Discussion » E-Discussion #6 - Innovative Consumer Finance Mechanisms for Small Scale Off-Grid Energy / Part I: Asset Finance
E-Discussion #6 - Innovative Consumer Finance Mechanisms for Small Scale Off-Grid Energy / Part I: Asset Finance
DESCRIPTION
Efforts to provide energy access on a commercial basis to rural populations in developing countries face a range of challenges, including access to finance. Off-grid customers from lower income communities currently pay a high price for purchasing kerosene for basic lighting services and switching to renewable energy based systems would not only save them fuel-costs but also improve their overall quality of life. However, the high upfront cost of the renewable energy based systems (handheld devices and stand-alone systems) restricts them from making this switch. This is identified as a major barrier by all stakeholders committed to the delivery of energy access solutions in a commercially viable manner and at scale. Over the past decade, microfinance institutions, supported by the international development community, have played an important role in providing direct consumer finance for purchase of handheld devices and single home solutions. In addition to microfinance, a number of other innovative end-user finance schemes have emerged in recent years. Building on the findings from [USAID's Renewable Energy Microfinance and Microenterprise Program (REMMP) | http://www.arcfinance.org/remmp.html, and specifically the experience of Arc Finance, this 3 weeks long e-discussion will feature and discuss a number of mechanisms for downstream end-user finance and their integration into innovative energy access business models:
Week 1 (Feb. 18 - Feb. 25): Asset finance
Week 2 (Feb. 25 - Mar. 4): Microfinance and remittances
Week 3 (Mar. 4 - Mar. 11): Other innovative end-user financing models
Nicola Armacost is the Managing Director of Arc Finance; formed in the spring of 2008 to expand access to finance for clean energy and water. Niki has over 19 years experience in development with a focus on financing solutions for the poor; from 1993 to 2008, she worked at Women’s World Banking, a global microfinance network where she held a number of senior management roles. Niki is an advisor to a number of finance and energy organizations globally and is the Co-Chair of the SE4all Investment and Finance Working Group of the Practitioner Network. She also serves on the Board of MISFA (the donor consortium for microfinance in Afghanistan). She has provided tailored technical assistance, presented papers, given lectures and run conferences and exchanges on financing mechanisms for clean energy all over the world. Niki holds a Bachelor of Arts degree in International Relations from the University of Toronto, Canada, an LLB from Queen's University, Canada and an LLM from the Osgoode Hall Law School, Canada.
Pamela Baldinger – Energy Advisor, USAID (USA)
Pamela Baldinger currently serves as Energy Edvisor in the Energy Division of the Bureau of Economic Growth, Education and Environment at USAID. She specializes in clean energy programs, designing and managing programs in such areas as renewable energy, clean cookstoves, and cross-sectoral programs involving health, humanitarian assistance, and economic growth. She is the USAID manager of the Renewable Energy Microfinance and Microenterprise Program (REMMP) implemented by Arc Finance, and helped create two Development Credit Authority guarantees supporting small-scale renewable energy devices.
Mr. Dipal Chandra Barua – Founder and Chairman, Bright Green Energy Foundation (Bangladesh)
Dipal Chandra Barua is Founder & Chairman of Bright Green Energy Foundation (BGEF), and a pioneer of solar energy in Bangladesh. Before this, he was President of the Bangladesh Solar & Renewable Energy Association (BSREA) and founding Managing Director, of Grameen Shakti, Bangladesh, as well as Co-founder & Deputy Managing Director at Grameen Bank until December 2009, where he designed and implemented Grameen II, heralding exponential growth and profitability for the Bank. Mr. Barua has more than 35 years of experience in finding sustainable market-based solutions for the social and economic problems faced by rural people. He has wide experience in providing advice and technical assistance to renewable energy technology programs all over the world. He was selected as a Lead Author by the IPCC on Financing & Investment and also served as a member of strategic advisory board by IRENA, the International Climate Initiative, and Solar For All, an initiative to expand solar energy to rural populations. In 2011, Mr. Barua was elected the first President of Bangladesh Solar and Renewable Energy Association (BSREA), with a vision for Bangladesh to become the first “solar nation” by 2020. www.greenenergybd.com
Mr. Nazmul Haque – Director of Investment and Head of Advisory, Infrastructure Development Company Limited (IDCOL) (Bangladesh)
Mr. Nazmul Haque has been the Director of Investment and Head of Advisory for the Infrastructure Development Company Limited (IDCOL), the largest energy and infrastructure financing company in Bangladesh since 2003. During his tenure with IDCOL, Mr. Haque was involved in structuring and financing many infrastructure projects in sectors including power, telecom, toll roads, ports, ICT and renewable energy. He was involved in designing IDCOL’s successful solar home system, and as of July 2013, more than 2.4 million households have been connected to solar energy through this program. Mr. Haque has contributed to developing the country’s first biomass gasification based power plant as well as a nationwide domestic biogas program and is working to promote improved cook stoves in Bangladesh. Mr. Haque is the IDCOL focal point for carbon finance related issues and serves as a resource person on CDM documentation and procedures. Mr. Haque is an expert in Project Appraisal Techniques and Financial Modeling. He has given international trainings and presented papers on renewable energy financing, advanced project finance and financial modeling, corporate valuation techniques, Public Private Partnership around the world. Mr. Nazmul Haque completed his graduation in Finance and Management Information System from North South University.
