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Access to end-use technologies key to catalysing mini-grid and enterprise development

Productive use of energy holds the key to livelihood transformation in Africa’s rural areas. Small industries could improve their production processes and efficiency if they had better access to electricity and technologies.

Without electricity, rural micro-enterprises make do with labour intensive and time-consuming manual tools, and often pass up many opportunities for value addition or product diversification.

Satisfying the need for power of commercial enterprises presents an opportunity for private sector players such as JUMEME Rural Power Supply Ltd, a Tanzanian company that develops solar-powered mini-grids to connect businesses and households in remote areas. Energy 4 Impact has partnered with JUMEME in an advisory role to help them stimulate demand for electricity among potential customers and to develop micro entrepreneurs’ business capacity to use energy for economic transformation, resulting in greater productivity and power consumption.

Compared to households, commercial enterprises take up larger loads of power and provide the developer with a stable source of cash-flow with better profit margins. Building the capacity and the environment for businesses to acquire electric appliances can both improve their processes and productivity and contribute to the mini-grid’s sustainability.

In April 2016, JUMEME launched a solar mini-grid in Bwisya, the largest of eight villages on Ukara Island, on Lake Victoria, Tanzania. Since the mini-grid became operational, there has been substantial increase in commercial activities.

About 49 pre-existing and new businesses are now connected to power. Some of the businesses that relied on manual labour or diesel generators for grain milling, carpentry, bicycle and motorcycle repair, have been able to automate and expand. New businesses dealing in egg incubation, laundry, bread baking, juice processing, ice block production, hair dressing, pop-corn production, and metal welding have emerged.

The data collected by JUMEME shows a direct correlation between increased uptake of appliances and power usage. “We have noticed improved efficiency and productivity in mills, woodworks, metal works and baking businesses that have connected to the mini-grid. We expect new businesses to come on stream, for example those purifying drinking water,” says Robert Wang’oe, Head of Marketing at JUMEME.

However, despite the fact that power is now available, many micro-businesses cannot afford to buy appliances. This is because they are unable to access credit to buy them, as they are considered high risk borrowers, explains Diana Kollanyi, Energy 4 Impact Programme Manager, Advisory.

One of our strategies to advance financial inclusion to micro-enterprises for productive use was to offer non-cash credit guarantees to financial providers. However, there was limited interest by the providers due to the intricate administrative processes involved in the scheme. Another strategy was to invite financial providers to the villages on the island to map out the business potential and build the case for credit provision. Yet, due to the low loan amounts requested, the limited number of businesses and the projected high administrative and transaction costs, this approach did not work either.

– Diana says.

As a result, JUMEME decided to adopt an in-house financing approach, which enables micro-entrepreneurs to acquire productive use appliances on credit directly from them. The company leverages its financial means to help customers acquire the equipment. Through this scheme customers can order appliances that are procured by JUMEME and pay for them over an agreed period, typically 6 months.

On behalf of JUMEME, Energy 4 Impact has conducted a number of demand assessment and stimulation activities, as well as productive use awareness raising campaigns.

We held several discussions with JUMEME on how best to support businesses that wanted to acquire new equipment. We conducted an analysis to establish the viability of these businesses before obtaining the appliances and then worked with business owners to strengthen their business plan and skills. JUMEME wanted assurances that the entrepreneurs would be in a position to pay for the equipment over an agreed period, pay the electricity bills and still make a profit.

– Diana says.

So far, 12 businesses have been financed to acquire maize mills, rice huskers, cassava mills, welding and carpentry machines, a chicken incubator and ice block makers. All businesses have repaid or are about to finish repaying their loans.

Ten other entrepreneurs took additional equipment to expand or diversify their businesses. At least 82 employment opportunities have been created, as a result.

After being connected to the grid, 25-year old Elias Malima was able to extend his working hours. The motorcycle garage owner acquired an electric-powered air compressor for inflating motorbike tyres. Since then, he has more than doubled the number of customers he serves from 15 or fewer to around 35 a day and his income has increased by 50 per cent. He has employed three workers and plans to open another motorcycle garage in a nearby village once JUMEME launches another mini-grid later in the year.

As I was inflating motorcycle tyres manually, Energy 4 Impact’s mentors suggested I could get an electric-powered air compressor. They helped me write a business plan, which demonstrated the potential cash flow and the repayment plan. That is how I acquired the appliance from JUMEME on credit.

– said Elias, who has fully repaid his air compressor.

Constantine Mulangi, 67, received support to prepare a business plan to acquire a welding machine and two metal grinders from JUMEME on credit. The appliances eased the work of Mulangi, a specialist in making window and door frames, repairing motorcycles and assorted kitchen accessories such as pots, pans and knives.

We also helped Constantine to develop a pay-back plan. This guided him on aspects, such as the initial costs of the equipment he acquired, the deposit made to obtain the appliances, the interest he would pay and the monthly deposits required to complete repayments within the agreed period.

– says Jesse Kyenkungu, Productive Use Field Officer at Energy 4 Impact in Tanzania.

Like most mini-grids operating in rural contexts, JUMEME is faced with the challenge of keeping tariff costs low to create enough demand, while remaining profitable. Energy 4 Impact has helped JUMEME develop a tariff structure tailored to different users’ needs, which includes a domestic and a business tariff. It is also helping the company understand the customers’ pricing perception and sensitising customers on the need for varying tariff structures.

As a way of diversifying their income streams and enhancing its sustainability, JUMEME has started using the energy they produce to run their own fish freezing/chilling and delivery chain business to serve local markets. This provides the company with an additional cash-flow, while offering vital services to the community, creating local jobs and contributing to the village’s economic development.

 

Source: Energy 4 Impact