European Microfinance Week 2021

PANEL DISCUSSION

This session looked at the impact of the Covid-19 pandemic on the PAYGo sector. Moderator Roan BORST asked the panellists about their experiences. Daniel WALDRON, Acumen, mentioned how surprised he was about the resilience of the sector. Although there has been a drop in sales and in repayment loans, there has not been an implosion, he stated. As growth comes back, he believes the sector to transition into a broader based consumer finance sector, financing a range of assets.

Alexander BRUMMELER agreed that the PAYGo sector, despite the slowdown, has been very resilient. Most likely because of the nature of the sector: providing energy is important to anyone irrespective of macro conditions. Nevertheless, Azuri Technologies also encountered a spike in defaults, and customers have been clearly financially stressed in the short-term. Looking ahead, Brummeler said: “There is short-term headwinds due to the pandemic, but when we grow out of this, I don’t see why performance levels should not recover to pre-covid levels”.

Another challenge mentioned by the panellists referred to shipping goods, which became a real problem. Mariama KAMARA, Smiling Through Light, explained that the sector never lost demand for solar products, but obtaining the products became a real challenge. Shipping times raised from two to nearly five months; clearing processes were especially challenging. Kamara added that Smiling Through Light received support from manufacturers, who agreed on more flexible payment terms due to the difficulties encountered.

Another challenge resulting from the Covid-19 pandemic has been the shortage of electric components, increased prices of raw material and increased lead times. Brummeler explained how Azuri Technologies, as a risk mitigation strategy, has been forward purchasing more than normal for critical components. They have also looked into how to redesign their products where possible to accommodate to alternative chip sets.

Waldron added that he has noticed an increased diversification of products and services in the energy sector and beyond, driven by companies and customers alike. He believes that diversifying assets and customer segments makes companies more resilient to shocks, by being exposed to different markets and regions. However, Waldron stressed, as a company it is important to keep asking the question when diversification is a good strategy or when it drifts you away from your initial mission of securing energy access for communities.

The conversation continued with Borst asking the panellists what kind of capital they believe is needed to support the PAYGo solar sector. Waldron commented that the slowdown in equity is worrying, and that he sees that not enough new equity investors are coming into the sector. There is need for a tremendous amount of new investment in new companies as well as investment that enables existing companies to target harder to reach markets. He added that it requires loyal investors to help build the sector. For PAYGo to work for everybody, a little more risk-taking, blended capital, and innovation is needed, he added. For instance, through subsidies or products like impact index debt facilities.

Kamara pointed out the inequality and financial bias she has experienced with investments flowing into the PAYGo solar sector. Her opinion is that there has not been enough support for local businesses. During the pandemic, the only investments available to her company were from The Shine Campaign, which launched the COVID-19 Recovery Fund in October 2020 to sustain locally rooted energy access initiatives. Kamara said that other funds were either equity or debt, often not serving local businesses. As local knowledge and expertise is needed to drive the PAYGo sector and reach everyone, she stressed, there is a need for more inclusiveness in the sector.

When the panellists were asked about their vision on the main opportunities for growth, Brummeler said he believes the PAYGo solar sector has an opportunity to further diversify itself, beyond products like solar irrigation and other productive uses. Though, he stressed, there is still a lot of work to do in basic energy access and it is vital not to forget that, and not to only stick with easy to reach markets. He added that for companies it is important to maintain a focus on key objectives and operational excellence, while for investors it is important to support such companies. For investors, Waldron added, this requires a shift from de-risking investments to valuing the impact that their investment creates.

Borst summarised the session by setting out how the pandemic has been challenging and has created pressures on the supply chain and a shortage of electric components. But overall, the business model, PAYGo and the off-grid sector have shown resilience, steps to innovate and ways to look out for each other in difficult times. With 588 million people still not connect to the grid and another 152 million people with unreliable access in Sub-Saharan Africa, she concluded, the focus should remain on enhancing energy access for all.