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2017-02-24 | project

Could provision of a micro credit induce electricity uptake? Evidence from a randomized controlled trial in rural Tanzania

Against the background of low connection rates and low electricity consumption in recently electrified villages, the purpose of this project is to improve the understanding why people connect and invest in electric appliances and why they do not. Therefore, we implement an intervention that will induce actual demand for the on-grid electricity indirectly through an establishment of micro-business or purchase of electric intensive household durables. This will help to design measures to increase connection rates and thereby to increase the effectiveness of electrification interventions in terms of socio-economic development. Furthermore, an increase of consumption levels in recently electrified areas could render electrification interventions more profitable.

Several governments in Sub-Saharan Africa have invested billions of US dollars to improve rural access to on-grid electricity. Since 2007, the government of Tanzania has devoted significant effort and resources on rural electrification program. Despite heavy subsidies accompanying the rural electrification programs, the actual connections by the households have remained low even among those residing along the grid-line.

The proposed study aims at studying reasons for non-connection and low consumption patterns in recently electrified areas. Following a randomized control trial (RCT) design, we will study the role of liquidity constraints. For this purpose, we will provide a randomly selected subset of connected villages with access to tailored micro-loan products and analyze whether access to specifically designed micro-loans increases connection rates and electricity consumption. In particular, in micro-enterprises, electricity consumption is expected to rise through higher appliances uptake. Entrepreneurs are seen as an especially important customer group to trigger growth by providing electricity access. The “business menu” is carefully prepared to accommodate only the contextually relevant enterprises that require on-grid electricity to run. We then monitor these households to document the impact of such intervention on rural electricity uptakes.