Rwanda wants more private investment in renewable energy, but some of the companies expected to deliver it are struggling to get financing from the banks. Off-grid solar and mini-grid businesses often operate without the land, buildings and heavy equipment that conventional lenders prefer as collateral. Instead, their assets may be solar equipment, customer receivables and future payments. To banks, that can look like a weaker security package. To the companies, it creates a problem: they are being asked to provide the kind of collateral their business model was never designed to produce.
That is the financial problem behind the debate in Rwanda’s Senate. Sosthène Mubera of the Energy Private Developers’ off-grid subsector told the committee that access to finance is being constrained by costly collateral requirements. At the same time, solar companies are asking government to allow them to install systems in public institutions and factories without upfront payment, recovering their investment by charging for electricity. Senator Penine Uwimbabazi’s response was effectively that private companies should prove the model in private businesses first. The tension is clear: companies want government customers to help demonstrate their technology, while government wants the private sector to carry more of the initial commercial risk.
There is a reason banks are cautious. Mini-grids and distributed solar depend on thousands of customers paying over time, while projects can take years to recover their initial investment. Customer repayment, regulation, maintenance and weather can all affect cash flows. Hydropower developers face a similar problem from another direction: investors have identified sites with 5 MW to 20 MW potential, but some struggle to secure PPAs that give lenders enough certainty to finance construction. Prolonged dry periods can then reduce actual output, turning a 5 MW plant into a much smaller revenue generator for part of the year. The risk is therefore not simply whether the technology works. It is whether the future cash flows are reliable enough to lend against.
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Rwanda is already experimenting with ways around that problem. The Rwanda Renewable Energy Fund, hosted by the Development Bank of Rwanda, provides financing through banks and directly to some mini-grid developers, while pilots have explored using receivables and future cash flows as part of the security package. Results-based financing and concessional funding backed by institutions including the African Development Bank and Asian Infrastructure Investment Bank are also intended to reduce the risk commercial lenders face. The principle is important: if a solar company’s strongest asset is a portfolio of paying customers, the financing system needs a way to recognise that asset rather than treating the absence of a land title as proof that the company is unbankable.
That may ultimately be the more important question behind Rwanda’s renewable-energy push. The country does not just need more solar panels or more private developers. It needs a financial system capable of lending against the way distributed energy businesses actually make money. Senators are right to demand proof that companies can install and maintain reliable systems, while developers are right that expensive collateral can prevent viable businesses from scaling. The solution is neither government absorbing all the risk nor banks pretending it does not exist. It is building contracts, customer portfolios, guarantees and financing structures that allow the risk to be measured — and priced — rather than simply secured with land.
