Millions of Kenyans, especially those living in rural and remote areas without access to electricity, are about to benefit from the largest privately funded solar energy project ever undertaken in the country.
The massive Ksh20 billion ($156 million) project is being driven by several top local banks and international financiers, making it the biggest investment of its kind led by private capital in Kenya.
The project, which is being coordinated by a leading global American financial institution, will be implemented by an off-grid solar energy company. This company plans to manufacture and distribute approximately 1.4 million solar home systems across the country.
These systems will help provide affordable and clean electricity to homes that have long been left out of the national grid.
To raise the Ksh20 billion needed, the solar energy firm came up with an innovative financing strategy. It packaged expected future payments from its customers—who will be paying gradually for the solar systems—into a type of financial product known as an asset-backed security.
This product was then sold to investors. In return, the investors will earn a slightly higher return than what the Kenyan government currently offers through its 6-month bond, which stands at an interest rate of 8.4%.
To reduce risk and encourage more commercial investors to participate, the investment was split into two parts or “tranches.” The larger, safer portion was taken up by four major Kenyan banks and global banking giant Citi.
Meanwhile, the smaller, riskier portion was bought by Development Finance Institutions (DFIs) such as British International Investment and the Dutch development bank FMO. These institutions have agreed to take on the initial losses if anything goes wrong, providing a safety net for the other investors.
“This project is a textbook example of how you can design financing structures that attract large-scale private investment,” said Jorge Rubio Nava, Citi’s Global Head of Social Finance. “It’s critical for DFIs to take on the mezzanine risk—this provides a cushion that encourages commercial banks to come in confidently.”
The project will use a pay-as-you-go (PAYG) model to ensure affordability and convenience for end users. Under this model, customers will only need to make a small upfront payment—about $7 (approximately Ksh904 at current rates).
After that, they can own the solar home systems by making manageable weekly payments over a period of 12 to 18 months.
The co-founder of the solar company noted, “What makes this approach work is the fact that we collect small, regular, and predictable payments from a very large number of customers.
We then pool all those future payments and turn them into investment products for financiers.”
Thanks to this innovative financing model and the collaboration between local banks, global financiers, and development partners, the initiative promises to transform the lives of millions of Kenyans—bringing light to homes and hope to communities previously left in the dark.
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