How International Capital Finances Commercial & Industrial Solar Projects in Sub- Saharan Africa A Qualitative Case Study of Frictions, Mechanisms, and Development Mandate in Kenya’s Intermediated Financing System

Abstract

Across sub-Saharan Africa, the capital that finances commercial and industrial (C&I) solar PV projects stems primarily from international development finance institutions (DFIs). DFIs are publicly funded with a mandate to finance what private capital would not, called additionality. They primarily invest through an intermediated chain in which intermediary funds finance developers, who build and operate the projects for offtakers. Existing research focuses on DFI finance at the deal or portfolio level, so how capital and requirements move through the intermediary layer to the final beneficiary is poorly understood. This thesis uses a qualitative abductive method with the Kenyan C&I financing system as an instrumental case. It maps the actors in the chain, identifies the frictions arising between them, and evaluates the outcomes against the additionality mandate. The study draws on 23 interviews and on information asymmetry and principal-agent theory to explain the underlying mechanisms. The conditions DFIs impose at the top, such as environmental, social, and governance requirements and credit checks, cascade down the chain. Intermediaries pass them on while adding their own monitoring and reporting costs at each step. The cumulative burden falls heaviest on developers, and the chain functions as a filter, selecting those who can carry it and excluding those who cannot. Measured against the mandate, financial additionality (lending where private capital will not) holds deal by deal because local capital is absent. At the market level, it is weaker, held back by this filter and by capital that arrives after commercial investors have priced the early risk. Developmental additionality (the standards DFI capital brings) holds through stronger environmental and social requirements, stronger credit discipline, and technical assistance. The two are linked, however, and cannot be improved independently. The additionality framework is therefore more useful for describing trade-offs than as a separate test on each measure.