SOLAR ENERGY

BACKGROUND ·         MSMEs play a dynamic role as the engine through which developing countries thrive. The performance and growth of MSMEs is a major driver and indices for the level of industrialization, modernization, urbanization, gainful and meaningful employment, income per capital, equitable distribution of income, welfare and quality of life enjoyed by the citizenry.

·         Consequently, the performance of MSME sector is closely associated with the performance of a nation. However, there is a major gap in Nigeria’s industrial development due to the energy crisis in Nigeria which has largely contributed to the incidence of poverty by slowing down industrial and commercial activities.

·         Many Nigerians and Nigerian businesses who can afford other sources of alternative electricity have resorted to the use of electric generators at great expense.

·         Therefore, for Nigeria to achieve its objective of sustainable development, there is an urgent need to substantially increase the supply of modern and affordable energy services, while maintaining environmental integrity and social cohesion.

·         Renewable Energy provides a healthy and sustainable alternative to the use of fossil fuels, with long term cost saving advantages,    especially in the absence of reliable power supply that has led to the slow growth of MSMES in the country.

·         The provision of alternative energy for MSMEs is in tandem with      one of the Africa Development’s Bank’s (AfDB) high 5 priority         areas to ‘Light up and Power Africa’ which is to be implemented    via the Bank’s climate finance initiative tagged ‘New Deal on        Energy’. The initiative aims to bridge the financing gap needed    to address the energy deficit in Africa, thereby achieving universal access to energy by 2025.

RATIONALE Ø  The cost of electricity accounts for about 40% of operational costs for most MSME businesses, resulting in very little profit margins, uncompetitive products and generally unsustainable ventures. Therefore, future economic growth crucially depends on the long-term availability of energy from sources that are affordable, accessible and environmentally friendly.

Ø  To achieve universal access to energy for inclusive growth in Nigeria, it is imperative that clean energy solutions are deployed for both residential and productive uses. It is therefore important to support the provision of sustainable and reliable energy for MSMEs in view of Bank of Industry’s mandate to transform Nigeria’s Industrial sector, and the significant role that the availability of reliable power for MSMEs plays in actualizing this mandate.

Ø  The provision of solar electricity to serve various industrial clusters of MSMEs can power their business operations with clean energy in a profitable manner. This would boost economic activities both in the off-grid and grid-connected areas, as electricity supply from the national grid is still very limited. Solar power therefore provides a more reliable solution to meet their energy requirements.

TARGET MARKET The target market (end users) include Micro, Small and Medium Enterprises involved in activities which include but not limited to:

 

i.        Value addition along all value chains in sectors like Agriculture, solid minerals, etc;

ii.        Cottage Industries;

iii.        Artisans;

iv.        Service industry (Barbers, Hair dressers, tailors, welders, etc)

 

CRITERIA Ø  The cost of power supply must be a minimum of between 20%-40% of total production cost.

 

Ø  The End users must utilize the solar power for productive uses and not just lighting.

 

Ø  There must be clear demonstration of viability for business operations vis-à-vis cost-savings, profitability, etc.

 

PROJECTED IMPACT The Fund shall be used to provide cheap, sustainable and reliable energy source for existing and new businesses with the attendant reduction in greenhouse gas emissions from utilizing fossil fuels. This is expected to boost inclusive economic growth and development, especially in view of the current economic situation in the country, leading to job creation, poverty alleviation and improvement in the general welfare of the citizenry.
PROGRAM LIMIT N1.0 billion
SINGLE OBLIGOR LIMIT Maximum of N50.0 Million per end-user (for a 100kVA system)
FUNDING SRUCTURE The funds may also be disbursed through Deposit Money Banks (DMBs)/Micro Finance Banks (MFBs) for on-lending in view of the partnership between BOI and Commercial Banks.

There will be two (2) structures in place to fund the proposed categories of end users:

1.    Micro-businesses: For individual loans less than or equal to the cost of a 5kVA system, the projects would be funded as cluster/group arrangement via a Project Developer or DMB/MFB as the Obligor.

 

In the case where the Project Developer (Solar Solution Provider) is the Obligor, it will be responsible for deploying the solutions as well as monitoring and collection of revenue from end users.

