This chapter analyses the key financial constraints affecting, small and medium-sized enterprises in renewable energy and other environmental sectors in South Africa and explores policy approaches to strengthen access to finance. It reviews the existing landscape of financial instruments, including grants, concessional finance, risk mitigation tools and alternative financing models and assesses their effectiveness across different stages of enterprise development. While early-stage support mechanisms are relatively well established, gaps remain in facilitating the transition to commercial finance.
Overcoming Financial and Capacity Barriers to Empower Small‑Scale Enterprises in South Africa
Focus on Renewable, Reliable, Secure and Affordable Energy in Mpumalanga and the Western Cape
Abstract
Small enterprises, both within the renewable energy value chain and among businesses adopting renewable energy solutions, are critical for job creation, economic diversification and for anchoring new and clean value chains in coal-dependent communities. However, their growth is currently constrained by limited access to appropriate and affordable finance. Boosting financial inclusion can thus be a central enabler of a just and inclusive transition.
Financing constraints reflect both structural challenges within the MSME sector and sector-specific characteristics of renewable energy investments, with a focus in the present study on renewable energy investments. Many enterprises are informal or early-stage, with limited track records, weak financial documentation and insufficient collateral, which restricts access to traditional lending. At the same time, renewable energy projects often require higher upfront capital and longer repayment periods, which are not well aligned with available financing options for MSMEs. This results in a considerable mismatch between financing needs and available solutions.
Addressing these gaps requires a co-ordinated approach that goes beyond individual support instruments or grant programmes. It calls for a multi-pronged ecosystem-building approach – at programmatic and pipeline-level, not at project-level, which consists of several inter-connected interventions:
Supporting MSMEs along a financing pathway from early-stage development to investment readiness and access to commercial finance
Identifying and building pipelines of bankable MSMEs, moving beyond project-level financing to lower transaction costs
Enabling the aggregation of smaller transactions to mobilise commercial capital at scale and improve the efficient deployment of blended and concessional finance
Expanding the role of alternative and digital financing and business models to reach underserved segments
Strengthening market infrastructure, through improved co-ordination, standardisation and certification
This chapter provides an overview of the current landscape of MSME access to finance for renewable energy, both for firms operating in the sector and those which need to adopt renewable energy solutions. While it draws on stakeholder consultations from Mpumalanga to identify financing challenges and support needs specific to the province, the analysis is relevant to South Africa more broadly. It reviews existing financial and non-financial support mechanisms and identifies key gaps, opportunities and non-prescriptive recommendations, drawing on international experience and selected South African case studies.
Renewable energy MSMEs and start-ups across South Africa face considerable challenges in accessing affordable external finance to scale their operations and take advantages of new opportunities and markets. MSME adopters of renewable energy solutions also face barriers (OECD, 2025[1]). These challenges are closely linked structural constraints affecting both the demand for and supply of finance, as the OECD survey results in Annex D have highlighted. On the demand side, key constraints include high levels of informality, the prevalence of young enterprises with limited or no credit histories and limited capacity to develop investment-ready, bankable projects. Many MSMEs also lack the financial literacy, technical expertise and internal resources required to navigate financing processes and meet lender requirements. On the supply side, financial institutions often rely heavily on collateral-based lending practices, which disadvantages MSMEs and early-stage firms that typically lack sufficient assets. In addition, the relatively small size of renewable energy transactions increases transaction costs, making such deals less attractive to lenders. Perceived risks related to technology performance, project execution and revenue stability further constrain lending, particularly in less mature market segments.
In Mpumalanga, these financing constraints are further shaped by the province’s historical economic structure, which has long been centred around large-scale coal mining activities and Eskom-linked value chains. As a result, local economic development has historically placed limited emphasis on entrepreneurship, innovation ecosystems and diversified MSME growth. Many local businesses have therefore had limited access to the support systems typically needed to foster enterprise development and innovation, including business networks, incubation and business development services, market linkages and financing ecosystems. As such, barriers to finance in the province reflect not only firm-level constraints, but also broader structural challenges associated with a historically coal-dependent local economy.
Across all stakeholder groups, different perspectives converge around several core observations (Annex D). There is broad agreement that funding is not the primary constraint, that current support systems are fragmented, and that greater emphasis is needed on project preparation, aggregation and sustained accompaniment. There is also a shared recognition that local intermediaries play a critical role in bridging gaps between enterprises, public programmes and financial market institutions.
At the same time, the evidence clearly shows that stakeholders do not operate with a shared language or understanding of key concepts. Terms such as investment readiness, pipeline development and bankability mean different things depending on the position within the ecosystem. For small‑scale enterprises, investment readiness is often understood as having a promising business idea and needing finance to operationalise it, alongside basic access to information, coaching and simplified application processes. For business incubators, it relates to enterprise capability building, compliance and mentoring over time. For financial market institutions, it refers to fully documented, risk‑assessed and aggregated projects that meet internal credit and due‑diligence requirements. These differences contribute to misalignment across the ecosystem and help explain why capital availability does not translate into increased financing for environmentally friendly MSMEs.
The findings underscore the central importance of place‑based and intermediary‑led delivery models. Business incubators and other local support organisations play a pivotal role as trusted intermediaries, particularly in rural areas and townships, where they help translate policy objectives and financing instruments into practical support. Yet the business support landscape remains fragmented, uneven in quality and insufficient in scale, limiting its overall effectiveness. Strengthening environmentally friendly MSME development will therefore require greater consolidation, co-ordination and investment in existing institutions rather than continued reliance on short‑term and parallel initiatives.
4.2.1. High levels of informality
An estimated 56% of all MSMEs and 65% of all micro-enterprises in South Africa are operating informally or semi-formally, often on a cash basis and without the operational or financial records required to access bank financing (OECD, 2026[2]). Informality is particularly strongly present among MSMEs operating in the downstream segments of renewable energy value chains, such as solar installers, maintenance and repair providers and energy efficiency service providers, where barriers to entry are relatively low (Kingiri, Amakobe and Cheruiyot, 2025[3]). At the same time, many MSMEs across other sectors, including retail, agriculture and services, represent potential adopters of renewable energy technologies, but face similar constraints due to their informal status. Therefore, informality affects both the supply of renewable energy solutions and the demand for renewable energy adoption, making it a cross-cutting constraint in the development of a local economy.
In the absence of verifiable financial records, collateral and formal business registration, such enterprises are typically excluded from bank lending and must rely on internal or alternative sources of financing such as personal savings, social capital (e.g. family and friends) and in some cases borrowing based on the owner’s personal credit profile (FinMark Trust, 2024[4]). Non-bank financial institutions (NBFIs) and informal lenders may also provide financing, but often at significantly higher interest rates and on shorter tenors (National Treasury, 2025[5]). As a result, informal MSMEs are generally constrained to small amounts of high-cost financing, which limits their ability to invest, grow and formalise over time.
These constraints are particularly binding in the context of renewable energy investments. Such investments are typically characterised by high upfront capital costs and payback periods that extend over several years, requiring financing structures that are both larger in size and longer in tenor than what informal MSMEs can typically access. Access to external finance is therefore often indispensable for enabling renewable energy adoption. Evidence from the OECD survey of MSMEs in Mpumalanga shows that over 30% of respondents identify affordability as a key barrier to investing in renewable energy solutions (Annex D).
Additional constraints arise from lending practices. For instance, as noted in stakeholder consultations, banks often require financing to be tied to formally registered businesses and, in the case of renewable energy adoption, to commercially zoned properties. This effectively excludes large swaths of informal MSMEs that operate from residential premises. According to the Statistics Office of South Africa, about 30% of informal businesses operate out of residential properties, with other estimates suggesting the figure could be up to 50% (Statistics South Africa, 2023[6]; TIPS, 2025[7]).
Major banks consulted within this project flagged that current rules make it almost impossible for them to reach the informal sector, systematically excluding informal MSMEs from formal financing opportunities. While commercial banks are beginning to engage more actively in the financial inclusion space, lending practices remain heavily asset‑based, with stringent collateral requirements that most MSMEs cannot meet. Credit scoring systems also remain poorly adapted to the realities of small and informal businesses, prompting ongoing efforts to explore alternative models.
Non-bank and alternative financing models have emerged which can partially address these gaps, particularly for smaller and informal enterprises. This includes microfinance institutions, which provide more flexible short-term lending options. Fintech-based lenders that use alternative data (e.g. transaction histories, point-of-sale systems) to assess creditworthiness are also increasingly becoming important. Some fintech lenders and alternative finance providers, including Lula, Spartan and Yoco Capital, offer working capital and revenue-based financing to small businesses, although these are not yet widely tailored to renewable energy investments.
Other alternatives include asset-backed and pay-as-you-go (PAYGo) models that link financing directly to renewable energy systems. Companies such as WiSolar (solar-as-a-service and prepaid energy models) and PayGo Energy (pay-as-you-go renewable energy solutions which do not entail any upfront cost for consumers) illustrate early efforts to expand access to financing by reducing upfront costs and aligning payments with usage. There are also solar leasing providers, such as for example GreenSun and ZenSolar, which offer subscription-based models, where periodic payments cover the installation, maintenance and performance of solar PV panels, often with rent-to-own options that allow customers to eventually take ownership of the system. Cash‑flow‑based lending approaches remain limited, although initiatives such as the development of a movable assets register may help ease collateral constraints over time.
Community-based savings and credit associations, called stokvels, allow their members to regularly contribute to a communal fund with a predefined purpose and share the rewards. More than 11 million South Africans are estimated to participate in one or more of the over existing 800 000 stokvels, which combined inject more than ZAR 50 billion (USD 2.7 billion) per year into the economy. They can be used as financial safety nets in times of crisis (e.g. burial societies), to support enterprise development, to finance routine life expenses or to enable property purchases (UNSGSA, 2025[8]). Major banks such as Nedbank and the National Stokvel Association of South Africa offer dedicated financial services and products like stokvel savings accounts without fees.
These fintech and alternative finance models show the potential of non-bank finance to address funding gaps for renewable energy investment and environmentally friendly MSMEs, particularly for smaller and informal enterprises. However, they are still relatively small in scale, in part limited by the high cost of capital and short repayment periods. Alternative finance models are currently best suited to smaller, standardised and shorter-tenor renewable energy investments with predictable repayment profiles. Larger or longer-tenor investments, first-of-a-kind business models and enterprises with limited collateral or unstable cashflows are likely to continue requiring concessional capital, blended finance structures or public support mechanisms to improve affordability and crowd in commercial finance.
