Solar Energy Firms Get Loans to Light up Rural Tanzania

When Tanzanian company ARTI Energy brought solar lights to Kiromo village in the eastern district of Bagamoyo eight years ago, local people were excited but found them expensive.

 

"I really liked those lamps, but I could not imagine then that I would ever own one," recalled Kiromo resident Salum Ali.

 

The company realised the upfront investment needed to buy modern lighting devices was beyond the means of the average rural Tanzanian.

 

Guided by the belief that lighting is a basic human need, the Dar es Salaam-based sustainable energy firm decided to sell the lights on credit.

 

Within a few months of starting to use a traditional credit system, known as "mali kauli", which allows customers to purchase products and pay later, the company sold many lights and domestic solar systems in the impoverished district.

 

Ali - who uses a set of solar lights he bought several years ago - says they still work perfectly.

 

"I have nothing to complain about - I use the lights at home and for my fishing activities," the 48-year-old told the Thomson Reuters Foundation.

 

The initiative, part of the World Bank-funded Lighting Rural Tanzania project and jointly implemented by ARTI Energy and the Rural Energy Agency, has attracted many dealers and shop owners keen to sell solar products on the company's behalf.

 

Thanks to the informal credit system - widely used in villages due to trust between customers and shop owners, and interdependence between sellers and suppliers - ARTI Energy has provided low-cost solar equipment to more than 6,000 families in Bagamoyo.

 

According to Tanzania's Bureau of Statistics, only around a quarter of Tanzanians have access to electricity.

 

While electricity demand is growing at 10 to 15 percent per year, the government says rural households are often excluded from economic activities due to a lack of power.

 

And while solar power is a promising way to boost electricity access in rural communities, businesses supplying solar products find it hard to grow due to a lack of capital.

 

Innovative Financing

Banks are often unwilling to lend money to them without knowing how the sector works, said Lais Lona, Africa business development manager for SunFunder, a solar energy finance business based in Tanzania and the United States.

 

It aims to bridge the gap between investors and businesses specialising in off-grid solar energy by providing loans.

 

"If it wasn't for SunFunder, we'd still be ordering stock in small volumes and paying a premium for transport and customs clearance," said Dennis Tessier, programme director for ARTI Energy, which secured a SunFunder loan.

 

"(It) has enabled us to move larger volumes, and pass on the savings to our customers," he said.

 

SunFunder has created a mechanism through which investors in solar energy can make loans to solar companies, benefiting from SunFunder's specialised knowledge of the industry, Lona said.

 

"We vet individual solar businesses closely, and also develop understanding of the broader business context," he said.

 

SunFunder loans are tailored to meet the needs of a specific business model and to minimise the risk of default.

 

Investors do not lend to individual businesses but rather put money into solar loan vehicles, each of which lends to a number of companies, spreading the risk, Lona said.

 

SunFunder, which won the 2016 Ashden Award for Innovative Finance last month, has so far dished out around 70 loans worth $8.6 million to more than 20 solar companies in ten countries, Lona said.

 

The loans can be from around $50,000 to $1 million or more each. Companies normally start with a small loan for a few months to ship one consignment of products, and then build up to larger, longer-term loans as successful repayments are made.

 

"We pride ourselves on being able to move quickly with our customers, and being open and flexible in designing a financing solution that meets their needs," Lona said.

 

More than 300,000 households have been reached with solar technology financed through SunFunder, the company says.

 

Those households now have a clean source of power to make everyday activities easier, saving on the cost of kerosene for lighting and fees for charging phones.

 

Eliminating the use of kerosene reduces the risk of fires and health damage from indoor pollution. In addition, SunFunder's financial backing reduces carbon dioxide emissions by around 50,000 tonnes per year, the company says.


(Reporting by Kizito Makoye; editing by Megan Rowling. Credit: Thomson Reuters Foundation)