conjunction with the HDFA. HDFS will fund the social entrepreneur through a full range of market based financial instruments including equity stock, and various debt instruments. These funds would therefore generate a return for the HDFS and allow for flexibility in attracting incremental funds by generating returns for investors. Of course the investor will be given the option of re-investing the returns generated in either the HDFA or HDFS, allowing over time for a self-financing mechanism to promote ICT4D.

The bifurcation of the Fund is essential for two reasons. First, the not for profit element is necessary to enable the enterprises to deliver social benefits while building up their capacity to become self-sustaining. The second is to attract a broad base of investors who require financial returns and are not currently players in these arena. A third paper in this series will address the issues of governance, financial instruments, and how they can be marketed to mobilise and manage a sufficient corpus for the funds to become significant and meaningful financing partners for social enterprise. Brief comments on overall fund structures to obviate flows in the current system are germaine.