issue 2 MAy 2015
Customers First! Finding Breakthroughs in Energy Access Finance country profile
A closer look at Ethiopia
Nepal
One year down the road
partnership
The innovative partnership between Schneider Electric and PAMIGA
cleanstart connections
contents
2 Contributors
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4 CleanStart: Microfinance opportunities for a clean energy future 7 main feature Story
Putting the Customer first: good for business and good for innovation
Microfinance institutions CleanStart’s two financial institution partners in Nepal have big ambitions in expanding access to clean energy for their clients.
i nvesting in cambodia’s energy future Sun-eee seeks to bring electricity to thousands of people in underdeveloped areas of Cambodia. c ountry profile: ethiopia Decentralized clean energy becomes an obvious choice with the Government of Ethiopia aiming to achieve middle-income status by 2025 through carbon neutral economic growth. oromia credit and saving share company Alternative Energy Financing: Both a social obligation and a sound investment. Leading Light: abraha misghina
© UN Capital Development Fund 2015 localizing finance outside the capital cities can accelerate growth in local economies, promote sustainable and climate resilient infrastructure development, and empower local communities. Using capital grants, loans, and credit enhancements, UNCDF tests financial models in inclusive finance and local development finance; ‘de-risks’ the local investment space; and proves concept, paving the way for larger and more risk-averse investors to come in and scale up.
c ementing a cleaner baking future in ethiopia
A group of stove producers in Ethiopia dream of building a Mirt stove industry one stove at a time.
Social good investing How and why clean energy enterprises are topping the list. An interview with Robert Kraybill, Managing Director of Impact Investment Exchange Asia (IIX).
CleanStart Connections spoke with Abraha Misghina, the head of Ethiopia’s National Improved Cookstoves Programme within the Ministry of Water, Irrigation and Energy, to learn what makes the country’s household energy challenge so unique.
The United Nations Capital Development Fund (UNCDF) is the UN’s capital investment agency for the world’s 48 Least Developed Countries (LDCs). UNCDF uses its capital mandate to help LDCs pursue inclusive growth. UNCDF uses ‘smart’ Official Development Assistance (ODA) to unlock and leverage public and private domestic resources; it promotes financial inclusion, including through digital finance, as a key enabler of poverty reduction and inclusive growth; and it demonstrates how
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Financing for Energy Country Profiles First Person
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Julie Marks / UNCDF
Francesca Cioni / UNCDF
3 Editorial: Customers First! Finding Breakthroughs in Energy Access Finance
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pay-as-you-go Financing Digital pay-as-you-go financing is transforming the way people pay for energy.
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partnership CleanStart examines the innovative partnership between Schneider Electric and PAMIGA.
44 CleanStart’s approach to country-level engagement
contributors
editorial
CleanStart Connections wishes to acknowledge the time and contributions of:
CleanStart Connections Issue 2
DAMODAR REGMI
MAY 2015
Publisher UNCDF CleanStart
Senior Manager Department Chief on Institutional and Social Development Department, Jeevan Bikas Samaj (JBS), Nepal
Copy Editor Megan Cossey
surya prakash hada
Printer Advanced Printing Service Co., Ltd.
CleanStart Project Coordinator at Sana Kisan Bikas Bank Ltd. (SKBBL), Nepal
ABRAHA MISGHINA National Improved Cookstoves Program Coordinator, Ethiopia
SOV LEang Founder and CEO of Sun-eee Pte, Ltd., Cambodia
Abonesh Tesema Mirt stoves producer, Ethiopia
Robert Kraybill Managing Director of Impact Investment Exchange Asia, Singapore
Tefera Tesfaye District Director of Oromia Credit and Saving Share Company (OCSSCo), Ethiopia
Designer Pamela Geismar
front Cover photograph Abonesh Tesema at her home in Repi, Ethiopia, mixing cement to build stoves. (Yohannes Zirotti Oriste/ UNCDF) back Cover photograph Farmers in the Kavre district of Nepal grind corn using an improved watermill. (Narendra Shrestha/UNCDF)
Special thanks to the the Austrian Development Cooperation (ADC), Government of Liechtenstein, Norwegian Agency for Development Cooperation (Norad), and Swedish International Development Agency (Sida) whose generous financial contributions made this publication possible. The views expressed in this publication are those of the author(s) and do not necessarily represent those of the United Nations, including UNCDF, or their Member States.