 

In the case where the DMB/MFB is the obligor (via the on-lending arrangement), solutions will be deployed by the Project Developer, while the DMB/MFB will be responsible for monitoring and collection of revenue from end users.

 

2.    Small and Medium Enterprises: For individual loans greater than N5 million, the projects will be funded via the following means:

 

i.        Through direct lending to the Small and Medium Enterprises (end users) as the Obligor since they are more structured businesses; or

 

ii.        Through the Project Developer as the Obligor.

 

For both structures (i.e. 1&2 above), the Debt shall not exceed 80% of the total project cost, while the Equity contribution shall be a minimum of 20% of the project cost (i.e. Debt: Equity ratio of 80:20).

OBLIGOR TYPE  

i.              Project Developers

ii.             Small and Medium Enterprises

iii.            DMBs/ MFBs

 

For on-lending to Microfinance Banks, There are three (3) categories of licenses issued to MFBs by the CBN as follows:

S/N TYPE AREA OF COVERAGE PAID-UP CAPITAL
1 Unit License Permits the MFB to own and operate a single office at a single location. N20.0 Million
2 State License Permits the MFB to own several branches but operate only within a single State. N100.0 Million
3 National License Permits the MFB to operate several branches in as many States within the country. N2.0 Billion

 

The target market will be Unit, State and National licensed MFBs that are able to satisfy the following criteria:

  • Minimum of 10% Capital Adequacy Ratio.
  • Non-Performing Loans Ratio of ≤10%.
  • Liquidity Ratio of 20% minimum.
  • Ratio of shareholders’ fund unimpaired by losses to net credits of not more than 1:10.
  • Year of commencement of operation of not less than 3 years.
  • Microcredit to other loans:  Minimum of 80:20.
  • Evidence of financial membership of the National Association of Microfinance Banks (NAMB).

Regardless of the Obligor, the Project Developers that are eligible to deploy the solutions shall be selected from an accredited list of Solar energy entrepreneurs shortlisted through a transparent process. This is to avoid fund diversion, either wholly or in part and to ensure quality delivery of the solar installations.

 

 

PRICING

 

Interest rate:

·         7% per annum payable at the end of every month.

Fees:

·         1% Appraisal Fee

·         1% Commitment Fee

·         0.125% Monitoring Fee (to be paid quarterly)

TENOR ·        Maximum of Five (5) years commencing at the end of the moratorium period.
MORATORIUM ·        Twelve (12) months (from date of loan disbursement) for new businesses.

·        Six (6) months (from date of loan disbursement) for existing businesses.

SECURITY ARRANGEMENT/

 

COLLATERAL SUPPORT

For Facilities less than or equal to the cost for a 5KVA system  (micro facilities):

i.        Credit Insurance Guarantee

ii.        Personal Guarantee of the Managing Director/Notarized Statement of net worth.

iii.        All Assets Debenture on the equipment to be financed as well as existing equipment.

iv.        Credit life insurance of the Chief Promoter.

v.        Insurance of the financed items against burglary and theft, fire and any other hazards.

 

For Facilities higher than N5 million:

i.              Bank Guarantee or Legal mortgage

ii.             Personal Guarantee of the Managing Director/Notarized Statement of net worth.

iii.            All Asset Debenture on the equipment to be financed as well as existing equipment.

iv.           Credit life Insurance of the Chief Promoter.

v.            Insurance of the financed items against burglary and theft, fire and any other hazards.

 

For On-lending Facilities with DMBs/ MFBs as Obligor:

i.              Bank Guarantee from a Commercial Bank acceptable to BOI.

 

DISBURSEMENT

In accordance with agreed milestones.
REPAYMENT SOURCE From the proceeds of business financed (either directly from the SMEs or indirectly from the Project Developers and Commercial/MFBs).
REPAYMENT MODE Monthly payment of interest and repayment of principal
OTHER CONDITIONS             i.        Provision of not less than two (2) years warranties on all components by the Developer/Supplier.

ii.        Strong and reliable monthly net cash flow that can support monthly loan repayment at the ratio 3 to 1 (i.e. net cash flow to loan principal repayment).

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