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| | = Debt Instruments<br/> = | | = Debt Instruments<br/> = |
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| − | They are used to raise capital for the investment | + | They are used to raise working capital or investment capital by the businesses. The different types of debt instruments especially for off-grid solar are: |
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| | + | *Term loan |
| | + | *Lines of credit |
| | + | *Venture debt and bridge round |
| | + | *Accounts receivable financing |
| | + | *Securitization |
| | + | *Convertible notes |
| | + | *Revenue-based mezzanine debt |
| | + | *Development impact bonds |
| | + | *Peer to peer business lending |
| | + | *online debt-based securities |
| | + | *Data-enabled short term loans |
| | + | *Government-issued mobile bonds |
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| | + | <br/> |
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| | + | This article discusses some of the instruments and is based on the publication: [[Publication_-_Funding_the_Sun_:_New_Paradigms_for_Financing_Off-Grid_Solar_Companies_(English)|Funding the Sun : New Paradigms for Financing Off-Grid Solar Companies (2020)]]. |
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| | == Term Loan == | | == Term Loan == |
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| − | Term load in provided to fund the acquisition of assets and the payback period is tied to the liftime of the assets. For off-grid solar companies, it is usually provided for a period of 1-25 years. Interest is charge over the lifetime of the loan and can be fixed or floating interest. | + | Term load in provided to fund the acquisition of assets and the payback period is tied to the lifetime of the assets. For off-grid solar companies, it is usually provided for a period of 1-25 years. Interest is charge over the lifetime of the loan and can be fixed or floating interest. |
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| | + | They are usually designed to finance one-time purchase such as buying land, equipment etc. |
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| | === Benefits === | | === Benefits === |
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| | *One of the widely employed debt instrument | | *One of the widely employed debt instrument |
| − | *Funds can closely match the needs of the borrrower | + | *Funds can closely match the needs of the borrower |
| − | *Reduce the need and reliance on smaller and less predicatable sources of captial (eg grants) | + | *Reduce the need and reliance on smaller and less predictable sources of capital (eg grants) |
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| | === Challenges === | | === Challenges === |
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| | *Negotiating and securing a loan can be a lengthy process | | *Negotiating and securing a loan can be a lengthy process |
| − | *Many financinal lenders that provide term loan might not be familiar with the off-grid sector | + | *Many financial lenders that provide term loan might not be familiar with the off-grid sector |
| | *Many off-grid companies are startups and do not have the credit history | | *Many off-grid companies are startups and do not have the credit history |
| | *Small off-grid assests such as SHS are difficult or time consuming to repossess or sell on the secondary market thus, less willingness to take them as collateral. | | *Small off-grid assests such as SHS are difficult or time consuming to repossess or sell on the secondary market thus, less willingness to take them as collateral. |
| | *The off-grid sector is continuously developing so the old SHS systems might suffer devaluation, thus less inclination of using them as collateral | | *The off-grid sector is continuously developing so the old SHS systems might suffer devaluation, thus less inclination of using them as collateral |
| − | *Currency exchange can be limited by the rules of the country. | + | *Hard currency could be scarce and financing in local currency can be expensive. |
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| | === Case Studies === | | === Case Studies === |
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| | ''This first of its kind loan for a SHS distributor could signal greater participation of local banks in cashflow–based lending to OGS companies.'' | | ''This first of its kind loan for a SHS distributor could signal greater participation of local banks in cashflow–based lending to OGS companies.'' |
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| − | ''BBOXX secured another local currency loan in February 2018, a $4 million facility from Union Togolaise de Banque (UTB). In 2019 it secured an $8 million local currency financing facility denominated in Rwanda francs, through the Africa Development Bank (ADB)–backed Facility for Energy Inclusion OffGrid Energy Access Fund (FEI OGEF). BBOXX also announced a $31 million investment from the Africa Infrastructure Investment Managers (AIIM) fund, Africa’s largest project-based investment vehicle'''<ref name="World Bank: Funding the Sun : New Paradigms for Financing Off-Grid Solar Companies- https://energypedia.info/wiki/Publication_-_Funding_the_Sun_:_New_Paradigms_for_Financing_Off-Grid_Solar_Companies_(English)">World Bank: Funding the Sun : New Paradigms for Financing Off-Grid Solar Companies- https://energypedia.info/wiki/Publication_-_Funding_the_Sun_:_New_Paradigms_for_Financing_Off-Grid_Solar_Companies_(English)</ref>.''''' | + | ''BBOXX secured another local currency loan in February 2018, a $4 million facility from Union Togolaise de Banque (UTB). In 2019 it secured an $8 million local currency financing facility denominated in Rwanda francs, through the Africa Development Bank (ADB)–backed Facility for Energy Inclusion OffGrid Energy Access Fund (FEI OGEF). BBOXX also announced a $31 million investment from the Africa Infrastructure Investment Managers (AIIM) fund, Africa’s largest project-based investment vehicle'''<ref name="The World Bank, 2020. Funding the Sun : New Paradigms for Financing Off-Grid Solar Companies- https://energypedia.info/wiki/Publication_-_Funding_the_Sun_:_New_Paradigms_for_Financing_Off-Grid_Solar_Companies">The World Bank, 2020. Funding the Sun : New Paradigms for Financing Off-Grid Solar Companies- https://energypedia.info/wiki/Publication_-_Funding_the_Sun_:_New_Paradigms_for_Financing_Off-Grid_Solar_Companies</ref>.''''' |
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| | |} | | |} |
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| | + | <br/> |
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| | + | == Lines of Credit == |
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| | + | They are revolving loans that can be drawn/redrawn whenever requried and are flexible. The borrower can only pay interest on the borrowed amount and the lender charges a maintainence fee on the undrawn amount. |
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| | + | They are usually drawn to fund variable expenses of the businesses and are usually unsecured. |
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| | + | <br/> |
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| | + | = Further Information = |
| | + | |
| | + | *[[Debt Finance|Debt Finance]] |
| | + | *[[Portal:Financing and Funding|Portal:Financing and Funding]] |
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| | + | = References = |
| | + | |
| | + | <references /> |
They are used to raise working capital or investment capital by the businesses. The different types of debt instruments especially for off-grid solar are:
Term load in provided to fund the acquisition of assets and the payback period is tied to the lifetime of the assets. For off-grid solar companies, it is usually provided for a period of 1-25 years. Interest is charge over the lifetime of the loan and can be fixed or floating interest.
They are usually designed to finance one-time purchase such as buying land, equipment etc.
They are revolving loans that can be drawn/redrawn whenever requried and are flexible. The borrower can only pay interest on the borrowed amount and the lender charges a maintainence fee on the undrawn amount.
They are usually drawn to fund variable expenses of the businesses and are usually unsecured.