Download a copy of CleanStart Connections or read online at: www.uncdf.org/en/cleanstart Follow us on Twitter @UNCDFcleanstart
Customers First! Finding Breakthroughs in Energy Access Finance
W
elcome to the second edition of CleanStart Connections.
products to choices in how they finance the purchase of those products. It is about putting customers first.
We are excited to finally get this second issue out. Thanks for waiting.
Partnerships are key if we want to succeed and accelerate energy access for the poor. With this goal in mind, more than a 1,000 representatives from government, international organizations, business and civil society, hailing from all over the world, will gather in May 2015 for the second annual Sustainable Energy for All (SE4All) Forum in New York.
Since the last issue, the team has been out and about exploring new countries and talking to people who get energized just talking about energy, including both entrepreneurs and customers. That energized us too. What did we learn as we went along?
We learned that microfinance institutions can be innovative. When it comes to energy, microfinance institutions sometimes have a reputation for being too rigid, unwilling to stray too much from the way they already operate. Yet what did we see in Nepal with our star partner, microfinance institution Jeevan Bikas Samaj (JBS)? A different story. No barrier is too high for JBS because they know their clients need better energy and they are committed to delivering it, even if it takes setting up their own energy company, which they did. At the same time, the market is changing very fast and we need to keep up to stay relevant. Even in 2012, when CleanStart launched, we were not hearing much about the pay-as-you-go model being applied to energy access. Then … boom! More than US$40 million worth of investment went into this business in 2014 alone. Pay-as-you-go financing is definitely transforming the market, with estimates that more than three million pay-as-you-go solar systems will be sold by 2019. Could it be that the full potential of mass-market clean energy for the poor is about to become realized? At the end of the day, we all want the same thing: the ability to offer people a range of choices, from choices in clean energy
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It is a timely gathering as we enter a post-2015 era, which is ushering in the Sustainable Development Goals. A prominent part of Goal Seven is “ensuring access to affordable, reliable, sustainable and modern energy for all.” The Forum’s theme this year is “Financing Sustainable Energy for All,” a recognition of the integral role financing plays in making energy for all a reality. Research shows that aggregating small-scale energy projects into large enough pools to reduce transaction costs for investors and attract additional finance could result in up to US$25 billion in investments. Unleashing capital at the right time and place can make or break these businesses. But we have every reason to be optimistic. There is a relentless drive in the market to understand what customers want and we are seeing opportunities transform into breakthroughs. CleanStart aims to support more of these. The stories in this issue of CleanStart Connections will speak for themselves. You will be impressed at how resourceful people from different corners of the globe can be when it comes to energy. – The CleanStart Team MAY 2015
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CleanStart microfinance opportunities for a clean energy future
CleanStart supports low-income households and micro-entrepreneurs to jump start their access to clean energy through microfinance. It encourages greater financing choices for poor people, supported by high-quality technologies and services, and enabling ecosystems for energy and financial service providers to achieve scale and impact.
Finance for Clean Energy to develop scalable consumer and enterprise financing models. Technical Assistance for Clean Energy to increase the scale potential of financing models by creating a supportive business ecosystem. Knowledge and Learning to promote awareness and customer-centric growth. Advocacy and Partnerships to co-create a policy and business environment that supports energy microfinance to reach scale.
OUR LONG-TERM VISION CleanStart aims to dramatically scale up energy financing for the poor through a market-based approach in a large number of developing countries with high levels of energy poverty. This would build on: • validated financing business models; • commercialization of technologies and services that offer value to low-income customers;
Yohannes Zirotti Oriste / UNCDF
CLEANSTART’S FOUR COMPONENTS
• critical mass of technical and managerial capabilities; • expanding knowledge base from research and network of partners; and
Charcoal for sale on the road from Addis Ababa to Arsi Negele in Ethiopia.
