New Microfinance Initiative to Bring First ‘Lease to Purchase’ Sustainable Energy Product to Somalia
Tuesday, December 8, 2015
Dahabshiil Group showcase sustainable ‘green microfinancing’ initiatives to foster economic and social development across Somali region.
MicroDahab MFI, a microfinance subsidiary of Dahabshiil Group, has announced a collaboration with SolarGen Technologies to create the first ‘ijarah thumma Iqtina’ (‘lease to purchase’) sustainable energy product in Somalia. The initiative will enable clients to own a solar-powered water pump which would otherwise be prohibitively expensive for farmers and other small business owners to buy. MicroDahab’s potential for success is due, in large part, to making greener financing decisions informed by real knowledge of what is happening in climate-affected places.
Somalia is often cited as one of the most expensive countries in the world for electricity costs. For example, the average Somali farming village spends $80,000 USD in fuel costs to power generators for water every year. However, solar powered water pumps are estimated to achieve a cost saving of circa. $60,000 USD per village per year.
Dahabshiil Group Chief Executive Officer, Abdirashid Duale said: “We have introduced leasing products to transform the lives and fortunes of many communities in a socially responsible yet sustainable way. MicroDahab will bear both the capital cost and risk of asset ownership, while our clients reap the benefits of using the water pumps, at minimal rents”.
“Dahabshiil Group is keen to advocate the mainstream application and consumption of solar technology. The Somali territories have an abundance of solar energy which can be harnessed to both decrease cost-inefficiencies for businesses and provide a safer and more sustainable clean energy solution for hundreds of communities across the region.
“We want to facilitate climate change adaptation over investments that actually build resilience to changes and shocks. In many cases, the answer will not be funnelling loans towards climate-vulnerable sectors, but instead helping our clients diversify their incomes so they can better weather climate shocks. ”
Microloans are a vital tool for farmers and rural entrepreneurs to upgrade their businesses or invest in the next growing season. However, MicroDahab offers a key bridge to climate change adaptation and mitigation strategies. MicroDahab has the potential to help the most vulnerable adapt to climate change by providing individuals and households with a means of accumulating and managing the assets and capabilities needed to become less susceptible to shocks and stresses or cope with the impact. Agribusiness remains the most prominent trade in the Somali territories given the favourable conditions for agricultural development.
The water pumps project is a pilot for a wider social impact agenda driven by Dahabshiil Group to provide enterprising micro business owners with access to machinery such as tractors and irrigation equipment coupled with an education programme to increase technical know-how among agriculture professionals.
Dahabshiil Group has partnered with the African Enterprise Challenge Fund (AECF), amongst others, to launch the MicroDahab initiative. The Fund manages a portfolio of $200m across the African continent and is supported by the governments of Australia, Denmark, Netherlands, Sweden and the UK, as well as the International Fund for Agricultural Development (IFAD).
Simon Karunditu, Project Advisor for AECF, added: “We came in at a time when there were no commercial microfinance institutions in the Somali regions. The investment which we have provided is testament to the stability of the region and the track record of Dahabshiil.
“The availability of credit and a savings culture underpin the pillars of global banking. We aim to help re-establish financial systems in post-conflict and fragile countries and have chosen to do so in Somalia by partnering with MicroDahab.”
The solar powered water pumps project was announced at a gala event which marked the one-year anniversary of MicroDahab. Since MicroDahab was created in July 2014 to provide financial products to unbanked communities, in remote areas who otherwise struggle for access to finance. To date MicroDahab has invested a gross financing of over $1 million to date. The initiative has served over 15,000 beneficiaries – which has created new employment opportunities – while 70 per cent of MicroDahab’s customers are female and predominantly low-income earners.
The success of MicroDahab follows the wider shift throughout Africa towards creating financial services products which increase access to finance and cater for low-income individuals. In a similar vein, last year, Dahabshiil Group launched eDahab, a mobile payments platform which enables micro transactions and better management of funds received through remittance transfers. The microfinance model is an alternative to the retail finance model prevalent in mainstream banking, as it is estimated that around 80 per cent of the continent’s population is unbanked.
Somaliland Central Bank Governor, Abdullahi Haji Jama, said: “The MicroDahab project gives people the opportunity to feed themselves, and take ownership for their futures. The beneficiaries of microfinance are not simply the small business owners, but the wider community. Women will become more actively involved in decisions regarding the use of loans and resulting incomes, which are important determinants of personal and household welfare”.
“We have already seen that MicroDahab has helped to create jobs, which incubates economic growth and stability. Jobseekers will have greater employment opportunities at home, meaning more skilled workers are incentivised to remain in the country rather than migrating abroad. Whether its youth, women or the elderly this initiative truly fosters social as well as financial inclusion.”
MicroDahab customer Abdirashid Ahmed Ibrahim, from Hargeisa, added: “I received my first Microfinance loan in 2014 which was for pipes and other products costing $300, since then I have repaid and re-applied to MicroDahab and was successful in receiving a lease on a solar powered water-pump. This allowed me to double the size of my farm and save $400 a month which I would previously spend on fuel. I would like to thank MicroDahab for giving me the opportunity and providing me with the financing required for me to improve my farm.”