Mr. Paul Needham – President and Co-Founder, Simpa Networks (India)
Paul Needham is an InfoTech entrepreneur with over 12 years of senior leadership experience. In 1999, Paul quit the Economics PhD program at Cambridge University to co-found MeMail.com, a publisher of news and entertainment content delivered to the email inboxes of subscribers. In 2001, Paul co-founded an innovative online advertising network called BidClix, which was sold to Accipiter Solutions. Paul helped negotiate the sale of Accipiter to aQuantive, which was acquired by Microsoft. Paul joined Microsoft as Director of APS Canada, with responsibility for launching Microsoft’s online advertising network business in Canada. Paul then became Director of Network Strategy with responsibility for guiding the development of overarching strategies for Microsoft’s international advertising network businesses. Paul is also on the board of directors of CAMFED USA (Campaign for Female Education), a not-for-profit organization that tackles poverty and HIV/AIDS by investing in the education of girls in Africa. Paul holds a M.Phil. in Economics and Politics of Development from Cambridge University, UK and a Bachelor of Commerce degree from the University of British Columbia, in Vancouver, Canada.
Willem Nolens – Founder and Managing Director, SolarNow (Uganda)
Willem is the Founder and Managing Director of SolarNow, a company offering high-quality solar systems in combination with a credit facility, thereby making solar energy affordable for the rural masses. In 2009, Willem decided to focus on making renewable energy more affordable in Africa. As a Director at the Rural Energy Foundation (REF), he supported REF in facilitating access to electricity to more than 332,000 people, winning the 2010 EU Sustainable Energy Awards and the 2010 International Ashden Awards. In early 2011, Willem transformed REF into a for-profit social enterprise called SolarNow. Willem has over a decade of experience in establishing and managing social enterprises in Asia and Africa, in particular in the field of microfinance and renewable energy. After working for a corporate advisory, Willem successfully co-founded and managed ProCredit bank Ghana between 2001 and 2005. He subsequently co-founded and managed Catalyst Microfinance Investors (CMI), a US$125 million fund that invests in a network of highly efficient Greenfield MFIs in Africa and Asia. Willem holds a Master degree in Economics from Groningen University in the Netherlands.
Mr. Kevin Kennedy – Asset Finance Specialist, Arc Finance (East Africa)
Kevin Kennedy is a consultant for Arc Finance with a focus on asset finance, and has worked with SolarNow, Simpa Networks and M-Kopa to support them in building their asset finance capabilities. Before changing his focus to asset financing in developing markets, Kevin spent fifteen years in commercial asset financing, running his own technology leasing company from 2003 to 2008. From 1992 to 2002 he was with GE Capital in a variety of roles in their leasing businesses, including extensive mergers, acquisitions and integration work in the emerging economies of Eastern Europe. As a strong advocate of the potential of asset financing to expand credit for SMEs and micro-enterprises globally, he has published in a number of areas including asset financing and microfinance; the potential of technology to expand asset financing, and the East African leasing market. Originally from Ireland, Kevin holds a BA from Trinity College, Dublin and a Master's degree from Louisiana State University — both in Zoology. He also holds a Master's in Development Economics from the University of Reading.
...