• evidence-based advocacy in energy microfinance.
original CleanStart Business Model for financing clean energy
CleanStart
Preinvestment assistance
Risk capital grants
Concessional loans
Product design & testing
Financing for clean energy
loan/lease
= CleanStart support =F inancial service providers
$
>
>
$
repayments >
= Energy suppliers = End users
payments >
Brokering partnerships
$
Francesca Cioni / UNCDF
tech/service
CleanStart’s partner ACE Development Bank in Nepal explains the bank’s loan tracking process.
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WHAT DOES UNCDF MEAN BY CLEAN ENERGY? Clean energy includes renewable energy (e.g. solar), low greenhouse gas-emitting fossil fuels (e.g. liquified petroleum gas) and traditional fossil fuels that, through the use of improved technologies and practices, produce less harmful emissions (e.g. improved cookstoves).
snapshot By 2017, close to 600,000 clean energy
technologies will be installed, which translates into 300,000 tonnes reduced CO2 emissions.
Launched in 2012, CleanStart was developed in collaboration with the United Nations Development Programme, United Nations Environment Programme, Frankfurt School of Finance and Management, MicroEnergy Credits, MicroEnergy International, Arc Finance and Columbia University. MAY 2015
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main feature story
Putting the Customer first: good for business and good for innovation Energy enterprises and microfinance institutions have much to gain by joining forces in order to offer a range of financing options that customers are increasingly demanding. Participants at a global forum jointly organized by the Participatory Microfinance Group for Africa (PAMIGA) and UNCDF offered their perspectives on the real innovation that can occur in the world of energy access financing through such collaborations.
Zeleman / UNCDF
Victoria Arch, cofounder and Director of Strategy at Angaza Design holds up a solar lantern that has a pay-as-you-go chip embedded inside.
I
n recent years there has been a surge in new partnerships between energy companies, product distributors, microfinance institutions and even mobile phone operators to deliver cleaner and more efficient energy solutions to the poor. These partnerships aim to tap into the mass market demand for cheap and sustainable energy access. Currently, 1.2 billion people worldwide lack access to electricity, and 2.8 billion people do not have clean and safe cooking facilities. According to the Sierra Club’s 2014 report Clean Energy Services for All, the energy access industry, excluding grid extension, is worth an estimated US$200 to US$250 million annually. An October 2014 global forum on using microfinance to connect the poor to clean energy and water in Addis Ababa, Ethiopia, showcased the diversity of partnerships being struck. Indeed, more than 100 people from 10 countries in Asia and Africa attended the forum—jointly organized by PAMIGA and UNCDF—representing a variety of organizations, from energy companies and financial service providers to governments, private investors and development agencies. Over the course of two days, the forum examined and discussed a range of partnership models, particularly those between energy companies and microfinance institutions, an area where much has been attempted but results have been mixed. Such partnerships often consist of energy companies simply piggy backing on microfinance institutions’ established client base and branch networks; meanwhile, the microfinance institutions do a minimal adjustment of their existing loan products to include energy lending. Breaking into the potential market, however, will take a greater willingness to explore new ways of doing business by both sets of players.
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main feature story Microfinance experience offers food for thought for the energy sector There are several parallels that can be drawn between the commercialization of the microfinance sector and the current growth path of the low-income end of the energy market. In some aspects, energy access is where microfinance was more than a decade ago when the focus was still on expanding access to financial services to poor clients. If the distributed energy sector hopes to reach the masses then market competition will be inevitable, just
as it was with the microfinance sector. This means that energy enterprises will be faced with a similar set of growth challenges that microfinance institutions began to face in the mid-2000s, such as expanding their share of an increasingly competitive market; meeting customer demand as they make their way up the energy ladder and their energy needs diversify; managing liquidity shortages given the need for greater working capital,
infrastructure investments and operational efficiency; managing capital structures between different sources of funding; and balancing profitability with social goals. The ways in which governments, financiers and development agencies supported the microfinance sector in setting industry standards, creating new kinds of products and processes, training staff and ensuring consumer protection also offers inspiration for the energy sector.
