E+CoFinancing and Investing in RE Small and

Growing Businesses in Africa

AEI Workshop, Maputo, 9-12 June 2009

E+Co

Kofi Nketsia-Tabiri, E+Co Africa

www.EandCo.net

Agenda

1. E+Co Introduction

2. RE Small and Growing Business

Landscape

3. Clean Energy Early Stage and Growth

Finance

4. E+Co’s Results

E+Co

Public Purpose Investment Company

• Services and Capital

• 213 local energy enterprises*

• ~$ 35 million invested

• ~$ 50 m under management

• 5.6 million people served

• 4.0 m tons of CO2 displaced

p.a

• 10 offices: Africa, Asia, Latin

America, Europe and USA

* Results as of December 2008

E+Co Africa

• Services and Capital

• 54 Clean Energy Enterprises

• 1.2 million people new access to energy

• 1,256 new green jobs

• ~$12.5m invested

• 346,274 CO2 offset

E+Co Africa

• 3 Local Offices in South Africa, Ghana and Tanzania

• Active Investments in Sub Saharan Africa Countries

• Ghana, Senegal, Gambia, Mali, Tanzania, Uganda, Ethiopia, South Africa, Zambia, Cameroun

• Investment Professionals + 3 M&E professional and 2 support staff

• ~$10m Investments per annum

SGBs-Technololgy,Sectors and Business

Models

• Minihydro – Feasibility studies, project construction finance of up to 5MW

• Waste to Energy Biogas – Heat and Power up to 5MW industrial and Agricultural Waste

• Solar PV – Distribution, Installation and Maintenance

• Solar Thermal-Manufacturing, Distribution, Installation and Maintenance

• Energy Efficiency Technologies

• Cookstoves

Building the Solar PV Market

Market Segments:• Solar Home Systems

• Institutional Clients

• Niche Sectors

• Small-Scale Productive Use

E+Co targets(20 SGBs):

• Distributors

• Retailers

• Consumer Finance

Our Investments in Solar PV

Import and Distribution:

4 investees

(Dar-es-Salaam + Mwanza)

Contracting for institutional

clients (50-100Wp projects)

Retail:

5 investees

(Tanga, Moshi, Arusha,

Shinyanga, Kigoma, Mbeya,

and Ruvuma regions)

Developing Mini-Hydro Potential

Market Segments:• Inside the Fence Projects

• Grid Fed Projects

• Community based Projects

• Feasibility Studies

E+Co targets(2 Projects):• Private Companies

• Independent Power Producers

Developing Waste to Energy

Market Segments:• Inside the Fence

Projects

• Grid Fed Projects

• Feasibility Studies

E+Co targets(3 Projects):

• Private Companies

• Independent Power Producers

Wholesale

Imports, distributes, and serves

large institutional clients

Founded in 2000,

E+Co loan in 2005

now one of the biggest

distributors in Tanzania

Impacts:

• 1258 households served

• 664 tons of CO2 avoided

• Establishment of structured

distribution channel

Investing along the distribution chain

Retail

Focus on households in the

Ruvuma region

Founded in 2006;

E+Co loan in 2007/8

Distribution & Retail Building national retailer

network for small systems; also

pioneered credit sales schemes

with MFIs.

Impacts:

• ~ 10,000 households served

• 2716 ton of CO2 avoided

Ingredients for Financing Energy Enterprises

1. Suitable Policy Environment

2. Market Stimulation Interventions

3. Entrepreneurial Spirit and Capacity

4. Investor friendly economic climate

Investment Philosophy and Approach

• Increased Access through SGBs

• Pipeline development

• Due diligence process

• Structuring Terms and Conditions

• Implementation and Investment

• Monitoring and Evaluation

• Value based portfolio management

•Seek strong management teams

and operations

•Seek companies with high growth

potential

•High risk

•High returns

•Risk mitigation and returns

improvement through strategic

management guidance

•Graduation through exit by:

•Public offering

•Trade sale

•Management buyout

•Secondary refinancing

Private EquitySBG Finance

Approaches

•Seek strong entrepreneurs

•Seek companies with

sustainability and growth potential

•Lower risk

•Lower returns

•Risk mitigation and returns

improvement through Business

Development Assistance

•Graduation through exit by:

