Microfinance and FinTechs are Working Together for Clean Energy Access
Over the last 20 years, microfinance has played an important role in enhancing the economic opportunities available to poor people, but the experience to date with loans for energy services and products is limited.
Even in cases where microcredit clients could use funds to buy clean energy technology, few did. Instead, many continued to use traditional, inefficient and often dangerous means - kerosene, candles, animal dung, or diesel - to light their homes and cook their food.
On the energy side, especially for people living in rural areas, energy services may not be available because energy companies do not typically view them as a strong, viable market for their products and rarely offer company-provided financing options.
The emergence of new distribution channels and consumer financing mechanisms such as remittances, mobile banking and microleasing. Together, these developments are bringing renewable microenergy to the off-grid and under-electrified poor.
The PAYGO ModelNearly 1.1 billion people worldwide lack electricity. The problem is particularly dire in Sub-Saharan Africa and Asia. Almost 85% of those without power live in rural areas, where it is economically unfeasible to extend electrical grids or brick-and-mortar financial infrastructure for a payments system. How can they pay the gas to cook their food or energy to light their houses?
The PAYGO business model (Pay-as-you-go) is an innovation that emerged to address the energy access challenge and to provide electricity generated from renewable energy sources at affordable prices, with payments facilitated by technologies available in these areas.
Basically, it is a financing technology that allows end-users to pay for solar energy in weekly installments or whenever they are financially liquid. Recently PAYGO solar loans have emerged as an especially promising solution for energy access. Even in the most remote locations, mobile phones are commonplace.
PAYGO loans make it possible for anyone with mobile connectivity to apply for a home solar system via their phone and repay the loan digitally. And because many low-income customers lack collateral to secure a loan, PAYGO uses remote lockout technology to reduce risk for lenders. Meanwhile, as customers pay down their solar loans, they acquire an asset they can leverage for other purposes. Let’s see a few examples of PAYGO applications.
1. Kiva and Tecnosol, when Microfinance meets Renewable Energy
Nicaragua is the second poorest country in the western hemisphere, where approximately 75% of the rural population does not have access to grid electricity. How to provide utilities to those families? Recently the US-based microloan platform Kiva has partnered with Tecnosol, the Central American leader in the sale and installation of decentralized renewable energy sources, to provide clean energy to Nicaragua poor families.
There is a high demand for renewable energy products in Nicaragua, especially among remote populations that are unreached by the country’s electric infrastructure. Despite the need, however, Nicaragua’s vast low-income population simply cannot afford the up-front financial cost of these systems. That’s where Kiva comes in.
Kiva is partnering with Tecnosol to provide a funding source for micro-loans. These loans will bring Tecnosol’s solar energy technology to people who would otherwise lack the economic capacity to obtain it.
2. How Microfinance Solutions is Boosting the energy transition in Bosnia and Herzegovina
Habitat for Humanity International has recently signed an agreement with the Association of Microfinance organizations in Bosnia and Herzegovina,AMFI B&H) to advance housing finance solutions and engage households in support of the energy transition and climate change mitigation in Bosnia and Herzegovina.
This partnership is focused on building internal capacity and influencing the AMFI B&H’s members – leading microfinance services providers – to advance affordable housing finance solutions and consumer education to support climate change adaptation and mitigation. It enabled access to finance to over 80,000 low-income households within the next three years and encouraged families to become active participants in the country’s energy transition.
However, already in 2018, the EBRD provided a loan of up to €5 million to MKF Partner, a microfinance institution in Bosnia and Herzegovina, to support urgently needed energy efficiency investments in the country’s residential sector. The funds were on-lent to individuals, residents’ associations, producers, service providers, suppliers and vendors of green technologies for investments that modernize existing housing stock and support the implementation of sustainable energy technologies.
3. d.light, a Worldwide Company
d.light, one of the global leaders in social transformation. Launched in 2007 by Ned Tozun and Sam Goldman, the company transformed the lives of 150 million people worldwide. "Solar-powered cookstoves remove the need for households to rely on wood or fuel-burning stoves. Families no longer need to use kerosene, charcoal or other dirty fuels to cook at home, which greatly improves their personal health, makes their homes safer, and cuts carbon emissions as well”, d.light CEO Nick Imudia said.
d.light's range of household products include solar-powered lanterns, cookstoves, solar home systems, TVs, radios, and smartphones, together with its low-cost PayGo personal finance service. The majority (55.5 percent) of d.light's customers live in sub-Saharan Africa, including 45 percent in East Africa. 37 percent live in India: a further four percent live in the rest of Asia. 3.5 percent live in Latin America.
4. What about Africa?
Moving to Uganda, BrightLife, a social enterprise by FINCA International, is providing energy products to poor people. The company gives last-mile distribution and end-user financing for renewable energy products, including solar home systems, improved cookstoves, and productive use assets.
BrightLife provides education, distribution, financing, and after-sale support for clean energy products such as solar lanterns, solar home lighting systems, solar appliances, solar-powered productive use assets, smartphones, and improved cookstoves.
Still in Uganda, Ugandan Mobile Pay-Go Solar Provider Fenix International doubled the number of customers in the year 2016 to 100,000. Fenix deploys solar leases of over USD 20 million. Fenix’s ReadyPay Power high-efficiency solar products and services worth 1.2-MWs serve over 600,000 Ugandan households.
Another company that is leading this sector is Sun King, one of the biggest energy suppliers in Africa. According to the company, it has delivered solar energy to 165,000 homes per month across eight African countries. Only in Kenya, where it has operated for over a decade, over 1 in 5 people use its product for light and power, accounting for 22 million Kenyans served to date.
In Mozambique, different companies such as SolarWorks!, ENGIE, Ignite and Epsilon offer SHS products using PAYGO combined with an initial down payment. The repayment duration ranges from 3 months to over 30 months depending on the size and price of the SHS. An ICS company also sells the smart stove by ACE sing a PAYGO system where the stove can be remotely cut off in case of non-payment