Mini-grid funder ratings

Mini-Grid CEOs have long voiced concerns over the inconsistent and overly complicated funding methodologies that vary significantly across different funders and countries, leading to prolonged delays in electrification efforts. Similar frustrations are echoed in the processes of securing equity and debt.

Host Nico is joined by Kyle Schutter from Sunlight Reviews and Ashish Shrestha from the World Bank’s ESMAP to discuss these challenges. Kyle shares insights on how Sunlight Reviews is helping stakeholders better assess funder reliability and timelines, while Ashish explains how ESMAP is responding to industry feedback to improve program designs. This episode offers a deep dive into the efforts being made to streamline funding processes and accelerate progress in the Mini-Grid sector.

Resources mentioned in this episode:

Sunlight Reviews - Discover the Best Funders in Africa

https://80000hours.org/podcast/episodes/mushtaq-khan-institutional-economics/ 

LinkedIn: https://www.linkedin.com/company/inensus-gmbh/mycompany/
Visit www.inensus.com  for more info.

Transcript

Speaker 1 0:09

Solar mini-grids have turned from small pilots to an electrification wave. We were there when mini-grid regulation was established, when financial transactions were closed. We saw new technology thrive and companies fail. This is where we tell the stories. This is where we discuss the future. The mini-grid business Powered by Enensis.

Speaker 2 0:35

Hello, this is Nico. We are discussing mini-grid funder ratings today. My guests are Kyle Schatter, from the funder rating platform, sunlight Reviews, and Ashish Shrestha, from the funder World Bank Asmap. Kyle is partner at Grant Co, a company supporting entities to acquire grants, equity and debt. He is also involved in managing the Sunlight Reviews platform we are talking about in this episode. In managing the Sunlight Reviews platform we are talking about in this episode, ashish represents the World Bank's Energy Sector Management Assistant Program, called ESMAP. Today he leads the Integrated Electrification Strategies and Planning Program, which supports countries with the preparation of national electrification plans and funding programs. The preparation of national electrification plans and funding programs. Ashish is especially looking at Nigeria right now, preparing the Nigeria DERES grant program for mini-grids, which will eventually be the largest ever grant funding program for private sector mini-grids. Welcome Kyle and welcome Ashish. Thanks.

Speaker 3 1:45

Nico. Thanks very much, Nico. Pleasure to be here.

Speaker 2 1:48

Yeah, Some months back, Amda's mini-grid CEOs complained heavily about the role investors, financiers and especially grant funders are playing in retarding fast scaling of mini-grid electrification. They said complex procedures, a lot of application related work and long waiting times to grant agreement signing and finally, disbursement of grants are just some of the issues that were raised were raised. The idea from the CEOs was to somehow provide feedback structured feedback, to the funders to improve the situation. And then some of the CEOs did some research and found that a platform to provide such kind of feedback already exists, and that is your platform, Kyle Sunlight Reviews. So, Kyle, when the above discussion was held, Minigrid CEOs exchanged also about how to best deliver negative feedback to funders. So, after all, CEOs proposed having a platform to rate funders' performance. Sunlight Reviews was selected as the platform of choice and some mini-grid-related ratings were delivered. What is the takeaway from that initiative? What are the characteristics that distinguish a well-performing funder from a poorly performing one?

Speaker 4 3:19

Yeah, maybe I can say a bit about my background and how I came to this. I ran a biofuel company in Kenya 10 years ago. For five years sold it to my staff, did a few other things, then started raising capital for companies, grant equity and debt, and we've had a lot of fun. We've raised millions, tens of millions of dollars. But one thing that came across was that so for any ecosystem, you want some way to encourage how I care in the stick. So if you go to a restaurant and it's got five stars, you expect certain things about it. You expect certain things about its bathroom. You expect you know certain quality food and service. If it's got one star, someone's cleaning out cockroaches. You know you. You know you know what you're getting yourself right.

Speaker 4 4:06

But there is no such platform so far for funders in Africa. They do exist elsewhere in the world. There is one like called the funded for VCs in Silicon Valley, but nothing or Africa. So it's a very opaque space and without some, without knowing this, you start working with some funder. Their website looks great, you know they help farmers and they install solar and that's wonderful, but you don't know whether they're more on the like. Okay, they got cockroaches running around the tables, or it's like a five-star experience, and I would say it's even more than that. It's not just like some are good and some are bad. It's some are good for some people and some are less good for those people, right.

Funding Challenges in Renewable Energy

Speaker 4 4:45

And so that's something that you'd like to know, going in, what's your timeline with this fund? How long is it going to take for them to deliver funding? On average, it takes 330 days, from the time you apply to the time you get cash in the bank. And that's just from the time that you applied, not counting all the pre-work you do. But that's just the average. Some of them take more than two years, and they're consistently. They take more than two years to give you funding.

