USAID Development Credit Authority — Opening Private Finance to Increase Energy Access in Africa (“Energy Access DCA”)

The United States Agency for International Development (USAID) is the U.S. government agency primarily responsible for providing development assistance around the world. USAID’s Development Credit Authority (DCA) carries out this mission by providing risk sharing agreements, such as loan guarantees, in order to mobilize local private capital in underserved markets. The Capstone team worked with the DCA Africa team to expand its off-grid energy portfolio in sub-Saharan Africa. The team was tasked with identifying potential lenders and borrowers that could be part of the DCA loan guarantee program.

The Capstone team interviewed energy project developers and financial institutions to identify their financial hurdles and strategies in place for scaling up off-grid energy investments. The team also leveraged the connections of intermediaries to obtain further information on the African off-grid energy landscape. As a result, the team provided potential deal pipelines to DCA and additionally, provided a set of key recommendations to address the hurdles identified in the process.

The three major key findings of the capstone project were:

• In some regions and sectors, such as West Africa, supply-chain financing and smaller enterprises are neglected by lenders.
• Pay-as-you-go consumer financing may see imminent growth of debt financing through securitizations. DCA can play an active role in driving this change in a sustainable manner.
• Immaturity of the off-grid market makes it reliant on concessionary international capital. Therefore, FX risk is at the forefront of lender concerns.