While these alternative financing models can help address some of the key barriers facing informal enterprises, their overall reach remains limited. Many of these instruments are capital intensive, operationally complex and risk-heavy to deliver. In addition, their scalability potential is constrained by the high cost of capital and relatively short repayment periods.
4.2.2. High levels of informality can also negatively affect demand for finance.
Owners of informal and micro-enterprises often have limited financial literacy, weak familiarity with formal financial products, and concerns about taking on debt, particularly where business revenues are volatile and repayment obligations are perceived as risky. Informality can also reduce confidence in engaging with financial institutions due to concerns around compliance requirements, documentation, and potential tax implications. As a result, many MSMEs self-exclude from financing opportunities, even where suitable products may be available, limiting investment and growth prospects (Finmark Trust, 2025[9]).Start‑ups and new firms with limited credit histories.
Many businesses operating across renewable energy and other green value chains are relatively new and lack established operational track records and financial histories. This is strongly pronounced in Mpumalanga, where over half of surveyed renewable energy MSMEs reported being in operation for less than five years (Annex D). While this reflects the emergence of new market opportunities in the renewable energy space in the province, it also means that these enterprises face significant constraints to access formal finance, as banks typically require demonstrated performance and credit histories to assess risk and provide financing. The lack of financial track records was identified by financial institutions in the OECD survey as the primary constraint to financing early-stage renewable energy projects in South Africa (Annex D).
While South Africa has a relatively mature private equity and venture capital market, investment is heavily skewed towards later stage opportunities. Fewer than 4% of private equity funds under management are allocated to early-stage investments, and venture capital funding for start-ups accounts for less than 2% of capital committed to later stage investments (DSBD, 2025[10]). Consequently, equity and venture capital markets provide limited support to environmentally friendly MSMEs, particularly at seed and early stages. Equity investors tend to prioritise scalable technologies, strong growth trajectories and proven track records, criteria that many small green enterprises have yet to demonstrate. Stakeholder perspectives point to a persistent equity gap for early stage and first-of-a-kind projects.
Recent trends in African venture capital markets may further reinforce this gap. As average fund sizes have increased and larger funds have become more prominent, investors have faced growing pressure to deploy capital through larger transactions capable of generating higher returns. This can create a mismatch between the investment requirements of smaller MSMEs and the deployment needs of larger funds, which often favour more mature businesses and larger investment tickets (The L.U.M.I Brief, 2026[11]).
These trends suggest that scaling investment in renewable energy could help unlock longer term capital. Renewables, in particular, offer relatively stable, long-lived assets that could be better matched with patient capital from institutional investors, provided early-stage risks are addressed, project pipelines are sufficiently developed and smaller projects are aggregated to reduce risk and increase deal size. Despite substantial volumes of capital nominally earmarked as risk bearing, deployment remains constrained by conservative risk assessments, high transaction costs and weak alignment between commercial and development finance actors. These constraints are further compounded by shrinking official development assistance (ODA) and declining risk appetite among development partners.
The financing gap also extends to financing for business operations and working capital for young businesses, including those in renewable energy value chains. For installers and providers of operation and maintenance services, for example, track records are also critical for accessing markets and securing clients. Financial institutions often require installations to be carried out by experienced and established providers before extending financing to end users. As noted during the consultations, even though certification schemes like the PV GreenCard certification are necessary for entry into the market for solar installation, they are often insufficient on their own to demonstrate bankability in the absence of a proven operational track record, especially for larger scale installations. This creates a vicious cycle in which new entrants into the market struggle to build the very track record required to access both clients and financing.
The lack of appropriate early-stage financing has important implications for enterprise growth and market development. A large share of green start-ups in South Africa struggle to progress beyond the pilot phase, with some estimates indicating that between 70% and 80% of small businesses fail within the first year, and only around half of those who survive make it through the next five years (Green Outcomes Fund, 2021[12]). In the absence of external financing, many early-stage MSMEs rely on self-financing or informal sources of capital, such as savings or support from family and friends (FinMark Trust, 2024[4]). While these sources can support initial business formation, they are typically insufficient to enable scaling, investment in productive assets or expansion into new markets.
Alternative and fintech-enabled financing models can help address the constraints for some of these enterprises by relying less on historical financial statements and more on real-time or asset-based indicators of performance. In South Africa, some fintech lenders and alternative finance providers, such as Lula and Yoco, use transaction data, point-of-sale records, or bank account flows to assess creditworthiness, enabling access to working capital for younger businesses with limited track records. However, as discussed in the previous section, these models remain relatively limited in scale in South Africa, particularly for smaller and informal enterprises, and often come at higher cost to MSMEs compared to finance from traditional institutions.
4.2.3. Limited project pipelines
Identifying and building pipelines of bankable renewable energy projects often remains constrained by a combination of insufficient investment in early-stage pipeline development, early-stage market development and limited conversion from project preparation to financing. While various initiatives support project identification and capacity building, fewer mechanisms are in place to systematically translate these efforts into investment-ready opportunities. In particular, challenges related to project structuring, standardisation and alignment with financier requirements continue to limit the progression of smaller and more fragmented projects to commercial financing. Additionally, available concessional debt financing from public development institutions often has minimum funding thresholds that exceed the needs of early-stage businesses, effectively excluding them from accessing financing. As a result, even where there is underlying demand for renewable energy solutions and a growing base of local enterprises, the pipeline of finance-ready projects remains thin. This gap between project development and financing disproportionately affects MSMEs, limiting their ability to access capital and scale their activities.
In addition, stakeholder consultations in Mpumalanga have highlighted a significant reluctance among MSMEs to access financing that requires repayment, with many enterprises being risk-averse and perceiving debt as an additional burden rather than a pathway to scaling their businesses. The limited progression from grant funding and incubation support towards concessional and commercial finance therefore also reflects demand‑side constraints. This points to the need not only for improved financing instruments, but also for stronger efforts to promote a culture of entrepreneurship and risk‑taking, including greater financial literacy, confidence in debt financing and preparedness to engage with repayable funding instruments (Section 5.3.1).
4.2.4. High reliance on collateral in bank financing
Lending practices for MSMEs in South Africa remain predominantly asset-based, with financial institutions typically requiring collateral, most often in the form of immovable assets such as real estate, as a condition for accessing finance. This represents a significant constraint, as an estimated 55% of MSMEs lack sufficient collateral to meet these requirements (FinFind, 2025[13]). This results in a large share of MSMEs that are effectively excluded from formal lending channels.
These constraints affect both MSMEs operating within renewable energy value chains and those seeking to invest in renewable energy technologies. Many small enterprises do not possess real estate assets that can be pledged as collateral, and the assets associated with renewable energy investments, such as solar PV systems, are generally not recognised by banks as acceptable security. This reflects, in part, limited familiarity among lenders with the residual value, performance characteristics and enforceability of such assets (Novꭤ Economics, 2024[14]). Therefore, financing for renewable energy investments is often constrained even where projects are technically and economically viable, pointing to the need for greater use of cash-flow-based and asset-backed financing approaches that align repayment with expected savings or revenues.
There are examples of developer-led financing models wherein banks or development finance institutions finance solar developers instead of MSMEs directly. In such arrangements, the developers act as aggregators of many small-scale renewable energy projects, bundling demand and standardising project structures, which not only helps address the bankability challenges of small sized ticket items, but can also play a role in addressing the collateral problems. These models are primarily based on projected cash-flows (e.g. through leasing or power purchase agreements) but the underlying renewable energy assets can also play a stronger role in risk mitigation, because as asset owners, developers are able to more easily insure, monitor and, if necessary, repossess these assets, thus improving the overall bankability of such transactions.
Companies like SOLA, SolarAfrica and emerging platform-based providers such as Hohm Energy, offer such developer-led financing solutions in South Africa, but scaling among MSME clients is challenging due to operational complexity, risk and transaction costs. Anecdotal evidence also suggests that many of these kinds of developers tend to work with larger locally-owned businesses rather than MSMEs. Facilitating the opening of such financing opportunities for the MSME segment can contribute toward diversifying financing options for such clients and closing their financing gap.
4.2.5. Small ticket sizes and high transaction costs for banks
High transaction and administrative costs represent a significant structural barrier to MSME lending. The processes involved in originating, appraising and monitoring loans entail largely fixed costs that do not vary significantly with loan size (OECD, 2026[15]). Lending to MSMEs becomes proportionally more expensive than financing larger transactions, often leading financial institutions to charge higher interest rates or avoid smaller deals altogether. A similar dynamic applies to equity and quasi-equity financing: early-stage businesses seeking relatively small amounts of capital are often overlooked by investors, as the fixed costs of due diligence and deal structuring reduce the attractiveness of small transactions compared to larger investments with higher potential returns.
These structural cost challenges are compounded in the context of renewable energy MSMEs. Projects are often small in scale, heterogeneous and technically complex, requiring additional due diligence related to technology performance, installation quality and expected energy savings. While many financial institutions have started developing internal capacity to assess solar PV projects, they do not yet possess comparable expertise in other sectors, particularly energy efficiency. This lack of standardised appraisal tools, benchmarks and internal expertise increases the time and cost required to evaluate each transaction, discouraging engagement with smaller clients.
Some commercial banks are already financing specialised intermediaries, such as developers, energy service companies or platform providers, that can aggregate multiple small projects and reduce transaction costs. These models demonstrate promising approaches to improving the bankability of smaller-scale projects. However, scaling these models remains challenging. Such structures are operationally complex to design and manage, and they also entail a range of risks, including counterparty risk, performance risk and payment risk, that are difficult to standardise and price, particularly in relatively immature market segments. As a result, intermediaries currently tend to prioritise larger and more established clients, although further market development and standardisation could broaden access over time.
For MSMEs in the renewable energy value chain, such as small installers, service providers or early-stage developers, this creates a structural constraint. While aggregation models can, in principle, expand access to finance, in practice many smaller firms struggle to be included due to limited track record, lack of standardisation and higher perceived execution risks. Addressing these constraints could unlock significant opportunities to integrate smaller firms into financing structures as the market continues to develop.
