European Microfinance Week 2019

PRESENTATIONS

Chiara PESCATORI opened the session by highlighting that more than 2 billion people worldwide do not have access to clean energy. She emphasised that access to clean energy is critical in meeting the SDGs, since it influences health, gender equality and business activities. Pescatori then explained the structure of the session, where individual presentations would be followed by a discussion in 3 rotating groups. 

Drew CORBYN, from GOGLA, provided a background on the organisation’s Consumer Protection Code (CP Code). He explained that GOGLA is an industry association comprised of 160 members, including sector specialists, traditional energy companies, DFIs and impact investors that focus on building sustainable markets for affordable and high-quality off-grid solar products and services to customers across the developing world. 

Corbyn then elaborated that solar products sold on a pay-as-you-go (PAYGo) basis entail finance, product and service risks to consumers. He explained that GOGLA recognises the importance of consumer protection for consumers, companies and the health of the sector. This led to the creation of the CP Code that was defined together with companies and investors. Corbyn explained that the CP Code is structured like the Smart Campaign, with a set of six principles that aim to address the full range of risks. It also includes indicators and a self-assessment tool for companies to measure and report on their performance. Corbyn then presented the roadmap for the initiative, and the plans to develop a third-party assessment scheme and consumer survey tool to help companies strengthen their practice.

Olivier MUTSAERTS, from Baobab+, explained that the organisation was launched in 2015, with the aim to provide improved access to energy and digital finance to rural populations, and to accelerate the digital and solar revolution in Africa. He detailed that Baobab+ is a member of GOGLA, and is now present in 4 countries, with 3 more expected in 2020.

Mutsaerts mentioned that Baobab+ offers a solar home system through payments in small instalments via mobile money, until clients reach 100% payment and full product ownership. Non-payment results in blockage of the product. He detailed that Baobab+ leverages 2 distribution networks: existing clients are reached via MFI networks, and non-existing clients are reached via PAYGo technology / Baobab+ network. Mutsaerts revealed that most of these clients have no credit history, and often have difficulties to access financial products through other MFIs. He then explained that Baobab+ uses the PAYGo system as a financial inclusion mechanism, by collecting the reimbursement data of clients and collaborating with other MFIs to establish a payment track record for them, thus enabling their access to broader financial products.  

Mutsaerts also detailed a pilot project implemented in partnership with CGAP, aiming to transform PAYGo clients into MFI clients. He revealed that 65% of the PAYGo clients were interested in a loan, and that 92% of the loans were reimbursed within the payment schedule. Mutsaerts noted that the next steps of this project include improving the client experience in relation to the on-boarding process and offering higher-amount loans, which will give MFIs more confidence about clients’ repayment capacities. 

Linked to Mutsaerts’ presentation, Daniel WALDRON, from FIBR/CGAP, presented the results of a CGAP paper called “A Tale of Two Sisters: Microfinance Institutions and PAYGo Solar”, which documents how Baobab+ and FINCA have worked with their PAYGo solar partner MFIs in Africa to acquire new customers and offer existing customers new financial products. Waldron elaborated that MFIs are good at financing energy for their own clients, but not as good in outreach to clients outside of their network, and often have difficulties outsourcing credit. He added that PAYGo systems can thus have a multi-directional impact, by improving the value for the existing client base, while bringing in clients to MFIs outside of their existing network. He added that opportunities for clients do not have to stop at solar, and that other products can be an avenue to bring more people to the microfinance system. 

Yekbun GURGOZ, from Climate and Clean Air Coalition (CCAC), talked about the work of CCAC and the different business models of cooking stoves implemented in various projects worldwide. She presented key figures: 3 billion people worldwide, or 500 million households, rely on solid fuels to cook. As such, cooking stoves have a major impact and cover a wide range of SDGs; for example, indoor air pollution has been largely overlooked, but it is the biggest global environmental health risk threatening people’s lives. 

Gurgoz noted that various cooking stove projects have largely failed due to their lack of financial viability or scalability, their inability to substantially reduce air pollution or because they were not attractive enough for users to functionally replace traditional stoves. She then presented 3 different business models of cooking stove programs that implement innovative and scalable solutions: 1) SMARTGAS, piloted in Kenya, Tanzania, Rwanda, and Ghana, consisting of ‘pay-as-you-cook’ solutions to increase LPG affordability by allowing users to decrease upfront purchase price; 2) KOKO Networks, supporting a pilot in Kenya that integrates bioethanol into existing fuel supply chains by using gas stations for ethanol distribution with the aim to improve fuel economics for consumers and make ethanol a clean and affordable alternative cooking fuel; 3) Nexleaf Analytics’ initiative in India and Nigeria, using sensors to send real-time cooking data over mobile systems to enable clean cook stove users to receive climate credits for reducing SLCPs like black carbon and ozone precursors.

DISCUSSION

In a World Café format, the different presenters spoke for 10 to 15 minutes with 3 different groups. Given the session’s dynamic, the discussions which took place in each one of these sub-groups follow. 

Mutsaerts and Waldron commented on questions concerning the sustainability of solar energy business model compared to one on cooking stoves, and the main lessons learned from MFIs. Waldron commented that the business model of many energy product providers is not yet fully sustainable, since many companies focus too much on scale, and not enough on credit risk management. He estimated that companies investing in this element would have more longevity. Waldron pointed out, however, that it is important to keep in mind that energy products still need to retain their flexibility and inclusion elements, which are true MFI principles.

Mutsaerts added that many companies working in the field of inclusive energy products are young and dynamic. He elaborated that the sector is experiencing a second wave in PAYGo companies, where providers are becoming more focused on one service instead of covering the entire value chain. According to him, this has created a need for them to partner with companies that cover other services such as software development and distribution. Mutsaerts further explained that PAYGo providers are borrowing risk management lessons from MFIs and, instead of adding new customers, are looking more into adding quality to existing customers. 

Corbyn answered questions related to the application of Smart Campaign principles on financial education to solar finance. He clarified that transparency is one of the key elements in GOGLA’s consumer protection code, ensuring that clients are well informed. Corbyn also responded to a question about bad practices in solar finance, identifying the agent as the major risk factor. He defended that agents should be well recruited and well commissioned to avoid bad practices such as over-selling of products. 

In the discussion led by Gurgoz, she compared past and current programs dealing with cooking stoves. She commented that past programs were more focused on urban households, and also explained that such programs had a strong focus on stoves, and not on the fuel. Current initiatives focus on the fuel as well, generating interesting projects such as Inyenyeri in Rwanda with pellets. Gurgoz added that new technologies are able to monitor adoption and usage much better, enabling business model adaptations, but that technologies such as sensors are still expensive. She also noted that new initiatives should move towards consumer-centric models, and learn from previous successes and failures.

1 www.gogla.org/consumerprotection