Welcome to Speakers Corner 37 on Microfinance and Energy
Greetings from USAID’s Bureau of Economic Growth, Agriculture and Trade (USAID/EGAT), and welcome to the 37th Speakers Corner on, “Microfinance and Energy: Scaling Up Energy Access through Enterprise-Based Approaches and Innovative Financing.”
Many thanks for registering for this discussion on our new web platform. We hope you will find that the new-and-improved features bring an enhanced experience for sharing and disseminating knowledge around microenterprise development. Of course, we are continuing to explore further refinements with each successive Speaker’s Corner and welcome your comments and feedback. Please feel free to contact the microLINKS team at speakerscorner@microlinks.org with any questions on how to participate.
Over the next three days, this forum will host discussions on microfinance and energy – the key objective being to better understand the role microfinance can play in helping the poor gain access to small scale energy technologies.
During day 1, our discussion will focus on “Current Status and Successful Models.” What types of energy companies and financial institutions are already serving the poor? What are the various ways of financing clean energy products for lower income, rural and/or marginalized individuals? What kind of MFI is more willing to take up lending for energy? And how do the energy and microfinance sectors define success when it comes to energy lending?
Day 2 will discuss “Opportunities and Challenges.” What are the barriers to entry and growth for both energy companies and financial institutions? And what impact has the financial crisis had on microfinance institutions' appetite for "non-core" products like energy, on funding flows from developed to developing, and how quickly both sides are willing to roll out and grow energy loan portfolios?
The discussion on day 3 will continue with a focus on “The Path Forward: Scaling Up.” Can innovations in product design or mobile banking make a difference? What comes first: commercial viability or scale? What resources are or need to be available to energy SMEs and MFIs to guide their thinking, pilot development, launch, and growth of energy lending portfolios? What kinds of capital are needed to get to scale? What is the right balance of public and private funds along this path and how are they managed?
Many thanks to the panel of guest facilitators who will be bringing in their vast knowledge and experience to the forum. I’d like to get the ball rolling by passing the baton to Ellen Morris from Arc Finance and David Levai from the Center for Financial Inclusion who will kick off the discussion and facilitate day 1.
Looking forward to three days of interesting discussions, sharing and learning.
Jeff Haeni and Carissa Page, USAID
Dear all,
I am Norbert Tchouaffé from Ministry of Environment and Protection of Nature, Cameroon.
I think microfinance Institutions could possibly fund project like converting waste to renewable energy in order to alleviate poverty, by creating jobs in developing countries.
The enormous increase in the quantum and diversity of waste materials generated by human activity and their potentially harmful effects on the general environment and public health, have led to an increasing awareness about an urgent need to adopt scientific methods for safe disposal of wastes. While there is an obvious need to minimize the generation of wastes and to reuse and recycle them, the technologies for recovery of energy from wastes can play a vital role in mitigating the problems. Besides recovery of substantial energy, these technologies can lead to a substantial reduction in the overall waste quantities requiring final disposal, which can be better managed for safe disposal in a controlled manner while meeting the pollution control standards. Currently in our department we are looking forward to develop new ways to recycle waste by generating electricity from landfill waste and pollution.
I am willing to hear from similar projects.
Best regards.
Norbert
Dear All,
After twenty plus years in Africa as a diplomat and hydrocarbons exploration manager, I founded SunNight Solar - we design and manufacture portable solar powered electronic lighting devices - solar flashlights - www.bogolight.com is our website. I wanted to add to this excellent discussion that for lighting, the three technologies we use, solar photovoltics cells, rechargable batteries and light emitting diodes are all doing the same thing - getting lower in cost and becoming more reliable, with considerbely higher performance. While I fully agree that capital is a huge issue - people are already spending as much as 30% of dispobsale income in kerosene, candles and conventional flashlights; but they are just doing it at .75 or a $1.00 at a time. The great news about the lower cost - higher performace is this - I can sell profitablly a light for $10.00 ex-works, with a NiMH battery, 1200 Mah, PET/EVA encapsulation (high tech plastic which has 100 percent UV protection against darkining for ten years) and a Nichia (leader in the field) Raijin LED which will last for at least ten years. In Haiti, where President Clinton just bouught 20,000 lights, one light will impact ten people due to the population density in Port-au-Prince - ten years, ten dollars, ten people each night - pretty amazing. The science is here - and the cost is now at a point where credit is important, but the market now in great expansion to the masses. We are at a 'tipping point' and again, thanks for the great discussion.