4.2.6. High perceived risks
renewable energy investments, particular small-scale ones, are subject to a range of technological, performance-related and sometimes business risks that can affect their perceived bankability. These include uncertainties around system performance, installation quality, maintenance standards and the durability of equipment over time. For lenders, these risks translate into uncertainty over whether projected cash flows (e.g. from energy savings or revenues) will materialise as expected. In the absence of reliable performance data, standardised technologies and robust maintenance arrangements, financial institutions may apply conservative assumptions or risk premiums, which can increase the cost of financing or limit access altogether.
These challenges are further amplified by the structure of the local renewable energy ecosystem in many provinces, which is still in the early stages of development. A growing number of small and newly established installers and service providers are entering the market, often with varying levels of technical capacity, certification and after-sales support. This heterogeneity makes it more difficult for financiers to assess and standardise risk across projects, particularly in the absence of widely adopted quality assurance frameworks or performance guarantees. In practice, financing decisions may therefore rely on proxies such as installer track record or client creditworthiness, which can disadvantage newer local firms and limit their ability to participate in the transition.
Consultations also reveal concerns over customer payback models, for instance with regards to modular solar solutions provided in low-income communities, informal settlements and businesses. Perceived high risk of customers defaulting on their monthly repayments, threatening the business model of the small-scale service provider, can reduce the willingness to lend towards such projects on commercial terms or provide equity.
To address the constraints facing renewable energy MSMEs in South Africa, a coherent financing pathway is needed which provides consistent and tailored support across the enterprise lifecycle. In Mpumalanga, where the MSME ecosystem remains nascent (Chapter 1), the initial priority is to build pipelines of renewable energy business projects. MSMEs operating within renewable energy value chains, including installers, developers and service providers, require targeted support to establish credible track records, while de-risking instruments are essential to bridge the gap to commercial bankability. This points to the need for an integrated financing pathway that links early project preparation, supported by grants and technical assistance, with concessional finance for scale-up and de-risking instruments to help MSMEs progress towards full commercial viability.
In Mpumalanga, where the MSME ecosystem is still developing, grants play a crucial role in building early-stage project pipelines (Figure 4.1). They fund feasibility studies, pilot projects and initial market development. Early-stage businesses lack both a proven business model and a financial track record, making commercial lenders unwilling to provide financing. Grants absorb some of these early-stage risks and enable MSMEs to develop their project proposals without the burden of repayment.
Note: MSME: micro, small and medium‑sized enterprises; securisation: involves pooling together multiple loans or financial assets (such as MSME loans or renewable energy receivables) and converting them into tradable securities that can be sold to investors. This helps lenders free up capital, reduce risk exposure, and scale lending by attracting additional private investment.
Source: OECD Secretariat.
As MSMEs begin to validate their business models and transition towards early scale, concessional finance becomes essential in bridging the gap between grant funding and commercial lending. At this stage, enterprises face supply-side constraints due to high perceived risks and limited track records, as well as hesitancy to take on repayable finance. Concessional funding enables MSMEs to build up an initial financial track record, whilst also addressing some of the demand-side constraints related to risk aversion and reluctance to take on debt. Such financing can be provided directly to MSMEs or through intermediaries (e.g. financial institutions, fintech provider or developers) able to leverage existing client relationships, conduct wider outreach across MSME segments, and aggregate smaller transactions into portfolios. In addition to improving reach and efficiency, portfolio-based approaches also provide important risk mitigation benefits, as diversification across multiple borrowers or projects reduces exposure to individual defaults and makes such lending more attractive to financiers.
Once MSMEs begin to establish a financial and operational track record, de-risking instruments, such as blended finance or first loss/portfolio guarantees, become critical in facilitating access to commercial finance. Even at this stage, financial institutions still have high risk perception due to limited experience with renewable energy lending, especially for smaller projects. Guarantees help address these concerns by either covering initial losses (first-loss guarantees) or sharing risk with lenders, thereby improving project bankability. Blended finance structures build on this by combining concessional capital, such as junior or first-loss tranches, guarantees, or technical assistance, with commercial financing, to improve the overall risk-return profile of investments.
Finally, aggregation mechanisms, such as securitisation,14F1 crowdfunding15F2 or developer-led or intermediary-led financing models, play a key role in improving bankability by addressing the challenge of small ticket sizes. By bundling multiple MSMEs or projects into larger portfolios, aggregation reduces transaction costs, enables standardisation and creates investment opportunities that are more attractive to lenders.
This financing pathway does not need to be entirely linear and does not preclude more established MSMEs from accessing grants or concessional support for subsequent investments, particularly for first-of-a-kind projects, newer technologies, business model innovation, or higher-risk renewable energy investments.
4.3.1. Strengthening pathways from early-stage support to follow-on finance
Current financial support for renewable energy and environmentally friendly MSMEs in Mpumalanga is largely concentrated in grant financing aimed mainly at building a pipeline of investment-ready enterprises and projects. This is supported by South Africa’s “Just Energy Transition Partnership” and its Programme Management Unit (JET PMU) under the Presidency. The JET Funding Platform plays a key role in matchmaking between projects and potential financiers (Chapter 1).
A wide range of grant and incubation programmes currently exist to support entrepreneurs and early-stage businesses through technical assistance, feasibility studies, skills development, institutional strengthening, and early pipeline development (Annex E). Grant programmes have also played a role in facilitating the adoption of renewable energy solutions, such as through the Township Energy Fund, where decentralised delivery has helped drive uptake by MSMEs across the country (Box 4.1).
These initiatives have played an important role in addressing some of the financing gaps in the MSME ecosystem especially for early-stage companies (JET PMU, 2024[16]).At the same time, both survey respondents and stakeholders consulted as part of this project have highlighted that demand for grant-based support remains strong, reflecting both the scale of still unmet financing needs among MSMEs and the continued importance of non-repayable financing, particularly for entrepreneurs and young enterprises. This is particularly relevant given that grant funding available under the JETP has already been fully allocated (Chapter 1).
While the continued provision of grant support is important, there is also a need to enable and incentivise MSMEs’ transition from grant-based financing to concessional and commercial financing, especially after they have taken part in grant and incubation programmes. Currently, few programmes ensure that MSMEs and pilots are systematically linked to subsequent debt, equity or guarantee instruments. MSMEs supported through incubator programmes in fact often face significant difficulty accessing follow-on financing after the demonstration stage to support early commercialisation and market entry. At this stage, their capital needs exceed what grants can provide, yet they are often still considered too risky for banks or guarantee schemes (Green Outcomes Fund, 2021[12]). This has created an “incubation trap”, where green and renewable energy MSMEs repeatedly cycle through grants and incubators without securing the funding needed to scale their operations, as was also highlighted during roundtable discussions undertaken as part of this project.
The Township Energy Fund, from the Industrial Development Corporation (IDC) and co-funded by the SAB Foundation, was established in 2023 in response to South Africa’s ongoing electricity crisis. The scheme ran until 2025 and was created in response to persistent energy supply shortages, managed through load-shedding, which have significantly disrupted business operations, particularly for micro and small enterprises (MSMEs) in townships and rural areas.
The initiative aims to enhance energy resilience among these businesses by improving access to financing for renewable energy solutions to sustain economic activity and support job creation. With total funding of ZAR 200 million (~USD 11.2 million), the Fund provides grant financing ranging from ZAR 50 000 (~USD 2 800) to ZAR 250 000 (~USD 14 000) per beneficiary. This funding supports the purchase and installation of energy systems, including solar PV systems, inverters and generators, as well as associated technical support and training.
To maximise outreach, the programme adopts a decentralised delivery model in which funding is channelled through local strategic implementing partners (SIPs). These intermediaries aggregate demand, identify eligible enterprises and facilitate the deployment of energy solutions, allowing the Fund to reach businesses that may otherwise face barriers in accessing formal financing mechanisms.
The Fund has demonstrated strong uptake and measurable development impact. More than 1 400 MSMEs have been supported, with approximately ZAR 170 million (~USD 9.5 million) disbursed through over 30 SIPs. The intervention has contributed to the creation of more than 2 000 jobs and has preserved over 10 000 jobs.
Several practical insights emerge from the implementation of the Fund:
Bundled support enhances effectiveness: combining grants for energy equipment with technical assistance and training has been crucial for proper installation, usage and maintenance of systems, addressing key technical capacity gaps amongst MSMEs.
Intermediary delivery enables scale: the use of local SIPs has allowed the programme to scale more rapidly and reach underserved markets through local networks.
The Fund has demonstrated mainly supported business continuity rather than expansion, as reflected in the significantly higher number of jobs preserved compared to jobs created. This suggests that the scheme has been more effective in serving adopters rather than enablers.
Targeted grant financing addresses market gaps: the provision of grants, rather than loans, enables renewable energy adoption by MSMEs that might otherwise be reluctant to take on repayable financing for renewable energy investments. It also serves as a powerful lever to target those MSMEs who typically lack access to formal financing.
Source: (IDC, 2023[17]; SAB Foundation, 2025[18]).
This challenge is compounded by demand-side constraints. Many MSMEs and entrepreneurs remain reluctant to take on repayable financing and instead prefer to move between grant and incubation programmes, even where financing options are available, which likely reflects both risk aversion and limited familiarity with financing instruments, particularly at early stages of business development. Even programmes implemented by commercial banks that have provided partial grant funding for solar equipment have not seen full uptake by MSMEs, as noted during stakeholder consultations (Annex D).
The financing gap manifests across different segments of the enterprise landscape. For more innovative start-ups and ventures in the renewable energy space, venture capital and other forms of financing are typically concentrated at later stages, targeting firms that have moved beyond proof-of-concept, are generating revenues, and are seeking growth capital (DSBD, 2025[19]). A “missing middle” persists, particularly for early-stage enterprises that have completed incubation but require early growth-stage financing to support commercialisation and first transactions.
Fragmentation across support programmes creates additional practical barriers, particularly for smaller and early-stage enterprises with limited capacity. Navigating multiple programmes with differing application processes, eligibility criteria and reporting requirements can be complex and time-consuming (Chapter 4). In practice, MSMEs often lack clear visibility on which programmes are most relevant at different stages of their development or how to transition from one form of support to another.