Speaker 4 5:08

The amount of money we're talking about is not so huge. Typically, it's around a million dollars or so of funding. If it's a large mini-grid project, I'm guessing it'd be even more than that. What I'm talking about is the average for the platform rate, and then some of them are very fast Like. The fastest one was seven days. It's called Fast Grants. They've written about it and in fact, they had the problem where they delivered money so fast that their investees had a hard time actually providing them bank details, et cetera, fast enough for them to actually deploy the money.

Speaker 4 5:37

Now you're asking so what's the biggest thing, the biggest takeaway I've had from building this platform We've got hundreds and hundreds of reviews on this platform. A building this platform, we've got hundreds and hundreds of reviews on this platform, a lot of them in solar, all of them for Africa is that the biggest cost is the opportunity cost. That is, the biggest cost is the money that's not delivered today, that has to wait two years to get cash in the bank. So imagine your company is growing 50% year on year, which is a very normal amount. It could be even greater than that and you're getting a low interest loan. That's awesome. Maybe you need 0% interest or 5% interest, but that money doesn't come in for two years. Now you've just lost two years of growth, which is something like you know, 50% times. You know, on top of 50% is like 125% compounded rate, just to get a 5% interest loan. And so this opportunity cost is something that's not priced in to the market at all right now and entrepreneurs don't think about it.

Speaker 4 6:29

And when I started raising funding, someone told me they're like oh, the fastest you'll get money is six months. I thought they were joking. I thought how could it possibly take six months? And of course, it took way longer than six months to actually get the money. So entrepreneurs going into this they don't realize how long it takes and funders don't realize the cost that they're giving to some funders. Some funders are very fast, but a lot of funders don't know and they would want this feedback. Funders I've talked to are like this is amazing. I want to know this, but no one's willing to tell me this information because it's not in each individual's best interest to criticize the funder. Right, each individual relationship doesn't benefit from it, but the community does benefit when everyone shares anonymously. So that's what I would say is like opportunity cost is like the biggest thing. No one's pricing in right now.

Speaker 2 7:14

Yeah, thank you, kyle Ashish. Funders do not have to fund the mini-grid sector. Other subjects also require funders' attention, right? Would funders turn away from the mini-grid sector? Other subjects also require funders' attention, right? Would funders turn away from the mini-grid sector if they are criticized too much? Because that was one of the issues that some of the mini-grid CEOs had with providing honest feedback.

Speaker 3 7:36

Thanks, nico, I don't think so. I mean all parties need to be accountable, developers, investors and financiers alike. And you have to ask, why are funders interested in the mini-grid sector? And it's mainly because they believe it's a critical part or solution towards the drive to universal access right and they think access is a catalyst for a litany of improved development outcomes. So this is the reason they're usually funding it I mean at least development institutions and so I don't think they're so thin skinned that they would exit the sector or reduce involvement just because of some criticism about their application or disbursement processes or performance as funders. You know, I was interested in what Kyle mentioned earlier about the main complaint being delays right To the opportunity cost and the delays and disbursement and making decisions on funding. I mean I'm curious to know I mean Kyle what are some of the other main issues that the companies have mentioned, aside from delays in decision making and disbursement?

Speaker 4 8:38

Yeah, there's a number of different things. And, to clarify the delays, it's not always the funder that's the problem. It's usually the entrepreneur actually who can't provide the documents in time. But the funder could do things if they were incentivized to say like here's the documents I need, please prepare these in advance, right? Or know that you're going to be walking into this. Here's the due diligence checklist. That doesn't really exist out there. Hopefully we can encourage funders to say like, oh, we want to speed up this process. Here's what we can do. The other things are the terms can be onerous. There's pros and cons, right. So a lot of the reviews are 10-star. These are amazing people. They helped us so much. Some of them are not 10-star, but I'd say that it's not that it's like purely critical. Entrepreneurs really are really good experience with a lot of investors, a lot of funders, but yeah, some of them give, you know, onerous terms.

Speaker 4 9:27

It depends on there's grant, equity and debt, right. So for grants, they can often like very pigeonhole a project into like here's the project. If anything changed along the way, you can't change it. You got to keep doing the same thing. They're not flexible. You know, there's like the joke of you know left-handed pygmies in Turkana, where it's just like there's only one kind of person that you can actually target with this funding and you need to have like three partners to do it, and it's becomes very difficult to actually execute the project, even though everyone wants, just like more renewable energy in the world, just as too many constraints there's. Sometimes there's extra fees that are put in, so there's like these hidden fees that suddenly pop up and you're like where did this come from? Someone had decided not to go for funding and then they were sent a legal bill for the money they didn't get, which became a whole snafu there.

Speaker 4 10:18

There's for equity some people. The challenge sometimes is the follow-on, the investors. They're on your cap table and you're married to them, but then they might not. Some of them are overbearing where they're like we want them to take their advice. Then, when it comes to signing away their pro rata rights, it's on follow-on rounds. Investors have the right to reinvest and have to sign to say they don't want to exercise their pro rata right. They can really be difficult to you know, sign that and there's no way for the entrepreneur to say like this was a problem without writing a review for it.

