More from: SolarNow

SolarNow Attracts $2 Million Loan Facility to Accelerate Distribution of Solar Home Systems in Uganda

SolarNow, one of Arc’s partners under the USAID-funded REMMP initiative, announced a new $2 million loan facility from SunFunder. SolarNow is a solar distributor in Uganda that makes solar affordable through a 24-month payment plan. Through this business model, they can ensure that high quality solar be available to low income households. SunFunder has designed a Structured Asset Finance Instrument (SAFI), which allows SolarNow to finance its fast-growing portfolio of payment plans in Uganda.

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SunFunder began lending to SolarNow in 2013 with small, crowdfunded inventory loans. Through these initial loans, SolarNow established a repayment track record that helped enable SunFunder to unlock capital from accredited investors for larger and longer-term loans needed to match SolarNow’s growing working capital needs. In 2015, SunFunder extended facilities totaling over $800,000 of loans to SolarNow. The new SAFI facility builds on SolarNow’s strong track record in sourcing high-quality customers and extending credit on appropriately sized solar home systems based on customers’ energy needs and their ability to repay. The facility will scale SolarNow’s capacity to build and service such customers with contract terms in the future and multiply the positive impact SolarNow can make in the region.

“SunFunder has been a fantastic partner throughout this process,” said SolarNow’s Managing Director Willem Nolens. “With this financing in place, the board and management believe our business is now well placed to accelerate our growth in Uganda and beyond.”

“The launch of SAFI marks a new chapter in our long-standing relationship with a top-quality solar company,” said Audrey Desiderato, SunFunder’s Co-Founder and COO. “Starting with small crowdfunded inventory loans in 2013, we provided larger working capital facilities funded through our Solar Empowerment Fund. The launch of SAFI marks a next step in our relationship and aims to efficiently deliver scale. We are proud to announce this market-leading transaction with SolarNow and play an important role in their continued success in the market.”

About SolarNow
SolarNow offers a range of high-quality solar home systems and electrical appliances that are designed to fit the needs of rural households and entrepreneurs. Their solar home systems range 50 to 5,000 watts and because the systems are modular, customers can easily upgrade existing their systems to increase their system’s power capacity over time. The company offers a wide range of electrical appliances, including high quality LED lights, televisions, fridges, water pumps and flat irons. Through their network of 36 branches in Uganda and by extending appropriate credit to their customers for up to 24 months, SolarNow makes solar accessible and affordable for rural, low-income households and businesses. The company already installed over 10,000 solar systems in Uganda since 2011. These clients benefit from 5 years free service.

Press contact: Mr. John Kizito, Group Controller (john@solarnow.eu, tel. 0788 916 641)

About SunFunder
SunFunder is a solar energy finance business with a mission to unlock capital for solar energy in emerging markets, where over 2 billion people live without access to reliable energy. SunFunder offers short-term inventory loans, working capital facilities and structured finance facilities to residential and commercial solar companies with a proven track record for quality and growth. SunFunder raises the capital for its loans through private debt offerings that give accredited investors an opportunity to invest in a diversified, vetted, and high impact portfolio of solar loans. The company aims to raise and deploy $1 billion into solar projects around the world by 2020.

Press contact: Mr. David Battley, Director of Structured Finance (david@sunfunder.com)


SunFunder Announces Closing of US$2.5 Million Funding Round with Schneider Electric – Both Investors in Arc Partner Organizations

Solar finance startup SunFunder, an investor in Arc Finance partner SolarNow based in Uganda, has closed a US$2.5 million Series A funding round, a milestone for investment in off-grid, small-scale solar. Alongside support from Khosla Impact and Better Ventures, SunFunder secured funding from Schneider Electric, a major multinational player in energy products and key investor in Arc partner Simpa Networks, which manufacturers and distributes solar home systems with a proprietary metering system in Uttar Pradhesh, India.

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Schneider’s involvement is a boon for SunFunder in particular and for small-scale energy finance in general. The role that both have played in working with Arc Finance partners makes this deal something Arc Finance is proud to highlight.