Several potential interventions can be considered in this context:
Leveraging concessional finance to help bridge the gap to commercial financing
Enhancing programme alignment and sequencing to enable greater continuity of support including bridges to follow-on financing
Raising awareness and incentivising MSMEs to take on repayable financing
Leveraging concessional finance to strengthen enterprises’ bankability
Concessional financing can provide crucial support to bridge the financing gap of grant-supported MSMEs towards commercially viable businesses. South Africa’s experience illustrates that, at this stage, de-risking instruments alone – or even in blended finance format – are insufficient to attract commercial lenders, as perceived risks remain high in the absence of demonstrated operational performance and financial track record by the businesses. Concessional financing, by offering more affordable, risk-tolerant and flexible terms, presents a valuable opportunity to address both supply- and demand-side barriers, particularly when combined with financial literacy and business support interventions. Stakeholders also noted that a continued reliance on grant funding may reduce incentives for MSMEs to engage with repayable finance, such as loans. This highlights the importance of gradually strengthening the use of co-financing models, performance-based support mechanisms and interventions aimed at improving financial literacy and loan readiness among enterprises.
Combining concessional finance with technical assistance
Concessional financing, when paired with technical assistance, can play an important role in bridging the gap from project preparation to financing and supporting the adoption of renewable energy solutions among MSMEs. The Nedbank–Indalo Fund and its follow-on pilot initiative, the Nedbank Indalo Energy Resilience Fund, provide complementary examples of these approaches in South Africa (Box 4.2). They illustrate how concessional, flexible financing combined with targeted technical support can help overcome affordability and risk perception barriers, familiarise MSMEs with repayable instruments and support a gradual transition away from grant dependency. In particular, the Energy Resilience Fund targets renewable energy resilience solutions such as solar PV systems, portable inverters and backup power infrastructure to encourage renewable energy adoption and reduce the impacts of load-shedding on smaller businesses. The specific fund model may not be readily scalable across commercial lenders, as it relies on highly concessional lending terms, yet highlights the important role that concessional finance can play in addressing demand-side barriers to renewable energy financing and adoption.
The Nedbank Indalo Fund, launched in 2024, supports the scaling of post-incubator green micro, small and medium-sized enterprises (MSMEs) operating in sectors including renewable energy, water, agriculture and the circular economy. The fund targets MSMEs beyond early-stage incubation, seeking to strengthen business viability, improve investment readiness and expand sustainably.
To achieve this, it combines concessional financing, business development support and mentorship, with financing through recoverable grants linked to performance-based incentives. The concessional funding is intended to bridge grant funding and commercial finance, enabling MSMEs to build up a track record while reducing risk. Indalo Inclusive serves as the implementation partner. For every ZAR 1 invested, the fund generated ZAR 1.43 in economic, social and environmental value. This reflects early performance against a long-term target of ZAR 4 per ZAR 1 invested.
Building on the experience of this model, the Nedbank Indalo Energy Resilience Fund was launched in 2025. While the Indalo Fund focuses on the scale-up of green enterprises, the Energy Resilience Fund shifts the emphasis toward enabling renewable energy adoption for MSMEs more broadly, particularly as a response to energy reliability challenges. The ZAR 10 million (~USD 680 800) pilot provides interest-free loans with flexible repayment terms for investments in solar systems, portable inverters and related renewable energy infrastructure. Concessional finance is intended to address demand-side barriers to taking on repayable financing, lowering the perceived risk for MSMEs while encouraging repayment discipline. Repayments are recycled to support additional beneficiaries over time.
Several practical insights emerge from the design and implementation of these initiatives:
Blended finance combined with technical support drives stronger outcomes: integrating financial support with mentorship and business development services enhances enterprise resilience and growth, highlighting that capital alone is insufficient without capacity-building. Early results from the Nedbank Indalo Fund reinforces this, with revenue growth of ZAR 14.6 million across supported enterprises and increasing average monthly turnover per enterprise.
Concessional and transitional financing instruments can bridge the “missing middle”: Recoverable grants (Indalo Fund) and interest-free loans (Energy Resilience Fund) provide effective intermediate financing solutions between grants and commercial debt, lowering barriers while encouraging financial discipline.
Intermediary delivery enables targeted outreach: The involvement of Indalo Inclusive as an implementation partner allows the programmes to leverage local networks and sector expertise to identify and support suitable enterprises.
Supporting progression from incubation to scale is critical: By explicitly targeting MSMEs beyond the ideation stage, the funds facilitate progression from grant- and incubator-supported activities to more sustainable, repayable financing structures.
At the same time, scaling such models presents challenges. The provision of highly concessional financing (particularly interest-free loans to early-stage businesses that are still scaling) may be difficult to replicate across commercial lenders without additional incentives. This constraint is also reflected in early portfolio performance, where the fund recorded a net loss of ZAR 13.1 million. This suggests that broader scale-up would likely require de-risking mechanisms, such as first-loss guarantees or blended finance structures, to crowd in additional private capital.
Looking ahead, one option is to scale such initiatives with additional concessional capital from development partners and other concessional finance sources to foster wider renewable energy adoption by small businesses, that otherwise would not be able to access financing from commercial providers.
An additional approach would involve adapting key features of the model, such as flexible repayment structures, targeted technical assistance and intermediary-based delivery, into financing instruments that are compatible with commercial lending practices, including concessional credit lines, blended finance structures or risk-sharing mechanisms. In this context, concessional funding under the JETP could be used strategically to support a transition from highly subsidised models toward more sustainable financing solutions, while preserving the elements that have proven effective in improving MSME readiness, affordability and uptake of renewable energy investments. These solutions are explored in the following sections.
Using concessional finance to support early transactions of young companies
Additional concessional financing available under the JETP Mpumalanga portfolio could be deployed to support Mpumalanga start-ups and early-stage MSMEs in the renewable energy value chain in establishing an operational track record and accessing follow-on commercial financing. Experience from Uganda and several West African countries shows that concessional capital can play a catalytic role in building the renewable energy ecosystem when targeted toward these “enabler” companies. In this context, concessional financing can help address critical gaps, including working capital and inventory financing across the supply chain, receivables and end-user financing (particularly for PAYGo and leasing models), and small-scale project financing for developers. By enabling these enterprises to implement initial transactions, generate revenues and establish a credible operational history, such support can help unlock access to commercial financing over time.
Given the limited track record and higher risk profile of early-stage MSMEs, traditional risk-sharing mechanisms with commercial lenders are unlikely to be effective at this stage. Concessional financing can therefore be deployed in a more catalytic manner, either directly to enterprises or through specialised intermediaries such as developers, aggregators or fintech platforms that can better assess risk and aggregate smaller transactions (Box 4.3). In this context, concessional capital needs to absorb a greater share of risk upfront to enable initial market activity. A phased approach could help manage this risk, starting with priority segments such as rooftop solar and a limited number of intermediaries, and scaling over time based on performance and demonstrated impact, with a particular focus on Mpumalanga and other underserved regions.
Priority could also initially be given to MSME segments that demonstrate strong potential for ecosystem-building and market creation effects, including enterprises that can enable broader deployment of renewable energy solutions through aggregation, distribution, installation, financing, or servicing functions. Additional prioritisation criteria could include the potential to crowd in follow-on commercial finance, support productive-use applications with local economic benefits, generate local employment and skills development, and strengthen renewable energy value chains particularly in underserved regions.
In Mpumalanga, in particular, an additional design consideration could be the focus on specialised intermediaries that bundle solar solutions with productive-use applications (e.g. refrigeration, agro‑processing or small-scale manufacturing equipment), as these types of financing solutions could also foster better uptake of solar solutions in the province (Box 4.4).
To strengthen impact, these financing efforts can be closely aligned with non-financial support programmes. Collaboration with institutions such as the National Business Initiative (NBI) as well as commercial banks and other financial institutions, can help ensure that training and incubation programmes are designed with bankability in mind, while linking access to financing with certification schemes can strengthen quality assurance and reduce risks for financiers.
Pay-as-you-go (PAYGo) models represent a significant financing opportunity for renewable energy micro, small, medium-sized enterprises (MSMEs) across South Africa, particularly those engaged in installation and operation and maintenance (O&M) services. By replacing high upfront costs with incremental user payments, PAYGo can unlock demand for distributed energy solutions among households and small businesses. In this context, MSMEs can play a central role not only as installers but also as long-term service providers responsible for maintenance, system performance and customer support, creating opportunities for more stable, recurring revenue streams.
However, the design and implementation of PAYGo models can be complex, requiring the participation and co-ordination of multiple actors, including energy service providers, financiers, technology suppliers and distribution networks.
A key constraint is the need for substantial upfront capital for purchasing renewable energy equipment, which is borne by the energy service providers. To address this, concessional financing, particularly in the early stages, will be required from development finance institutions and development partners to de-risk investments and improve affordability. Over time, this can help crowd in commercial lenders as the model demonstrates financial viability. In addition, technical assistance is essential to build the capacity of service providers to effectively deploy, manage and maintain PAYGo systems.
Despite the relatively strong adoption of digital payments among MSMEs in South Africa, important barriers remain. Challenges related to digital connectivity infrastructure, transaction costs and trust continue to constrain wider uptake, particularly in rural and underserved areas. Moreover, informal businesses still rely heavily on cash transactions, which may limit the reach and inclusivity of PAYGo models among smaller and informal businesses.
Overall, PAYGo has strong potential to enhance renewable energy adoption, improve energy resilience and support the growth of renewable energy MSMEs involved in installation and service provision. However, its successful implementation depends on the availability of concessional financing, targeted technical support and efforts to expand digital infrastructure to more underserved areas.
Note: SHS: solar home systems.
Source: (OECD, 2024[23]; Ntando, 2022[24]).
PEG Africa provides an example of how integrated business and financing models can support the uptake of renewable energy solutions among underserved households and micro and small enterprises. Founded in 2013 and operating across several West African markets, the company focuses on the distribution of off-grid solar systems using pay-as-you-go (PAYGo) financing models. PEG Africa has attracted a mix of concessional and commercial capital from development finance institutions, impact investors and private financiers, enabling it to scale operations in contexts where access to traditional financing remains limited.
