Revolving Loan Fund—Supporting Distribution and Recycling of Off-Grid Solar
How distribution systems will promote recycling
SVTC’s end-of-life management strategy for solar devices integrates recycling potential into every aspect of a product’s design, manufacturing/production, distribution, and market expansion strategy. The Incubator’s work with small off-grid solar start-up companies and agents to address distribution issues will also enable us to identify “reverse distribution” logistics that promote solar product recycling. At the same time, we will work with product users and university research partners to promote recyclability though improved design and materials.
About the Revolving Loan Fund
Distributing solar products to customers in remote villages and maintaining customer relations are very challenging for off-grid solar companies in the world’s poorest regions. With less than 10% of Malawians connected to the electricity grid, demand for solar products is high, but agents selling the products face major economic and logistical hurdles. They typically lack the capital to build their business inventory, and the small start-up solar companies (for which the independent agents work) operate on narrow profit margins that prevent them from advancing inventory to agents. In addition, these agents typically must travel 20–50 miles on dirt roads by mini-bus, bike taxi, or motorcycle to pick up and deliver their products.
Responsible solar companies struggle to keep their products affordable to Malawian rural farmers, while at the same time supporting their independent agents, but the economic situation in Malawi presents many challenges. In this cash-based economy, securing credit is not an option for most small businesses, and credit cards are almost nonexistent. Micro-loans charge 15–30% interest (which is above the profit margin for most solar retailers). Regardless of an agent’s credit worthiness, a traditional Malawian bank charges 40–48% interest.
SVTC is partnering with SolarAid, the largest non-governmental organization (NGO) solar distributor in Africa, to launch a revolving loan fund for sales agents working in rural Malawi. This not-for-profit revolving loan fund will provide short-term loans (30–90 days) to solar sales agents in Malawi. Rather than using traditional lending criteria, eligibility for the loans will be based on the agent’s work history with the solar companies. The solar company will, in turn, commit to paying the small (less than 6%) lending fee. The loan fund will be donor based—your charitable contribution will continue to be recycled to benefit sustainable expansion of the solar industry in Malawi.
Frequently Asked Questions:
How does the Solar Recycling Incubator define a “responsible off-grid solar company?”
The revolving loan program will lend only to independent sales agents and solar companies that meet the following criteria:
- Agents provide service to rural areas.
- Solar companies are committed to research and development of recycling and recovery systems.
- Solar companies monitor health and safety practices throughout their supply chain.
- Solar companies provide the following services to their rural customers:
- Product warranties
- Products that pass the Lighting Africa quality test
- Repair services for broken products
- Customer support for the use and care of solar products
- Takeback and recycling recovery programs
What types of borrowers are eligible to participate?
- Agents who work for companies that meet SVTC’s criteria for responsible solar companies (see criteria above).
- Agents of solar companies that are positioned to expand but lack capital to purchase necessary inventory. The loan fund will focus on agents who do not qualify for traditional financial services or are otherwise viewed as being high risk by the banks.
- The solar company agrees to pay the loan fee.
How large will the loans be?
- Loan size will be $1,000–$5,000. The amount will be based on recommendations from the solar companies.
- Loans will be short term (30–90 days).
What types of loans are eligible?
- Loans will primarily be used to build inventory, thereby facilitating expansion for agents.
- Additional business purposes for the loans may be identified during the loan planning process.
Who has underwriting responsibility?
- SVTC, in partnership with SolarAid, will provide implementing services such as criteria for solar company participation, establishment of budgets, reporting, outreach, and other administration.
- The off-grid solar company is responsible for determining the eligibility of their sales agents and recommending their agents for loans.
How are these loans monitored?
- SVTC, in partnership with SolarAid, solar companies, and distributors, will set up systems to monitor payments by borrowers.
What happens in the case of a default?
- In a case of default of a loan guarantee, the solar company may submit a claim to SVTC in accordance with the terms of agreement.
- A loan default will most likely count against the credit worthiness of the company rather than the agent.
How much money is needed for the Revolving Loan Fund and where will it come from?
- SVTC and SolarAid are hoping to kick off the fund with $30,000 in 2014.
- Individual donors, charitable foundations, corporate donors will provide capital to seed the fund. SVTC will invite some of the donor/investors to serve as advisors to the fund.
Why is SVTC working with solar companies on issues related to distribution?
- Collection and transportation are the most expensive aspects of recycling. Working with companies to understand distribution systems is the first step toward understanding and developing efficient collection systems and recycling programs.
- SVTC’s initial research in the rural Kasungu District of Malawi indicated that village communities generally receive poor quality goods and services from vendors. The Incubator loan fund will promote customer services—such as warranties, repairs, and recycling—that extend product use, protect the environment, and respect the customer.
- Improved distribution infrastructures for off-grid solar will expand potential distribution of other sustainable products (such as additional solar products, drip irrigation systems, farm products, etc.).
Your donation will help women in Malawi finance solar business, and enable SVTC and our collaborative partners to research and test recycling systems.