In a receding economy, funding is hard to come by. Access to finance continues to be a potent factor hindering the growth of renewable energy in Nigeria. Recently, the Bank of Industry announced the release of a billion Naira fund for solar projects for MSMEs. This article beams on some characteristics of the fund.
Recently, the Bank of Industry (BoI) announced its newly-launched N1bn Solar Energy Fund for Micro Small and Medium Enterprises in the country. This fund was unveiled to increase the access of small businesses to reliable and clean energy, especially those in off-grid suburban and rural areas. BoI’s Acting Managing Director, Waheed Olagunju, announced in Lagos, saying that the fund is critical for supporting the provision of sustainable and reliable energy for micro, small and medium enterprises (MSMEs) across the country.
Although some small business owners have responded, calling the Fund or as it were, the announcement of the fund, a mere green-washing stunt aimed at attracting publicity, a conversation with some solar energy practitioners in the country revealed otherwise.
Mr. Segun Adaju, the President of the Renewable Energy Association of Nigeria (REAN), stated that he was aware that eight solar energy providers had indeed been approved as technical partners for mobilising the N1bn solar fund. He mentioned that two of these eight providers, namely, GVE Projects Limited and Arnergy Solar Limited, were selected from corporate members of REAN; thus, lending credence to the genuineness of the fund.
Further interviews with Mr. Ifeanyi Orajaka, the Managing Director of GVE Projects Limited, unveiled additional insights into the nature of the N1bn solar funds – its modalities, and conditions for access. According to Orajaka, this fund is really part of a series of funds launched by the Nigerian Bank of Industry (BoI) in partnership with the United Nations Development Programme. Six pilots (totaling N240 million) of this funding programme have recently been done to test the viability of the framework. GVE Projects, the company Orajaka manages, had been part of this pilot which was reported very successful “especially to MSMEs in rural areas who are now experiencing exponential growth in productivity and profitability.” He cited a case study of a woman client – a petty trader – who went from zero to three refrigerators in less than one year.
With such acclaimed impacts from the pilots, the N1b fund is said to be the first phase of a likely continuous process. Subsequent phases will be implemented depending on the progress of this first phase.
BoI’s Managing Director had been quoted earlier describing the fund as a “highly concessional funding solutions with interest rate as low as seven per cent and equally flexible terms and conditions.” Upon being asked how true this is, Orajaka confirmed that the interest rates of the fund is actually only 7% and that the adjoining terms are very flexible in terms of the security requirements. These are funding terms and conditions which are hard to find within Nigeria’s current business environment, where local commercial banks have frequently been criticised for break-neck interest rates, high cash back guarantees and conditions, especially for energy projects.
Despite the attractiveness of this solar fund, it was needful to understand the kinds of business models under which the fund will be disbursed and implemented in providing MSMEs with solar energy solutions. In this regard, Orajaka noted that his company’s offerings will be in two business models. These models have been carefully chosen as appropriate for meeting the needs of MSMEs. In his words, there is a CAPEX model “in which we only serve as vendors to clients who then becomes the fund obligors.” This CAPEX model is especially targeted at small and medium enterprises, which typically have greater financial requirements and relatively bigger solar energy solution needs than micro enterprises. These are facilities expected to be worth more than N5 million. The second model is the OPEX model in which the solar company acting as the obligor provides PAYG (pay-as-you-go) or lease to own services to clients especially micro-enterprises. These are expected to be less than or equal to N5 million.
But how do MSMEs actually secure access to this fund? This was the final question posed to Mr. Orajaka of GVE Projects Limited. It was not only important for MSMEs to be informed about the business models under which the N1bn fund will be operated, but for them to also understand the how they could benefit from the fund. From his organisation’s point of view, the end users who will benefit from this fund must, as criteria, utilise the solar power for productive uses and not just lighting, and must have a clear demonstration of solar power’s viability for their business in terms of cost-savings, profitability, etc.
Regarding security arrangements and collateral for accessing the fund, the facilities financed will operate under credit insurance guarantee (or bank guarantee or legal mortgage), personal guarantee of the business’ managing director/notarized statement of net worth, and an all assets debenture on the equipment to be financed.
Orajaka expects that tenure of financing will be up to a maximum of 5 years, with a moratorium of about 6 months. The targeted end-user market are viable MSMEs of all kinds including, but not limited to, cottage industries, artisans of all kinds, value addition providers across value chains in solid minerals, agricultural etc., service businesses such as barbers, hair dressers, tailors and fashion designers, welders, amongst others. Interested MSMEs will need to approach any of the eight selected solar solutions providers for more business-specific information on accessing the fund.
Talking generally about policy alternatives to ensure better access to finance for renewable energy development in Nigeria, Orajaka advised that renewable energy deserves to equally benefit from access to forex (i.e. foreign exchange) and tighter quality control at the ports; ‘perks’ which are usually available to conventional power producers. He argued that better industry support from government is needed in order to access international funds for renewable energy. “More importantly,” he stated “the government should endeavour to support indigenous firms who have distinguished themselves through commitment to quality service delivery who will in turn drive significant impact on our ailing economy through job creation.” It is clear that appropriate fiscal policy measures will be required to make this wish a reality.
Although a number of financial challenges still hinder the growth and development of renewable energy in Nigeria, this N1bn Solar Fund initiative might be considered a step in the right direction. However, appropriate monitoring mechanisms will be needed to ensure success. These will enable that the social and economic impact of this fund is really felt by the targeted MSMEs. While it is necessary to continue to create awareness about funds such as this, it is even more important for industry stakeholders to identify, and also propose policy alternatives to, regulatory bottlenecks limiting renewable energy finance in Nigeria.
What other policy/regulatory bottlenecks limiting energy finance need to be urgently tackled? We’d like to hear from you.