How to Finance the Next Generation of Climate Smart Builders in East Africa
- CSFEP Coalition Team
- Jul 30
- 4 min read
Across East Africa, a new generation of entrepreneurs is working to transform the construction sector. From eco-insulation manufacturers to mass timber innovators, small businesses are rising to meet the demand for affordable, climate-smart housing. But one significant barrier keeps coming up: financing.
Throughout recent CSFEP coalition meetings, entrepreneur conversations, and investor calls, we’ve heard five consistent themes about how the finance sector could better support small businesses in the region. Read on to find out what we’ve learned—and where we see high potential solutions.
1. The sector needs a capital pipeline that grows with businesses
Capital is available, but it doesn’t always show up in the right form, at the right time, or for the right type of business. For example, some impact owners told us that while financing is available, especially small loans for early-stage businesses, there aren’t good opportunities to access additional growth capital. That means some businesses have to pay all their initial capital back–with no opportunities to borrow more–just as they need to reinvest. “You end up killing a growing business,” one impact investor told us.
The sector needs a more adaptive capital pipeline–one that supports longer early business development phases and responds to shifting capital needs. Tools like revolving credit or working capital lines could help small businesses maintain momentum during periods of expansion.
That said, many investors and entrepreneurs cautioned that not every business needs external funding. In fact, several investors encouraged entrepreneurs to explore steady-growth models that delay—or even avoid—external capital. “Cultivate a mindset of: how far can I go without [someone else’s money]?” one investor advised.
Entrepreneurs who had grown without taking on debt or equity were grateful to (not yet) be facing pressure from financiers expecting a return on their funds. While scaling up may eventually require outside investment, many urged exploring other growth paths first—especially earning income through business operations, which helps prove the model’s profitability.
2. The sector needs strong business models—and entrepreneurs need support to build them
Investors told us they are looking for strong business models, solid teams, and a clear value proposition—including data on returns, climate benefits, and market size. But in a young sector like biobased construction, many businesses are still early in their journey.
Some entrepreneurs in this industry haven’t formalised their business structure or clearly articulated their model. Others are great at technical innovation, but need help validating demand to ensure there is a veritable market for their proposed products. Some businesses would benefit from stronger teams to enhance their governance and operational efficiency.
This is where incubators and accelerators can play a vital role. Several investors told us they are more likely to fund entrepreneurs who have been through high-quality support programmes, because they know those entrepreneurs will have sharper, more practical business models. Others went so far as to say that they hesitate to invest in regions without good accelerators, because it’s harder to find businesses that are investment-ready.
3. Entrepreneurs need to contend with the inherently risk-averse nature of the industry
Several investors noted that while the industry is seeing a lot of material innovations right now, they also know that consumers–and therefore building professionals–are particularly hesitant to adopt new building materials. So it is essential for biobased construction entrepreneurs to demonstrate market demand early.
One way to support entrepreneurs in building demand is to create a strong enabling environment. When product innovators are supported by conducive building codes or procurement policies, it becomes easier to prove their products can scale.
4. The sector needs more R&D grants to de-risk early innovation
Early-stage innovation always carries risk, noted those we spoke with, but in East Africa, this risk is compounded by the limited availability of grant funding to help entrepreneurs through this challenging phase. Investors pointed out that in countries like the USA, grants are often used to help entrepreneurs test ideas and absorb early-stage failure, lessening the financial burden on innovators.
Philanthropy has a clear opportunity here. Grant funding for R&D would allow entrepreneurs to test and refine solutions without risking their whole business. A stronger pool of R&D grants could help de-risk early innovation–and accelerate progress across the sector.
5. High capital costs for consumers could be an opportunity for innovation
It’s not just businesses that face high borrowing costs, we heard. With mortgage interest rates ranging from 11% to 40% across East Africa, homebuyers are also incentivized to borrow as little as possible. That makes affordability a key barrier to market uptake.
But it could also be an opportunity. For example, developers like Easy Housing are exploring ways to use construction-stored carbon credits to lower the cost of a biobased home for consumers.
A shared opportunity
Throughout all of our conversations, the message was clear: there is real energy and commitment for supporting impact-driven small businesses in East Africa, including in the biobased construction sector. But to make progress, we need to make sure there is plenty of support for the entrepreneurs driving this work forward.
At CSFEP, we believe that articulating challenges is the first step toward solving them. Now, it’s time to work with the Biobased Construction East Africa Coalition and other partners to explore solutions.
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