An asset financing model for rural households in Uganda

A SolarNow installation in Uganda's Kayunga District.

A SolarNow installation in Uganda’s Kayunga District.

Innovative energy solutions are emerging across the continent, lighting up homes not connected to the grid. The energy gap is huge – some two out of three people in sub-Saharan Africa lack access to reliable electricity, especially those with low incomes and residing in remote regions. A number of companies are filling this gap, selling inexpensive, small solar kits.

In Uganda, one social enterprise is taking things a step further. Using its innovative asset financing model, SolarNow enables Uganda’s rural households to acquire not just home solar systems but also electrical appliances such as refrigerators, TV sets, DVD players, fans and flat irons. Most of its customers are low-income farmers.

SolarNow founder and managing director Willem Nolens says he noticed people who did not have access to electricity would buy cheap solar kits that would break after a short period. As a result many people came to believe that solar doesn’t work. So the Dutch entrepreneur decided to provide high-quality home solar systems with a two-year warranty.

However, the cost of these systems was out of reach for his target clientele. The smallest home system – which can power three lights, a radio and charge phones – costs US$350, while bigger systems can go for up to $7,000.

So SolarNow developed an asset financing model allowing customers to make a 15% deposit for a solar system and pay the remaining in instalments for a period of up to two years.

Nolens says introducing affordable monthly repayments has made it possible for households to acquire goods often out of reach due to high upfront costs.

Although there is the option of making monthly instalments via mobile money, most customers prefer to pay through the bank because they want “a paper receipt”.

“Some people start with the smallest system and over time they upgrade. We just have to add a panel and a battery and they can get a TV, and we add another panel and battery when they want to get a fridge,” says Nolens.

“We have clients that live in huts with grass thatched roofs in the northern part of Uganda, and they started with a very small system of three lights only, phone charging and a radio – and right now they have a TV. In only two years they were able to upgrade. These people don’t have cash, but they have value. They always have some cattle, and one cow in Uganda represents roughly $300 if you sell it. For them $300 is an enormous amount of money and they want to be absolutely sure they are not spending it on something that will break the next day. So the credit also allows them to reduce that risk. It is like a warranty because they know if you sell them poor quality stuff through credit, they will simply not pay the instalments.”

Personalised payment plans

Most banks in Uganda shy away from lending to farmers due to their seasonal incomes and the general unpredictability in agriculture. But Nolens says SolarNow has managed to keep defaults down. Credit assessments are based on the farmer’s income, how much they can comfortably pay in instalments, and the best frequency for payments based on the activities the farmer is involved in.

“If we deal with a cotton farmer, for instance, we have to take into consideration that they will only harvest once a year. So they may have to pay a high instalment in December, which is harvest season, but the rest of the year they will pay small instalments because we know they probably have some cattle and a few goats. But a plantain or a dairy farmer has income all year round so their payment plan would be different,” he explains.

The company also has to be flexible and accommodate the uncertainties that may prevent customers from paying instalments, such as family illness or bad weather that ruins crops. Within the 24-month repayment period, clients can reschedule their payment plan at least twice.

“We have had some disasters in the past five years which really were very good reasons. People were just affected badly so you have to give them more time.”

“Of the over 9,500 systems we have sold, we have only repossessed 45 and most of those was because of our mistakes from the early days. People don’t want their systems to be repossessed – they get addicted to energy and they don’t want to go back to the dark. It is also a status thing – they are known as the house with the TV, or the house with lights. If you take away the system, the whole village will know about it and that will affect their reputation. So we hardly have defaults.”

Introducing more products

SolarNow is gradually expanding the product range. It recently started selling solar water pumps and is planning to introduce solutions for cooking, sanitation, transport and construction.

“We are looking at biogas and other cooking solutions. Right now we have farmers that have a TV and even have a fridge – but when they want to prepare tea in the morning they have to make a three-stone fire. So inside their house they are living 21st century but when they step outside to cook they go back to the Stone Age. So there is opportunity there. We have also been looking at solar-powered scooters which is a transport solution.”

Ultimately, Nolens says enabling rural communities to have a quality of life similar to that of people in the city should help reduce rural-urban migration.