In his introductory remarks the moderator elaborated on the significance of scale in green microfinance. There was no dearth of interesting pilot projects and experiments, but few that had succeeded in scaling up for various reasons. As a result many green microfinance products remained unavailable, unaffordable or unsuitable for many household-enterprises. The purpose of this panel was to elaborate the factors that helped to scale up and commercialize green microfinance products. He invited the panellists to share what they saw as key lessons.
Cristina ALVAREZ introduced Babyloan, their crowdfunded philanthropic lending platform that enables individuals to lend from as little as € 10. In 2015, Babyloan began the ´access to energy´ project and in 2016 launched a peer-to-peer platform that funds micro-entrepreneurs and end-consumers who want to acquire energy solutions. Since then, the project has lent over € 115K to 300+ clients in five countries. Alvarez highlighted the challenges experienced: technical assistance, funding marketing and size limit, as they cannot fund large MFIs.
Alexandre COSTER presented the affordable and innovative products for energy, health and education which Baobab+ delivers. The two-year-old company has built its model around finding the right blend between finance, distribution and data. Baobab+ has equipped 50,000 homes with solar power, offered Internet and mobile devices to 6,000 homes and served 10,000+ people with filtered water. Coster attributed the growth of his company to the pay-as-you-go (PAYG) model combined with a lease-to-own approach & the collection of big data that enables reliable clients to gain access to micro loans.
Carolijn GOMMANS, from Enclude, shared three key lessons learned from the field to increase chances of success and scale-up. Gommans firstly elaborated on the importance of design with four sub-points: green approaches need to be integrated from the on-set and not as an afterthought; partnerships are crucial as they are needed to acquire new customers and to reduce risks; be cautious of credit because other financial services could potentially work better; and finally, design should always keep the end goal in mind. Secondly, Gommans explained that the business case needs to be looked at from multiple levels including the user, processor, distributor and financier. Thirdly, to attract additional capital, Gommans mentioned that it is crucial to know the exact amount of capital needed as well as the risk for an activity. This defines which investors and / or development partners are viable.
Laura SABOGAL, from MicoEnergy International, described her experiences of working at the intersection between financial and energy inclusion. Sabogal shared the challenges faced at different levels when trying to scale up inclusive green finance. MFIs lack awareness of potential clients and have weak or no partnerships with technology suppliers. Tier 2 banks have limited information on the various stakeholders and their exact roles. Finally, multilateral entities also have limited information about stakeholders; they would need to strike a balance between traditional and innovative banking approaches. Sabogal highlighted that all these factors contribute to the concern of return on investment and explained that poor communication also feeds into the failure of schemes. Sabogal then shared four success factors that limit these challenges: coordination of stakeholders, capacity building & knowledge exchange, innovative banking and service strategies, and finally the importance of tailor-made solutions.
The moderator, Balkenhol, asked the panel what the ideal MFI would have to look like: one with year-long exposure to market trends or one in earlier stages. Gommans stated that it all depends on the commitment of the MFI. This point was also shared by Alvarez and Sabogal. Sabogal elaborated further stating that an MFI's motivation and understanding is vital to the success of a scale-up. She shared that it is key for an MFI to factor in technology and to be open to change. Coster explained how Baobab+ is flexible and continuously seeks to understand clients' needs. For example, they now also offer ‘top-up' loans to clients without the need for them to get a whole new loan.
The moderator then requested Coster to shed some light on the FinTech's perspective concerning the role of MFIs. Coster responded FinTech cannot work competitively without MFIs. He stated that the PAYG approach is expensive and challenges exist in reaching a breakeven point. FinTech companies can supply payment data and the MFI facilitates the business by keeping the financing element affordable and ensuring that the position of the lender remains respected. This will facilitate the expansion and outreach of FinTech innovations. Alvarez, Gommans and Sabogal agreed with this view by expressing that credit management can work efficiently through partnerships.
In conclusion, Balkenhol asked the panel to identify possible constraining factors in the funding they received. Gommans shared that there is limited funding for designing and piloting projects. Coster added that the beginning phase is tough and more space to pilot would be very useful but also expensive. Sabogal added to Gommans' point that more knowledge, examples and technical assistance are necessary.
A member of the audience asked the panel to share their thoughts on how a partnership between MFIs and Fintech can reach scale. Sabogal indicated the main factors that should be considered for a successful scale-up: demand analysis, willingness to pay, resource assessments, profiling of customers, sampling & testing of technology and supply analysis.
The discussion then focused on the potential of the PAYG approach, with a member of the audience asking Coster to explain his challenges. Coster shared that the PAYG model faces challenges in rural areas, and is not always the best approach due to lack of mobile coverage and limited financial services. Other models such as fixed daily, weekly or monthly payments can also be used.