Background:
PAMIGA (Participatory Microfinance Group for Africa), the Promoter, is a non-governmental organization operating since 2005. Created by CIDR and a number of world recognized microfinance experts, it provides technical support to a network of 14 locally-owned African microfinance institutions (MFIs) operating in 10 Sub-Saharan African countries in West, Central and East Africa. The member MFIs are characterized by their local ownership, strong presence in rural areas and the agricultural focus of their activities. This Technical Assistance (TA) programme is to be understood in the context of EIB’s potential investment in Pamiga Finance SA, an investment vehicle registered in Luxembourg (the Fund). The Fund has the objective to lend to Pamiga’s member MFIs with the specific purpose of financing the growth of their loan portfolio dedicated to the sectors of renewable energy, drinking water and irrigation. EIB envisages providing a 7-year loan to the Fund for up to EUR 3.5 million alongside OPIC and Calvert Foundation.
The holistic support approach consists of the Promoter providing capacity building to MFIs while the Fund provides debt for the specific purpose described. As a result, MFIs will benefit from both technical assistance as well as long term refinancing for developing and strengthening their loan portfolio in the renewable energy, irrigation and water/sanitation sectors.
Context: In Sub-Saharan Africa, an important part of the rural population lacks direct access to energy and water. It is estimated that 58% and 83% of urban population has no access to electric and water infrastructures, respectively, and about 90% and 50% of the rural population has no access to such services. In addition the markets of rural communities tend to be poorly served, dominated by the informal economy and are relatively inefficient and uncompetitive. Given this, access to modern (renewable) energy sources, irrigation systems and drinking water/sanitation facilities provide, in addition to their positive sustainability and developmental impacts, socio-economic development opportunities.
In Africa, small, economically viable energy; irrigation and water/sanitation projects currently struggle to obtain adequate financing. A number of obstacles currently impede local financial institutions (FIs) from financing these transactions, in particular: lack of knowledge on the appropriateness and quality of micro-energy and water technologies, which FIs find difficult to assess; exposure to new types of risk and inexperience with micro and small energy & water project finance deals and cash flow based lending; projects have not reached the stage of bankability and may find problems in reaching this stage due to lack of equity, fulfilling all technical and legal requirements etc.; financing of the equipment requires larger amounts and longer tenor than the traditional micro-credit products and technical advisory capacity in the region.
In the energy sector, three funding purposes (“market segments”) for which local MFIs are trying to develop adapted financing products have been identified: Individual home solar systems; lighting and electricity for micro-enterprises; power solutions for villages / communities. In the water sector, two funding purposes for which local MFIs are trying to develop adapted financing products have been identified: Irrigation, mainly for agricultural and pastoral activities; drinking water for households, such as extensions from existing networks, storage reservoirs and distribution facilities. Possibly sanitation services (e.g. latrines) could be considered under this market segment.
Objectives
Within this context, Enclude and Landell Mills are implementing a 3 year TA contract to accompany MFIs in the financing of micro-projects for off-grid renewable energy, rural/peri-urban water and irrigation systems in seven sub-Saharan countries (Burkina Faso, Cameroon, Senegal, Madagascar, Kenya, Tanzania and Benin). The TA will largely focus on building the technical capacity of MFIs to successfully identify water, irrigation and energy technologies and solutions for households, MSMEs, and small communities (villages) or farmers with appropriate quality, after-sale service, and contractual risk mitigation arrangements. In particular the TA should identify for each country and/or MFI what is the proper “ecosystem” to enable product supply, distribution, installation and after-sale services, delivering all this to the last mile.
The overall objective of the “Water & Renewable Energy through Microfinance” initiative is to help MFIs design and implement lending programmes for the financing of solar energy, irrigation and water/sanitation solutions for rural households, MSMEs and communities.
Results
The following results are to be achieved:Pamiga’s “Renewable Energy and Microfinance” Programme is technically reinforced.MFIs that receive funding from the Fund have acquired the necessary knowledge and tools to be able to identify, select and forge partnerships with the technology companies that are most appropriate to offer “best value for money” products to their target clients in their given context.Training curricula for MFI staff, installers and clients are developed in relation to solar energy, irrigation and water/sanitation, and are conducted / replicated by local training centres.Rural households, MSMEs and communities have a good understanding of the various technology solutions available for them to make informed acquisition decision, and their awareness is raised on maintenance and proper use of these technologies.MFIs demonstrate strengthened capacity to sustain, monitor and report on their energy and water lending programmes, including on their socio-economic and environmental impacts.The Fund is able to report on the impact results of its funding to MFIs with that specific purpose, based on the consolidation of individual MFI impact monitoring reports.