Zeleman / UNCDF
Patricia Kawagga, Photovoltaic Microfinance Coordinator at Uganda’s Rural Electrification Agency, speaks about the essential role of government in energy access.
WHy partnerships are still important Developing partnerships between different parts of the energy access value chain will be even more important as the clean energy and rural water sectors grow in size, according to Renée Chao-Béroff, Chief Executive Officer of PAMIGA, a network of locally-owned African microfinance institutions developing rural finance in sub-Saharan African countries. Such partnerships “help players discover new ecosystems it would otherwise take many years to learn about,” she explains. “We need to recognize that consumers won’t wait and we must have a sense of urgency about responding to their demands.” In 2013, PAMIGA teamed up with Schneider Electric, a multinational electrical distribution company with a global presence in 100 countries. Their partnership aims to deliver solar powered electricity to more than 100,000 poor rural households and small and micro-enterprises in up to seven sub-Saharan African countries by 2017. [To read more about the PAMIGA and Schneider Electric partnership see page 40.] “Without the partnership with PAMIGA, honestly I think Schneider would have taken a lot of time to identify the right micro-enterprises” to work with, says Joël Lelostec, Business Development Director for Schneider Electric’s Access to Energy Programme. Increasingly, energy companies are offering financing in-house, a trend that has largely been driven by the availability of digital payment platforms. According to the Consultative Group to Assist the Poor (CGAP), there are already 25 companies actively using the pay-as-you-go model to sell solar
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energy in Asia, Africa and Latin America. [To read more about CGAP’s latest 2014 report Access to Energy via Digital Finance see page 36.] In fact, more than half of the investments made in off-grid solar companies in 2014 went to energy companies with digital payment plans embedded in their business models. By the same token, some microfinance institutions are setting up energy companies in-house. This allows them to directly source energy products and develop their own network of technicians. Such an integrated approach helps to provide timely installation and aftersales services to clients. For example, Jeevan Bikas Samaj (JBS), a retail microfinance institution that is partnering with CleanStart in Nepal, set up a subsidiary called JBS Urja (a word that means “energy” in Nepali) that is an energy product distributor, installer and aftersales service provider. [To read more about JBS’s activities in Nepal see page 14.] Nevertheless, partnerships between the energy and microfinance sectors remain a relevant and useful way to realize the full potential of different kinds of consumer financing models. For example, according to CGAP an estimated three million pay-as-you-go solar systems will have been sold globally by 2019. This means that pay-as-you-go companies will have a significant need for capital, which could be partly alleviated by partnering with small and large financial intermediaries such as microfinance institutions and banks. These institutions can then take on some of the capital requirement by underwriting the cost of goods sold, financing retail-level product distributors and providing working capital to the pay-as-you-go companies. In addition, there are only a handful of microfinance
institutions operating in developing countries that are able to distribute energy products themselves; aggressively providing asset financing for large segments of the market—for example, the Bangladesh microfinance institution Grameen Shakti installs 20,000 solar home systems per month—will require significant new capital and skill sets.
“It felt like a bridge too far for us to get into financing our own entrepreneurs so that is one area where we would like to see partnerships with microfinance institutions.” —Nena Sanderson, Director of Services, Off.Grid:Electric
“What we are trying to do through the partnership is to mitigate the risk on the microfinance institution side,” PAMIGA’s Chao-Béroff explains. Working with Schneider, which is a global energy company, reduces the risk associated with the quality and reliability of energy products for institutions new to the market. “As I always say to microfinance institution members of our network, [Schneider] has larger reputational risks than any of our clients because this is part of its global corporate responsibility programme. They cannot afford to have bad solutions associated with quality issues,” she adds.