Mark Bent
CEO and President SunNight Solar
Hi Everyone,
It would be great if you could start posting on the Getting Started section...
Thanks for your excellent contributions so far!
Ellen
In order for MFIs to have successful relationship with their clients, the latter must be able to fulfill his/her mandate. What are the perennial set-backs in establishing the said relationship?
Hello all,
I am interested in knowing about the current energy financing models that serve the poor, where they have been used ........... Also are the financing models limited to energy or they can be used to finance other projects and ventures such as agriculture, business enterprises etc.
What are the energy specific challenges facing the financing models for the poor?
Best
George
Hi George,
Generally some of the challenges of financing energy products for those living in poverty are the following:
1. Many times the energy products that MFIs are promoting are inappropriate for the market and too expensive for the rural poor. To move a person from using kerosene to larger solar is not financially viable. Keep in mind that if people are moving from kerosene for lighting to microsolar they are not really willing to risk more than 2-6 months worth of kerosene expenditure.
2. Many MFIs do not want to lend very small amounts that match energy products. For example rarely would an MFI in Kenya lend 2000 ksh but 2000 ksh is enough for a family to purchase microsolar products with phone charging that would have a pay back in 2-4 months.
3. MFIs are risk adverse when it comes to energy lending as there have been so many failures in models when the MFI is left holding a loan that a person is refusing to pay because the solar broke (or they misused it) and they cannot get the installer to follow up thus they refuse to pay the loan.
4. MFIs do not necessarily reach the grassroots markets
Self Help Groups, SACCOS and Merry go Rounds are alternative ways of financing energy products.
Eliza
Dear Eliza,
The company I work for, is currently piloting a project to rent out small solar products or provide the product on a rent-to-own basis (long term payment with ownership of the product for the consumer after 1 or 2 years). We produce the solar lanterns for this project, targeted at a south-east asian rural market.
In this system we are looking for MFI's to provide a loan to the micro entrepreneurs to start up a business renting out solar lanterns. This way not the individual products are micro-financed but the business providing the product is micro-financed.
We are now looking into scaling up this initiative.
I am looking for similar projects that have already undergone this scale-up. We would know to see if this type of setup has been proven on a larger scale, at this time. I am interested to find out which enablers and barriers exist for the scale-up of these type of projects (also non-financial) and how they have been solved in other projects.
With kind regards,
Willemijn
Hello George,
In rural areas, the bulk of the energy is consumed at the household level. Its supply is met basically from traditional sources (i.e. wood fuel and other forms of biomass, including residues) hence by nature the difficulty in collecting this sort of data.
Further, rural energy systems in some areas may include diverse sources such as biogas, micro-hydro, solar and wind power, mostly at a small scale. The energy is primarily used for cooking food for the family and feed for the livestock The energy requirement of other sectors is quite limited or insignificant in most rural areas.
I believe that for these reasons financing energy projects has yet not taken off. The energy specific challenges are many. Therefore, it is difficult to generalize about rural energy systems purely in terms of explaining only one of the different traditional energy sources that are commonly used in rural areas or purely from the point of view of wood energy alone. The same may apply also from the point of view of identifying strategies for its development - a holistic approach on a case-study basis is required.
Regards,
Karan Sehgal (IFAD)
Dear Karan and George,
Thank you for your contribution so far.
