Where is the innovative finance instrument for local SME?
In the last years, the awareness about the importance of a reliable energy supply raised as well as the number of tested distribution models or end users financing. The off-grid technology is now available in a wide variety and also able to provide a comprehensive energy supply.
The problem is evident: The off-grid industry is dominated by multinational companies
Thanks to the ongoing hype for PAYG-finance there is significant amount of capital in the market. Many international PAYG companies already feel a veritable "cash outflow pressure". In consequence we see in some countries a cutthroat competition with highly reduced profit margin. Additionally, the big international companies are significantly benefitting from grants from major international organisations.
But what about local energy access companies? The establishment of local SME, which work independently and are majority owned by domestic entrepreneurs, is important for sustainable job creation in the off-grid industry. Small and medium enterprises are the main driver for innovation, poverty reduction, employment generation and social integration. The lack of small and medium enterprises in developing countries is a significant obstacle - commonly referred to as "the missing middle".
SMEs require little capital, have the quality to make a quick decision, work with manual labour and in low level of management expenses. While microenterprises typically stay small, SMEs are designed to grow: they start with a few employees, but with the right support they are able to scale, create sustainable jobs upwards of 200 or more and deliver reliable services to needy customers.
Where is the "Muhammad Yunus for SME"?
Why is it not possible to bring the available capital to the companies? The reason is supposedly simple: local companies in the off-grid industry are too small. They range between start-up and mid-size companies, thus below the threshold that many funds set before they even consider finding out more about a company. Normal banks avoid anyway the risk of a commitment in developing countries, microcredit organizations have not developed a concept for companies of this size, and even the new "Impact Finance Funds" or CSR-funds are tied to rigid standards. They can therefore hardly help the industry, although this is exactly what they have set out to do.
The necessary financial instruments to finance small and medium companies in the off-grid industry are still lacking. There was some time ago a similar situation with the micro enterprises in Bangladesh, where banks would not give them loans because the bureaucratic burden on small loan amounts appeared too big. This was the appropriate ground for the now globally widespread microfinance idea, whose most prominent representative is Muhammad Yunus.
The off-grid industry needs today a similarly intelligent and creative solution as the microfinance institutions developed back then. Quasi "SME Finance Institute" for local small and medium enterprises. The ingredients are aligned: tested products, successful distribution models, reliable end-customer financing, and a largely subsidy-independent market.
The question therefore is: where is the person or creative group of entrepreneurial minded investors, that will assume, in a wise and committed way, the succession of Muhammad Yunus and that will develop an innovative financing concept for the local companies in the off-grid industry?