Energy for Development (E4D) in partnership with Community Energy Malawi (CEM), recently compiled a report which examines the challenges preventing Micro-finance Institutions (MFIs) from engaging in the energy services industry (particularly solar home systems and mini-grids) with a view to promoting collaborative partnerships between microfinance institutions and energy practitioners. The report is comprised of three parts:
- A review of Malawi’s energy industry’s institutional and policy framework,
- Case studies of two current actors in Malawi’s renewable energy sector,
- An analysis of interviews with five MFI representatives
The full report is available at the link below:
CEM has been piloting Pay As you Go stand-alone solar PV systems which generate energy for productive business activities (PAYG-BE), with capital costs currently provided by Scottish Government funding. However, a long-term strategy is required for accruing ongoing capital resources for CEM’s sustainable PAYG-BE business development. A possible source of this capital is microfinance institutions, which have great potential to reduce barriers in the energy services market for consumers and enterprises alike.
Malawi’s energy industry’s institutional and policy framework is complex
Malawi’s electricity generation and renewables sector has a diverse selection of stakeholders including: Ministry of Natural Resources Energy and Environment (MNREE), Department of Energy Affairs (DoEA), Malawi Energy Regulatory Authority (MERA), Malawi Bureau of Standards (MBS), Renewable Energy Industries Association of Malawi (REIAMA) and a wide range of non-governmental organisations, community based organisations and private actors. This makes understanding and planning the way forward challenging, particularly as there is a lack of reliable information which describes size of the renewables industry across the country. This is compounded by taxation and accreditation processes for energy services, which are expensive and time-consuming.
However, mobile money and remote monitoring systems, although still largely undeveloped in Malawi, do have the potential to catalyse growth, as recognised by MERA:
“Unfortunately, Malawi is still behind neighbouring countries in this area. Mobile money would make PAYG systems far simpler and could reduce the cost of finance for off-grid solar… Given that Malawi’s mobile money market is still in its infancy… it is envisaged that this will make a positive impact soon.”Malawi Renewable Energy Strategy 2017
Malawi’s renewable energy sector is gradually moving away from dependency on donor funding.
The two examples below exhibit the trend away from dependence on donors, and towards financial viability and independence. However, particularly during the early stages of business development and project implementation, up-front capital is still required.
To overcome funding limitations, which have negatively affected previous mini-grid and smaller solar PV projects, CEM are beginning to implement solar PV projects through CEM Trading, a social enterprise under CEM. Through this and other similar projects, the objective is to expand the activities of CEM Trading, increasing revenue to a point where CEM’s activities are financially viable as an independent and profitable business.
Initially Solar Aid ran a full value chain for solar lighting systems; importing components that were locally assembled by trained technicians who sold them to retailers established by Solar Aid itself, and raising awareness through campaigns for the technologies. Solar Aid now has a separate business unit named Sunny Money which seeks to foster entrepreneurship and grow the enterprise to financial sustainability without need for its external funders.
Rural communities’ remoteness and irregular incomes make them risky investments for MFIs.
Representatives from five MFIs were interviewed about the barriers their organisations face when investing in the energy services sector, and ways to overcome these issues.
The main barrier mentioned was poor rates of repayment, often due to customers having low and/or irregular incomes. The remoteness of off-grid communities was recognised as a barrier to accessing and providing an effective service to customers, while political issues were also mentioned; such as customers not expecting to have to pay back government subsidised funding and the need to selectively choose loan recipients causing discontent within communities. The proliferation of ‘fake products’ was also mentioned. Representatives all highlighted the need for energy interventions to focus on local capacity building and maintenance strategies to ensure the long-term sustainability and financial viability of projects.
In order to solve these issues, the interviewees said they needed more robust assessments of loan recipients in order to provide finances to those most likely to repay. While this may provide higher rates of repayment, it is likely to further restrict the potential for providing energy access to large sections of rural population. The solution offered to the issue of ‘fake products’ was to have a more collaborative approach, with MFIs and government authorities working together to tackle this issue.
These comments were supplemented by a common view that there is a significant and un-met demand for renewable energy products in Malawi. All the representatives said they saw the great opportunity in creating partnerships with other MFIs in order to provide a better service to the energy sector and would be prepared to provide up-front capital for stand-alone productive use systems as well as loans for mini-grids.
The study concluded by providing a set of recommendations for decision makers and practitioners working in the Malawian energy access and MFI industries, to inform energy services interventions, policy and projects of the future. These are summarised below:
- Ensure a long-term project focus through development of sustainable business models and seek funding from local and national sources as well as external donors.
- Utilise mobile money and monitoring technologies to promote transparency and accountability in energy business strategies.
- Support the reform of renewable energy policy to include appropriate taxation policy and accreditation processes for renewables projects, as well as restrictions on the importation of sub-standard products
As the renewables industry in Malawi transitions away from a dependency on international funders towards financial sustainability via support from the government and local revenue streams, the role of national policy and local financial institutions is becoming more and more important. This study has shown that the potential for growth of the renewable energy sector (particularly of solar PV applications) in Malawi is recognised by MFIs, and that through support and policy reform by the Government of Malawi, a growth enabling environment could be created. In such a situation, focusing on long-term sustainability, harnessing the potential of mobile money and monitoring, and utilising community-centred and capacity building approaches would provide a solid foundation for growth of the renewable energy market in Malawi.