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Difference between revisions of "Semantic Sandbox"

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= Title - Off-grid energy Companies and Financial Institutions - Need for Collaboration =
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<center>[[File:Icon HE 1.png|420px|link=]]</center>
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= '''Humanitarian  Energy      Knowledge Hub'''=
  
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= Off-grid Energy Companies (OECs) =
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This hub is a one-stop destination for anyone interested in the humanitarian energy nexus. It consolidates, manages and links the latest information and knowledge from the sector. This hub is also a living knowledge product and is continuously updated.
 +
'''Want to share your "knowledge, news or resources" on this portal, share them with us at [mailto:info@energypedia.info info@energypedia.info].'''
  
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Off-grid energy companies (OCEs) in this article refers to those companies in Africa that sell solar energy systems based on [[Fee-For-Service or Pay-As-You-Go Concepts for Photovoltaic Systems|PAYG model]]&nbsp;(i.e the total cost for the energy system is broken down into weekly and monthly payments. The customers usually make a small down payment in the beginning and then make small weekly and monthly payment for using the system and finally own the system. In case of failure to pay, the OECs remotely switch off the energy systems or in cases repossess them).&nbsp;<br/>
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<div class="width-1-3 box box-green">
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=== Background on Energy in Displacement Settings ===
  
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These are the fastest growing companies with an average of 500 customers per day.&nbsp;
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*[[Energy Access for Refugees|The role of energy in humanitarian settings]]
 +
* Country-specific information on energy in displacement settings
 +
* Uses of energy in displacement settings (households, businesses, communities)
 +
* IASC matrix
 +
* Introduction to HE stakeholders
 +
*[[:Category:Humanitarian Energy|All articles related to humanitarian-energy on energypedia]]
 +
</div>
  
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== OECS - Shift from Energy Providers to Consumer Finance ==
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<div class="width-1-3 box box-green">
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=== Key Data Resources ===
  
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To increase their revenue and to keep ahead of competitors, there is a natural tendency for OECs to also provide secondary loans along with the PAYG model for the energy systems, to existing customers, for activities such as buying a motorbike or other appliances. For the secondary loans also, the energy system will act as a control point for loan repayment. In case of failure to pay on time, the energy system is switched off and the secondary assets might also be repossessed.
+
* GPA Power BI tool
 +
*[https://dtm.iom.int/ Displacement Tracking Matrix]
 +
* UNHCR operations portal
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* Energy access map (IEA and World Bank)
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*[https://data.humdata.org/organization/moving-energy-initiative OCHA -  Humanitarian Data Exchange]
 +
</div>
  
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Along with added revenue, the other benefits of providing consumer finance are:
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<div class="width-1-3 box box-green">
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=== Market Based Case Studies and Lessons Learned ===
  
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*For many customers in rural areas, buying energy services from OECs might be the '''first time they had access to financial services. Therefore the PAYG model sets the background for more financial activities.'''
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* Private Sector Enterprises for Refugees Energy (AMPERE)
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*OECs&nbsp;'''promote mobile transactions'''&nbsp; for loan repayment reducing the transaction cost.
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*[[Promoting Market Based Energy Access for Cooking and Lighting in Kakuma Refugee Camp|Market-based Energy Access Project (MBEA)]]
 +
*[[Publication - Assessment of Market-Driven Solutions for Energy Access in Refugee Settlements in Sub-Saharan Africa|Case Studies from Sub-Saharan Africa]]
 +
</div>
  
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<br/>
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<div class="width-1-3 box box-green">
 +
=== Tools for Planning HE Interventions ===
  
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However, OCEs companies are not financial institutions and in many countries they are not allowed to offer secondary loans (except for energy systems). Therefore, there is a need as well as opportunity for successful collaboration between OECs and Financial institutions to further one another's interest.
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* GPA Power BI tool
 +
*[https://dtm.iom.int/ Displacement Tracking Matrix]
 +
* Energy access map (IEA and World Bank)
 +
</div>
  
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= Financial Institutions =
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<div class="width-1-3 box box-green">
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=== Policies and Regulatory Environment ===
  
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Financial institutions &nbsp;in sub-saharan africa are classified by '''large loan size, high margin and low &nbsp;business volume''' which is the opposite of financial services to the base of the pyramid (BoP). BoP are '''assets-led, low balance, high-volume'''&nbsp;business.Therefore, financial institutions &nbsp;have not been able to establish a commercially viable channel to reach out to the bulk of the african markets mainly due to:
+
* Energy policies
 +
*[https://dtm.iom.int/ Displacement Tracking Matrix]
 +
* Energy access map (IEA and World Bank)
 +
</div>
  