Speaker 2 10:50

so pro rata rights can be a challenge as well yeah and kyle, I think we haven't talked yet about how this actually works. Right, you can register under sunlight review, under the platform, and provide your funder rating and then, if you have done that twice or three times, I believe, then after some time you get a file sent by email or a link or so that allows you to then see how others have rated, so to say, and get the full picture of who's good, who may be a good funder for you, who is a not so good funder in your space and what others criticized about these funders. And yeah, and then Kyle, last but not least, how do funders get access to this information, like if Ashish wanted to know, for example?

Speaker 4 11:39

Good question. So, yeah, well, it's even better than you said, nico. So you leave one review, you get access to all the hundreds and hundreds of reviews. There's one review. It's an online platform, so it's constantly updated. So once you get access, as it keeps getting updated, you can keep getting access. If a funder wants to get access, they can as well. They don't leave a review for themselves. All they do is just write about their own organization, how much money they have available, what the timeline is, how many applicants they're getting, and then they get access as well. So everyone can get access to the data and it's anonymous for both funders and entrepreneurs, and they go to sunlightcapital.

Speaker 3 12:20

Nikhil, just going back to your question about how negative feedback is received or how important it is, I think most of your listeners are probably aware that the World Bank doesn't provide funds directly government institutions like rural electrification agencies or ministries of energy. And you know, although we're always interested to get feedback on our performance and you know there are many channels through which people can provide feedback to the World Bank directly we're also very interested in the performance of our implementing agencies, the REAs, or the ministries or other parties selected by the government to implement these projects. And I'll give you one example. You mentioned the Nigeria Dares project that is coming online very soon. It has a budget allocation of $410 million to be provided in grants to mini-grid developers. Right, this is money that the government is borrowing to then provide as grant to the mini-grid developers.

Speaker 3 13:29

Now we want to ensure that these funds are utilized efficiently, that they go to the right parties, that the application processes are not too onerous or too time-consuming, and so what we've done is that we've instituted what we call performance-based conditions to this loan. So the entire loan is not going to be dispersed to the government automatically, right? Some part of it is conditional on the government achieving certain standards or thresholds or targets. I'll mention two in particular. I mean one is related to the development of a coherent national electrification plan and strategy which clearly articulates which are the areas for mini-grid development, which are the institutions that are going to be involved, which are the roles and responsibilities of these institutions, and this is all meant to ensure that mini-grid developers and investors have a conducive environment to invest in and build mini-grids, and they know who to engage with and which communities may be considered for grant funding, and so forth. The other condition, or other performance-based condition, is actually linked to the performance of the implementing agency, so the grant-making agency itself In this instance, it's the Rural Electrification Agency in Nigeria and so what this performance-based conditions does is that it calls for the implementing agency to meet certain performance standards in terms of time taken to process an application from the private sector, time taken to process a claim for grants once the construction has been completed, and so these are critical metrics in terms of how the grant-making agency is functioning. I mean, one metric, obviously, is the output right, how many mini-grids are being built, how many people are being served with new or improved electricity service? But the other is in terms of the performance of the agency itself, and I think this is linked to you know what Kyle and his company are doing, right? I mean, we're trying to ensure that the implementing agency is not taking too much time, is responsive to the needs of the companies in the space, and until the government is able to meet those standards, these funds will not be released to them. So this provides a very clear financial incentive for improvement in performance.

Speaker 3 15:53

At the same time, I mean, I think we'd be very interested in hearing directly from companies that are participating in the program the information that goes into meeting these standards, the time taken to process an application, the information that goes into meeting these standards, the time taken to process an application. This is based on. You know, the REA uses the Odyssey platform to administer the program. Applications from companies are submitted in the Odyssey platform. There's a timestamp on it, and so there's also going to be a timestamp when the government approves, you know, evaluates and either approves or reject the application, and that is being tracked. Same thing for grant claims. This is fairly quantitative. Now I think what we could really benefit from platforms like Sunlight Reviews is a more qualitative assessment. I mean, what is the view of the private sector in terms of the implementing agency's performance, aside from the number of days?

Speaker 2 16:40

Yeah, ashish, how do you actually get feedback from mini-grid companies and do mini-grid companies dare to really open up and criticize? Because the feedback I got, and especially from the CEO's discussion, I got the feeling that some companies don't even want to touch this subject and don't want to share their feedback openly unless they can stay anonymous. How are you currently doing it, ashish? Gathering them One-on-one meetings, or how does it work?

Speaker 3 17:14

All of the above right? I mean and I don't doubt this is an issue, right? I mean in any situation where there is a grant provider and a recipient, I think there's going to be some concern about providing candid feedback to the grant provider. Now, that being said, at least in Nigeria for the REA program, what they do is they organize regular roundtable meetings with companies that are participating in the program. You know it's an opportunity to provide updates and then also to get feedback from participating companies in terms of where they're having issues.

