A new financial approach stimulates the Senegalese rural solar market
With a Results-Based Financing (RBF) scheme, entrepreneurs in rural areas can invest in solar-powered equipment and machinery – fifteen farmers and five women-owned small businesses have already benefited from GBE Senegal’s approach and have been able to afford solar pumps and refrigerators.
In the urban areas, the Senegalese solar market is well developed. Many different providers compete to offer customers better solutions. Developing rural areas, on the other hand, is much more difficult. Potential customers can often only afford to pay for solar installations in instalments. In addition, installation and maintenance are too expensive for solar companies if the installations are located far from each other.
Thus, GBE Senegal supports the solar market development in rural zones through an RBF mechanism that provides an incentive payment of half the equipment costs. However, in order to avoid a distortion of the existing market, clients must still pay the full purchase price.
The incentive scheme is, hence, structured as follows: first, renewable energy companies propose ten customers in rural areas who wish to purchase solar-powered machines, refrigerators or pumps to GBE. The customers then pay a deposit of 10% of the purchase price. The remaining 90% they can pay back in installments.
The solar company receives the 50% incentive payment as soon as the devices are installed on the customers’ premises and the installations have been inspected and approved by GBE. Customers pay the remaining 40% of the purchase price in installments to the renewable energy entreprise, who collaborates with a financial institution that helps collect the installments. The 50% of the purchase price, which are, at the level of the renewable energy entreprise already covered through the incentive payment, the customers pay in installments into an account at named financial institution. Subsequently, other groups of clients can benefit therefrom for the purchase of solar applications.
This system has several advantages: renewable energy entreprises are encouraged to actively approach potential customers in rural areas and to offer them an attractive financing system with installment payments of 90% of the investment. By working with customers in the same geographical area, the installation and maintenance of the installations also becomes less expensive for the company. The fact that customers pay the full purchase price avoids artificial market distortions and promotes the further development of the renewable energy market in rural areas of Senegal.
With the first two RBF contracts, GBE Senegal supported the purchase of solar pumps and refrigerators for 20 small businesses in the regions of Thiès, Louga and St. Louis. 15 farms are now irrigating their fields with solar pumps, and 5 women directed shops were able to purchase solar-powered refrigerators in June.
The offer meets a high demand for renewable energy and productive machinery in rural areas and the first duplication effects already manifest. Other women entrepreneurs, who learned that their colleagues are increasing their income and reducing their expenses through the solar refrigerators, are also interested in purchasing solar powered equipment. Two women entrepreneurs subsequently purchased solar-powered refrigerators using a financing model similar to GBE Senegal’s RBF approach. The solar pump financing scheme is also finding imitators. The involved renewable energy companies and the microfinance institutions have signed a contract to finance and install further pumps.