SunFunder Guarantee

The proposed contribution aims at increasing access to finance for companies active in the off-grid renewable energy market in Sub-Sahara Africa though a Sida portfolio guarantee to a private finance intermediary named SunFunder. The aim of the contribution is to spur development and investments in the sector and borrowers will be solar companies mainly in Sida's development cooperation countries in Africa. Sida expects that this contribution will result in at least 600,000 new connections or 3 million people with access and a total reduction of CO2 emissions of around 1 760 000 tCO2e through 80 loans to 30 enterprises.SunFunder is a US, Delaware-based company that mobilizes investments to finance small and medium-sized energy companies (SMEs) in low-income countries at a reasonable rate. Since 2012, SunFunder has financed 64 loans with a total volume of 77 000 000 USD, of which 73% in Africa. The loans have enabled 6 million people to have access to energy. The efforts have also reduced greenhouse gas emissions by 530 tCO2e per year. SunFunder offers its investors a reasonable return on its investments and its borrowers’ reasonable terms on their loans. The total guarantee facility is 15 000 000 MUSD equivalent to 175 800 000 SEK (11,72 SEK/USD) and it will enable a total of 30 000 000 USD in loan over an 8-year period. The guarantee is a risk sharing facility where Sida covers 50% or 70% of the risk depending on the country, SunFunder covers the remaining 50% or 30% of risk. The risk sharing structure is motivated by the fact that some countries is riskier and those are countries prioritized by Sida. By providing more coverage, Sida incentivizes SunFunder to enter into and expand their footprint in those markets. Sida assess that the remaining risk covered by SunFunder and their investors are enough to avoid moral hazard and ensure a solid credit assessment. The Guarantee will be used by the two investment funds Solar Energy Transformation (SET) Fund and Beyond the Grid Solar Fund (BTG) which are separate investment vehicles, managed by SunFunder. SET and BTG are part of the agreement and SunFunder Inc is part of the agreement as Fund Manager. SET och BTG is owned by SunFunder Inc but are funded by various impact investors. These funds are used to finance solar businesses. The two funds pay a management fee of 2.5% to SunFunder Inc.SunFunder targets 178 000 000 MUSD of total lending in the two funds. To reach that volume, large-scale institutional investors, contributing with both equity and debt, from both private and public sources are required. Moreover, the SET and BTG deployments will be supported by SunFunder’s established local presence. This includes both sector- and legal expertise and a dedicated investment team and credit organization. SunFunder will lend to three types of customers i) Solar Home Systems (SHS), ii) Commercial and Industrial partners and iii) mini-grids (productive uses), all with solar as a basic technology. Maximum 3.75 MUSD of the guarantee ceiling can be allocated to one specific country according to the guarantee agreement. Another limitation is max 6 MUSD of the guarantee ceiling can be allocated "Lower Middle-Income Countries" based on "DAC list of ODA Recipients". The reason for this is that most loans should be extended to companies in "Other Low-Income Countries and Least Developed Countries" where the risks are high due to for example unclear regulatory environment, political turbulence and foreign exchange restrictions which makes it impossible to lend without a guarantee. Therefore, Sida assess that this guarantee is highly additional and the level of Sida risk coverage is reasonable. Additionality is further strengthened by the larger coverage in riskier countries, the reduced collateral requirement on guaranteed loans, it enables companies to build a credit history and finance projects with focus on productive uses.