Speaker 3 17:44

Is there a bottleneck in terms of providing environmental and social safeguards compliance documents? If that's the case, then maybe that's a signal that the government needs to provide more capacity building or training to companies so that they can more easily comply with what's required in terms of ENS, so things like that. To a certain extent, I think it works right, because I mean as a real life example, right? I mean, we've heard from companies that the part that they have the most trouble with is populating the environmental and social safeguards. You know, part of the application.

Speaker 2 18:17

Kyle, is that your impression too? Do mini-grid companies or companies in general provide open feedback regularly, like direct? There's probably a reason why you set up this platform right.

Speaker 4 18:29

I don't think they provide feedback at all, but it's just stuff you hear. You go rock climbing with someone, you hear about it, right, so you brunch with entrepreneurs, dinner parties. But yeah, my overarching goal is I want to make an entrepreneur search for funding as easy as finding an Airbnb by 2040. And that's doable. There's a good friend of mine. He raised money from Peter Thiel, the first investor in Facebook, in a coffee shop in 30 minutes and he said how much money do you want? Send me the term sheets and your bank details. I'm sure it'll be fine. So it's possible. It's like literally possible.

Speaker 4 19:06

And so the question we have is so why is it more complicated than that? And a lot of it has to do. You think about Airbnb. One thing that it does have is a rating system, right, and it's a two-way rating system. It's not just rating the hosts, it's also rating the guests. So ideally, there should be some system where the investors can rate the entrepreneur.

Speaker 4 19:22

I'm not sure how that works. I haven't solved that one. Maybe someone else can solve that problem. But the reason why all it's so difficult and there's so much due diligence is there are bad actors, for sure, and people who do take advantage of funders. So I don't know how to solve that side of the problem. But yeah, yeah, there's. Basically the two sides aren't really talking to each other, so my goal is to keep on building widgets, things. We've built lots of other things as well. There's Eshaai, which is a funder search platform. There's a black market currency tracking system, because some investors are very wary of black markets in different places, so then it gives more transparency to the investor then by knowing where the black markets are for currency. But yeah, we just keep on building different tools to facilitate and make it as easy there in Airbnb.

Speaker 2 20:08

Yeah, Kai, there was one aspect about what you said earlier which surprised me a little bit. You said you get a lot of positive ratings. What I was expecting is that such platforms like Sunlight Reviews would be mainly used by disappointed companies who just want to tell someone how frustrated they are. But this is not how your platform is being used, is it?

Building Trust and Accountability in Funding

Speaker 4 20:36

No. I was actually surprised as well. It's a good point. There's a lot of, I would say, more good than bad reviews.

Speaker 2 20:41

Good. So after all, funders are not that bad right.

Speaker 4 20:44

I mean, funders are amazing and work couldn't happen without them, yeah, and I guess it's a shame that funders don't get to hear there's this disconnection, right? So for me, how do you make the connection more personal instead of it having just be, like lots of you know, esg requirements? All these things are important, but we need to balance it out with relationships, because relationships is what you know, makes the world go around. It's what's made the world go around for a hundred thousand years, and I want the funders to know what an amazing job they're doing, and it's not just transferring money from one bank account to another and like chasing down entrepreneurs. It shouldn't be like a tenant landlord relationship, where the tenant's always complaining about something that's broken and the landlord is like these horrible tenants, right, let's. How can we build a relationship that people can actually connect and and trust each other? Trust is ultimately what Airbnb brings.

Speaker 2 21:37

Yeah, but let's get back to the initial idea of this episode. This Amda CEOs Roundtable actually said well, we are not happy with how the mini-grid funding is currently working, and I can just repeat they complained about timelines, about efforts to acquire funding, about speeds. What they're saying is like if we continue at the speed we're at right now, we will not be able to electrify the whole of Africa in the coming 30, 50, 100 years probably, and the time is actually running out because climate change is looming on the horizon and we will see a lot of droughts and floods and everything, and we need resilience. So yeah, coming back to that, ashish, you said you are trying to incentivize your partner organizations in the countries, which are mainly REAS, the implementing partners. How well is that working? And well, of course, you put this into their contracts, but how responsive are they Like if you provide feedback? Of course you can make them change, but is it in their interest to change or do you see a lot of resistance?

Speaker 3 22:51

So, Nico, I think in the past, I mean it's mostly been a sort of a collegial relationship, right? I mean the World Bank has a supervisory function, of course, in these projects. But also going back to your question earlier about what the feedback received from the private sector, at these roundtables.

Speaker 3 23:07

Yeah, I think Kyle's right. I mean, not everyone wants to be perfectly candid in that setting. Right, with other companies present. They're worried about what the electrification agency might think of them, they may worry about potential reprisals. So we do also have these one-on-one conversations. You know sometimes companies that have certain issues and they want to talk, you know, in confidence.

Speaker 3 23:30

We do that as well, right? I mean, I think our door is always open to that, and then we relay these concerns back to the implementing agency, right? I mean that this is what we're hearing from the market. You know what's happening Now.

