Unlocking receivables-backed financing in the off-grid solar sector in Africa

While collateralizing receivables can help DESCOs meet lender collateral requirements, DESCOs still need to address underlying concerns lenders hold regarding the sustainability of their business models, which involve selling products on credit to a customer base comprising people from unconnected/under-connected rural and peri-urban communities with limited and mostly intermittent and irregular income.

DESCOs can address this by bifurcating their business lines into two separate legal entities: (i) an operating company (the “OpCo”), the legacy DESCO, that sells, distributes, and maintains the solar home systems, and (ii) a bankruptcy-remote special purpose vehicle – ‘asset company’ (the “AssetCo”) – that exists for the sole purpose of buying the future receivables from the OpCo. In this structure, the OpCo sells solar home systems to customers (i.e. enters into contracts with them), bundles the contracts of future receivables from these sales, and then sells them to the AssetCo, which buys this portfolio of contracts with a blend of debt raised from local commercial banks (collateralized by the very receivables it is purchasing) and equity from investors.

Read more: AEP. Africa Energy Portal




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