Based in San Francisco and Tanzania, SunFunder provides short-term working capital and project finance loans for solar home systems, microgrids and commercial solar projects in emerging markets. The company raises debt capital through the Solar Empowerment Fund, offering accredited investors a risk-reduced, fixed-income investment opportunity in diverse portfolios of high-impact solar loans across multiple countries and solar technologies. The company is creating a solar finance ecosystem that aims to catalyze billions in financing for solar beyond the grid.

Schneider’s partnership in this venture is a true watershed. An energy giant that has operations in 100 countries and annual sales of US$30 billion in 2013, Schneider has products ranging from circuit breakers to power plants, distributed solar products to AC and DC microgrids. Its involvement is a sign that small-scale solar is moving beyond a niche market and into a mainstream, global one. For Schneider, financing will unlock working capital in order to finance distribution of its wide range of products. Schneider is working on launching its new US$80 million energy access fund with bilateral agencies like the U.K.’s DFID and the EU’s EIB to help unlock capital.

SunFunder, which has provided US$425,000 to Ugandan Arc partner SolarNow (an Arc case study of which can be found HERE) plans to raise and deploy US$100 million in the next three years into solar projects around the world and to expand its capacity in local markets, starting with East Africa. The IEA estimates that the world requires US$44 billion of investment to expand electricity infrastructure to achieve universal energy access by 2030. Of that US$44 billion, it is estimated that US$26 billion will be put towards toward decentralized systems that have been largely powered by renewable energy, according to SunFunder.

SunFunder’s platform for attracting capital to the small-scale, off-grid sector includes the Solar Empowerment Fund (SEF) – a debt facility that issues Solar Notes to accredited and institutional investors, offering a rare opportunity to invest in a diversified, vetted, and high-impact portfolio of off-grid and grid-deficit solar projects with an attractive risk/return profile. In Sept 2013, SunFunder closed its first issuance of Solar Notes, raising US$250,000 from four investors.

In addition, SunFunder is continuing to fundraise from accredited and institutional investors and from its crowdfunding platform, in which non-accredited investors anywhere can invest as little as US$10 in any of the projects listed on SunFunder.com (and is profiled in an Arc Finance briefing note on Crowdfunding, available HERE).

Once a project is fully funded, SunFunder facilitates low-cost financing to the solar partner to fund its implementation. As projects get repaid, investors earn their investment back (without interest, due to current regulatory limitations), which they can invest again or withdraw. SunFunder’s solar partners pay a modest interest rate on the financing that they receive, which is passed back to SunFunder’s investors as Impact Points, which can be reinvested into other projects. See Arc’s Briefing Note on Crowdfunding for a more detailed explanation of how this works.

Ryan Levinson, CEO of SunFunder, shares Arc’s view that access to reliable finance is the main barrier preventing solar energy providers from reaching scale and leapfrogging the grid in target markets. “In the last two years, SunFunder has established a solid track record and proven that the market is economically viable. This investment round will allow us to expand our capacity in local markets and substantially grow our loan portfolio,” he says. For more on Ryan’s thoughts, see Arc’s YouTube channel for a panel discussion video at Arc’s Innovations in Finance conference.

So far, SunFunder has financed more than US$1.7 million for solar projects, with 15 solar companies in six countries, and maintains a zero percent default rate, helping over 140,000 off-grid people in developing countries access affordable solar energy.

At Arc Finance, we’re proud to see SunFunder and Schneider, funders of two key Arc partner organizations, pass this key milestone. As this important and young sector attracts mainstream financing, it demonstrates to new investors that investing in renewable energy for off-grid customers is a sustainable commercial venture – and here to stay.