Speaker 3 23:43

I guess the novel element that I mentioned in Dares is that now there's actually a carrot attached to it, or a stick. Rather, right, a carrot, I would say. Right, the conditional funding. In the past, I mean, we just our lever really was to say, okay, things do not sound like they're going well, the private sector is very unhappy, the project is not dispersing funds, you know, the pipeline is not very large. What's going on? Right?

Speaker 3 24:13

If things don't improve, you know we're going to have to do something. Right, the project might have to be restructured, or hopefully not, but cancelled, right? So that's a sort of worst case scenario. Now, with the performance-based conditions, the government can be more proactive, right, because they will not be able to access the funds until they improve their performance. This is a new element and it's going to be tested under the DERIS program. So perhaps a bit early to say how effective it is. But you know, just theoretically I would think it would be effective because, I mean the funds will not be available otherwise. So assuming the government wants to implement these projects and wants to have access to these loan proceeds, then they will need to do what the performance-based conditions require.

Speaker 2 24:54

Yeah, and I guess Nigeria is a relatively easy starting point for this because there is an existing long-standing relationship between the Nigerian government and World Bank, and especially long-standing relationship in the mini-grid electrification sector. Given that the NEP is currently expiring after five years and structures have been set up that the DERES program can just build upon, right, how would that work in other countries where there's nothing, where everything has to be well, created from scratch, basically, and there's no experience? How do you work?

Speaker 3 25:34

there. First of all, I mean you're exactly right. I mean Dares is building on a lot of structures and systems that have been set up under NEP, and we're very fortunate to have an excellent implementing partner in the Rural Electrification Agency, and so you know, the performance-based conditions I mentioned is really an attempt to further improve things. Right, I think they're already relatively well-functioning. Now, in other markets where you know there is perhaps less capacity, less experience, the systems are not in place. I think you really do need considerable technical assistance before you can scale up the financing itself, and I think that intuitively makes sense as well. Right, I mean you have to have systems in place, you have to have people in place, you have to have sort of the enabling environment before money can flow and before companies can start building. And then so I think that's generally the case- Kai, what is your take on this?

Speaker 2 26:27

technical assistance for funders Are you?

Speaker 4 26:29

familiar with this political economist, mushtaq khan, who's done very interesting research on incentives and corruption. So they've dived deep into different situations. Why is there corruption in certain areas? Why is there not? Which links to what nico is saying about ta and capacity is that they were. They were building cyclone shelters, etc.

Speaker 4 26:49

I want to say in bangladesh, and you know things to prevent when there's climate change, how to support people.

Speaker 4 26:56

So this was a funded project and some of them the money was diverted from the things and some of them they actually did the thing they were supposed to do the cyclone shelter of the embankment, the berm and it turned out that the ones that had less corruption were the ones where there was actually a local need for that thing.

Speaker 4 27:12

So they could use the cyclone shelter also as a school or they could use the embankments for a road. So in those cases then, when you link to local needs in the immediate term and climate change needs over like decade, multi-decade period, then you had much better results. But also, I think the capacity of people and organizations is something that's also very important to get that in place. Without that, money itself doesn't always change things and in fact here's another example where some people are incentivized. Results-based funding for this is job training, and some of them fraudulently made up job placement numbers to get the money and some of them didn't, and the difference between them it was a very interesting reason why that happened. I can highly recommend looking into Mushtaq Khan and his work on this for any listeners.

Speaker 2 28:00

So, kyle, do I get you correctly that wherever there is no pull from the recipients, the money usually doesn't reach?

Speaker 4 28:07

Yeah, it makes it much harder. Like if you have local accountability, so Ashish has top down accountability but he doesn't have horizontal accountability yeah so he can say like, look, if you don't do this thing, you're not getting paid for this thing.

Speaker 4 28:17

But it's hard for him to be on the ground in a cost-effective way. And he's only one of him and there's only so many people at the world bank. But there are tons of people locally, in whatever town or village, who do want a school put in. And if they're going to put in a cyclone shelter we can repurpose as a school. Now, over tea, over coffee, they're gonna be like how's that cyclone shelter doing? What kind of cement are you using for it? Now they can hold someone accountable to actually do it properly, and so it's sideways accountability versus top-down accountability.

Speaker 4 28:45

All these things kind of come together, you know, in a sense. So, ashish, I love what he's doing, which is saying we're making sure the reas are fast to deploy money and they're doing this. Well, that's top down. It's awesome he's doing that. We're trying to do a sideways accountability sort of which is like okay, we're a third party saying here's a platform where entrepreneurs and investors actually can also investors can also write down what they offer. So it's like a sideways accountability that then attacks us in a different direction to encourage everyone to do the best work they can.

Speaker 2 29:16

How would that play out in the mini-grid sector? Now there is a strong pull. Mini-grid companies need a constant funding flow to get to a certain scaling level 20, 30, 50,000 connections which requires probably several tens of millions of grant funding plus the same amount of equity and debt. As long as you stay below that threshold you will probably not be profitable and you need constant cash flows, probably from grant funders or from equity and debt providers, to actually grow and survive.

