Dutch investment firm Oikocredit and UK-based solar energy provider, BBOXX, have partnered to fund the distribution and financing of the off-grid solar market in rural areas in Kenya, East Africa.
“In the off-grid solar industry, this is the first time that securitisation has been used to finance solar home systems in Africa,” the Dutch firm said in a company statement.
Opposed to the traditional sources of power such as kerosene and diesel, off-grid solar provides a reliable and efficient alternative source of energy.
In addition to providing clean power, home systems supply good indoor lighting, which is a key to operating small businesses efficiently and for leaners to do their homework in the evenings.
Growing demand in off-grid solar
Oikocredit said in a statement: “The off-grid solar sector […] has grown rapidly in recent years as cheaper and more efficient solar products become available and new payment systems allow customers to pay for the products in instalments by using their mobile phone.
“Despite the pace of growth, the sector has encountered difficulties in attracting sufficient investments to finance what is perceived as a risky business model, involving relatively new technology, doing business in developing countries and clients with little or no credit history.”
Most transactions require a level of security, especially when looking to boost the investor market. David ten Kroode, renewable energy manager at Oikocredit, explained: “We are proud to be part of this innovative way of financing where we lend money on the basis of future receivables from solar home system contracts.
“By demonstrating how this can work, we are paving the way for other lenders to scale up the much needed investments in this early-stage growth sector.”
Describing the funding structure, Oikocredit said: “The securitisation structure was created by setting up a special purpose vehicle: a company called BBOXX DEARs.
“It bundles the contracts of BBOXX customers who have bought solar home systems which are paid off in instalments. BBOXX DEARs then issues notes and sells them to Oikocredit. The value of the notes is based on future receivables on the customers’ contracts.
The company added: “The sale of these contracts provides BBOXX with capital to supply approximately 1,200 new solar home systems to households with limited or no access to grid electricity, benefitting an estimated 7,000 people.”
The partners were guided by financial advisor, Persistent Energy Capital, throughout this process.
In an interview with the Huffington Post, CEO of BBOXX, Mansoor Hamayun, said: “This is the only financial structure that can scale to billions. The fact that we can securitise the credit risk of the unbanked and, very soon, get rated, has us very excited.
“We now have a methodology to bring solar electricity to off-grid customers at a larger scale.”