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Design of Micro Infrastructure Investment Fund for Asia-Pacific (MIIFAP)

Overview: Convergence awarded a feasibility study grant to Village Infrastructure Angels (VIA) for the design of Micro Infrastructure Investment Fund for Asia-Pacific (MIIFAP); a blended finance solution to provide micro-infrastructure products to low-income, rural off-grid communities in the South-East Asia and the Pacific Nations. The fund will have a particular focus on women by reducing manual labour for women end-users and generating employment opportunities.

A lack of energy access has contributed towards the low living standards of the world’s poorest communities. Current larger centralized infrastructure models of electrification have proven to be too expensive to reach the most remote villages where stand-alone systems such as solar power systems can be a cheaper alternative. However, limited access to finance and technological know-how has prevented rural communities from investing in such micro-infrastructure products.

Convergence’s feasibility study grant, awarded through the Indo-Pacific Design Funding Window, will enable Village Infrastructure Angels, a UK-based for-profit company that invests in poverty alleviating infrastructure, to explore the feasibility of a US $30 million fund to provide micro infrastructure products such as home solar systems, solar mills, solar pumps, and cooking systems to low income, off-grid households, through a lease-purchase model with a flexible repayment period.

__Design question and learning potential for the market: __ How can a fit-for-purpose financial structure be developed to attract private capital in micro-infrastructure product investments?

During the feasibility study, VIA will develop the structure and financial flows for this mechanism. The feasibility study builds on VIA’s existing pilot projects in Indonesia and Vanuatu that have been funded through a mix of public and private sector funding with public sector funding providing most of the capital requirement. Attracting private capital has been challenging since the high return target of such capital providers would translate to higher lease payments for the rural communities. During the feasibility study, VIA will explore setting-up country specific or regional special purpose vehicles which are aggregated into a larger fund to attract private investment, by strategically utilizing grants and other sources of concessional capital. VIA will also investigate possible distribution waterfall, fee structure, and capital stack structures that can reduce the potential high risk profile of off-grid rural infrastructure products.

After an initial pilot, VIA expects to reach over 100,000 households over 5 years by scaling in pilot markets (Vanuatu and Indonesia) and entering new markets in South-East Asia and the Pacific Islands.