Speaker 2 29:55

So now, the main problem in the mini-grid sector so far has been that these funding programs they were always on and off. The money so far has rarely been available continuously, and I believe, ashish maybe you can tell our audience a little bit more about this that Nigeria again is probably one of the first cases at least where funders are trying to change this, like the collaboration between World Bank and AFDB under Rhea leadership, so to say, or the government's leadership, to fill the gaps, to make sure that grants flow more continuously into the private mini-grid sector. But so far it hasn't really worked, and that's what mini-grid companies are complaining about heavily. So how can we bridge the time gaps?

Speaker 3 30:42

Yeah, nico, I mean I'd love to hear more about the specific complaints from the IMDA membership, but I think there's no doubt. I mean, the continuity in terms of the availability of capital is critical for businesses, and so that's a perfectly valid complaint and that's an issue that has come up in Nigeria. You know we have the Nigeria electrification project that you mentioned, which both the World Bank and the African Development Bank have invested in. Unfortunately, programs implemented by institutions like ours have a finite project cycle, project life. It's a matter of better coordination, better planning, I suppose, to try and have a seamless transition between one project to the other, but in reality that's not always possible right, for a number of reasons. There are a lot of stakeholders involved. I mean, there's legal matters. There's the execution of a new loan agreement is not always that straightforward. Now what we're trying to do with the dares is to build a platform where all the various financiers and investors can get on board and align on their investment and TA programs.

Speaker 3 31:50

And when it comes to a situation like we've had recently or now, I should say, with the closing of the NEP and the sort of initiation of the Dares project, I mean it would be helpful to have the flexibility where other financiers or development partners can step in to fill a gap between two programs, and so, ideally, the Dares platform is meant to encourage that sort of coordination, now that Now I think that's, of course, desirable, but I would say, at the very least, if we're not able to ensure that sort of seamless transition, I mean we should have full transparency on the status of the funding, the availability of grant funding, and that's also something that hasn't always been there right.

Speaker 3 32:31

I mean, of course we have some line of sight into that. What amount of funds has been dispersed to the government? The government has some, has a line of sight into, you know, how much grants they've dispersed to the mini grid companies, but this is not always well known to the public and, most importantly, to the developers and the financiers themselves, and so I think another new sort of practice we're trying to implement under Dairs is to have a public portal that will simply make available data on how much funding has been dispersed, how much remains when the project will end, right. So this kind of information, at least companies and investors can make informed decisions, even if there's no certainty about the availability of funds past a certain date at least you know there's $30 million left. If I start a project today, I should have a good chance to tap into those resources.

Speaker 2 33:26

How is the coordination being done among funders? I know that there is this mini-grid funders group, which ESMAP is, of course, also a member of, but how does it work? How can one imagine how the communication goes? Does everyone just say, well, we have this amount of funding, we will deploy here and there? So it's basically an exchange of facts? Or is there actually room for collaboration? Because after all the funders, they are talking to Ashish and this group. They are not the government taking the decisions, right, they are the implementing agency, so to say.

Speaker 3 34:02

Yeah, so, nico, I mean this coordination happens at different levels, right. I mean you mentioned the Minigrid funders group. I think that's more at a strategic level for the sector. You know there's usually a country level working group for the energy sector amongst development partners that are active in that space. You know, and there I mean things are much more operational, right, about actual active programs and forthcoming operations and who's going to do what. And then there's a project level coordination, which is the DERES platform that I mentioned, right, and that's much more targeted towards a specific space, right, the DRE space in Nigeria. And you know so. We have other financiers, like AFDB you mentioned, and so for DERES, at the moment, I mean, the World Bank is going first with the approved $750 million investment, but we fully expect that other development partners like AFDB, jica and others will also come on board with either financing or technical assistance, and there's already partners like G-App, se4all and others that have designed their technical assistance program to sort of multiply the effect of the investments made under Dares.

Speaker 3 35:12

So things like project pipeline development, market assessments, equity and debt investments to complement the grant funding from Dares, and so forth.

Speaker 2 35:21

Yeah, ashish, this coordination effort and groups and talks. They are not new, right? They are existing for quite some time already. If you talk to the mini-grid companies from their perspective, nep has expired, like. Officially. It's going to expire in August. There was an announcement that money is running out, almost depleted, so don't apply with new projects. From the mini-grid operators and developers perspective, this is detrimental. Well, they have staff in the fields that are currently constructing mini grids. If they don't develop the next mini grid, what will these 50 or 100 people do next month? They still have to be paid. Well, and this gap? It is there, even though all the talks have been happening for years and everyone knew, even five years ago, that the NEP project would just last for five years. Why hasn't nobody stepped in? There were five years of time to plan for this transfer from one to the other and still it hasn't happened. And there are these coordination groups and so on.