The company’s model combines product distribution with embedded financing, offering solar systems through flexible, asset-backed PAYGo contracts that allow customers to pay in small instalments over time, typically over periods of 12 to 36 months. In addition, the company has increasingly linked energy access with productive-use applications, such as powering refrigeration, small equipment or retail operations. By aligning energy investments with income-generating activities, the model helps strengthen customer cash flows and improves repayment capacity.
Several enabling factors have supported the scalability of this model. First, the use of digital payment systems and remote monitoring technologies allows for efficient collection of repayments and ongoing management of large portfolios of small transactions. Second, the reliance on asset-based lending and alternative data, including customer repayment histories and usage patterns, helps overcome the lack of formal credit histories among customers and enables the progressive building of credit profiles. Third, early-stage access to concessional and impact capital has been critical in absorbing initial risks and supporting expansion into underserved and higher-risk segments. Over time, this has helped attract increasing levels of commercial financing as the model has demonstrated viability.
The model has delivered strong results in terms of both scale and financial inclusion. PEG Africa has reached several hundred thousand households with off-grid solar solutions, many of whom were previously excluded from energy access and formal financial systems. By generating data on customer behaviour and repayment performance, the company has contributed to reducing perceived risks associated with lending to informal and low-income segments.
Source: (Bboxx, 2026[25]).
Supporting finance providers that reach underserved small-scale enterprises
Pilots could be considered targeting fintech providers or platform-based financing providers using alternative data and innovative, cash-flow–based lending approaches tailored to micro and informal enterprises. These models, which have been successfully deployed in other emerging markets, include both specialised providers offering dedicated solar or renewable energy financing, as well as platforms that integrate renewable energy products such as solar systems into broader consumer or productive-use financing offerings. They typically rely on digital delivery channels, alternative data for credit assessment and asset-based or cash-flow–linked lending models, including PAYGo, leasing and instalment-based financing. Support could be provided in the form of concessional credit lines and targeted risk-sharing (e.g. first-loss capital) to selected providers, enabling them to scale lending to underserved segments that are not effectively reached by traditional financial institutions. This can include micro and informal enterprises operating in townships and rural areas, as well as women-owned enterprises, who often face additional barriers in accessing finance (International Energy Agency, 2025[26]). Concessionality can be reflected not only in the cost of capital, but also in longer tenors, more flexible repayment structures and risk-sharing arrangements that support expansion into higher-risk customer segments.
Given the relatively early stage of such models in South Africa, a pilot approach is likely to be a good starting point. This could focus on a limited number of providers with demonstrated operational capacity, with a view to testing business models, repayment performance, customer segments and scalability. Over time, successful models could be scaled through additional capital or more advanced financing mechanisms such as securitisation (Box 4.5).
SunFunder illustrates how concessional and catalytic debt can scale renewable energy access by supporting specialised intermediaries. Established in 2012 and acquired in 2022 by Mirova, sustainable investment management company based in France, SunFunder operates as a dedicated debt financing platform for distributed renewable energy in emerging markets, focusing on companies that deliver solar and other renewable energy solutions to households, micro-enterprises and small businesses.
SunFunder provides structured debt financing to renewable energy companies, including solar distributors, PAYGo providers and other platform-based financing models. Its financing products include working capital loans, inventory financing and receivables financing, enabling partner companies to expand operations, finance end-users and scale deployment of renewable energy systems. By targeting companies that operate “at the last mile”, SunFunder indirectly supports access to energy and finance among underserved and informal customer segments, including micro and small enterprises.
The SunFunder model has several relevant features for the Mpumalanga context and South Africa more broadly. First, the use of concessional and catalytic capital, particularly in early stages, has allowed the platform to absorb higher risks and finance companies operating in relatively immature and underserved markets. Second, SunFunder leverages specialised sector expertise, enabling it to assess business models, structure appropriate financing products and manage risks associated with distributed energy and PAYGo models. Third, the focus on portfolio-based lending across multiple companies and geographies supports diversification and reduces exposure to individual project or market risks. Initially funded by public and philanthropic capital such as through the Dutch Entrepreneurial Bank FMO, the Rockefeller Foundation, the Belgian Investment Company for Developing Countries (BIO), the fund has over time demonstrated portfolio performance that has enabled it to attract increasing levels of commercial capital to scale its operations.
The platform has financed around 60 renewable energy companies across 30 African countries in Africa and Asia, contributing to the expansion of off-grid solar markets and supporting the growth of business models that serve low-income households and micro-enterprises. According to Mirova, its companies have reached about 253 million people with improved energy access and have helped create about 36 000 jobs. By providing financing tailored to the needs of energy access companies, SunFunder has helped address key bottlenecks related to working capital and customer financing.
Alternatively, such support can also be deployed toward pilot initiatives with commercial banks employing cash-flow based financing products to target underserved segments. For instance, in Nigeria, two of the largest banks have been trialling cashflow-based lending primarily to increase support to women-led MSMEs. Initial results have shown that these types of loans were popular with recipients and did not increase default rates (World Bank, 2024[30]).
Enhancing programme alignment and sequencing to bridge development-to-financing gaps
Programme timeframes present an important opportunity for alignment. Many JET-funded projects operate within 24–36 month cycles, which can make it difficult to fully bridge the transition from project preparation to implementation and financing (Selvaraju, Indah Pratiwi, Sabogal Reyes, & Ahlgren, 2025). As a result, promising projects and enterprises may reach the end of grant or incubation support before they are sufficiently mature to access commercial finance, contributing to discontinuities in the pipeline.
Extending programme durations or more feasibly, improving the sequencing and co-ordination of support across different instruments and providers, could help ensure stronger continuity from early-stage development through to commercial deployment. This could include aligning entry and exit points across programmes, as well as establishing clearer handover mechanisms between grant-funded technical assistance, concessional finance and market-based instruments, reducing drop-off between stages.
Developing a renewable energy financing toolkit for MSMEs in Mpumalanga
As elaborated earlier, fostering pathways to follow-on financing also requires raising awareness among MSMEs about the different steps of the financing journey, how they can graduate from one stage to the next and the value add of transitioning to repayable financing where larger funds and investments can be unlocked.
To address this challenge, South Africa could develop a structured “financing journey toolkit” for renewable energy MSMEs, with targeted sector modules, starting with a priority sector such as for rooftop solar (Annex A). The toolkit could be organised around a stage-based progression from early-stage support to concessional and commercial financing. The idea is to provide clear, practical guidance on how MSMEs can advance across financing stages, including requirements for bankability, available financial instruments and relevant support programmes.
The toolkit could be structured towards tailored pathways for (i) MSMEs adopting renewable energy and energy efficiency solutions; and (ii) MSMEs operating across the renewable energy value chain. Within the latter category, targeted sections could reflect the specific needs of different actors, such as installers and EPCs, operation and maintenance/service providers and equipment suppliers and distributors. For example, for value-chain actors like installers, the toolkit could link to certification frameworks that can enable installers to enhance their credibility, reduce perceived risk for financiers and facilitate their access to financed projects and clients.
To complement this toolkit, a complementary module could be developed for municipalities to strengthen local implementation capacity, given that electricity delivery is decentralised in South Africa. The module could build on existing good practices from provinces such as Western Cape around areas such as streamlining permitting and approval procedures, digitising application and registration processes, and establishing transparent feed-in tariffs, to foster mutual learning between provinces. Success stories of enterprises graduating from grant-supported programmes to commercial financing from the Western Cape and other parts of South Africa could also be highlighted in the toolkit to illustrate and inspire.
4.3.2. Expanding the role of risk mitigation in mobilising private MSME finance
Risk mitigation mechanisms play an important role in mobilising private financing for renewable energy MSMEs with significant potential for further scaling and impact. They can do so by addressing different types of risks faced by commercial lenders: default risk, through credit guarantees that reduce lender exposure; first-loss risk, by absorbing initial losses and improving the overall risk-return profile of investments; and performance risk, through instruments such as energy savings insurance or performance-based guarantees that mitigate technology and operational uncertainties. When combined with other forms of support in blended finance structures, these instruments can further enhance the bankability of MSME projects and crowd in private investment (OECD, 2025[1]). Their potential to mobilise private capital is significant: survey evidence suggests that financial institutions are more willing to provide financing to environmentally friendly MSMEs when blended finance and first-loss capital are available.
In South Africa, risk mitigation has already been deployed through guarantee-based instruments. The Energy Bounce Back (EBB) Loan Guarantee Scheme is a prominent example that used first-loss guarantees to incentivise commercial lending for rooftop solar, including to MSMEs, and contributed to significant uptake in small-scale solar installations (Box 4.6). Other instruments, such as credit guarantees provided through the SEDFA Innovation Fund, similarly have aimed to de-risk lending to MSMEs in green sectors by supporting financial intermediaries.
These instruments have demonstrated the potential of guarantees, particularly first loss guarantees in unlocking financing for renewable energy, but their effectiveness, particularly for smaller MSMEs has been constrained by factors such as short loan tenors, high minimum loan amounts and broader structural barriers to credit. More generally, traditional credit guarantee schemes have struggled to unlock MSME financing at scale in South Africa, as lenders often continue to require collateral for the uncovered portion of risk. For the same reasons, they have also had limited impact in reaching underserved MSMEs: a common criticism of the schemes has been that they have benefited clients that already have established financing records. Expanding the scope of these instruments to better target underserved MSME segments and regions such as Mpumalanga, could strengthen their impact.
Blended finance approaches also offer significant potential to scale up financing for environmentally friendly MSMEs. Existing initiatives, such as the DBSA Green Fund, already deploy a mix of grants, concessional loans, equity, and guarantees across different stages of project development, while international programmes combine financing with technical assistance. Evidence from these models points to important catalytic effects. For example, the Green Outcomes Fund (Box 3.3) has demonstrated the potential of combining outcomes-based grant funding with risk-sharing mechanisms to mobilise private investment into environmentally friendly MSMEs, achieving a leverage ratio of approximately 1:4 during its pilot phase (GreenCape, 2022[31]). Building on these experiences, there is a clear opportunity to further integrate risk-sharing instruments with concessional and catalytic capital to maximise impact and scale.
