European Microfinance Week 2014

PRESENTATIONS

Marion ALLET underlined the importance of energy access by providing some stunning figures: 1.3 billion people lack access to electricity and 2.6 billion people lack access to clean cooking facilities, especially in rural areas. This severely curtails local development and negatively impacts livelihoods and the environment. Although technical solutions are available, outreach to populations in need and overcoming financial barriers of high initial costs requires appropriate delivery channels and financing mechanisms. This session looked at the possibilities microfinance offers, with their frequent access to low-income clients. It uncovered lessons learned and identified opportunities to scale up initiatives.

Bold MAGVAN of XacBank explained how there is a clear link between his institution's social mission and clean energy. Engaging with energy was a necessity from different perspectives. XacBank clients spent up to 50% of their incomes on energy during Mongolia's harsh winters, jeopardizing their livelihoods and the financial stability of the institution. In addition, older heating stoves were jeopardizing family health and added to the massive pollution plaguing the capital. To amend this situation, XacBank started a project through which it offered energy efficient and low-emission stoves to the urban population. In a multi-stakeholder effort, the bank developed financial products to finance the stoves, while the government helped register households who might be in need of stoves. XacBank also worked with donors and NGOs for funding and accessing carbon credit markets to reduce costs. Finally, the institution worked with technical providers to develop suitable stoves.

Hadley TAYLOR added to our understanding of possible impacts and partnership models by providing us with best practices from Bangladesh where 3.2 million solar home systems have been installed so far. In this case, a national apex body was set up to manage the Solar Home Systems programme. The apex body works with partner organisations (POs), both MFIs and accredited technical providers to implement the programme. Certification of technical providers, either separate enterprises (two-hand model) or technical subsidiaries of the bigger MFIs (one-hand model) is done according to quality standards established in the programme. The programme has proven particularly successful due to the competition between MFIs which greatly reduced costs to end users. Moreover, non-performing POs are not refinanced in consecutive rounds, ensuring partners keep up quality standards. After such success in Bangladesh, the challenge at hand is now replicating this model, which Allet added requires a strong government buy-in.

Carla PALOMARES provided insights from ADA's experiences with green energy in Africa. ADA strives to develop win-win scenarios between financial services providers, either national MFIs or smaller local NGO-type service providers, and technical providers. On the one hand, offering energy products allows MFIs to diversify their product portfolio, meet client needs and support client livelihoods. On the other hand, technical providers can leverage MFI networks and financing options to increase sales and earn income through distribution and after-sales services. In turn, ADA provided technical assistance, promotional activities, and worked on awareness building and expectation management between partners. Palomares mentioned several prerequisites related to replication and upscaling possibilities of the project:

• Client education to translate demand for energy solutions into demand for energy finance products.
• A strong management buy-in.
• Products fitting the MFIs strategy.
• Technical assistance to both the MFI and the technical provider to train staff and establish adequate procedures.
• A suitable ecosystem: are the supplies there? Do suppliers have the resources needed to satisfy demand? Is there sufficient demand to reach scale?

Marion Allet added that these lessons show that in addition to developing financial products and procedures, we need to build trust and common understanding between microfinance institutions and energy technology companies in terms of expectations and objectives before green energy initiatives can become successful. Facilitators have a key role to play in this. This makes replication and upscaling without outside support difficult. Palomares underlined the potential of a train-the-trainer set-up to satisfy such needs for technical assistance by providing an example from the Philippines. In this project the Frankfurt School and MicroEnergy International trained the national MFI network to provide green energy services to the financial and technical supply chains.

Patrick REICHERT presented an alternative model which worked without MFI involvement. Pay-as-you-go solutions present a different business model to enable households to make investments in solar solutions. The model considers solar energy as a service. The technical service provider offers an operating lease with clients paying in a similar manner as they pay for air-time, through energy pre-paid cards. Once they have paid off their system they get free access. The familiarity with pre-paid systems ensures the model is easy to use. Excellence in quality and servicing the solar systems is prerequisite to make the system work. This is embedded in the system as the technical service providers retain ownership of, and therefore have a vested interest in the device. Reichert explains that MFIs or other service providers can play a role in this system by refinancing balance sheets of technical providers, by supporting repayment collection, and by leveraging their client base.

DISCUSSION

Asked about key success factors, Magvan underlined the importance of convincing households they can contribute to less pollution and healthier air in their homes. Reichert stressed that building trust between partners and from clients by delivering on promises is vital. Palomares highlighted the importance of increasing local knowledge in value chains and fostering understanding between them in terms of goals, expectations and roles. Taylor advised that in order to achieve scale, practitioners should look to possibilities of initially targeting the "less poor" clients to establish a working system, processes and infrastructure, prior to expanding to clients at the bottom of the pyramid.

Palomares further explained the different technical support roles of facilitators. She mentioned identifying interest among MFIs, identifying demand and client needs, devising marketing strategies and promotional materials and identifying suitable technical providers.

Lastly, the discussion turned to whether energy lending can be considered consumer credit. Allet agreed that some energy loans can be dedicated to technologies answering domestic needs but stressed that the risk profile does not resemble that of other consumer credit products as energy investments result in savings on household energy expenditures. To mitigate risks, some MFIs link the energy loan for domestic use to a productive loan, especially in the case of small solar systems. However, larger photovoltaic systems are usually not provided in conjunction with another loan to avoid overindebtedness. In terms of costs of the different models, Reichert explained that pay-as-you-go models would result in higher costs for clients. On the other hand, they provide a much faster application process, higher service levels and extend access to more clients.