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Meeting demand: 2 important takeaways from the GOGLA energy forum

The UNCDF CleanStart team joined the Global Off-Grid Solar Forum in Hong Kong in January 2018. This event gave us an opportunity to reflect on how the program can evolve to meet the demands in one of the fastest evolving sectors cross-cutting clean energy, finance, and low-income financial inclusion.

UNCDF CleanStart began in 2012 with the mission of using grants and technical assistance to support microfinance institutions (MFIs) to take on energy lending that will enable low-income households and businesses to access energy solutions. In 2015, recognizing the rising role of other value chain actors in providing finance for energy solutions, we expanded our mandate beyond working solely with microfinance institutions.

Today, our portfolio of partners receiving grants as risk capital in Nepal, Uganda, and various countries across West Africa include nearly as many non-MFIs as MFIs. This is symbolic of the diversity of players gaining traction in energy lending. As of 2017, we have invested partnerships in:

  • 15 MFIs including one that created a sister energy company
  • 11 energy service providers
  • 3 other financial institutions such as development banks, farmer cooperatives, etc.

In 2018, UNCDF CleanStart expects to grow its portfolio with even more solar energy partners through our latest Renewable Energy Challenge Fund in Uganda.

The Global Off-Grid Solar Forum this year gave us two major takeaways that will inform our strategic activities that drive our mission on energy access through financing:

1. Do MFI’s still have a role to play? If so, what is it?

UNCDF CleanStart programme manager, Vincent Wierda, moderated a panel on “Is PAYGO the Only Way to Go? Exploring Alternative Approaches to Consumer Financing”. During this session, an audience poll revealed that while PAYGO is the rising form of financing energy solutions for low-income households, MFIs still have a role to play.

Vincent Wierda from UNCDF CleanStart moderates a session on PAYGO and alternative solutions

From working with our MFI partners in Nepal, West Africa and Kenya, we have learned that there are key areas to focus on in order to make MFI models successful. This year, UNCDF CleanStart will publish best practices for making MFI-led models successful. In addition, there are many lessons that non-MFI energy providers and financial service providers, including fintechs, can learn from MFIs.

2. It is time to go beyond grants.

Whether we are talking about MFIs or energy service providers, an overarching takeaway at this conference is the high demand for working capital and debt, in place of grant funding. Given the working capital-intensive nature of energy companies, philanthropic funding will not be sustainable in achieving scale to meet energy demands. Grant funding is catalytic for allowing companies to tailor an energy lending product or improve clean energy technology or service models.

But partners have noted that grant funding can at times inhibit raising equity and debt further in the future, and that debt and working capital would help companies prove and scale their businesses better. As seen in the completed grant partnerships with financial service providers (FSPs) in Nepal, these institutions now want access to further debt and guarantees to grow the energy products they structured with their original UNCDF CleanStart grants.

These takeaways are strategically aligned with UNCDF’s announcement of the LDC Investment Platform. This new platform provides seed funding to investments in Least Developed Countries (LDCs) in the form of loans and guarantees, in addition to grants and reimbursable grants. Uganda and UNCDF CleanStart’s energy portfolio is a key area identified to execute our loan and guarantee capabilities, given the demand for this type of financing as a catalyst for SDG7.

With this, UNCDF CleanStart aims to partner with impact investors and commercial finance institutions in order to support emerging energy service providers and financial service providers, including MFIs, who provide energy lending and clean energy distribution for energy access and income generation activities.

A nice anecdote from the forum was that energy companies, namely PAYGO, are like platypuses; a hodgepodge of many different origins. PAYGO companies, and other value chain actors such as energy companies and financial service providers all working in the energy space, face challenges in attracting traditional investment because of their hybrid business models. Financiers in the sector need to be nimble and adapt the type of financing on offer in order to catalyse the most sustainable growth and further outreach of energy services and finance to last-mile areas. The UNCDF CleanStart platform is one mechanism that seeks to support more innovative business models that expand access to clean and reliable energy at the last mile.

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