Furthermore, credit enhancement instruments can also be leveraged to strengthen domestic capital markets and strengthen the availability of long-term debt financing for renewable energy infrastructure investments, which can, in turn, generate downstream opportunities for SMEs that are part of renewable energy value chains. For example, Nigeria’s Infrastructure Credit Enhancement Facility (InfraCredit), has demonstrated how the provision of long-term local currency guarantees can enhance the credit quality of debt instruments issued by infrastructure companies through lowering default risk, in turn encouraging the participation from domestic institutional investors (OECD, 2025[32]). In addition, performance-based risk mitigation instruments, including energy savings insurance, energy performance contracts, and performance-based guarantees, represent an important area for future development. Expanding the use of such instruments could help address technology and operational risks more directly, reduce uncertainty for lenders, and further unlock financing for renewable energy MSMEs.
The Energy Bounce Back Loan Guarantee Scheme (EBB) was launched by South Africa’s National Treasury in August 2023 as an emergency response to the economic impacts of load shedding. Its primary objective was to support households and small businesses in investing in rooftop solar PV, batteries and related energy‑resilience assets, with the aim of catalysing up to 1 000 megawatts (MW) of additional generation capacity within a year.
The scheme introduced a government first‑loss guarantee of 20%, administered by the South African Reserve Bank, with the remaining credit risk retained by participating lenders. Four major commercial banks (Absa Bank, First National Bank, Nedbank and Standard Bank) participated in the scheme. The EBB operated through three channels:
Loan guarantee for rooftop solar for SMEs and households’ investment
Loan guarantee for rooftop solar for Energy Service Companies (ESCOs)
Working capital loans for businesses in rooftop solar supply chain
The sovereign guarantee has been financed by a budget allocation of R 8 billion (EUR 392 million) for (initially) 18 months, for loans of up to 7 years. Loan caps were set at R 300 000 for households and R10 million for SMEs, with interest rates capped at the policy repo rate plus a margin.
In practice, rollout was slow, as banks only finalised agreements late in 2023, resulting in actual lending starting in 2024. A later clarification extended the availability of EBB‑backed loans until February 2025, based on 18‑month contractual terms. The business component of the scheme remained open until early 2026. As a result, comprehensive performance data are still emerging and no consolidated public impact evaluation has yet been published.
While the scheme explicitly targeted micro and informal businesses, available evidence suggests that, even with the guarantee in place, structural barriers persisted. Collateral requirements, zoning constraints and relatively short loan tenors continued to limit access for smaller enterprises. Uptake therefore appears to have been stronger among more established firms with existing banking relationships, pointing to a remaining gap in financial inclusion.
Feedback collected from participating banks revealed that more support to set up such a scheme would be helpful given slow administrative processes – with longer terms and larger amounts of max loan size for businesses from 10 million to 20-30 million would be useful.
Looking ahead, the experience of the EBB highlights opportunities to extend guarantee‑based schemes beyond rooftop solar to other renewable energy sectors, including energy efficiency, storage, circular economy activities and nature‑based solutions. Improving access for smaller and informal enterprises would require longer loan tenors, complementary blended or non‑debt instruments, and scheme designs better aligned with the operating realities of green SMEs. More broadly, enhancing financial inclusion will necessitate new mechanisms for enterprises that cannot reasonably take on standard debt. If replicated, extending loan tenors, potentially up to ten years, would be critical to ensure that support reaches smaller firms.
First loss guarantees to unlock private capital for renewable energy adoption
Building on existing experience with guarantee instruments in South Africa, most notably the EBB, a dedicated first-loss guarantee facility could be established to further mobilise private financing for renewable energy adoption, particularly among underserved MSMEs. By absorbing an initial portion of losses at the portfolio level, such a facility would improve the risk-return profile for participating financial institutions and enable them to extend financing to smaller, higher-risk borrowers that are currently excluded. To maximise impact, the facility can be specifically designed to support renewable energy adoption use cases, such as rooftop solar and energy efficiency investments, and applied on a portfolio basis to enable diversification and reduce transaction costs for lenders.
To address limitations observed in previous schemes, particular attention can be given to targeting and accessibility. This could include setting eligibility criteria that prioritise smaller MSMEs, first-time borrowers, and underserved regions such as Mpumalanga, as well as encouraging financing structures suited to these segments (e.g. smaller ticket sizes, longer tenors, and cash-flow–based lending approaches). In addition, the guarantee design could include enhanced coverage ratios for priority segments and be linked to standardised appraisal tools and certification frameworks to reduce due diligence requirements (see more in the section on aggregation).
Blended finance facility to channel private capital into renewable energy MSMEs
To mobilise private capital at scale, a dedicated blended finance platform would be useful to address structural constraints in financing renewable energy MSMEs. While early-stage concessional financing and risk mitigation instruments can support initial transactions, additional mechanisms are required to aggregate and scale investments in smaller, fragmented projects. A blended facility combining concessional and commercial capital can improve the risk-return profile of such investments and enable more efficient deployment of capital across portfolios of distributed renewable energy assets, including rooftop solar and productive-use applications.
The proposed facility could be conceived to support portfolio-based financing through intermediaries, such as commercial banks, development finance institutions, and specialised aggregators, which can bundle smaller transactions and reduce transaction costs. Complementary measures, including standardised documentation, appraisal tools, and certification frameworks, can further support scaling by reducing operational barriers (see also recommendations in the next section).
A strong focus on underserved regions would support the development of local renewable energy ecosystems and respond to stakeholder demand for more decentralised financing solutions. The recent call for proposals by the UK Foreign, Commonwealth & Development Office to establish a catalytic finance facility for MSMEs in Mpumalanga provides a timely opportunity to pilot such an approach in practice. This initiative could serve as a demonstration platform to test financing structures, targeting mechanisms, and pipeline development approaches, with a view to scaling successful models at national level over time, in co-ordination with other JETP-supported interventions (FCDO, 2026[35]).
4.3.3. Scaling renewable energy finance through aggregation
Aggregation and standardisation can help unlock more private capital for small scale renewable energy investments. Financing for renewable energy is still largely being provided on a transactional basis, limiting the reach of current sustainable finance programmes due to high transaction and administrative costs for lenders. The absence of publicly provided standardised project documentation, financial model templates and technical information makes it more difficult for banks to apply a consistent approach to assessing small-scale solar projects, instead requiring a case-by-case appraisal process, which in turn increases due diligence and transaction costs. For smaller projects in particular, these higher costs often discourage financial institutions from engaging altogether.
Banks in South Africa are already financing companies that act as aggregators of renewable energy projects, particularly in the rooftop solar sector. For example, companies such as SolarAfrica and SOLA Group develop and bundle portfolios of rooftop solar installations and the associated long-term cash flows generated through leasing arrangements or power purchase agreements (PPAs). By aggregating multiple smaller projects into larger portfolios, these models enable financing at scale and help reduce transaction costs and risks associated with individual projects. In these arrangements, developers typically play the lead role in project origination, structuring, implementation and ongoing asset management, while financiers lend against the aggregated portfolio and expected revenue streams rather than individual small-scale transactions. Scaling these approaches can help address the financing gaps for small scale investments in the sector through both an expansion in the number of capable developers and the growth of existing players. The provision of standardised documentation, such as underwriting templates, contractual frameworks and appraisal tools, that can be accessed by financial institutions could help make smaller-scale transactions more attractive to lenders, particularly combined with aforementioned support instruments like concessional financing and risk-sharing mechanisms, which can further improve the risk-return profile of such investments.
The provision of tiered certification frameworks can play an important role in further unlocking financing for both enterprises in the renewable energy value chain and the projects they enable. South Africa has already made important progress in this area, with industry-led initiatives and training programmes contributing to the professionalisation of the solar installer market and the development of recognised standards for installation quality. While such efforts provide a foundation for improving transparency and building confidence among market participants, improvements to certification frameworks are required (Chapter 3).
Further development and alignment of certification frameworks could significantly enhance their impact on access to finance. In particular, the absence of widely adopted, tiered certification systems that clearly signal different levels of technical competence and experience can make it difficult for financial institutions to assess the reliability of MSME installers and service providers. This is particularly relevant for early-stage firms that may lack established track records. In addition, limited integration between certification systems, financing eligibility criteria and accessible information on qualified providers increases due diligence requirements for lenders. Strengthening and scaling such frameworks, while ensuring they are linked to financing processes and made easily accessible, would help reduce perceived risks, lower transaction costs and enable financial institutions to more confidently extend financing to a broader range of MSMEs.
Similarly,innovative aggregation mechanisms that could help scale financing for small-scale renewable energy projects remain largely underutilised in South Africa. This includes mechanisms such as crowdfunding and securitisation structures for pooling private capital from capital markets.
Pilot patient and innovative financing instruments
Innovative financing mechanisms could provide leapfrogging opportunities for financing MSME renewable energy producers and adopters at scale. In other emerging economies, national public institutions and development finance institutions are already piloting instruments that leverage capital markets to mobilise private capital for MSMEs. In Colombia, for instance, the a2censo platform, operated by the stock exchange, enables MSMEs to access financing by aggregating small investments from retail investors into debt or equity instruments, effectively extending simplified capital market access through a digital crowdfunding model. In Côte d’Ivoire and India, the International Finance Corporation (IFC) has piloted multi-originator securitisation structures, which aggregate MSME loan portfolios from multiple lenders into a single vehicle that is refinanced through capital markets. This allows participating financial institutions to transfer risk, free up balance sheets, and expand lending to MSMEs (Box 4.8). An innovative fintech platform, Bridgin, has demonstrated the potential of receivables aggregation for service providers through its pilot in Kenya. Through turning aggregated receivables into investable portfolios, the platform helps to address fundamental working capital constraints of service providers, providing them with immediate liquidity to further expand their operations (Bridgin, 2026[36]). While these examples are not specific to renewable energy, they illustrate models that could be adapted to support renewable energy MSMEs. The JETP provides a potential platform to pilot such approaches in South Africa. Given their complexity, these instruments could usefully be implemented initially on a limited scale, with clear learning objectives and defined pathways for scaling. Over time, successful models could inform broader efforts to mobilise capital markets in support of MSME financing, including in the renewable energy sector.
The a2censo platform, operated by the Bolsa de Valores de Colombia, provides an example of how digital platforms can extend access to capital markets for small-scale enterprises through simplified and accessible financing mechanisms. Launched in 2019, a2censo was designed to address financing gaps for small and medium-sized enterprises by connecting them directly with retail investors via a regulated crowdfunding platform.
