09/10/2023, 16:38 Microfinance and FinTechs are Working Together for Clean Energy Access

Fintech and Inclusion

EMERGING COUNTRIES

Microfinance and FinTechs are

Working Together for Clean
Energy Access
Written by S.V. on 01 June 2023

Microfinance and energy access seem like natural

companions. By allowing customers to borrow smaller sums
and eschew rigid repayment schedules, the advent of micro
and nanofinance opens more possibilities for reaching the
underserved than ever before.
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.
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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 Model

Nearly 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.

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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

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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

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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
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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

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