Access to tailored micro-finance for electricity: a way to foster adoption at the extensive and the intensive margin? A cluster randomised trial in rural Rwanda
Background, challenges and context
Rwanda’s Ministry of Infrastructure (MININFRA) strives to provide access to sustainable, modern energy services in 100 per cent of both urban and rural areas by 2024. The Rwandan Electricity Access Rollout Programme (EARP) increased the national electrification rate from six per cent in 2009 to 41 per cent in 2017. The Rwandan Energy Group (REG), the state-owned electricity utility, and the international community have made an enormous effort to bring the electricity grid to rural areas, connecting them within a very short time.
However, connection rates and consumption levels among households and small businesses remain low even some years after the grid reaches the village.
A likely reason for modest connection rates and consumption levels are the high upfront fees associated with connecting to the grid and purchasing electrical appliances.
Research overview and objectives
To help families and businesses overcome these upfront costs, MININFRA’s energy policy strategy states that ‘extending consumer credit for grid connection fee is pivotal [...]’. However, the effectiveness of financing mechanisms for grid connections and appliance purchases have not been rigorously studied.
This research project aims to test the effect of micro-loans on electricity connection rates and consumption levels. It asks two specific research questions:
Do tailored micro-loans for grid connection increase household and micro-enterprise connection rates (the extensive margin of adoption)?
Do tailored micro-loans for investments into appliances increase electricity usage intensity (the intensive margin of adoption)?
Working closely with REG and EARP, the research team will conduct a cluster randomised controlled trial at the community level. Access to tailored micro-credit for financing electricity connection fees and electrical appliances will be introduced in randomly assigned communities recently connected to the electricity grid.
The team will work in close conjunction with Urwego Opportunity Bank of Rwanda (UOB), which has been active in financing energy access and promoting private investment in small solar systems and village grids connected to renewable energy sources. Two tailored micro-credit products, based on existing UOB loan products, will be developed and offered. One can be used to finance the connection itself, the other to finance investment into electrical appliances. The latter will focus on businesses, although households are, in principle, eligible.
The total number of new connections in given geographical areas, and the electricity consumption of connected beneficiaries, will be tracked, as will the demand for credits. A follow-up survey will be carried out on household and micro-enterprise samples to obtain information on socio-economic data, repayment behaviour and appliance uptake. Women’s role in the process of electricity and appliance uptake, and their preferences regarding electricity use, will also be analysed in detail.
The research will inform the Government of Rwanda and the global energy access community on whether providing access to tailored micro-loans is an effective measure to increase connection rates and electricity consumption in recently electrified rural areas. The findings will be extremely valuable in shaping future policy in the electrification sector, both in Rwanda and across Sub-Saharan Africa and South Asia.
Leibniz Institute for Economic Research (RWI)
Rwanda Energy Group (REG) – national utility
University of Rwanda
Urwego Opportunity Bank (UOB) – micro-finance partner
Efficient & Productive Use, Grid Access