Small business, big demand: facilitating finance for productive uses of energy in Tanzania

Access to affordable and reliable energy enables growth of local economies. But many rural communities need additional support to harness energy for productive uses (PUE) — to increase income and productivity. For example, financing is a key barrier for scaling PUE. Women especially face additional socio-cultural barriers that hinder PUE. 

A joint programme of IIED and Hivos, the Energy Change Lab surveyed 373 rural businesses and farmers — all customers of six energy companies in Tanzania — to understand perceptions and challenges of finance for small businesses and PUE. Unsurprisingly, most people used savings to start and expand their businesses, including those planning to purchase a PUE appliance in the next year. The perceptions of challenges of accessing finance for borrowers and non-borrowers include: high interest rates; lengthy loan processes; unsuitable repayment periods; too much collateral required; and uncertainty in ability to repay.

Overall, these perhaps highlight aspects of risk aversion and incompatible financing options for rural areas. Uncertainty in ability to repay was particularly pronounced in women, underlining negative gender beliefs and perceptions. And finally, for those willing to borrow, COVID-19 does not seem to have so far affected perceptions of borrowing too much, which bodes well for near-term PUE investments. 

Moving PUE forward will require tailoring and scaling by listening to each communities’ unique challenges and needs and linking more affordable and flexible financing. This may include scaling financial products such as micro-leasing and linking existing funds or capitalising new ones to expand well-run community lending structures such as SACCOs. Solutions must be designed to solve rather than aggregate existing gender disparities: support beyond financing through empowerment and business training, for example. Energy providers must build partnerships with government, finance institutions, communities—and many others outside energy — to successfully nurture PUE.