A new report by Energy 4 Impact shows that, with the right encouragement, ordinary people are keen to invest in energy projects to help low- and middle-income countries meet SDG7 – universal energy access. Blended finance – a combination of donor funding and investment-based crowdfunding – is a valuable way to boost funding.
Since their launch in 2017, Energise Africa – an online impact investment platform that enables everyday people to invest in energy access businesses operating in sub-Saharan Africa – has raised over £14 million in debt to support energy access. Over 450,000 people now have access to clean energy as a result of financing raised on the platform.
Funding from UK aid, Virgin Unite and Good Energies Foundation helped to catalyse investment with £10.55 million of funding raised from the crowd and £3.5 million of funding coming in the form of donor match funding. Donor match funding can also act as first-loss capital, and as borrowers repay their loans the funding can be redeployed to catalyse investment in other energy access businesses.
In fact, thanks to this innovative form of funding, Energise Africa has raised more than double the target set at launch from 1,400 individual investors. The average investment was £1,100 per campaign and 9 out of 10 investors had invested in multiple campaigns.
More than one-third of investors on the platform are women, compared to one-fifth of investors on other platforms.
Energise Africa has also doubled their intended impact, with twice as many solar home systems deployed and beneficiaries reached than targeted. Energise Africa has launched over 95 campaigns, resulting in over 90,000 solar home systems being installed.
The Energise Africa: Investment & Impact Report shares the impact of the platform on energy access and the findings during Energy 4 Impact’s analysis of all investment transactions on the platform over a 20-month period from 2017 to 2019.
The research shows that the introduction of match funding helped to boost investment and the launch of the first time investor guarantee (which guarantees up to £100 of an investors first investment) increased the number of new investors. So far, Energise Africa has catalysed more than three times the grant amount received in co-investment from the crowd.
Why is this investment so crucial?
There are still millions of people in sub-Saharan Africa who don’t have access to clean energy and use polluting and inefficient fuels, such as kerosene or paraffin, to light their homes.
Having access to reliable, clean energy requires an ecosystem in which energy access businesses can thrive. But for many energy access businesses, access to capital is the number one impediment to growth.
Thanks to the work of Energise Africa and other platforms, crowdfunding is now helping many of these enterprises to accelerate the distribution of clean energy solutions to businesses and households in sub-Saharan Africa.
Take solar energy firm Simusolar, for instance. Simusolar sells and finances productive-use equipment, such as solar irrigation systems and fishing lights, to meet the needs of rural smallholder farming and fishing communities in Tanzania.
Founded in 2014 with funding by founders and friends, it later raised grant funding through DOEN Foundation to roll-out pay-as-you-go (PAYG) customer financing, but nevertheless faced the challenges of lack of early-stage working capital and accounts receivable financing, slowing the company’s growth.
Simusolar first used crowdfunding in 2017, securing $350,000 (£282,000) in debt through other peer-to-peer lending platforms.
Having built a track-record of sales growth and loan repayments – with sales of £250,000 in 2017 and £540,000 in 2018 – the company was on course to obtain a larger lending facility through the Energise Africa crowdfunding platform in 2018. Simusolar borrowed £700,000 on the Energise Africa platform, through five bond issues to retail investors. The Energise Africa loans resulted in more than 7,000 fishing lights and 114 solar water units purchased by customers.
Energise Africa is now financing 11 borrowers active across 13 countries.
So what encourages people to invest in crowdfunding?
According to the report, people like the fact that the money invested is going to help environmental and social causes, while retaining a potential for income return. A real win-win for the investor.
The research shows that the promise of match funding led to an increase in investment, and that the first time investor guarantee also boosted investment, especially around the £100 level, the level of the guarantee.
In the four months after the launch of the first time investor guarantee in July 2019 there was a 65% increase in first-time investors compared to the four months before, with a huge 80% increase in investments of £100.
Campaigns with match funding and first-loss appear to increase both the amount raised and the number of investments per day, however it is still early days and only a handful of campaigns of this type were tested.
Tax incentives also make a difference. The UK has been a good example of the type of tax regime that encourages people to invest in crowdfunding schemes. The report shows the majority of investors (94%) are from the UK, and 41% of investments were made through the UK’s innovative finance tax efficient savings scheme (IF-ISA). 87% of investments are by people aged 45 years and older.
Energy 4 Impact’s Davinia Cogan, says:
Energy 4 Impact is now looking at ways to further increase investment and investor involvement through additional techniques, and raising brand awareness through online campaigns.
said Lisa Ashford, CEO Energise Africa Director.