No 132: A Damn Fine Investment

Last Christmas I wrote a Note (no 66) entitled ‘And you thought your day sucked…’. It told the story of Drinkwell International, a Malawi-based business that drills and maintains water boreholes. They provide water to some of the poorest communities in the world. I shared some of the challenges they had experienced, in particular with corruption and bribery and how the owners, Jonathan and Jennifer Hunter, were facing the difficult but understandable decision to fold the business. My Note struck a chord, and many of you reached out directly to Jonathan and Jennifer to wish them well. A year on I thought it would be good to give an update.

Drinkwell was established in 2013 and it has continued to operate all through 2015. It will finally cease trading in early 2016 once it completes its outstanding commitments. From the very start the aim was to build a business that was both financially viable (ie charged a fair price for its services) and socially sustainable (ie employed and trained local people). This was a bold goal that would require tenacity, courage and significant start-up cash.

Isle has provided financial support to Drinkwell through our foundation, REEF (the Revolving Economic Empowerment Fund), which provides soft loans to water-entrepreneurs in developing countries. It is called a ‘revolving’ fund because every penny that gets repaid is re-invested in the next (wild, hair-brained) scheme that takes our fancy.

Somewhat surprisingly, Drinkwell is not folding for any of the reasons we anticipated. It isn’t because the financial model was flawed (Malawians are prepared to pay a fair price for a good service). It isn’t because the local population don’t have the skills. There is a willing local workforce, hungry to get involved. Drinkwell is closing because to survive the company would need to adopt the corrupt practices that others in the supply chain embrace. This approach is, quite simply, not in Jonathan or Jennifer’s DNA. Principals can be expensive but they are always worth every penny. Despite these challenges the Drinkwell record is impressive. After 2.5 years of operation, they have drilled and rehabilitated 84 boreholes.  

The high-risk nature of REEFs investment portfolio is such that delivering a pure financial return was always going to be a challenge, but our measure of success is not purely financial. We are not walking away empty handed. We have learnt valuable lessons which we take into our next deal. We have proven that at a base level (ie drill borehole, charge client) the economic model can work, even in very poor communities. Best of all, Drinkwell has provided water to 25, 000 people.

The financial support that REEF provided to Drinkwell was around £60k. Most of this has been repaid but we will unfortunately not recoup our full investment. Our losses once the company is finally closed will be about £15k. That is £15k to provide safe, reliable water to 25,000 people who didn’t previously have access. Even if you assume boreholes only last 10 years (20+ is more typical) that is 6p per head per year.

That feels like a bloody fine investment to me.  We would do it again in a heartbeat.