Please click on the following link to download the briefing note on asset finance:
Here are some questions to think about for the e-discussion this week:
1. What are the most compelling reasons for an energy company to make the strategic choice to offer asset finance and set up an in-house credit facility?
2. For an energy company focused on the small-scale clean energy sector, what are the advantages and disadvantages of setting up an in-house credit facility?
3. If you do decide to do it, what can go wrong and how can you avoid making the typical mistakes most companies make when they opt to institute an asset finance capability?
I hope you've all had a chance to read the Briefing Note we prepared on Asset Finance - we welcome comments, questions and other examples that people would like to share. Also, if the Expert Contributors want to provide more details about their own business models we very much encourage that!
Regarding the energy ladder, I have an alternative view of how best to achieve movement, while at the same time as expanding the number of clients we bring into energy access for the first time
There are a number of aspects that come together. First we have a first adopter of our new financed solar products. Secondly we have solar equipment that has a useful life much longer than the financing term. Thirdly we have distribution that allows us to collect equipment as efficiently as we deliver it. Fourthly we have equipment that with minimal refurbishment can be financed with a second customer. Fifthly we have social funding to help us move refurbished equipment to first time energy customers at a subsidised rate
The model would be to go to rental with our core customers, offering them solar equipment for 12 months at a more favorable rate than a hire purchase structure
After 12 months we offer them the upgrade that technology advancement makes available - brighter lights, longer battery, better design either as a straight swap, or an upgrade
We take the 12 month old equipment and refurbish it.
The refurbished equipment is offered to the market as a rent to buy over 12 months. The rental should be lower because i) cost recovery and profit in the first client rental and ii) with subsidy from social capital that want to fund deeper penetration of solar and credit into rural populations
To achieve this model we need to start with a mature portfolio (12 months or longer) and to control the supply and distribution chain in one organisation. I believe this model would be more efficient and increase our penetration at multiple levels of the rural population.
Discussion » E-Discussion #6 - Innovative Consumer Finance Mechanisms for Small Scale Off-Grid Energy / Part I: Asset Finance
E-Discussion #6 - Innovative Consumer Finance Mechanisms for Small Scale Off-Grid Energy / Part I: Asset Finance
DESCRIPTION
Efforts to provide energy access on a commercial basis to rural populations in developing countries face a range of challenges, including access to finance. Off-grid customers from lower income communities currently pay a high price for purchasing kerosene for basic lighting services and switching to renewable energy based systems would not only save them fuel-costs but also improve their overall quality of life. However, the high upfront cost of the renewable energy based systems (handheld devices and stand-alone systems) restricts them from making this switch. This is identified as a major barrier by all stakeholders committed to the delivery of energy access solutions in a commercially viable manner and at scale. Over the past decade, microfinance institutions, supported by the international development community, have played an important role in providing direct consumer finance for purchase of handheld devices and single home solutions. In addition to microfinance, a number of other innovative end-user finance schemes have emerged in recent years. Building on the findings from [USAID's Renewable Energy Microfinance and Microenterprise Program (REMMP) | http://www.arcfinance.org/remmp.html, and specifically the experience of Arc Finance, this 3 weeks long e-discussion will feature and discuss a number of mechanisms for downstream end-user finance and their integration into innovative energy access business models:
Week 1 (Feb. 18 - Feb. 25): Asset finance
Week 2 (Feb. 25 - Mar. 4): Microfinance and remittances
Week 3 (Mar. 4 - Mar. 11): Other innovative end-user financing models
Expert Moderators
Nicola Armacost – Managing Director, Arc Finance (USA)
Nicola Armacost is the Managing Director of Arc Finance; formed in the spring of 2008 to expand access to finance for clean energy and water. Niki has over 19 years experience in development with a focus on financing solutions for the poor; from 1993 to 2008, she worked at Women’s World Banking, a global microfinance network where she held a number of senior management roles. Niki is an advisor to a number of finance and energy organizations globally and is the Co-Chair of the SE4all Investment and Finance Working Group of the Practitioner Network. She also serves on the Board of MISFA (the donor consortium for microfinance in Afghanistan). She has provided tailored technical assistance, presented papers, given lectures and run conferences and exchanges on financing mechanisms for clean energy all over the world. Niki holds a Bachelor of Arts degree in International Relations from the University of Toronto, Canada, an LLB from Queen's University, Canada and an LLM from the Osgoode Hall Law School, Canada.