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*Entry-level accounts for low-income clients are likely to have low balances, make few transactions and use of &nbsp;fixed physical infrastructure such as bank branches and automated teller machines (ATMS) which in end might result in loss &nbsp;rather than profit, for the bank.
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*Due to issues like high-collateral requirement, time-consuming applications and inefficient cash management and inefficient cash management, financial institutions mostly focus on the salaried, relatively better-off segments of their markets. <br/>
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===Product & Service            Providers===
 +
*[https://cleancooking.org/sector-directory/ Clean Cooking Alliance - sector directory]
 +
*[https://www.gogla.org/ GOGLA]
 +
*[https://data.verasol.org/ Verasol Product Database]
 +
*[[Private Sector Stakeholder Database|Private sector database on energypedia]]
 +
*[https://www.ungm.org/ UN Global Marketplace]
 +
</div>
  
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<br/>
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</div>
  
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Therefore, the OECs present a unique opportunity for financial institutions to reach the low-income population in a viable and cost-effective manner.
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<div class="specials">
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==Highlights ==
 +
<div class="grid stretch-items">
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<div class="width-1-4 width-m-1-2 card">
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[[file:Icon-webinar.svg|center|105px|link=Humanitarian Energy Library]]
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[[Webinar Series: Sustainable Energy in Humanitarian Settings|Humanitarian Energy Webinar Series]]
 +
</div>
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<div class="width-1-4 width-m-1-2 card">
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[[file:icon-video-library.svg|center|100px|link=Humanitarian Energy Video Library]]
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[[Humanitarian Energy Video Library]]
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</div>
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<div class="width-1-4 width-m-1-2 card">
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[[file:Company database.svg|center|100px|link=Private_Sector_Stakeholder_Database]]
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[[Private Sector Stakeholder Database]]
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[[file:icon-e-learning.svg|center|100px|link=E-Learning Modules]]
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E-Learning Modules
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<div class="specials">
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==Latest Humanitarian Energy Publications==
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{{Boxpublications portal HE}}
  
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== Resources of Off-grid Energy Companies and Financial Institutions ==
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</div>
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</div><!-- End .width-3-4 -->
  
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The table below shows the simplified analysis of the resources of off-grid energy companies and financial institutions:
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<div class="width-1-4">
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<div class="hidden-element">
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==Offers== <!-- Keep this for screenreaders -->
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</div>
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<div class="box offers">{{Boxnewsletter2}}</div> <!--This newsletter is not GPA. Go to the template and update it -->
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<div class="box offers">{{boxevents portal HE}}</div>
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<div class="box offers">{{boxopportunities}}</div>
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<div class="box offers">{{boxjobs}}</div>
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{{Connect_with_us}}
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</div>
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{{HE Funding}}
  
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{| border="0" cellspacing="1" cellpadding="5" style="width: 100%;"
 
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| <br/>
 
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| style="background-color: rgb(79, 129, 189);" | '''Off-grid Energy Companies'''
 
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| style="text-align: center; background-color: rgb(79, 129, 189);" | '''Financial Institution'''
 
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| rowspan="6" style="background-color: rgb(219,229,241)" | '''Assets'''
 
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| style="width: 106px;" | Agent network
 
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| style="width: 324px; text-align: center;" | Branch network
 
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|-
 
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| rowspan="1" colspan="2" style="text-align: center; width: 530px;" | IT system for account management<br/>
 
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|-
 
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| rowspan="1" colspan="2" style="text-align: center; width: 530px;" | customer relationship<br/>
 
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|-
 
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| style="width: 324px;" | Cloud-based customer relation management (CRM) systems
 
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| style="width: 200px; text-align: center;" | banking expertise
 
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|-
 
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| style="width: 324px;" | Leverage over customers
 
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| style="width: 200px; text-align: center;" | credit assessment
 
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|-
 
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| style="width: 324px;" | <br/>
 
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| style="width: 200px; text-align: center;" | banking license
 
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|-
 
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| rowspan="3" style="background-color: rgb(219,229,241)" | '''Financial products'''
 
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| style="text-align: center;" rowspan="1" colspan="2" | Loans<br/>
 
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|-
 
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|
 
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| style="text-align: center;" | Saving accounts
 
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|-
 
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|
 
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| style="text-align: center;" | Money transfer services
 
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|-
 
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| style="background-color: rgb(219,229,241)" | '''key strengths'''
 
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| Ability to reach lower-income populations at scale, profitably with financial services
 
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| style="text-align: center;" | Banking license and know -how
 
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|-
 
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| style="background-color: rgb(219,229,241)" | '''key weakness'''
 
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| banking license and know-how
 
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| style="text-align: center;" | Ability to reach lower-income populations at scale, profitably, with financial services
 
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|}
 
  
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= Reasons for Working Together =
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[[Category:Humanitarian Energy]]
−
 
 
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== Large Portfolio of loans ==
 
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Most of the OECs started out as energy system retailers but with progress, have amassed a large portfolio of loans. Managing these large portfolio of loans is outside their core competence and requires skilled financial capabilities. The loan also has to be refinanced. For example, if an installed system cost on average USD 150, then to reach 1 million consumers, OECs will have to raise around USD 150 million in consumer loans. As the sector expands the consumer loan will also increase.<br/>
 
−
 
 
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&nbsp;Because of the possibility to remotely switch off the energy devices in cases of no payments, OECs loan have higher repayment rate than their borrower's profile will suggest. Therefore, OECs have the infrastructure to manage small loans offered to a relatively unknown customers.
 
