emerging countries

Microfinance and FinTechs are Working Together for Clean Energy Access

Microfinance and FinTechs are Working Together for Clean Energy Access

Microfinance and energy access are increasingly being recognized as complementary forces. By facilitating the borrowing of smaller amounts and providing flexible repayment schedules, the rise of microfinance and nanofinance is expanding the opportunities to serve underserved communities like never before.

Over the past two decades, microfinance has significantly contributed to enhancing economic opportunities for impoverished populations. However, the integration of loans for energy services and products is still relatively limited.

Despite the availability of microcredit for the purchase of clean energy technology, there's a notable preference among clients to stick with traditional, inefficient, and often hazardous energy sources like kerosene, candles, animal dung, or diesel for lighting and cooking.

From the perspective of energy provision, particularly in rural areas, the absence of energy services typically stems from energy companies' reluctance to see these communities as viable markets, hence the lack of financing options directly from these companies.

The emergence of innovative distribution channels and consumer financing mechanisms, including remittances, mobile banking, and microleasing, has begun to bridge these gaps, making renewable microenergy accessible to the off-grid and under-electrified poor.

Globally, nearly 1.1 billion people lack access to electricity. This issue is acute in Sub-Saharan Africa and Asia, where approximately 85% of those living without electricity reside in rural settings—an area where extending electrical grids or establishing conventional financial infrastructure for payments is economically impractical. The question then arises: How can these individuals afford gas for cooking and electricity for lighting?

The PAYGO Model. The Pay-As-You-Go (PAYGO) business model has emerged as a solution to facilitate access to renewable energy sources at affordable rates. This model leverages technology to enable end-users to pay for solar energy in manageable weekly installments or as their financial situation allows.

PAYGO solar loans are becoming a promising avenue for enhancing energy access. Thanks to widespread mobile phone usage, even in remote locations, these solar loans are a reality. Users can easily apply for a home solar system through their phones and repay the loan digitally. The fact that many low-income users may lack the necessary collateral for traditional loans is mitigated by remote lockout technology in PAYGO systems, which reduces lenders' risks. As customers gradually repay their solar loans, they build equity in an asset that can potentially serve other financial needs.

Kiva and Tecnosol. Nicaragua, as the second-poorest country in the Western Hemisphere, has roughly 75% of its rural population living without grid electricity. Kiva, a US-based microloan platform, has collaborated with Tecnosol, the Central American renewable energy leader, to offer clean energy solutions to impoverished Nicaraguan families.

Despite the high demand for renewable energy, the financial barrier has kept many from accessing these essential services. Through the partnership, Kiva and Tecnosol aim to dismantle these barriers by facilitating micro-loans for the acquisition of Tecnosol’s solar energy technology.

Bosnia's Experience. Habitat for Humanity International has partnered with the Association of Microfinance organizations in Bosnia and Herzegovina (AMFI B&H) to propel housing finance solutions forward and promote the energy transition and climate change mitigation. This initiative seeks to influence AMFI B&H's member institutions to adopt affordable housing finance solutions and improve consumer education on climate change adaptation and mitigation, aiming to reach over 80,000 low-income households in the next three years.

Additionally, in 2018, the European Bank for Reconstruction and Development (EBRD) provided a €5 million loan to microfinance institution MKF Partner in Bosnia and Herzegovina to support energy efficiency investments in the residential sector, highlighting the role of microfinance in sustainable energy transitions.

d.light, founded in 2007 by Ned Tozun and Sam Goldman, has impacted 150 million lives globally. The company provides a range of solar-powered products, from cookstoves to TVs, contributing to healthier, safer homes, and reduced carbon emissions. d.light's PayGo service has made these technologies accessible to a significant portion of its customers in sub-Saharan Africa, India, and beyond.

In Uganda, BrightLife, a FINCA International social enterprise, alongside Fenix International and Sun King, is making strides in offering renewable energy products on a PayGo basis. These companies have made significant impacts, from doubling customer bases to reaching millions with solar energy, demonstrating the potential of microfinance and PAYGO models in transforming energy access in Africa and beyond.