Part 1: Can the Bangladesh IDCOL model be used to finance solar home systems in Africa?
The Covid-19 pandemic has affected the entire world and changed life as we had known it before. It is a defining moment for Africa, and we need to make good use of this opportunity especially in terms of increasing electricity access for rural communities and those living in remote areas. The pandemic has revealed how vital it is for every person in the world to have access to electricity[i]. In these unprecedented times, priority has been given to electricity access for health facilities. But we also need to think about electricity access so that citizens can have direct access to preventive information from recognised authorities (governments and the World Health Organisation), through mobile phones and radio. When more people know what preventative measures they ought to take and follow them, there will be less people contracting Covid-19, and a reduction in the number of people seeking treatment. Yet, an estimated 575 million people do not have access to electricity in sub-Saharan Africa. There are several reasons for this, but key among them is access to finance, and more specifically appropriate financing mechanisms for technologies that are easy to deploy in rural and remote areas like solar home systems (SHS).
This is an opportune time for governments, development partners, investors and private sector to work together to accelerate electrification through SHS. These can be considered tier 1 electricity access[ii] providing lighting, mobile phone charging and radio to rural communities. With time, consumers can move on to larger systems. The good thing is we do not have to develop the appropriate financing mechanism to deliver SHS from scratch. The Infrastructure Development Company Limited (IDCOL) in Bangladesh already did it. Between 2003 – 2004, the IDCOL SHS program in Bangladesh delivered 50,000 systems to consumers in rural areas, three years ahead of schedule and USD 2 million below the estimated cost. By January 2019, 4.13 million SHS had been installed, reaching 12% of the entire population in Bangladesh[iii]. Now let us have a look at IDCOL and how they were able to achieve this.
In an interview, Dr Fouzul Khan, the Founder CEO of IDCOL and professor of finance and economics for over 12 years, answered two questions on what we need to know when starting such a programme.
What do we need to know when starting?
Establish or identify a pivot institution: IDCOL is a public-private partnership financial institution that was created by the government of Bangladesh. It is a special purpose vehicle set up to finance large infrastructure projects. IDCOL is funded by the Government and other multi-lateral agencies like the World Bank, Asia Development Bank, DFID, JICA, KfW, Global Environmental Facility, USAID and GPOBA. The company is managed by a Board of Directors drawn from senior government officials, prominent entrepreneurs and/or professionals from the private sector. To achieve the kind of results seen in Bangladesh, this institution needs a high degree of autonomy so that management and the Board of Directors can make decisions and implement them.
Build a respectable institution: For the SHS progamme, IDCOL initially received funding from the World Bank and would on-lead the money to qualifying microfinance institutions. Since this is an institution that is handling large sums of money, it must be credible and be of good standing in society. To be of good standing, the institution must demonstrate competence, be flexible – learn and listen to others, be respectful to other stakeholders and be above reproach on corruption.
Get a leader with good negotiation skills: because not every proposal or idea presented to the financing institution will work in the local/national context even though it has worked elsewhere. Being able to evaluate the idea, how it will affect the SHS programme and making the right decision is a key ingredient of success. The leader of the institution should be prepared to say no to ideas that will not work. Communicating the ‘no’ decision and continue to attract funding for the programme requires tact. The leader of the institution should also have a good understanding of how bureaucracy in the specific country can affect the operations of the institution and take measures accordingly.
There will be roadblocks: so the leader needs to stay updated on other things that are happening that could affect the SHS program either positively or negatively. Again, here, negotiation is key. The question we should be prepared to answer is, ‘How do you keep the financing program on track when roadblocks arise?’
Can the IDCOL model be replicated in Africa?
No, the model cannot be replicated, but is can be adapted. We borrowed the model from Sri Lanka. If we had not tweaked some things to suit our context, we would not have achieved what we did. The key word here is to adapt the model to the unique context in each country on the continent.
Currently, there is significant goodwill from ecosystem players conducting surveys[iv],[v] to find out how off-grid companies (such as those distributing SHS) have been affected by the Covid-19 pandemic. In response, investors and development finance institutions have set up relief funds to address the immediate financial needs of companies[vi],[vii]. While many governments have not prioritised off-grid electricity access, there is a huge opportunity to leverage the efforts of ecosystem players to accelerate progress towards the attainment of SDG 7 in rural areas. Adapting the IDCOL model to finance the delivery of SHS will enable governments to reduce the electricity access gap and the impact will remain even after the pandemic has gone or the world has found ways of coping with it.
In this blog, we shared what is needed to start off. In the next blog, we shall share on how the IDCOL model was executed. Stay tuned.
Read more on the Bangladesh IDCOL Model: https://www.worldbank.org/en/
[i] Ogunbiyi, D. (2020) Power in a pandemic – why energy access matters during coronavirus
[ii] Multi-Tier Framework by Energy Sector Management Assistance Program (ESMAP)
[iii] IDCOL Solar Hone System Program
[iv] SE4All – Identifying options for supporting the off-grid sector during Covid-19 crisis
[v] GOGLA – Impact of Covid-19 on off-grid businesses