Enabling access to finance for locally owned solar companies

September 23, 2022

Charm Impact and Signify Foundation partnered to support a blended finance lending model. This partnership has catalysed the investment in five loans to early-stage, local entrepreneurs in Malawi, Nigeria, and Zimbabwe, providing more than 15,000 people and businesses access to reliable sources of renewable electricity.

Local founders are better positioned to create successful companies. In general, they intuitively understand their home markets better than foreign founders, their cost base tends to be lower than that of international teams and they are more likely to focus on building businesses that generate stable cash flows rather than on hockey stick growth trajectories. These factors often make local companies more suitable for debt investment.

Despite these trends, locally led and owned companies within the energy ecosystem have been financially excluded from accessing international investment capital. In Kenya for instance, only 6% of startups that received more than $1m in 2019 were led by local founders. Latest data from the Global Off Grid Lighting Association (GOGLA) shows that in 2021, 97% of debt invested into the off-grid energy in Africa went to just ten large and majority foreign-owned businesses. Local capital also remains out of their reach due to prohibitively high interest rates, collateral requirements and minimum entry criteria.

Charm Impact has a crucial role to play in supporting early-stage, local actors to nurture their growth in a commercial manner to get them to the stage where they are eligible for the investment mandates of larger investors.

A wide availability of grant capital has enabled companies to test their business models and get first products to market; however, it can also create the promotion of non-sustainable business models that are reliant on grant capital or concessionary finance to succeed.

The partnership between Charm and the Signify Foundation blends philanthropic capital with commercial finance to make meaningful loans for local entrepreneurs. Charm’s internally developed credit, risk and impact assessments are specifically tailored to consider local market conditions. The philanthropic capital from the Foundation acts as a buffer for investors in the event of a default, crowding in private finance that would otherwise not be willing to operate in such a risk tolerant manner.