The relationship between energy companies and microfinance institutions becomes even more relevant as consumers move on to bigger products. Entry-level products such as solar lanterns are proving to be useful in building consumer confidence, and oftentimes after this initial phase consumers start shopping around for larger power products such as solar home systems that not only charge mobile phones, but can power televisions or multiple lights. In fact, several of PAMIGA and CleanStart’s financial institution partners are finding that clients introduced to small solar kits actually decide to buy them with cash, with the microfinance institutions’ financing role only kicking in once they decide to upgrade. Ramin Nadimi, Vice President of Orb Energy’s Africa operations, agrees. Orb Energy provides solar energy solutions for a range of market segments using a franchise model. It operates primarily in India and is now expanding into Kenya. “If the end user needs a solar lantern most likely many of the customers will not need financing or can get one from the distributor,” he explains. “However, what we find is that needs of clients change over time. People who bought a small lantern a year or two years ago need a bigger system that can power a radio, TV, or more lights. Many of the customers, however, do not have the capacity to pay upfront.” The reality of partnerships At the same time, for these partnerships to work, many microfinance institutions will need significant amounts of capacity building and risk capital to adapt their business model to support new product lines.
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main feature story Snapshots of participants at the global forum in Addis Ababa last October. From the top: Selome Wondemu of Microfinance African Institutions Network (left) with René Azokly of PAMIGA; Nicola Armacost of Arc Finance; Bouba Ndjidda of UCCGN (left) and Umberto Trivella of Microfinanza; Lamine Gueye of CAURIE Microfinance. Photos by Zeleman / UNCDF
In Nepal, JBS is thinking of introducing a “decent housing loan” by combining loans for improved cookstoves or solar lighting products with loans for basic household sanitation needs such as toilets and safe drinking water. Sana Kisan Bikas Bank Ltd. (SKBBL)—otherwise known as Small Farmers Development Bank—is another one of CleanStart’s partners providing loans to cooperatives in Nepal. It is also planning to bundle agriculture loans with biogas loans to address fluctuations in client demand during the farming season.
Narendra Shrestha / UNCDF
creative loans help bring clean energy to Nepal
Young Nepalese Anita Pyakurel stands in front of her house at Bela village in Kavre District, Nepal.
“Working capital loans are still the bread and butter for microfinance institutions,” says Ira Lieberman, Chairperson of PAMIGA Finance, a financing and investment vehicle for microfinance institutions in Africa. “Water and energy are extremely important for rural clients, but growing this portfolio is going to take a lot of education and transformation of the capacity of microfinance institutions.”
engagement. They see the energy loans as a one-off thing rather than a continuous process of bringing their clients into energy access. Some microfinance institutions do loans for cookstoves and biogas. In India, a number of microfinance institutions are getting involved in mini-grids. The microfinance institutions are very good at [money] collection and that is what mini-grids need when they are linking different households together.”
“Pushing microfinance institutions to innovate too soon is a mistake. As facilitators, we need to be very conscious about what works for that institution in that country in that region with that client base.”
Microfinance institutions are finding their own way
Armacost also pointed to a number innovative ways that energy loans are being processed by microfinance institutions. Under one model, loan officers do both the collection and marketing of loans, while other institutions make a point of separating these two roles. Other microfinance institutions are outsourcing distribution, marketing and aftersales services to intermediaries, leaving them to focus solely on financing.
—Nicola Armacost, Managing Director of Arc Finance
Microfinance institutions are becoming more experimental in the way they offer loan products. Nicola Armacost, Managing Director of Arc Finance, has been noticing a number of variations. Arc Finance advises financial institutions globally to deliver financing solutions for energy and water.