•Self liquidating term loans

•Self liquidating incentives

•Contracted equity sale

•Secondary refinancing

SGB development stages

1. Concept

2. Business planning

3. Raising finance

4. Establishment

5. Reach breakeven

6. Grow to stability

Assistance and finance needs of an Entrepreneur and a SGB

SGB development stages EDS needs

1. Concept

2. Business planning

3. Raising finance

4. Establishment

5. Reach breakeven

6. Grow to stability

• Assess acumen

• Asses viability

• Planning tools

• Guidance

• Research

• Sector knowledge

• Negotiations

• Networking

• Leadership

• Growth planning

• Id finance sources

• Present to financiers

• Negotiations

• Term sheet / offer letter

• CPs

• Legal implementation

• Achieve sales

• Achieve profit margin

• Cash flow

• Mngt accounting

• Ops management

• Set up operations

• Evaluate & modify plan

• Deal with unforeseen

Assistance and finance needs of an Entrepreneur and a SME

SME development stages EDS needs Finance needs

1. Concept

2. Business planning

3. Raising finance

4. Establishment

5. Reach breakeven

6. Grow to stability

• Assess acumen

• Asses viability

• Planning tools

• Guidance

• Research

• Sector knowledge

• Negotiations

• Networking

• Leadership

• Growth planning

• Id finance sources

• Present to financiers

• Negotiations

• Term sheet / offer letter

• CPs

• Legal implementation

• Achieve sales

• Achieve profit margin

• Cash flow

• Mngt accounting

• Ops management

• Set up operations

• Evaluate & modify plan

• Deal with unforeseen

• Review business plan

• Assess fin proposal

• Correct fin structure

• Approve finance facility

• Disbursement

• Credit control

• Service debt

• Service debt

• Exit facility

Assistance and finance needs of an Entrepreneur and a SME

Collateral

What is the main objective of collateral?

Collateral

To mitigate credit risk,

which is the risk of default by a borrower

Collateralised lending

• Extensively practiced by banks

• Match finance amount to available collateral

• Finance decision based mainly on collateral

• Volume driven

• Inflexible, lack understanding of entrepreneur’s needs

• Lack of resources to give assistance and do due diligence

Finance gap

• Collateralised lending emphasises the existence of the ‘finance gap’

the Growthfinance sector

• Deliberate choice to target this market segment

• Target market further defined:

• SME, committed entrepreneur

• Lack of required collateral

• Lack of required business track record

• $50 000 to $1m in finance

• This target market has a high risk profile

Change in basis of decision

• Lack of collateral and resultant high risk require a different basis for

finance decision

• Decision changes from collateral to viability

The enabling factor

What enables us to engage with this target market

and to assess the entrepreneur and viability?

The enabling factor

A finance quality business plan!

Towards finance – via a business plan

• Most plans submitted are merely proposals

• Entrepreneur requires guidance as much as finance

• Requires a relationship focused on success

• Requires a clear understanding of the business’s needs

• Requires assistance to develop proposals into financeable

business plans

• This guidance, based on a strong relationship and clear

understanding, strengthened by active assistance, is Business

Development

Enterprise Development Assistance

• Enterprise Development will deliver :

• the guidance to execute proper business planning

• the tools to support the planning process

• agreement on key risks

• agreement on post-finance assistance required

• Enterprise Development further includes:

• regular contact and review of business performance

• annual business planning

• progress towards strategic and long term planning

Final (finance quality) business plan

• Will contain required detail based on business planning

• Will indicate exact finance requirement

• Will enable us to determine the most appropriate finance package

• Will identify key risks and formulate mitigation measures

• Will guide future business development and areas of assistance

Result of Enterprise development and business

plan

• Entrepreneur better prepared to manage business

• Quality due diligence investigation can be done

• Indicate entrepreneur commitment and credibility

• Reveals underlying viability

• Key risks identified

• Risk mitigation workplan agreed upon

• Fair risk-reward relationship can be established

$50,000

$1,000,000

$5,000,000+

Finance need

Microfinance

Growthfinance

Private equity

Sector

established industry

and capacity

new industry, few fund

managers, limited

capacity

established industry

and capacity

Status

Defining the Growthfinance market

Banks

Collateral

Track record

$1,000

100%

3 years

>100% <100%

>3 years <3 years

• Missing middle not between Microfinance and Banks

• More accurately, between Microfinance and Private equity

• This space is the Growthfinance sector

• Banks cover entire spectrum of finance need but finance decision is collateral based

• Growthfinance based on viability, collateral considered as part of

risk-reward relationship

• This is risk finance for SGBs

• Therefore the Growthfinance sector is not:

• competing with banks

• a lender of last resort

Defining the market

- Differentiation and market positioning

KEY ISSUES

• Limited Capacity

• Limited Funds (Services)

• Coordinated Resource Allocation

• Market Development Support

• Quality Assurance

• Policy

E+Co'sTriple Bottom Line Benefitscumulative results through June 30, 2008

Social

and

Economic

People with

Access to

Modern Energy

Services

People with

Access to Water

Improved Income Clean Energy

Enterprises

Invested

4,783,660 93,625 $ 11,204,679 213

Financial

Investment

Funds

Disbursed

E+Co's Portfolio

Return after

Write-offs

Capital Mobilized E+Co

Repayments to

Investors

$28,853,703 8,7% $ 131,207,308 $5,208, 225

Environ-

mental

CO2 Offsets by

Enterprises

(tons)

CO2 Offset for

Life of Project

(projected tons)

Firewood &

Charcoal

Displaced/tons

Barrels of Oil

Displaced

4,632,818 18,084,006 426,342 498,584

5.6 million people seved with clean energy

and counting ...

THANK YOU

Maputo AEI June 9-12 2009

Kofi Nketsia-Tabiri

E+Co Africa

kofi@eandco.net

www.EandCo.net