The platform enables MSMEs to raise financing through standardised debt and equity instruments, such as promissory notes or mini-bonds, which are offered to a broad base of retail investors. Individual investments are typically small, but are aggregated digitally into larger financing rounds, allowing MSMEs to access funding that would otherwise be out of reach. The platform also performs pre-screening and due diligence on participating enterprises, helping to reduce information asymmetries and transaction costs for investors while improving the credibility of issuers.
Several enabling factors have supported the development of the a2censo model. First, the platform leverages existing capital market infrastructure and regulatory frameworks, ensuring investor protection and market transparency. Second, the use of digital technology and standardised instruments reduces transaction costs and enables efficient aggregation of small investments. Third, the involvement of the stock exchange provides institutional credibility and governance, which helps build trust among investors and participating MSMEs. Finally, the model benefits from a growing ecosystem of retail investors seeking alternative investment opportunities.
The platform has facilitated access to financing for a range of MSMEs that would not typically be able to issue securities in traditional capital markets. By lowering entry barriers and simplifying processes, it has contributed to broadening participation in capital markets and diversifying sources of MSME finance.
This model could be adapted to support renewable energy enterprises or projects, particularly where standardised financing structures and aggregation mechanisms can be applied. However, the model depends on an enabling regulatory environment, investor appetite and sufficient pipeline of credible enterprises, which may require targeted development in other contexts.
The International Finance Corporation (IFC) has piloted multi-originator securitisation structures in countries such as Côte d’Ivoire and India to expand access to finance for micro, small and medium-sized enterprises (MSMEs) by leveraging capital markets. These initiatives aim to address constraints faced by financial institutions in scaling MSME lending, particularly related to balance sheet limitations, risk concentration and capital requirements.
Under this model, loan portfolios from multiple financial institutions – typically banks or non-bank lenders providing MSME credit – are aggregated into a single securitised vehicle. This pooled portfolio is then refinanced through capital market instruments, allowing originators to transfer part of the credit risk and free up capital. By doing so, participating institutions are able to recycle capital and expand their lending capacity, including to smaller and more underserved MSMEs.
Several enabling factors underpin the effectiveness of this approach. First, aggregation across multiple originators allows for greater diversification of risk and improves the overall risk profile of the securitised portfolio. Second, the use of structured finance techniques and credit enhancement mechanisms helps attract investors by aligning risk-return profiles with market expectations. Third, IFC plays a critical role in structuring transactions, providing credibility and supporting market development, particularly in contexts where securitisation markets are still nascent. Finally, standardisation of underlying loan portfolios and documentation facilitates replication and scaling.
These structures have enabled participating financial institutions to increase MSME lending without proportionally expanding their balance sheets, while also contributing to the development of local capital markets. By demonstrating the feasibility of securitisation in emerging markets, they help attract new categories of investors into MSME finance.
This experience highlights the potential of capital market-based solutions to scale MSME financing by addressing structural constraints faced by lenders. While not specific to renewable energy, similar approaches could be applied to aggregated portfolios of renewable energy loans or assets, such as rooftop solar or energy efficiency investments. However, such models require a certain level of market maturity, including regulatory frameworks, data availability and institutional capacity. They are therefore more suited to later stages of market development.
Source: (World Bank, 2025[39]).
A one‑stop‑shop platform providing standardised solar project documentation and appraisal tools
The lack of standardisation in project proposals, financial models and technical documentation currently increases transaction costs and limits the willingness of banks to engage with smaller projects. Thus, it could be useful to develop and disseminate standardised documentation, templates and appraisal tools tailored to small-scale solar to facilitate the origination, appraisal and approval of MSME financing. The solar knowledge hub provided by the MNRE of India provides an interesting example of a one-stop-shop portal for relevant documents on solar (Box 4.9).
The Indian rooftop solar portal is led by the Ministry of New and Renewable Energy (MNRE) as part of its broader effort to scale up distributed solar under the national rooftop solar programme. The system is not a single tool but a combination of a knowledge hub and a national portal, supported by multiple actors across the ecosystem. While MNRE hosts and oversees the platform, much of the content is contributed by different institutions, including utilities (DISCOMs), state nodal agencies, technical bodies and development partners. This includes technical standards, model contracts, process guidelines and financing-related tools developed by various stakeholders and uploaded centrally. The portal serves a wide range of users, including households and micro, small and medium-sized enterprises (MSMEs) exploring solar adoption, installers and developers, utilities and financial institutions, each of whom can access different types of information and tools relevant to their role.
The knowledge hub acts as a central repository of standardised documentation and tools that support project preparation and appraisal. MSMEs and project developers can access feasibility tools (e.g. solar calculators and site assessment templates), guidance on business models (e.g. leasing or Energy Service Company (ESCO) models), and step-by-step process documentation. At the same time, banks and financial institutions can access specific materials designed for them, such as appraisal checklists, lender engineer report templates and financial evaluation tools to assess rooftop solar projects. The portal also includes model contracts (e.g. Power Purchase Agreements (PPAs)), technical specifications and process standardisation documents (e.g. net metering procedures and commissioning processes), all of which help create more consistent and comparable projects. Alongside this knowledge layer, a separate but linked national portal acts as a transaction platform, where users can apply for rooftop solar subsidies, select approved vendors, track approvals and manage installation processes. The platform also includes tools to estimate system size, costs and expected savings, helping users assess project feasibility before proceeding.
A key advantage of this portal is that it brings together in one place a wide range of resources that are typically fragmented. This helps reduce information gaps, supports more consistent project preparation and makes it easier for financial institutions to assess projects using familiar formats. It is also relatively straightforward to maintain and scale, as much of the system relies on uploading and updating standard documents rather than building complex transactional infrastructure.
At the same time, a notable limitation is that the portal is not structured around distinct user journeys. MSMEs, banks, installers and other users access largely the same interface and document repository, without dedicated entry points or tailored pathways. This can make navigation less intuitive and limit the extent to which the platform directly supports specific user needs.
Overall, the Indian model demonstrates how a government-led platform can standardise information, processes and documentation across the value chain, thereby improving project consistency and indirectly facilitating access to finance, even if financing itself is not directly integrated into the platform.
Source: (Solar Rooftop, 2026[40]; MNRE, 2026[41]).
A centralised knowledge platform or “one-stop-shop” could be established to host these resources. This could be led at the national level to ensure consistency, credibility, and alignment with broader policy and financing initiatives. At the same time, a decentralised or complementary provincial interface, such as a dedicated Mpumalanga portal or hub, could be developed to tailor content to local market conditions, provide region-specific guidance, and link MSMEs to local programmes, service providers and opportunities. Survey results indicate strong demand for decentralised support services (Annex D). Decentralised help desks could provide localised and targeted support.
The platform could provide standardised templates for:
Rooftop solar project proposals and system specifications
Financial models (e.g. for leasing, PAYGo, or self-consumption models)
Loan applications and credit assessment
Standard contracts (e.g. power purchase agreements for small-scale systems)
The platform could also include guidance on approved technologies (e.g. Tier 1 solar panels, inverters, batteries), typical financing structures for solar MSMEs, and links to certification systems, financing programmes and support services. Over time, it could evolve into a broader knowledge and co-ordination hub, supporting both MSMEs and financial institutions in financing renewable energy projects.
Alternative approaches demonstrate that renewable energy financing can be more effective when financial support is accompanied by investments in market infrastructure. Programmes such as Uganda's GET FiT combined financial incentives with standardised project development processes, procurement frameworks, and capacity building measures, helping to reduce transaction costs and improve investor confidence. While primarily focused on utility-scale projects, the experience highlights the importance of complementing financing interventions with measures that strengthen the broader enabling environment for project development and financing (Oxford Economics, 2026[42]).
4.3.4. Strengthening MSME credit risk assessment infrastructure
A key barrier to effective MSME financing is the weak data infrastructure for MSME credit assessment, which affects MSMEs in general including renewable energy MSMEs. The current credit reporting system is fragmented and strongly consumer-focused, while reporting on commercial credit data remains largely voluntary (World Bank, 2022[43]). Under the National Credit Act (NCA), MSMEs with assets or turnover below ZAR 1 million (~USD 61 000) are classified as consumers rather than businesses. This classification distorts credit risk assessments, as lenders frequently rely on the personal credit histories of business owners rather than enterprise performance (DSBD, 2025[19]) and constrains access to finance.
Several reforms are underway to address these challenges for the MSME sector in general. There is increasing focus on adapting credit scoring methodologies to better reflect the realities of MSMEs and informal businesses. In particular, the use of alternative data sources, including digital payments data, mobile phone usage records and transaction histories, is being explored to strengthen credit assessments. The Department of Small Business Development is working with the South African Credit and Risk Reporting Association to integrate alternative data into the national credit reporting infrastructure, to support the development of a more inclusive and objective credit ecosystem (DSBD, 2025[19]). The Department of Trade, Industry and Competition, alongside the National Credit Regulator, is leading a reform process to address the classification challenges.
Access to finance is further shaped by the structure of collateral frameworks, which have historically relied on fixed assets. This presents challenges for early-stage and asset-light MSMEs, including those operating in the renewable energy sector, which often lack immovable property to pledge as collateral (Finmark, 2025[44]). To address this, DSBD has prioritised the development of a movable asset collateral registry, which would enable MSMEs to use assets such as inventory, equipment, receivables and other movable property to secure financing. Planned reforms include updating earlier diagnostics on secured transactions, establishing an enabling legal framework, and developing a modern, centralised electronic registry, with the objective of improving lender confidence and expanding access to credit (DSBD, 2025[19]). While these reforms are moving in the right direction, real-world progress has been rather slow.
Consider the development of a movable collateral registry to reduce reliance on fixed collateral and facilitate cash-flow based lending
Movable collateral registries can support renewable energy adoption in South Africa, including Mpumalanga, primarily by easing financing constraints for MSMEs across the solar value chain rather than by enabling rooftop solar itself to be directly collateralised. While installed solar PV systems are often difficult to use as collateral due to their classification as fixtures and challenges around repossession, registries allow lenders to accept a wider range of movable assets, such as inventory, equipment and receivables, thereby improving access to working capital for solar installers and distributors. This is particularly important given the short-term financing needs associated with procuring equipment prior to installation. Furthermore, by facilitating a shift toward cash-flow-based lending and reducing reliance on fixed collateral, movable collateral registries can support the adoption of renewable energy solutions. That said, such reforms need to be accompanied by strong outreach and collaboration with financial institutions to foster uptake.
