Redefining Climate Finance - A Dual Mandate for the Dual Transition

Introduction and background

Africa’s energy transition is unfolding along two distinct but interdependent tracks. One runs through substations, power pools and sovereign investment plans. The other advances less visibly – through solar rooftops, battery kits, pay-as-you-go devices and community-owned minigrids. These are not rival approaches. They are complementary responses to the same structural imperatives: expanding access, reducing emissions and building resilience.

The continent is not choosing between grid and off-grid systems. It is constructing both, not sequentially, but simultaneously; not uniformly, but clustered by economy and geography. This duality is not the result of institutional indecision. It is the outcome of real-world necessity, a flexible and adaptive strategy shaped by the diversity of energy needs, economic contexts and political capacities across 55 African nations.

While the energy systems themselves are evolving in this layered and plural fashion, the financial architecture that supports them is not. Climate finance remains largely anchored in a framework that prioritises infrastructure and project developers. Sovereign green bonds, concessional loans and multilateral guarantees continue to dominate. These tools are important. They finance grid extensions and utility-scale renewables. They make national ambition bankable.

But they are not designed to reach consumers. Nor are they structured to support households or traders. They do little to enable the circulation of small-scale, local currency capital that drives energy uptake among the MSMEs that underpin Africa’s informal economies and employment base. The result is a financing system that is technically sophisticated but structurally narrow.

Climate finance must catch up with the energy economy

The most dynamic segment of Africa’s energy economy is no longer the national utility. It is the decentralised energy market. This market is powered by solar panels installed without government planning, clean cookstoves sold through informal retail networks and battery packs financed through mobile money platforms. These are not just stopgaps. They are systems of energy agency, built from the bottom up.

Yet this activity remains largely invisible to dominant climate finance mechanisms. Most instruments are designed for large-ticket, centralised infrastructure. Few recognise the need for working capital for clean-tech distributors, credit guarantees for PAYG lenders or diaspora-backed loans for off-grid systems. Finance remains focused on the supply side as if megawatts built are equivalent to energy access delivered.

The lessons of Pakistan and South Africa

Pakistan provides a cautionary example. Following energy-sector reforms tied to IMF conditions, electricity tariffs rose sharply. Rooftop solar became a logical exit strategy, but only for affluent homeowners.¹ Renters and middle-income households, without the capital or property rights to install solar, were left behind. As higher-paying consumers left the grid, revenues fell. Tariffs increased again. Grid reliability deteriorated. The poor paid more for less.

South Africa is on a similar path. Years of load-shedding have pushed households and businesses with capital into self-generation. Rooftop solar and batteries are now essential infrastructure for those who can afford them. But the rest remain tethered to a weakening public grid. The burden shifts downward. The gap widens.

In Nigeria and parts of urban West Africa, self-generation already exceeds grid supply. Rooftop solar has become a private necessity for those able to pay upfront. A few commercial banks have stepped in with retail energy loans, but these remain limited. The fundamental challenge is not just one of planning: It is a failure of financial design.

A dual mandate for energy must be matched by a dual mandate for finance

If Africa’s energy systems now operate along dual tracks – centralised and decentralised – then climate finance must adopt a corresponding dual mandate. It must move beyond the conventional focus on sovereign borrowers and large developers. It must recognise and resource the networks, enterprises and end-users who are actively deploying and using clean energy every day.

This demands two distinct but interconnected financial approaches.

The first is infrastructure finance. It supports utility-scale generation, national grid upgrades and public-sector planning. It draws on multilateral capital, sovereign guarantees and institutional risk-sharing. Its role is foundational.

The second is consumer and trade finance. It enables the retail layer of the transition: small-scale energy assets, cross-border component imports, leasing and end-user credit. It supports working capital and FX availability for traders, microloans for households, and diaspora flows that finance climate-aligned goods. This is the layer where distribution occurs, where scale becomes diffusion.

The challenge is not a lack of capital. The challenge is a lack of capital that is structured to meet real needs. Climate finance must stop treating individuals and enterprises as passive beneficiaries. They are principals to transactions necessary for decarbonisation.

The missing piece: local currency climate finance for consumers

This is where the solution lies. Africa’s households, traders and small businesses are ready to invest in clean energy assets, yet they lack access to the right kind of capital. Grants and donor programmes can catalyse pilots, but scaling requires predictable, affordable credit in local currency structured to match real incomes, repayment rhythms and the cash flows of informal enterprises.

National development banks (NDBs) must now step forward. Their role is to catalyse a retail-scale climate finance ecosystem, working not as direct lenders but as refinancers and risk aggregators for commercial banks and fintech platforms.

They should establish wholesale credit lines priced competitively in local currencies. These lines must be paired with flexible loan tenors, transparent pricing models and accessible terms that local consumers can understand and trust.

To crowd in private-sector participation, NDBs should structure blended guarantee pools and first-loss facilities. These reduce lending risk for banks and fintechs while rewarding performance and credit discipline. This lowers the threshold for entry and expands the reach of capital.

Beyond origination, the focus must shift to capital recycling. NDBs can aggregate these consumer loans into standardised, securitisable tranches feeding both domestic and international green bond markets. With uniform documentation, real-time monitoring and credit enhancements, retail energy portfolios become investable assets.

Crucially and critically, NDBs must engage central banks to support local-currency swap lines and liquidity facilities. This converts international funding into usable local instruments and local currency receivables back into foreign currency payables, thereby building confidence across both domestic lenders and international investors.

Finally, the informal economy must not be excluded. NDBs should accredit community savings groups, mobile-money aggregators, and rural trade networks as trusted distribution and repayment partners. These actors are already embedded in the energy economy. Recognising them as legitimate financial conduits is not just inclusive but pragmatic.

The result is a layered, localised and investable retail climate finance architecture capable of powering households, equipping traders and strengthening Africa’s domestic financial markets from the bottom up.

Conclusion: from megawatts to markets

Africa’s energy future will not be defined by any single project or sovereign plan. It will emerge from a system of systems: technical and financial, centralised and decentralised, formal and informal. It will be shaped by decisions made not only in ministries and boardrooms, but also in households, shops and trading networks across the continent.

Electrification will not come only from state action. It will come from private choices made under economic constraint. Those choices depend on the structure of available finance.

Redefining climate finance is not about expanding eligibility lists. It is about aligning instruments with the actual mechanics of the transition. The agents of change are already moving. What they require is recognition, structure and support.

The infrastructure of Africa’s energy transition is no longer only physical. It is financial. It is time to build it. And it is time to centre the consumer within it.

When bankers, policymakers and investors gather to discuss climate finance in Africa, they must remember who this transition is for. It is not just for systems. It is for people. These people need finance – especially consumer and trade finance – and climate finance needs them. If the energy transition is to be delivered, concessionary local currency consumer financing and readily available foreign currency trade finance are urgently required.

About the author

Ebipere K. Clark

Ebipere K. Clark is a seasoned consultant specialising in capital markets, energy and infrastructure sectors, climate action policy and finance. He is the Managing Partner at Frontier-Alpha LLP and has held key advisory roles, including Special Adviser to the Governor of the Central Bank of Nigeria and Technical Adviser to the CEO of the Infrastructure Corporation of Nigeria (InfraCorp).