Arc Finance Partners Milaap.org and DCBS profiled at Paris Crowdfunding Event

Yara Akkari of Arc Finance tells an expert audience how Indian crowdfunder and Arc partner Milaap.org is bringing new financial channels to small-scale renewable energy sector

Arc Finance’s Remittance Specialist and East Africa Manager Yara Akkari was in Paris on June 17th to speak on a crowdfunding panel at the CrowdTuesday event – a regular platform that brings together various stakeholders in the crowdfunding industry at the local and regional level. CrowdTuesday is run by the European Crowdfunding Network (ECN), and organized by Alex Raguet, ECN’s French Ambassador.

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Presenting in a panel discussion entitled Crowdfunding as Financing Mechanisms for Clean Energy, Yara demonstrated to her high-level audience how tapping the “crowd” provides much-needed capital opportunities for MFIs that aim for social benefits – namely, clean water, clean energy, education and sanitation.

“Crowdfunding enables MFIs to tap into new sources of funding: it fills the gap for essential-service lending by using financial resources sourced from large numbers of lenders – a form of ‘unconventional lending,’” she said, and then put its role in the context of financial services to the poor as they stand. Microfinance Institutions (MFIs) – several of which Arc partners with – “can play an important role in the removing the barriers to affordability in adopting new sustainable energy products.”

However, she argued, “The Indian microfinance sector has been slow to embrace energy lending as a mainstream practice. While a number of factors contribute to this situation, lack of access to affordable capital from conventional sources of debt and investment is a significant one. Milaap’s crowdfunding platform was developed to close this gap.”

Milaap.org is one of Arc’s partners under the USAID-supported Renewable Energy Microfinance and Microenterprise Program (REMMP), the goal of which is to “increase access of underserved populations to clean energy products in order to improve livelihoods and quality of life among these target recipients while minimizing climate-damaging emissions.”

With the support of USAID, Arc Finance launched REMMP in 2012 to test a range of business models that are designed to increase financial access to clean energy for poor people around the world. REMMP partner organizations include FWWB-I (an “apex” microfinance organization); Bandhan (by some measures the world’s largest MFI); Basix-IGS (within which Arc is “greenfielding” an energy-lending enterprise); Simpa Networks, which is pioneering metering technology for solar home systems; SolarNow, which provides an innovative in-house credit facility for solar systems to rural farmers in Uganda; Sogexpress, a money transfer organization in Haiti that, with Arc’s support, is using remittance channels to enable the diaspora to remit clean energy technology; and Milaap – a crowdfunding platform with a focus on using MFIs as a means to help people get clean energy products for their homes and businesses.

Crowdfunders that partner with MFIs to lend to microentrepreneurs are not new. Kiva.org was the first to reach scale doing this, and has lent over US$500 million dollars since 2005. Milaap is newer and much smaller, but is differentiated in its specific focus on water, energy, and education. Put another way, and as Milaap’s founders have put it at various Arc Finance events, microfinance is “a means to an end, not an end in itself.” Lenders coming to the platform are not lending to small businesses; they’re lending to help people access clean water, energy or education, and the livelihood and income development that comes with each.

Milaap (“connecting people” in Hindi and Urdu) was initiated in June 2010 by three young MBA graduate entrepreneurs who wanted to change people’s concept of giving by making it a personal, transparent and sustainable process. The end-borrowers on this platform are the deserving, working poor of India – students, small businesses, families – for whom a small amount of capital will significantly change their lives for the better.

One hundred percent of a lender’s funds go to the end-borrower for energy, water, sanitation or education purposes. Milaap charges its field partners a 5 percent fee on the funds raised, which currently covers a fraction of Milaap’s costs while it works towards achieving financial self-sufficiency. The shortfall until it reaches scale and when the fee is enough to break even is covered by investment from individual and institutional investors and donors.

It’s been a rapid learning curve, said Yara. By mid-2014, Milaap has raised and channeled nearly over US$1.5 million into a diverse portfolio of nearly 10,000 loans, impacting the lives of 50,000 people, while maintaining a 100 percent repayment rate from field partners. Funds are raised from an increasingly global crowd of lenders and disbursed to borrowers across ten Indian states through a network of 15 different current field partners. The company’s energy portfolio continues to advance through its active partnerships with three Arc-partnered MFIs based, respectively, in the states of Orissa, West Bengal and Manipur. Due to the comparatively small size of loans for clean energy products such as solar portable lanterns and improved cook stoves, energy represents only ten percent of Milaap’s total portfolio – but is increasing.

