What barriers might hinder the success of your project and how do you plan to overcome them?
The primary risks and associated mitigation strategies being employed by Nuru Energy to ensure the long-term sustainability of our project are as follows:
1. Reliance on MFIs for VLE finance: Nuru Energy will spread this risk by engaging with multiple MFIs as well as rural banks and cooperatives across its working areas in India and East Africa. We are in talks with multiple rural distribution partners and have built in enough flexibility into our model to absorb different kinds of credit instruments to be extended to our VLEs.
2. Scalability of revenue: Our revenue model is highly scalable because of the multiple revenue sources that have been built into it. Nuru Energy accrues revenue in 3 ways from the sale of each light; namely: revenue from light sales, revenue from carbon credits and ‘microfranchise fees’ collected as a percentage of every entrepreneur’s recharge fees earnings. The latter two forms of revenue are highly sustainable because they are expected to carry on well beyond the sale of each light.
3. Achieving optimum distribution: Nuru Energy is able to scale quickly by leveraging corporate sponsorships for our POWERCycles, thereby lowering the capital burden to each VLE.
4. Attrition of Nuru Energy staff: Our rural distribution partners will bring with them a database of potential recruits. Cross-functional training programs for all our employees will be employed to fill any gaps left by vacancies in the interim period.
Tell us about your partnerships
Our most important linkage is with microfinance institutions (MFIs). Instead of selling our lights directly to the end consumer, which requires large inventories, slow turnover, many sales representatives and high working capital requirements, we sell directly to an MFI. The MFI then loans sets of 20-50 lights to each VLE who resells the lights to the end consumers in her/his community. With the revenue from reselling the lights and charging customers for recharges, the entrepreneur pays back the loan over 2-3 months. This financing structure allows us to set up microfranchises with almost anyone, anywhere; and, with the MFI providing most of the capital, Nuru can focus its resources on rapidly setting up more field offices. The beneficial relationship is mutual; MFIs can increase their client base with a proven business and significantly reduce risk by funding income generating assets.
In India, Nuru Energy is partnering with BASIX, that works in over 16 states across the country with millions of customers. We have run pilot projects with BASIX since December 2009 in 3 districts and 2 states in India and are currently negotiating a national-level MoU. In Rwanda we partner with Urwega Opportunity Bank (UOB). Operating since 1997, UOB has emerged as the premier Rwandan MFI and was named "Best MFI in Rwanda" in the 2004 "Year of Microfinance". We are in advanced negotiations with Kiva.org, Calvert Foundation, and Equity Bank, amongst others, to be our microfinance partners in other countries.
In addition to our MFI partnerships, Nuru Energy also partners with NGOs to set up VLEs in jointly-identified off-grid communities. In India, we are conducting feasibility studies for projects with Srijan and Aide et Action in Rajasthan and Uttar Pradesh respectively while in Rwanda we have partnered with UNDP Millennium Villages to set up 20 VLEs. Lastly, we are currently in discussions with a number of corporate players (FMCG companies, Coca-Cola etc.) to provide sponsorships for Nuru POWERCycles.
Explain your selections
Nuru Energy in India is currently supported by the personal investments of our founders as well as two awards we have won, namely Wantrapreneur India Award 2010 and the Atmosfair India Renewable Energy Innovation Award. The India enterprise has been engaged in pilot projects up till now to test and prove Nuru Energy’s delivery model across varying geographical and socio-economic regions, and is currently pre-revenue.
In Rwanda however, Nuru Energy has generated over USD 65,000 in revenue for the year 2011 and established 70 VLEs across the country. Further, our East Africa operations have received USD 2 million in commercial capital from Bank of America Meryll Lynch(BAML) in March 2011 in a one-of-a-kind options premium payment for the future purchase of carbon credits generated by Nuru Energy in East Africa. In addition to the financial investment, BAML has ear-marked funds through the Calvert Foundation (which funds a number of MFIs in our working areas) specifically for Nuru Energy loans.
How do you plan to strengthen your project in the next three years?
Nuru Energy plans to scale up the number of VLEs, Nuru Lights and other Nuru products in the market both in India and East Africa over the next 3 years. Strengthening our project is largely a function of the external partnerships we will put into place as well as how our internal team will expand to achieve our annual scale-up goals.
The influx of commercial capital from BAML has allowed us to begin the process of expanding our team in Africa. We are currently recruiting our global Chief Financial Officer (CFO) as well as country managers for our 5 countries of operations. In Africa, we will launch operations in each of the 5 selected countries in phases starting with further scaling up the enterprise in Rwanda and then moving on to setting up operations in Uganda, Kenya, Tanzania and Burundi respectively.
In India we have set first year scale-up goals with our MFI partner BASIX and plan to set up over 120 VLEs between September ’11 and Feb ’12 in 3 states and 6 districts. Many commercial investors have expressed interest in funding the India enterprise and we believe we will be best poised for optimal financial terms once we have. With the aim to procure larger commercial investment in the range of USD 2-3 Million by March ’12 we aim to scale up to over 60 districts in 5 states in India over the next 3 years establishing over 10,000 VLEs who in turn will be providing lighting to over 1 million India households.
In addition, we will close our Carbon credit registration with CDM for Africa and India by 2012 and 2013 respectively.