Speaker 3 36:26

That's a very good point, nico, and you know I would say the difference. I mean your question was what's different now, nico, and you know I would say the difference. I mean your question was what's different now? And I would go back to the performance-based condition I mentioned earlier. That requires the government to come up with this national electrification plan and strategy, right. So I think what's really missing is the fact that I mean you can have all these meetings and coordination between development partners and financiers, which is already ongoing, right, but every party has their own priorities, they have their own procedures, and so you're just trying to like, juggle the pieces and make sure they work. I mean what's missing is this process has to be led by the country. I mean there has to be a plan and a strategy where all the partners then can sort of fall in line. The government has to direct where they want resources to go and seek the participation of the development partners.

Speaker 3 37:16

I think, that's number one, and so that's what we're trying to do under DARS is first have the government do that figure out how they want to approach their drive to universal access, whether they want to prioritize certain technologies in certain territories, whether they want to take a purely private sector-led approach or some kind of mixed approach, whether they want to do mesh grids. There's all these issues that need to be, and you can just leave it complete as a private sector. You can ask development partners to come in and say do your thing right. But I think if you want an efficient outcome, I mean there has to be some kind of strategic direction from the top.

Speaker 4 37:51

Different sectors have different amounts that they require right. Mini-grids is an interesting one because it's basically infrastructure and it requires tons of money and it's somewhat predictable in which direction to go in versus, let's say, various tech platforms which you really have no idea. You know when the next GPT is going to come up and completely change things. Government's going to pay for this kind of infrastructure in one way or another. Does the World Bank expect that they will be the ones to fund the rollout of mini-grids across the continent?

Speaker 3 38:19

Yes, kyle, and very much so. I mean from the World Bank side. I mean there is ample appetite. You may have heard the recent announcements from the World Bank president and the African Development Bank president targeting the electrification of 300 million people in Africa. So you know we're scaling up our engagement and our investments on electrification, and mini-grids is a very important part of that.

Speaker 4 38:43

So question for both of you then, if we're to make mini-grid funding as easy as booking an Airbnb, what else would need to happen?

Speaker 2 38:51

Yeah, well, as someone who is a mini-grid operator himself and someone who is talking to many mini-grid operators across the mini-grid sector, I would say coordination between grant, equity and debt acquisition. And that is, I think, the main challenge. As we have seen, and from what Ashish just said, grants will probably not be the limiting factor in most African countries in the near future, and I am seeing a gap that the grant funders are running into a lack of equity and debt in the sector. Well, grant is not the only component that makes mini-grids profitable. You need business models, you need a proper selection of sites, you need a good coordination with governments to select those sites that make sense, after all, for the mini-grid companies commercially, financially and only then equity and debt will flow. And this is a process that is taking so long.

Speaker 2 39:53

Going through the process, you probably need, I would say, six months a year Kyle, you were talking about two years even to acquire your grant funding right.

Speaker 2 40:03

Then, in parallel, you try to acquire your equity, but equity funders would only start seriously talking to you once they are convinced that the grant will be in place.

Speaker 2 40:15

So, once the grant is there, you probably need another nine months or even up to 18 months to acquire your equity and only then, probably when the grant and the equity are in place, you can start acquiring your debt funding.

Speaker 2 40:28

And in the mini-grid space there is very, very little debt. So, and then we need to distinguish between project-focused companies and companies that are funded on the corporate level, corporate funding. So those corporate funding companies, which are usually the larger minigra companies, also the international ones, rather it's easier for them to go through this process because equity is already in place, and if they don't get debt funding, well, they just go with equity and then do an exposed debt round, so to say, for a certain part of their portfolio. But African companies, which have usually a core business in the solar sea and ice sector or in another sector, an agricultural sector or wherever, who want to also dive into this mini-grid business, they consider mini-grids projects and they have to go through all these acquisition of funding in stages. And if you just add up the numbers two years for a grant, probably one and a half years for equity and then maybe another one and a half years for debt Well then five years are over and Ashish's funding program, world Bank Dares, has already expired.

Speaker 4 41:43

The other thing as an outsider I see in the mini-grid sector correct me if I'm wrong is it feels like the business model hasn't really been proven out and the anchor tenant hasn't really been found yet. There was some sense that it was going to be cell towers, but I think the best funder is your customer. The biggest problem that entrepreneurs that we work with run into in raising money is they don't have a buyer and so like yeah, we're going to make this banana flower and we're going to export it. Export to who? Yeah, yeah, we're going to figure that out. That's what you need your money for. And the funder's like no way, I'm not getting on this boat right. But once you go to them and say, here, I've got this offtake agreement. We've sold you know three consignments to them already. They paid on time. They are now demanding more. We can't possibly meet the demand that they've got. Now it's a very different conversation with funders and they're throwing money at you and my sense is that in many grids they haven't found that buyer yet.

