The increasing number of success stories demonstrates how UNCDF’s early-stage risk-tolerant direct lending strategy has the capacity to sequentially mobilize additional private capital from commercial banks to impact financiers, for the net-zero transition in Africa.

Despite global investments of $434 billion in renewable energy-generating assets in 2021, African nations received a mere $2.6 billion or 0.6% of this funding. This discrepancy is staggering considering Africa’s abundant solar energy resources, which currently accounts for just 1.3% of the world’s solar capacity. Moreover, over 50% of Sub-Saharan Africa lacks access to electricity, with fossil fuels still meeting over 75% of the region’s electricity demand.^[1] According to the International Monetary Fund (IMF), Africa will need over $240 billion per year for an inclusive clean energy transition^[2].

By effectively de-risking local investment environments and demonstrating the viability of renewable energy businesses, particularly small and medium enterprises (SMEs), UNCDF is paving the way for systemic change. This innovative approach, dubbed UNCDF’s investment continuum, has been successfully replicated in various emerging markets, most notably in the Democratic Republic of the Congo (DRC) and Zambia.

In the DRC, UNCDF is providing invaluable support to Altech, a local enterprise that offers an extensive range of solar off-grid energy solutions. In 2020, UNCDF became the first lender to directly provide a $350,000 loan to Altech for working capital, which catalyzed subsequent investments totaling over $18 million in debt financing. This financing came from notable international commercial and impact financiers, including Triple Jump’s Energy Entrepreneurs Growth Fund, French impact investor SIDI and the leading Congolese commercial bank Equity BCDC. Altech’s CEO, Washikala Malango, stated that the facility of $18m couldn’t have been possible without UNCDF’s support through the loan and technical assistance. As a testament to the success of this investment continuum, Altech was recently ranked as the 4th fastest-growing African start-up by the Financial Times in 2023.^[3]

In Zambia, UNCDF played a pivotal role in supporting VITALITE, a company that offers solar energy products and solutions with end-user financing options, such as Pay-Go. In early 2022, UNCDF provided a direct loan of $250,000 for VITALITE, which subsequently attracted an additional $1.5 million in impact investment from the EU-funded Electrification Financing Initiative. This infusion of funds, in the form of a junior unsecured convertible note, not only strengthens VITALITE’s balance sheet by reducing leverage but also positions the company to secure further debt financing in the future. With the follow on finance and UNCDF’s technical assistance, VITALITE will be able to provide life-enhancing off-grid lighting solutions for over 200,000 local people.

These recent success stories complement previous UNCDF interventions, such as providing a $250,000 direct loan to Aptech, a Ugandan solar solutions company. Aptech leveraged this initial support to secure follow-on financing exceeding $1.2 million from Stanbic Bank in Uganda. In each of these interventions, UNCDF invested into companies as their first-time direct lender, at a time when no other financiers were willing to finance them. UNCDF’s aim was to help them grow their businesses, strengthen their balance sheets, create a borrowing track record, and reduce information asymmetries, with the end goal of making them more bankable for financiers who seldom invest with smaller tickets sizes in companies they might perceive as too risky at that stage of maturity.

These achievements underline the immense potential of UNCDF’s early stage risk-tolerant direct lending strategy in sequentially mobilizing additional private capital from commercial banks and impact financiers, thereby accelerating the net-zero transition in Africa.

However, despite these successes, many local investors, particularly banks, in UNCDF’s active markets still lack awareness of the feasibility and opportunities associated with clean technology investments.^[4] Furthermore, the requirement for physical collateral continues to restrict capital flows towards the renewable energy sector.

Addressing this challenge head-on, UNCDF is committed to scaling its approach while exploring additional and complementary de-risking instruments, including guarantees and lines of credit. By directly engaging with local commercial financiers, UNCDF aims to catalyze sustainable private capital to create a thriving renewable energy ecosystem that leaves no one behind.

^[1] Bloomberg NEF. (2022). Scaling-Up Renewable Energy in Africa. https://assets.bbhub.io/professional/sites/24/BNEF-Scaling-Up-Renewable-Energy-in-Africa-A-NetZero-Pathfinders-report_FINAL.pdf

^[2] IMF. (2023). Closing the Gap: Concessional Climate Finance and Sub-Saharan Africa. https://www.imf.org/-/media/Files/Publications/REO/AFR/2023/April/English/ClimateNote.ashx

^[3] Financial Times. (2023). FT ranking: Africa's Fastest Growing Companies 2023. https://www.ft.com/content/2e45727c-0c2a-4636-95d0-4889969cfca8

^[4] Bloomberg NEF. (2022). Scaling-Up Renewable Energy in Africa. https://assets.bbhub.io/professional/sites/24/BNEF-Scaling-Up-Renewable-Energy-in-Africa-A-NetZero-Pathfinders-report_FINAL.pdf