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On the other hand, financial institutions have the competence and infrastructure to mange consumer credit risk and to provide loans. The OECs offer to increase the Bank's customer base but it will depend on the bank's ability to profitable serve those customers or not.
 
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== Access to Low cost Capital ==
 
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Financial Institutions can also fund a portfolio at a lower cost than that of OECs using long term deposits as compared to commercial debt.<br/>
 
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A study among MFI account in sub-saharan africa showed that the MFI accounts are mostly used for saving rather than borrowing. In 2015, the aggregate amount of MFI deposits in sub-saharan africa was USD 5 billion. Should this amount be available to OECs, then this amount would be enough to finance consumer loans for'''33 million TIER 2 solar home systems with a value of USD 150 each'''.
 
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For financial institutions, the energy portfolio has a good rate of return.
 
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== Foreign Exchange Risk ==
 
−
 
 
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Most of the capital for OECs is raised in hard currency such as USD or Euro from international equity investors while the consumer loans are given out in the local currency. This exposes OECs to risks associated with currency exchange and in cases, the local currency is devalued, it will impose additional cost on the OECs which is unrelated to its business and operations.<br/>
 
−
 
 
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A collaboration between OECs and the financial institutions will allow it to tap into the consumer deposits which is in local currency. This will mitigate the risks associated with currency exchange as both the consumer loans and the capital will be in local currency.
 
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−
<br/>
 
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−
 
 
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= How to Work together? =
 
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<u>Through a &nbsp;close partnerships:</u> OECs and financial institutions can forge a close partnership where both the parties focus on their close competencies ie. the OECs focuses on retail sale of energy services and the financial institutions take care of consumer finance. Considering both the parties are ready to form a partnership, the following points will have to consider:
 
−
 
 
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*Who underwrites the loan and which regulations are followed?
 
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*Criteria for identifying the consumers as well as opening an account for them
 
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*Integrating the payment technologies of OECs and financial systems
 
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*Criteria for managing customer relation eg what brand to promote and how to communicate
 
−
 
 
−
<br/>
 
−
 
 
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<u>OECs obtain a Banking License: </u>OECs could apply for a banking license and build the banking business from the base.
 
−
 
 
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Pro: Eventually, this will give OECs access to the stable and cheap source of funding (via their customers' saving deposits) and to capture the entire value chain and resulting higher profits.&nbsp;
 
−
 
 
−
Cons: Having a financial arm would mean more management time and resources in developing this arm and could result in less focus on the retail arm selling energy systems. Also to become a deposit-taking institutions would take longer to operationalize
 
−
 
 
−
<br/>
 
−
 
 
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<u>Financial Institutions obtain/set-up a OEC business</u>: Financial institution can obtain/set-up an OEC business in two ways:
 
−
 
 
−
* Financial institutions could buy PAYGO-enabled SHS
 
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−
= Reference =
 
−
 
 
−
This article is based on the following publication:Muench, D. Waldron, D.(2016).Access to Energy and Finance: An Integrated Approach to Capture High-Growth Opportunity in Africa.[http://www.cgap.org/publications/access-energy-and-finance-integrated-approach http://www.cgap.org/publications/access-energy-and-finance-integrated-approach]
 

Latest revision as of 11:22, 4 August 2022

Icon HE 1.png

Humanitarian Energy Knowledge Hub

Simple World Map - Author: Al MacDonald Editor: Fritz Lekschas License: CC BY-SA 3.0 ID: ISO 3166-1 or "_[a-zA-Z]" if an ISO code is not available

This hub is a one-stop destination for anyone interested in the humanitarian energy nexus. It consolidates, manages and links the latest information and knowledge from the sector. This hub is also a living knowledge product and is continuously updated. Want to share your "knowledge, news or resources" on this portal, share them with us at info@energypedia.info.

Background on Energy in Displacement Settings

Key Data Resources

Market Based Case Studies and Lessons Learned

Tools for Planning HE Interventions

Policies and Regulatory Environment

Product & Service Providers

Highlights

Icon-webinar.svg

Humanitarian Energy Webinar Series

Icon-video-library.svg

Humanitarian Energy Video Library

Company database.svg

Private Sector Stakeholder Database

Icon-e-learning.svg

E-Learning Modules

Latest Humanitarian Energy Publications

add Add Publication segment All Publications

Offers

Connect With Us

Mail icon.svg energy@unitar.org
LinkedIn Logo.png Humanitarian Energy Practitioners Group
Logo Twitter.png GPA Twitter Page

GPA Newsletter

Programmes and initiatives

Opportunities

add Add Opportunity segment All Opportunities

Job offers

add Add Job segment All Jobs

In collaboration with

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