After taking the audience through the Milaap.org website, the loan-disbursal and repayment cycle (see figure), selected client profiles, and the filters that lenders can apply to direct their loans to specific regions, sectors or purposes, Yara gave a short profile of DCBS – a small MFI in Eastern India which is a sub-partner of Arc Finance under REMMP, and a beneficiary of Milaap’s crowdfunders.

DCBS is a small, community-based MFI that operates in 200 village communities in West Bengal. It has an active client base of 8,000 women borrowers. In December 2012, DCBS began promoting a new solar lantern loan product to existing clients (through a line of credit provided by Milaap, funded by the crowd), which is now expanding to non-clients.

As of mid-2014, DCBS’ solar lending program has a 100 percent repayment rate, has seen rapid portfolio growth and high penetration in the target communities, a consistent validation of this type of energy-lending as sustainable and commercially attractive, and early but positive social impact results. Other MFIs supported by Milaap and Arc Finance are also providing finance for a range of products, from clean cookstoves to multi-light and multi-appliance solar home systems.

Not everything has worked perfectly, of course. As Yara told the audience, there is always an element of trial and error in piloting new and innovative channels in order to demonstrate the commercial viability of a model for scale. Learning lessons along the way is important, and inevitable. Not all MFI partners have had the same success. Due diligence conducted by the crowdfunding platform to determine the capability (and, crucially, the dedication) of the MFI to introduce energy lending, is paramount. Finding the right field MFI partner is a necessary criterion for success.

What’s more, just providing MFI clients with access to credit for energy products isn’t enough either. Providing marketing support, client education, after-sales service, quality and appropriate products that are demand-driven, efficient “last mile” distribution, and appropriate pricing and financing options are all crucial. It is the role of the crowdfunder to assess – and where appropriate, assist – with these variables for success. It is this type of specialized technical assistance that Arc Finance has been providing to DCBS and other Milaap partners under REMMP.

Finally, Arc’s experience has been that training and awareness-raising are crucial elements which should be included as part of the clean energy program. Whether funding comes from donors, funds or in small increments from a crowdfunding platform like Milaap, and whatever the business and distribution model the MFI uses, a highly-engaged and informed staff, capable of talking to clients about their energy usage, costs and needs, is indispensable.

Yara finished with Q&A from the audience (which was particularly interested in product selection and warrantee challenges in remote communities). Arc looks forward to being invited back to further ECN events as it works with crowdfunding platforms to fill the working capital “gap” in pioneering small-scale, clean-energy finance.


SolarNow Using Franchise Model to Solve Distribution Challenges in East Africa

Ugandan solar enterprise SolarNow uses a franchise distribution model for Solar Home Systems combined with an in-house credit facility to reach rural customers.

SolarNow is an energy enterprise in Uganda, and an Arc Finance partner under the USAID-funded Renewable Energy Microfinance & Microenterprise Program (REMMP). Established as a social enterprise in May 2011, SolarNow grew out of the Rural Energy Foundation, a Dutch NGO providing distribution and training support for the use of Solar Home Systems (SHS) with market experience across Africa. SolarNow uses asset finance to provide electricity to off-grid rural communities through modular, expandable SHSs, and distributes an increasing range of energy-efficient appliances through a network of franchises around the country.

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If Product is King, Distribution is God

The challenges of distributing to so-called “last mile” customers in remote communities, particularly in Africa and Asia, are well understood, and various business models seek to address them. SolarNow’s distribution model includes independent franchises that facilitate sales and system installation. SolarNow oversees and supports these franchises through dedicated head office teams to ensure consistent quality across the network. Head office teams supervise sales, marketing, service and credit, provide ongoing support and training, and review and approve credit assessments.

