Access to clean energy technology and sustainable energy services plays an important role in rural and peri-urban development in East Africa. However, as a new study by GVEP International shows, both energy entrepreneurs and consumers in rural and peri-urban areas are struggling to borrow the capital they need to invest in modern energy technologies.
Linking micro-finance institutions with small and medium enterprises.
The study reports on a project funded by the USAID Energy Sector Grants Program which sought to establish how GVEP International and other support organisations can work with both financial institutions and Micro, Small and Medium Enterprises (MSMEs) to increase access to investment finance for energy entrepreneurs and service providers and stimulate demand through consumer financing initiatives.
The project involved three market studies – in Kenya, Tanzania and Uganda – which reviewed the range of energy portfolios currently being financed by financial institutions and identified the barriers preventing financial institutions from lending more in this area.
As well as uncovering a lack of available financing at all levels, the study also revealed inadequate capacity within the lending institutions, reluctance on the part of financial institutions to increase their lending to a sector they know little about and a major concern about the quality and reliability of products in the East Africa market. Consumers on the other hand are deterred by the high initial capital outlay needed to buy energy systems, lack of technical knowledge and a shortage of reliable technicians to help them maintain the systems once installed.
However, the report highlights various models that GVEP International (and others) can explore to increase lending opportunities for energy products. Its recommendations include training and awareness programmes for financial institutions, training for businesses and suppliers in marketing, branding, financial management, borrowing and saving, and the creation of value chains between MSMEs and suppliers and financial institutions.
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