Products like solar lights, solar home systems and improved cookstoves and fuels are an important piece of addressing energy poverty, particularly in last mile markets. These products—and other beneficial household products like water filters and agricultural tools—enable progress towards the Sustainable Development Goals more rapidly and often more cheaply than other options currently allow.

Last mile distributors (LMDs) have an essential role to play in effectively reaching last mile customers with such products. According to our recent survey of 72 LMDs, 75 percent of customers served by LMDs live in poverty, earning less than USD 3.20 per day, and 44 percent live in extreme poverty on less than USD 1.90 a day. LMDs support market creation by raising awareness and demand for energy products in last mile communities.

The recently released Last Mile Distribution: State of the sector report from the Global Distributors Collective (GDC) provides an overview of the sector as well as deep dives into three key areas: procurement, sales efficiency and access to finance. Here are some key findings around access to finance.

Access to finance is the most critical constraint for LMDs but there is no one-size-fits-all approach

Sustainable Energy for All’s (SEforALL) Energizing Finance 2019 research has identified a clear lack of overall financing for electricity and clean cooking solutions at the last mile, particularly in countries with the highest energy access gaps. Closing these gaps will require much greater investment in the entire sustainable energy value chain, including for LMDs.

LMDs have been surprisingly successful in accessing external financial support given their small size. 86 percent of LMDs surveyed have raised grant funding, 69 percent have raised debt funding and 41 percent have raised equity funding—28 percent have raised all three types of capital.

However, most equity and debt has come from family, friends, angel investors, crowd funders or founders themselves; the kind of longer-term, larger scale commercial financing needed for growth-stage companies is not widely available.

LMDs are a diverse group, with three broad groups emerging among LMDs surveyed:

1. Fast growth companies for whom sales revenue is the main source of income; most of which show sales per full time sales agent of over USD 10,000 per year and who have already raised equity.
2. Smaller, stable companies that have more varied income sources, including consumer research for companies or training for governments.
3. Young experimenting LMDs, whose business model and growth strategy are yet to be determined. 

This diversity of LMDs requires financial interventions to be tailored appropriately. For example, access to finance is more of a challenge for local LMDs (those with at least one local founder) as opposed to international LMDs. This is especially the case when seeking debt: only 56 percent of LMDs with one or more local founders have raised debt, compared to 87 percent of those without a local founder.

Promising new financing mechanisms and solutions are emerging

Essential to helping LMDs access appropriate finance include dedicated grant-making mechanisms, with grant funding for growth particularly important to help LMDs progress towards accessing debt and equity. D-Prize has been a stand-out grant funder in the sector, with an unusually high risk appetite, providing early-stage seed funding to 130 entrepreneurs to date.

Specialist intermediary investment funds which raise capital from larger, less specialized public and private investors and channel it into the LMD sector can play a key role. Investors can also partner with software platforms to access more reliable data on LMD business performance and reduce investment risk, with the new Distributor Finance Fund launched by Angaza and SIMA being a prime example.

Funding mechanisms can be developed with the flexibility to support the LMD sector, and tailored financing windows can aim to make smaller investments, whilst accepting higher transaction costs and risks. Paving the way here are funds such as the Africa Enterprise Challenge Fund and the World Bank’s forthcoming Regional Off-Grid Electrification Project (ROGEP) in West Africa, which are making smaller grants and loans more easily available than ever before, while accepting higher transaction costs and levels of risk.

In order to help de-risk investors' portfolios and maximize chances of investment success, financial support can be combined with capacity building support, as is being currently tested by VentureBuilder.

Finally, third party technical assistance providers and accelerator/incubator programs such as the Miller Center’s dedicated accelerator program for LMDs can help to improve LMDs’ business offering and ability to scale.

Further research is needed to broaden our understanding of the last mile distribution sector. Nonetheless, these innovations—and others highlighted in the GDC’s State of the sector report—are paving the way for a step-change in the way the sector is supported, and taking us one step closer to achieving the Sustainable Development Goals.

Photo credit: Empower Generation