4.3.5. Fostering digital and alternative finance
Digital financial solutions are playing an increasingly important role in closing financing gaps for MSMEs. By leveraging alternative data, such as transaction histories, these solutions help to build better credit profiles and provide faster lending, possibly also with more flexible repayment terms. This shift towards automation reduces operational costs and enables scalable, standardised lending processes (OECD, 2026[15]). It also facilitates the transition from asset-based to cash-flow-based lending, easing collateral requirements and better matching the needs of businesses like solar installers with short-term capital demands. Additionally, digital platforms can reduce geographic inequalities and expand access to alternative financing models, including through integrating digital solutions into microfinance institutions to expand its reach to traditionally underserved entrepreneurs in provinces like Mpumalanga.
South Africa stands out as one of the most advanced and diversified fintech markets, accounting for a significant share of Africa’s fintech revenue driven by strong growth in digital payments, lendtech and Insurtech (Chapter 2). Over 200 fintech companies are active in South Africa. Such providers have been particularly effective in advancing digital payment solutions, with mobile payments now widely adopted among MSMEs. These tools enable businesses to receive payments remotely and improve cash flows by shortening payment cycles with suppliers, which can be especially useful for MSMEs in renewable energy supply chains. Beyond digital payments, fintech solutions in South Africa are also expanding into online and peer-to-peer lending, and crowdfunding (DSBD, 2025[19]). A number of fintech providers are specifically targeting the MSME segment, offering faster, collateral-free financing options with simplified documentation requirements (Annex E).
Further opportunities remain to scale and deepen the adoption of digital financial solutions, especially among traditional lenders. Technology uptake among MSMEs, beyond mobile payments, continues to evolve and varies across different MSME segments, highlighting the potential to broaden digital engagement and ensure more inclusive access to these innovations. Furthermore, traditional lenders still make limited use of alternative data in credit assessment procedures. As mentioned in the previous section, DSBD is now actively working with the South African Credit and Risk Reporting Association to address this barrier through integrating alternative data into the national credit reporting infrastructure. In parallel, the National Credit Regulator, with support from the World Bank, is piloting the use of digital payment and telecommunications data to build risk profiles for unbanked micro-enterprises. Efforts to integrate digital services into microfinance institutions are also advancing, further strengthening outreach to underserved SME segments (DSBD, 2025[19]).
Data availability remains a key area for continued progress. Fintech models rely on digital footprints to assess creditworthiness, which highlights the importance of expanding digital transaction usage and record-keeping among MSMEs. Strengthening financial literacy, business planning capabilities, and awareness of financing options can further enhance the uptake of non-bank financing solutions. At the same time, addressing cost considerations will be important to ensure that fintech financing remains accessible and attractive to MSMEs.
Regulatory and infrastructure developments offer additional avenues to unlock growth. Continued improvements in licensing processes, the advancement of open banking frameworks, and investments in digital connectivity and affordable data can significantly enhance the operating environment for fintech providers (Electrum, 2023[45]). Expanding access to long-term financing at favourable terms for fintech companies will also be crucial to support the scaling of innovative financial solutions.
Support digital finance solutions for small-scale solar adoption and MSME financing
South Africa could further strengthen digital and data infrastructure to support the scaling of innovative financing solutions for small-scale solar adoption among MSMEs, particularly micro and informal enterprises. Building on ongoing efforts to expand the use of alternative data and digital financial services, public interventions could focus on enabling fintech and platform-based providers to scale PAYGo, leasing and revenue-based financing models for rooftop solar and productive-use energy solutions. This could support the development of bundled financing solutions combining renewable energy technologies with flexible repayment mechanisms for MSMEs that remain underserved by traditional bank lending.
M-KOPA, which operates across East Africa, provides a strong example of this approach. The company leverages alternative credit risk assessment methods, using customers’ digital footprints, including payment histories and usage data, to evaluate creditworthiness and expand access to PAYGo financing for solar home systems (Box 4.10).
Targeted measures could include:
Incentives for digital payments linked to energy financing (e.g. PAYGo repayment systems)
Support for alternative credit scoring models using transaction or energy usage data
Regulatory frameworks to enable responsible data-sharing (e.g. open banking)
Digital financial literacy programmes tailored to MSMEs adopting solar solutions
These measures can help expand access to financing for smaller and informal enterprises while stimulating demand for solar technologies.
M-KOPA illustrates how fintech-enabled business models can expand access to renewable energy and productive use assets for underserved households and micro-enterprises using the digital footprints of these clients. Founded in 2011 in Kenya and now operating across several East African markets, the company specialises in the distribution of solar home systems and other financed assets through digitally enabled pay-as-you-go (PAYGo) models. M-KOPA has attracted significant investment from development finance institutions, impact investors and commercial lenders, enabling it to scale rapidly in markets where access to formal credit remains limited.
The company’s model combines digital financial services with asset-based financing, offering solar systems and other products through mobile-enabled PAYGo contracts. Customers make small, flexible payments via mobile money platforms, removing the need for upfront capital and enabling access for individuals and enterprises with limited or no formal credit history. Over time, M-KOPA has expanded beyond basic energy access to include productive-use and consumer assets, such as smartphones and appliances, which can support income-generating activities. By aligning repayment schedules with customer cash flows and usage patterns, the model strengthens repayment capacity while enabling gradual asset accumulation.
Several enabling factors have supported the scalability of this approach. First, the use of mobile money infrastructure and digital platforms enables efficient payment collection and customer management at scale. Second, the application of data-driven credit assessment, based on real-time payment behaviour and usage data, allows the company to build alternative credit profiles and manage risk in the absence of traditional credit histories. Third, early and continued access to concessional and impact capital has supported expansion into higher-risk segments, while demonstrated repayment performance has enabled the company to attract increasing levels of commercial financing over time.
The model has delivered strong results in terms of both scale and financial inclusion. M-KOPA has reached millions of customers with solar energy and financed assets, many of whom operate in the informal economy and were previously excluded from formal financial systems. By generating large volumes of repayment and usage data, the company has helped demonstrate the viability of lending to underserved segments and contributed to the development of new data-driven financing approaches.
This experience highlights the potential of fintech-enabled PAYGo models to extend financing to micro and informal enterprises, including for renewable energy and productive-use applications. It also illustrates how digital infrastructure, alternative data, and asset-based lending can be combined to bridge gaps in access to finance. At the same time, the model relies on well-developed mobile payment ecosystems and data infrastructure, and this can be enabled by reforms.
Strengthening access to finance for MSMEs in renewable energy and other environmental sectors represents a key opportunity to support a just and inclusive transition in South Africa. While a growing range of support mechanisms has been established, important constraints continue to limit MSMEs’ ability to access appropriate and affordable financing and to scale their activities.
These constraints reflect both structural features of the MSME landscape and the specific characteristics of renewable energy investments. Persistent challenges, including informality, limited credit histories, reliance on collateral-based lending, small transaction sizes and high perceived risks, contribute to a misalignment between MSME financing needs and the financial instruments currently available. In addition, the capital-intensive nature and longer payback periods associated with many renewable energy investments further complicate access to finance, particularly for smaller and early-stage enterprises.
At the same time, the analysis highlights important strengths that can be further leveraged. Early-stage interventions, particularly grants and incubation programmes, are relatively well developed and play a critical role in building pipelines of enterprises and projects. A key priority going forward is therefore to strengthen the continuity of support across the enterprise lifecycle. Enhancing linkages to follow-on financing through concessional, blended and commercial financing instruments can help translate early-stage support into sustained growth.
Looking ahead, a more integrated and sequenced approach to MSME financing will be essential to unlock these opportunities. This includes improving co-ordination and alignment across support programmes, making more strategic use of concessional finance to build enterprise bankability and crowd in private capital and scaling innovative and intermediary financing models to reach underserved segments and address structural barriers such as collateral constraints and high transaction costs. Strengthening the role of specialised intermediaries and improving standardisation and risk assessment frameworks can further support the expansion of financing to smaller-scale projects.
Strengthen financial support for MSMEs in renewable energy value chains
Combine concessional finance with technical assistance to help bridge the project preparation to financing gap as well as to help strengthen renewable energy adoption;
Leverage concessional financing under the JETP to support Mpumalanga start-ups and early stage MSMEs in the renewable energy value chain (e.g. developers, distributors, installers, maintenance and service providers) to establish an operational track record and access follow-on commercial financing;
Consider a pilot small-scale concessional finance facility targeting fintech providers or platform-based financing providers using alternative data and innovative, cash-flow–based lending approaches tailored to informal and micro-enterprises;
Provide first-loss guarantees to unlock private capital for renewable energy adoption;
Establish a blended finance facility to scale financing and mobilise private capital for renewable energy MSMEs;
Pilot innovative financing mechanisms, including securitisation and crowdfunding, under the JETP to support aggregation and standardization of SME renewable energy projects;
Support digital finance for small-scale solar adoption and MSME financing.
Strengthen coordination, alignment and sequencing in the delivery of financial support
Enhance programme alignment and sequencing to facilitate the transition from pipeline building and support to follow-on financing.
Align policies and non-financial support to strengthen the impact of financial support
Develop a structured “financing journey toolkit” for environmentally friendly MSMEs, with a targeted module for rooftop solar;
Establish a centralised one-stop-shop platform providing standardised solar project documentation, financial models, and appraisal tools, led by a national entity (e.g. JET PMU or designated institution) alongside a complementary Mpumalanga-specific interface;
Consider the development of a movable collateral registry to reduce reliance on fixed collateral and facilitate cash-flow based lending.
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← 1. Securitisation involves pooling MSME loans or small-scale financial assets into tradable securities that can be sold to investors, helping lenders free up capital, reduce risk exposure and expand financing to MSMEs.
← 2. Crowdfunding refers to raising small amounts of capital from a large number of individuals, typically through digital platforms, enabling MSMEs to access capital market financing.