The Merits and Drawbacks of a Franchise Model

A franchise model has distinct pros and cons. Advantages include speedy replication due to standardization; adaptability to local circumstances; quality assurance; reduced risk of branch dilution; likely alignment of incentives between franchisor and franchisee; and cost-effective setup and economies of scale. Disadvantages include a significant up-front investment; challenges in finding suitable entrepreneurs in low-income markets; difficulties encountered in monitoring franchisee activities in remote areas and low-income markets; and – for social-driven organizations – a potential risk of mission drift.

SolarNow’s model addresses these challenges and opportunities by training franchises to consistently install to standard, building strong customer relationships with high quality service support, and driving referral-led sales opportunities. Franchisees are selected for their local contacts and technical skills, as referrals from satisfied, local customers are a key sales driver in a market damaged by a history of poor quality and fraud. In addition, franchisees conduct initial credit assessments, which, if approved, are referred to the head office in Kampala.

Currently, SolarNow has 43 branded branches and authorized franchisees across Uganda with 64 forecast for the end of 2014, and will open its first branch in Tanzania in January 2015. Branches are distributed across the country and target higher-density rural communities.

Selecting the Right Person

As in any agent model, the skills and qualities of the franchisees are indispensable to the business. SolarNow’s sales and marketing team therefore recruits franchisees carefully, and targets the communities in which SolarNow’s current and potential branches are located. SolarNow thereby ensures candidates with knowledge of local networks, language and culture – all of which are important in building strong customer relationships. A premium is placed on particular criteria such as a franchisee’s communication skills, ability to invest time in building a long-term business, interest in working with rural communities, experience in developing customer relationships, commitment to client satisfaction and proven ability to run a business and lead a team.

Training and Professional Development

The creation of a franchise entails an assessment process that includes franchisee interviews with various team heads within the head office, followed by six weeks of training, both in the office and the field. This includes education on sales and marketing, service and logistics, credit processes and IT systems, followed by onsite training with existing franchisees to walk through everything they need to do in the field. Recruits are initially deployed as part of the central marketing team before being assigned a franchisee role.

The recruits who demonstrate the best potential for success are typically entrepreneurs with at least five years work experience. Most candidates have a Bachelor’s Degree and either a technical, microfinance or sales background, for example having worked for or with a bank, MFI, or another solar business, or as an account manager for a retail business.

Ongoing professional development allows new recruits to learn from others and keep up-to-date on products, marketing strategies, targets, customer service and special offers. Most franchisees attend at least four supplementary training sessions a year. Training needs are monitored by the sales and marketing, credit and finance or IT teams, and are led by head office team members. Ongoing coaching is also provided in the form of regular branch visits by the head office teams. Quarterly franchisee group meetings, which include all franchisees from across the country together with head office staff, include workshops and presentations from “star” franchisees sharing best practices.

Incentives for Franchisees

Any organization that uses agents or franchisees (as opposed to salaried employees) for sales has to think carefully about incentives and commission structures. If incentives are too low, there is insufficient motivation for sales and customer service; too high, and overly-aggressive sales/credit practices can be a risk – particularly in MFIs where loan officers can only make a decent living from commission on loans – and there is no dedicated credit team to make the final evaluation.

SolarNow’s asset finance-based affordability model puts an independent credit assessment team at the center of the organization, but takes advantage of the franchisee’s on-the-ground position and relationship with a potential client to provide initial income and asset information – along with the more subjective evaluation of whether the customer is going to be a “credit-worthy” one. Combining this centralized credit process with a commission structure for franchisees encourages franchisees’ natural entrepreneurship (for which they’re selected in the first place) and fosters healthy sales competition while mitigating bad credit decisions.

In SolarNow’s case, franchisees are compensated a commission of about ten percent on each sale. Reward schemes are periodically reviewed, as management feels it is important to adapt to changing circumstances and get regular feedback from franchisees. Current reward schemes include use of a branded truck, new marketing and premises assets, and increasing allowances for each sales target threshold achieved. Franchisees also maintain a security account with the company, accrued as a percentage of their earned commission, which provides collateral for fixed assets provided to them and any losses due to service or credit issues.

