Working capital constraints are a debilitating bottleneck for beyond-the-grid enterprises working to bring renewable energy solutions to people who lack reliable access to electricity. 

The companies targeting this market are transforming what it means to address energy poverty, which currently afflicts 1.1 billion people globally. However, most lenders are yet to step up to the plate and provide debt financing.

A new service offered by the Development Credit Authority (DCA) of the United States Agency for International Development (USAID) may provide a remedy through supporting the mobilization of capital to these companies. 

The DCA supports a number of sectors, including agriculture, education, health, and small businesses with loan guarantees to stimulate lending into developing sectors. When it comes to energy and beyond-the grid enterprises, a new specialized and branded facility aims to share downside risk in an effort to mitigate lender concerns about Africa’s up-and-coming clean tech energy markets.  

The new loan guarantee service is budgeted at $75 million to support loans covering the entire value chain. The service will guarantee 50 percent of a loan’s principal to encourage lenders to increase the size and tenor of their investments to enterprises.  

“DCA worked with Power Africa on this guarantee facility to help meet Power Africa's goal for new electric connections. The concept is that the guarantee will be a stepping stone for borrowers between grants or subsidized loans and more standard commercial financing, and will provide a number of examples of successful debt financing that can spur further lending in the sector," wrote the agency's press office.

The DCA loan guarantee is intended to reduce the perception of risk to the lender, ideally making it easier for beyond-the-grid enterprises to get loans.

In order to support this vision, DCA has selected a few pioneering lenders for the new facility. Lenders were selected based on knowledge of the sector, as well as an investment thesis that allows for taking higher, first-mover risk. These lenders include impact investors and a traditional bank in Africa.

The marquee backer is Ceniarth, a single family office with a focus on funding commercial energy access and agriculture projects.  

"The conditions, size and term of our loans will vary depending on the stage of the organization, but our goal is always to help enterprises become more attractive to commercial-grade investors. We feel that we can best support this evolution by signing appropriately structured loan agreements that meet high levels of financial scrutiny and, if successfully serviced, which will provide borrowers with a credible track record for future lenders," said Mary Roach, the program manager at Ceniarth.

DCA and Ceniarth have taken an important step to activate greater lending in the industry. DCA’s attempts within energy access prior to this new service were complex and overall not tailored for the industry. This new service is designed to simplify the historically bureaucratic process.

The key to scaling up investment in the sector will be convincing other investors to follow Ceniarth and DCA’s lead. Family foundations like Packard have already demonstrated the power of lending directly in collaboration with other players in order to show how other foundations can follow.

This approach spreads risks across multiple balance sheets while leveraging foundation resources to reduce risks to commercial players that otherwise would not participate. 

DCA requires more participating lenders to support a true market-based approach. But the agency and other players like Power Africa could be the catalytic agents the private sector needs in order to allow beyond-the-grid companies to scale their business models.