Speaker 2 42:33

Yeah, in rural Africa, so to say, not in the large scale. Even the telecom industry is not such an anchor client, and we've discussed this in other episodes before. But what we believe as Inensos, is that and that is the episode that you could listen to that rural industrialization may make that change. And, after all, mini-grid companies are the key players to industrialize rural areas because they have staff on site. The staff have knowledge levels that usually don't exist in rural African villages and they set up a management structure around that, the mini-grid companies. They have financial management, they have logistics management, they have staff management. They have basically everything you need to run a rural industrialization scheme. And I believe that this is something that funders are not picking up enough yet. Maybe they have not understood the opportunities out there. But that is what I would actually, as a mini-grid funder, what I would focus more.

Speaker 4 43:36

Yeah, I love that the thing is. I think it takes a funder who's willing to look into multiple different aspects of impact, so it's not just getting energy, but also has to be someone who's interested in livelihoods, who's like, okay, we need rural jobs, let's have sustainable cities and have small towns rather than everyone clustered in one capital. So someone interested in urbanization, so it's beautiful. I look forward to listening to this episode you're referring to, because it's also my ideal and a lot of our clients as well, because we raise capital for companies. A lot of them have installed solar not because they wanted to be green, not because of any of that kind of stuff. It was just the only economically viable way for them to power their, let's say, basil export, you know, facility, or their banana powder production or their avocado cold chain, right. So I think when those things get married together and agriculture plays a big part of this, because the agriculture potential of Africa is huge we have one-fifth the productivity per hectare as Germany and we have 50% more sunshine so why the heck are we not producing more? We could produce five to 10 times as much per hectare, right, and so like, when solar and ag gets married together and agro processing. I think there's something special that can happen there, yeah, so maybe it's like. There's like a why now? Question, right, so any investment like is now the right time for this.

Speaker 4 44:54

There was Webvan in the dot-com bubble 2000 that was doing basically Uber Eats, delivery the kind of thing, and it raised tons of money and they exploded. And then Uber Eats does almost exactly the same thing, or Instacart and they're doing very well, obviously. So what the heck happened? And it's just the wrong timing. There was no strike payments at the time. There's none of the infrastructure built, and so for solar mini-grids, hopefully now it's just suddenly becoming the right time where the technology is cheap enough. People need the rural energy. I'm optimistic.

Speaker 2 45:28

Yeah, I think, Kyle. This is the perfect closing question. Do you think that the time has come for mini-grids to thrive?

Speaker 4 45:36

I'm going to let Ashish go first. I need some time to think about it.

Speaker 3 45:40

Sure, I'm happy to. And, Kyle, nico, I think you're both right. I mean, rural demand is something notoriously hard to project actually serve and I think as long as companies have been largely funded through grants and very concessional resources, through grants and very concessional resources that perhaps haven't had as much pressure to thoroughly investigate you know what the sort of the viability of their projects. And now, as more commercial investors get into this space and I think you know that interrogation is happening, which is only good for the sector. I mean I think that will result in better site selection and you know just sort of deeper consideration of what it takes right to make the project succeed, maybe not just electricity services but other, you know, value added services in the community.

Speaker 3 46:30

Electrification is really an entryway to delivering all kinds of other services and companies that get a foothold, I mean are really getting a foothold in this whole bottom of the pyramid population. And I think once you start thinking about it that way I'm not suggesting the electrification project should be a loss leader I mean I think you want that to be profitable as well, but I think you can take a longer term view of what it is as a company and what it is that you're trying to achieve and I think you know, with commercial investment backing, with the ability to take a longer horizon into consideration, with grant funding available at scale, like through the Nigeria Dares program. I do think the mini-grid sector is, you know, is well poised to scale With that yeah over to you, Kyle.

Speaker 4 47:13

Yeah, thanks, ashish. I'm bullish on sales and companies that actually make money and have an anchor customer. So if you could find a CNI for rural, you know, pack houses et cetera is to me what makes sense. But you know, what do I know? But, yeah, people should write a review about their experience with funders on the database we have sunlightcapital, and write good reviews too, like, if you have great experiences, say what you love and together I think it's a community. It takes a village to. You know, raise a mini grid project, literally. So everyone should have their voice heard and give feedback so we can keep on building.

Enhancing Funding Processes in Mini-Grids

Speaker 2 47:53

All right, yeah, thank you, kyle. Thank you, ashish. I think this was quite insightful, not only for me, but also for our audience, and I hope that we will see more ratings coming through Sunlight Reviews and that these will find their way to the funders' ears and eyes like Ashish, world Bank, other funders in the mini-grid space, and I hope that we can improve the processes around fund provision applications and these kind of things. Thanks a lot and I hope to talk to you soon.

Speaker 3 48:30

Thank you both. Thanks so much, Nico and Kyle. I'm really looking forward to reading your reviews and thanks for all the good work you're doing.

Speaker 1 48:36

Bye. This episode of the mini-grid business has been brought to you by Enensis, your one-stop shop for sustainable mini grids. For more information on how to make mini grids work, visit our website, enensiscom, or contact us through the links in the show notes. The mini grid business powered by Enensis.