Naturally, incentives are based on carefully designed and achievable performance targets, including not just sales but portfolio management (proportion of on-time payments or delinquencies) and quality of installations and customer support.

Profile: A Star Franchisee

During the last quarter, SolarNow’s top performing franchisee was David Kiramiriki, from Kamuli branch. With 76 sales in three months, he won the first branded truck, and the management has recognized his “honest and reliable approach” and “strong commitment to customer satisfaction; a constant focus on understanding his customer’s needs and putting himself in their shoes to develop trust and strong relationships, maintaining consistently high quality in installation and service.” His success is such that he spends proportionately less time on general marketing, as his current clients have transpired to be his strongest promoters – doing some of his job for him, and illustrating the advantage that good customer relationships can have on a franchise’s and an organization’s bottom line.

A Day in the Life

Running a SolarNow franchise is a demanding job, which requires personnel with drive, imagination and stamina. The franchisees drive both the sales process and after-sales services to their customers – building strong customer relationships and positive brand awareness in their local communities. Each franchise has a catchment zone of potentially 40,000 off-grid households within a 50km radius. They also have responsibility for chasing delinquent payments, assisting with repossessions when relevant, as well as uploading (and monitoring) data to SolarNow’s Arc Finance-funded OpenERP Management Information System. A typical franchisee is up early and out in the field with their new and potential customers, performing site inspections and working with clients on their applications. Afternoons are spent working on installations, completing paperwork and uploading data to the system for head office review. Franchisees also typically spend around a quarter of their work time liaising with clients and the head office to deal with delinquent payments and credit issues.

A Franchisee’s Role in the Credit Process

Franchisees are the face of the business to the customer and are key to SolarNow’s success. They explain the contract and repayment process, gather information for initial credit assessments and follow up in cases of delinquency. They’re responsible for monitoring customer repayment performance and ensuring customers understand their obligations. But in cases of serious delinquencies or potential repossession, franchisees are supported on site by the head office credit team. Where necessary and appropriate, the security fund reserve for each franchisee provides coverage for 50% of credit losses.

When Franchisees Fail…

SolarNow’s franchisees have minimum performance targets to meet. Not all do so. Those who fail to follow procedures or fail to meet targets are let go. Some take the skills and experience they have acquired at SolarNow elsewhere – an ineradicable risk in any industry. Franchisee turnover (“churn”) is typically around 25 percent per year and mainly due to failure to meet performance targets.

Learning Lessons for the Future

Nobody achieves perfection the first time, and this is particularly true in remote rural areas of Africa, trying to introduce new products to a new and undeveloped market, while providing asset finance at the same time. It’s a complex and challenging task. For SolarNow, building the network of franchises has been a learning experience. It has meant discovering what customers are looking for, what doesn’t work and what motivates entrepreneurs. It has required a focus on being demand-driven.

SolarNow’s management team concedes there are things it might have done differently in retrospect. Initial targets to scale may have been optimistic, and didn’t allow for adaptation or tweaking of the basic model with a core group of branches before rapid expansion. Maintaining simplicity and standardization of the model took a while to achieve, and the importance of constant communication with franchisees and customers – including regular follow-up – has dramatically improved. Modification of its rewards and incentive schemes has meant a focus on short-term economic benefits while using a structure that fosters peer group motivation. And engaging franchisees in better understanding the performance of the business and having a say in significant organizational change decisions has improved performance and morale alike.

Finally, the credit process is the most difficult part of an enterprise providing products beyond the cash-only reach of customers. Getting the right balance of franchisee involvement in the credit process improves accountability and ownership without impairing the ability to grow strong customer relationships. Developing a process that builds trust and fosters collaboration with the franchisee network, finding the right people and training them with a long-term vision, incentivizing them to perform well, all while balancing the roles and responsibilities of the credit process is a complex challenge indeed. With its continued expansion and burgeoning reputation, SolarNow is showing that it is a challenge that can be met.