Pamela Baldinger – Energy Advisor, USAID (USA)
Pamela Baldinger currently serves as Energy Edvisor in the Energy Division of the Bureau of Economic Growth, Education and Environment at USAID. She specializes in clean energy programs, designing and managing programs in such areas as renewable energy, clean cookstoves, and cross-sectoral programs involving health, humanitarian assistance, and economic growth. She is the USAID manager of the Renewable Energy Microfinance and Microenterprise Program (REMMP) implemented by Arc Finance, and helped create two Development Credit Authority guarantees supporting small-scale renewable energy devices.
Supporting Material
Watch the introductory webinar: Consumer Finance for Small Scale Off-Grid Energy Webinar - Feb. 18, 2014
Download the webinar presentation: N. Armacost - P. Baldinger / Webinar Presentation - Feb. 18, 2014
_____________________________________________________________________
PART I : ASSET FINANCE
Expert Contributors
Mr. Dipal Chandra Barua – Founder and Chairman, Bright Green Energy Foundation (Bangladesh)
Dipal Chandra Barua is Founder & Chairman of Bright Green Energy Foundation (BGEF), and a pioneer of solar energy in Bangladesh. Before this, he was President of the Bangladesh Solar & Renewable Energy Association (BSREA) and founding Managing Director, of Grameen Shakti, Bangladesh, as well as Co-founder & Deputy Managing Director at Grameen Bank until December 2009, where he designed and implemented Grameen II, heralding exponential growth and profitability for the Bank. Mr. Barua has more than 35 years of experience in finding sustainable market-based solutions for the social and economic problems faced by rural people. He has wide experience in providing advice and technical assistance to renewable energy technology programs all over the world. He was selected as a Lead Author by the IPCC on Financing & Investment and also served as a member of strategic advisory board by IRENA, the International Climate Initiative, and Solar For All, an initiative to expand solar energy to rural populations. In 2011, Mr. Barua was elected the first President of Bangladesh Solar and Renewable Energy Association (BSREA), with a vision for Bangladesh to become the first “solar nation” by 2020.
www.greenenergybd.com
Mr. Nazmul Haque – Director of Investment and Head of Advisory, Infrastructure Development Company Limited (IDCOL) (Bangladesh)
Mr. Nazmul Haque has been the Director of Investment and Head of Advisory for the Infrastructure Development Company Limited (IDCOL), the largest energy and infrastructure financing company in Bangladesh since 2003. During his tenure with IDCOL, Mr. Haque was involved in structuring and financing many infrastructure projects in sectors including power, telecom, toll roads, ports, ICT and renewable energy. He was involved in designing IDCOL’s successful solar home system, and as of July 2013, more than 2.4 million households have been connected to solar energy through this program. Mr. Haque has contributed to developing the country’s first biomass gasification based power plant as well as a nationwide domestic biogas program and is working to promote improved cook stoves in Bangladesh. Mr. Haque is the IDCOL focal point for carbon finance related issues and serves as a resource person on CDM documentation and procedures. Mr. Haque is an expert in Project Appraisal Techniques and Financial Modeling. He has given international trainings and presented papers on renewable energy financing, advanced project finance and financial modeling, corporate valuation techniques, Public Private Partnership around the world. Mr. Nazmul Haque completed his graduation in Finance and Management Information System from North South University.
www.idcol.org
Mr. Paul Needham – President and Co-Founder, Simpa Networks (India)
Paul Needham is an InfoTech entrepreneur with over 12 years of senior leadership experience. In 1999, Paul quit the Economics PhD program at Cambridge University to co-found MeMail.com, a publisher of news and entertainment content delivered to the email inboxes of subscribers. In 2001, Paul co-founded an innovative online advertising network called BidClix, which was sold to Accipiter Solutions. Paul helped negotiate the sale of Accipiter to aQuantive, which was acquired by Microsoft. Paul joined Microsoft as Director of APS Canada, with responsibility for launching Microsoft’s online advertising network business in Canada. Paul then became Director of Network Strategy with responsibility for guiding the development of overarching strategies for Microsoft’s international advertising network businesses. Paul is also on the board of directors of CAMFED USA (Campaign for Female Education), a not-for-profit organization that tackles poverty and HIV/AIDS by investing in the education of girls in Africa. Paul holds a M.Phil. in Economics and Politics of Development from Cambridge University, UK and a Bachelor of Commerce degree from the University of British Columbia, in Vancouver, Canada.
