A widespread problem
Access to finance is arguably the most significant challenge to the off-grid solar market in sub-Saharan Africa. Even when lack of knowledge and trust are addressed through consumer education campaigns, and distribution channels are mapped out to reach last-mile consumers, a lack of financing causes bottlenecks all along the supply chain, often putting products out of reach to consumers.
Lack of financing causes bottlenecks all along the supply chain – we support solutions
Importers, retailers, and distributors need significant working capital to purchase and import inventory and build a sustainable business. Consumers who wish to purchase products also face financing constraints – despite lower lifecycle costs – especially when trying to buy larger solar home systems.
Meanwhile, commercial debt markets, particularly at the local level, remain largely out-of-reach to most market players. Given its nascent status, the off-grid solar industry as a whole is perceived as risky. The limited track record, lack of profitability, liquidity needs, and challenging market conditions render off-grid products unbankable in the eyes of most lenders. When national lenders do offer loans, they typically do so only at very high rates of interest, which may be prohibitive for many firms.
In order to support the much-needed access to finance, Lighting Africa undertakes a variety of activities all along the supply chain. We facilitate and leverage financial products to help provide the capital that is needed. We have also set up financing facilities to address foreign exchange bottlenecks, such as the one in Ethiopia.
Development Bank of Ethiopia Financing Facility
The Development Bank of Ethiopia created a fund, with our support, and $20 million in funding from the World Bank. It provides a foreign exchange credit line that can be accessed by the private sector to import qualifying products, including pico-PV lanterns and SHS meeting our Standards. Microfinance institutions (MFIs) can also access this line of credit to provide loans to households seeking to make a purchase of a qualified product. In a successful first 18 months of operation over 300,000 quality-verified products were imported, which provided roughly 1 million Ethiopians with access to modern lighting and energy products. The fund was subsequently granted an additional $20 million in financing.
The market responds
In addition to the activities we undertake to promote access to finance, many manufacturers and distributors of products meeting our Standards are also unlocking financial bottlenecks by implementing pay-as-you-go (PAYG) arrangements, making SHS more affordable to households. Using the PAYG model, consumers can pay for their pico-solar products and SHS in small, regular payments, most commonly by using mobile money.
This model carries the additional benefits of promoting payment and maintaining of the quality of the service. If payments are not made, the system can be shut off – thereby promoting payment compliance. Similarly, if a product fails, consumers won’t continue to pay, providing a strong incentive to distributors to provide adequate and timely maintenance of their products.
Since this innovative payment system has grown more popular, Lighting Global has published a Quality Assurance Policy for PAYG products to accommodate this new technology and give consumers confidence that they are investing in a quality product.