The reality of selling clean energy products in the ‘last mile’ to the base of the pyramid in eastern Uganda

Erik Lower, ENVenture

Picture: Enventure

Mayuge is the base of Pearl Entrepreneurs Academy (PEA), a community-based organization founded and led by Elvis Kadhama. Elvis is a 25 years-old, environmentally conscious and Mayuge-born college-graduate entrepreneur with a vision derived from his own personal experience. He wants to help young people save and generate income to escape the poverty trap. PEA launched with agriculture training and organic farming supplies to help the young and underprivileged in becoming self-reliant.

THE CHALLENGES

A FOSSIL FUEL DRIVEN POVERTY TRAP

Low-income households in Mayuge district spend 10% of its monthly income on kerosene for lighting as well as 40% on firewood and charcoal for cooking. The vast majority of the 80 households interviewed do not have the money to buy additional charcoal to boil water for drinking, ending up with 20% of their monthly income spent on medical treatments caused by contaminated drinking water. Overall, this amounts to 70% of the total monthly income already. A household owning i.e. one solar lantern, one improved cookstove and one water filter could save 73% of the monthly cooking, lighting and medical related expenses in comparison to a household owning none such products. This means they could spend only 19% of the monthly income on life- and health-improving clean energy solutions instead of 70% on fossil fuel-based solutions. (Source: Primary research)

 

  1. THE LACK OF BASIC EDUCATION

Customer education about the products is rather challenging due to a lack of basic education. Our interview partners are repeatedly not aware of the existence of bacteria in pond-, borehole- or spring water that can cause typhoid, diarrhea and other diseases and thus don’t boil water. Medical treatments reportedly occur without patients being provided with a diagnosis or information on how subsequent infections can be avoided.

 

  1. THE LACK OF FINANCIAL LITERACY

Furthermore, I experience a lack of financial literacy, making it hard to even communicate the basic concept of investing money in order to generate long-term savings. For example, the improved ceramics cookstove consumes only half the firewood or charcoal in comparison to an open fire or local cookstove. The resulting net savings potential of such a product ranges from 290 USD to 440 USD across its three-years lifetime – or 8 USD to 12 USD per month. Low-income households earning 40 USD to 50 USD monthly repeatedly state a willingness to pay between 2 USD and 8 USD even after being educated about the savings potential and despite a one-year product warrantee. The lack of financial literacy in understanding savings over time is a primary blocker for energy solutions from being adopted in the last mile. (Source: Primary research)

 

  1. THE LACK OF BUYING POWER

Naturally, the low willingness to pay correlates with the lack of income to procure any products. Unfortunately, I experience the buying power being further limited as we’re mainly addressing women, who typically are the users of energy in the household. Women often do not possess an income and are therefore dependent on handouts by their husbands to conduct any purchases. With often the only mobile phone in the household being possessed by the husband, women do not have the financial independence a mobile phone with the corresponding mobile money account would offer. Women repeatedly tell us that they cannot get such products because their husbands “don’t care about them” and would not allow for the purchase. (Source: Primary research)

 

  1. A LACK OF FINANCING OPTIONS FOR CUSTOMERS

With risk capital being limited for community-based organizations like PEA, providing installment plans for customers to finance the products is not an option. Revenue streams are needed to invest in inventory to maximize inventory turnover and impact measured in sales. Furthermore, installments contain a high credit default risk and additional overhead costs for PEA as the debt serving discipline among the low-income population seems to be low if not strengthened by personal ties. No private financial institutions exist that the rural low-income population can access. With no securities to offer to banks, the only private companies providing loans are microfinance businesses charging annual interest rates of up to 240%. (Source: Primary research)

ONE POSSIBLE SOLUTION

Due to the lack of private financial institutions accessible for the low-income population, around 80% of households in Mayuge district seem to be organized in Village Saving and Loan Associations (VSLAs). Such groups from the same parish, consisting of around 30 persons, mostly women, meet on a weekly basis to collect savings that are paid out at the end of a savings period. Throughout the savings period, the capital is used to offer small, interest-bearing loans to its members. Such VSLAs are launched and administered by community-based trainers, joining the weekly sessions to audit the accounts and to settle disputes.

VSLA members are educated about the clean energy products and their financial savings potential. Especially with new VSLA groups, several weeks are required to convey basic financial education about the importance of savings, the financial independence VSLA’s can offer women, and prerequisites for loans. We experience that the VSLA setting reduces the credit default risk substantially.

 

Erik Lower is Business Development Fellow of ENVenture, paired with Pearl Entrepreneurship Academy in Mayuge, Uganda. Erik is a German national obtaining a Masters in Management & Technology from the TUM School of Management.

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