My name is Patricia Kawagga and I work with FINCA Uganda.
FINCA Uganda is currently offering a solar loan product to both its rural and peri-urban clients. FINCA is using the “two hand lending model” where by partnerships are made with different solar entrepreneurs/dealers that are pre qualified by the private sector foundation as a way of checking quality assurance. This model ensures that both parties ie the solar entrepreneur and FINCA do what they know best. FINCA does the financial assessment, loan approval and monitoring while the solar entrepreneur/dealer engages the technical aspect of client energy needs assessment, generating quotations, installation and after sales. This agreement is cemented by the strong MOU’s signed between FINCA and the several dealers it works with across a network of over 25 branch offices. This model has been under pilot and proved to work very well in Uganda and is currently on the level of scale up. To date at least 600 clients have been able to access this loan product for both household and business.
Based on my experience here at FINCA am confident that MFI play a huge role in scaling up energy access through innovative financing by designing loan products that match the clients cash flow while considering the current energy expenditures per household as a way of assessment of capacity to pay of their clients.
Hello all,
I am interested in knowing about the current energy financing models that serve the poor, where they have been used ........... Also are the financing models limited to energy or they can be used to finance other projects and ventures such as agriculture, business enterprises etc.
What are the energy specific challenges facing the financing models for the poor?
Best
George
Hello George,
As far as I know, most governments are supporting the poor through low-energy prices, distribution of power is exempted from tax if properly registered. That is, in the Philippines.
I did set up a financial model and trying to get it to work which integrates agriculture and energy deliverance altogether. The business (of producing fuel from vegetable origin) needs power, can produce much more power from the residues and the "waste" produced is a fertilizer for the agriculture. Simple 1 product is not a viable option. There has to be a number of side products to make it a profitable enterprise at all.
Energy specific challenge is to get the low energy value bio-mass at the processing plants without too much transportation.
What I have seen in India, Sri Lanka, and China is that energy subsidy is a VERY BAD issue that is not helping the poor at all. They use 3-5 times more energy at 20% of the price ...... in other words they can pay the full price using energy efficient appliances creating a sustainable future for all.
We need to see how we, together with providing energy, also provide energy efficient "appliances/lamps etc" this way we can provide substantially more people access to the energy financed and eliminate the tendency to buy cheap inefficient "appliances" because it doesn't cost anything to operate. This is in my opinion the biggest challenge to create a sustained electrification of the 100s of millions of people with no or minimal electrification.
The positives are the financing is bigger, the negatives are that it requires bigger "programs". Programmatic CDM is supposed to help, but is in reality extremely difficult to implement in a way it provides meanigful additional financial incentives.
It may not be fair to generalize that subsidy for energy service is always bad. In many cases a smart subsidy not only reduces the cost to the households but also helps to ensure the quality of the system installed. Especially in domestic biogas program subsidy is instrumental to ensure the quality of the plants installed. Thats why the subsidy is termed as quality ensuring discount in some cases. In many national domestic biogas programs in Asia and Africa, such discounts given to the households are being channeled through the biogas construction companies. In this way the quality ensuring discount serves a dual purpose:
- The quality ensuring discount creates program leverage by means of a controlled payment mechanism coupled with a penalty system on fault detection on the quality of the services as provided by the biogas companies.
- The discount introduces the quality control system by mobilizing users and constructers and helping them in overcoming the risk of trying out the new technology.
Subsidy is designed in such a way that, it is attractive enough for companies to follow the quality standards set by the program and encourage the companies to go out to the rural areas to sell the system. Experiences show that around 20-30% of installation cost is appropriate and this level of subsidy is being practiced in number of national biogas programs. Subsidy works as CARROT and STICK for the biogas companies
Even with this level of subsidy there is always a role for credit so that the households, which cant afford to pay the upfront cost of the system at once, can also enjoy the benefits of the technology.
Regards,
Prem