www.simpanetworks.com
Willem Nolens – Founder and Managing Director, SolarNow (Uganda)
Willem is the Founder and Managing Director of SolarNow, a company offering high-quality solar systems in combination with a credit facility, thereby making solar energy affordable for the rural masses. In 2009, Willem decided to focus on making renewable energy more affordable in Africa. As a Director at the Rural Energy Foundation (REF), he supported REF in facilitating access to electricity to more than 332,000 people, winning the 2010 EU Sustainable Energy Awards and the 2010 International Ashden Awards. In early 2011, Willem transformed REF into a for-profit social enterprise called SolarNow. Willem has over a decade of experience in establishing and managing social enterprises in Asia and Africa, in particular in the field of microfinance and renewable energy. After working for a corporate advisory, Willem successfully co-founded and managed ProCredit bank Ghana between 2001 and 2005. He subsequently co-founded and managed Catalyst Microfinance Investors (CMI), a US$125 million fund that invests in a network of highly efficient Greenfield MFIs in Africa and Asia. Willem holds a Master degree in Economics from Groningen University in the Netherlands.
www.solarnow.org
Mr. Kevin Kennedy – Asset Finance Specialist, Arc Finance (East Africa)
Kevin Kennedy is a consultant for Arc Finance with a focus on asset finance, and has worked with SolarNow, Simpa Networks and M-Kopa to support them in building their asset finance capabilities. Before changing his focus to asset financing in developing markets, Kevin spent fifteen years in commercial asset financing, running his own technology leasing company from 2003 to 2008. From 1992 to 2002 he was with GE Capital in a variety of roles in their leasing businesses, including extensive mergers, acquisitions and integration work in the emerging economies of Eastern Europe. As a strong advocate of the potential of asset financing to expand credit for SMEs and micro-enterprises globally, he has published in a number of areas including asset financing and microfinance; the potential of technology to expand asset financing, and the East African leasing market. Originally from Ireland, Kevin holds a BA from Trinity College, Dublin and a Master's degree from Louisiana State University — both in Zoology. He also holds a Master's in Development Economics from the University of Reading.
...
Please click on the following link to download the briefing note on asset finance:
Hi everyone,
Here are some questions to think about for the e-discussion this week:
1. What are the most compelling reasons for an energy company to make the strategic choice to offer asset finance and set up an in-house credit facility?
2. For an energy company focused on the small-scale clean energy sector, what are the advantages and disadvantages of setting up an in-house credit facility?
3. If you do decide to do it, what can go wrong and how can you avoid making the typical mistakes most companies make when they opt to institute an asset finance capability?
Looking forward to speaking to all of you online!
Best,
Niki
Dear everyone,
I hope you've all had a chance to read the Briefing Note we prepared on Asset Finance - we welcome comments, questions and other examples that people would like to share. Also, if the Expert Contributors want to provide more details about their own business models we very much encourage that!
Best,
Niki
Nicola Armacost
Managing Director, Arc Finance | www.arcfinance.org
Regarding the energy ladder, I have an alternative view of how best to achieve movement, while at the same time as expanding the number of clients we bring into energy access for the first time
There are a number of aspects that come together. First we have a first adopter of our new financed solar products. Secondly we have solar equipment that has a useful life much longer than the financing term. Thirdly we have distribution that allows us to collect equipment as efficiently as we deliver it. Fourthly we have equipment that with minimal refurbishment can be financed with a second customer. Fifthly we have social funding to help us move refurbished equipment to first time energy customers at a subsidised rate
The model would be to go to rental with our core customers, offering them solar equipment for 12 months at a more favorable rate than a hire purchase structure
After 12 months we offer them the upgrade that technology advancement makes available - brighter lights, longer battery, better design either as a straight swap, or an upgrade
We take the 12 month old equipment and refurbish it.
The refurbished equipment is offered to the market as a rent to buy over 12 months. The rental should be lower because i) cost recovery and profit in the first client rental and ii) with subsidy from social capital that want to fund deeper penetration of solar and credit into rural populations
To achieve this model we need to start with a mature portfolio (12 months or longer) and to control the supply and distribution chain in one organisation. I believe this model would be more efficient and increase our penetration at multiple levels of the rural population.
What do you think?