Microfinance insitutions must also decide whether they will “We are seeing different approaches and different ways of doing form an exclusive relationship with one particular energy things,” she explains. “Each business model has shifted and product supplier or to work with rival suppliers, making the adapted. Although these models start off looking the same, as it process more competitive. scales, we are seeing difference between the companies.” “Before, these decisions were made in isolation, but now For example, a handful of microfinance institutions in develmicrofinance institutions are sharing information,” Armacost oping countries provide loans for people to get connected to says. While institutions with a large client base already have a the national grid or they offer electricity bill payment services. certain amount of bargaining power, smaller ones can benefit Some institutions offer loans for a range of solar products, from from networking with each other. very small lanterns to larger home systems, to help their clients “The possibilities in energy financing for the poor is big, which climb up the energy ladder from a tiny light to fully integrated energy access for all of their household and business electric- is a good thing, but can also be overwhelming,” she adds. “If we are talking about scale, microfinance institutions need to ity and cooking needs. just do it. Start energy lending, don’t try to be fancy, don’t add However, “some institutions don’t want to go there,” Armacost all the bells and whistles.” says. “All they want to do is lanterns. It is a different kind of 10 cleanstart connections
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Can microfinance institutions take advantage of the digital payments trend? With digital payments transforming the way poor people pay for energy there is a real opportunity for microfinance institutions to become more flexible in the way they do business. For example, using mobile money means smaller loans can be processed much more cost-efficiently compared to traditional face-to-face banking, allowing clients to pay back in much smaller amounts. “Five years ago [solar] technology was unstable, capacity was shooting up. So from the big manufacturers point of view, just getting involved in the retail chain was risky enough,” explains Kevin Kennedy, CEO of Clearcape, a consulting firm that advises on asset lending and leasing. “This has been the perspective of microfinance institutions as well.” But with solar technologies now stable enough to be sold in large quantities financing has become a critical component of the business.
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main feature story the Importance of building networks of local technicians
Courtesy of Off.Grid:Electric
The next challenge for the microfinance institutions partnering with PAMIGA and CleanStart is to build a network of trained technicians who can install and maintain these clean technologies in the communities where their consumers live. Microfinance institutions usually have long-standing relationships with the communities they serve and will be using that relationship to identify people who could be good energy entrepreneurs, or “village electricians” as Schneider Electric calls them.
An Off-Grid:Electric technician in Tanzania traveling to the next client.
“The game has changed with where you get data and how you compared to the usual on-the-ground, intensive surveys in assess credit risk,” Kennedy says. which company representatives visit every customer, regardless of need. Nowadays, many poor clients can easily make payments using their mobile phone, enabling them to build up a pay“Once you take the device home, from the distributor’s point ment and energy usage history. These data can be a reliable of view they are done with it and the education or exchange predictor of future behavior that allows even non-financial of information hasn’t necessarily happened,” Arch explains. institutions, like energy companies, to provide financing for “With pay-as-you-go you can use the data to go back to the their products and services. customer’s household and selectively educate the customer so that they get the highest usage as possible.”
“We all come from a different perspective about customers. The more we start collaborating and thinking through why those perspectives are unique and important and relevant to each other the more innovative we can become.” —Ajaita Shah, Chief Executive Officer of Frontier Markets
“Not only are you getting payment information … with the solar lantern that has a mobile-payment chip embedded in it, but you are getting usage and diagnostic data potentially back,” says Victoria Arch, Director of Strategy at Angaza, a pay-as-you-go solution provider. “That can be helpful in giving you tangible, qualitative perspectives on how people are using the device, and whether people are able to engage with it and get the full functionality out of it.” For example, by tracking payment amounts, product providers can keep tabs on the efficiency level of a client’s solar panel; the provider can then tell from a remote location if the customer needs to wipe their panel, and send a reminder SMS message. Thus, companies can save time and resources 12 cleanstart connections
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Nena Sanderson is the Director of Services for Off.Grid:Electric, a solar company based in Tanzania. Sanderson’s company, along with Arch’s, both see a big opportunity for microfinance institutions to offer financing to solar microentrepreneurs. “For us, a financing challenge is getting appropriate money to our microentrepreneurs in Tanzania—both our service and sales agents that are in the community doing installations and providing service,” Sanderson says. “They need working capital to have the tools to make them more productive. Our best service agents have motorcycles and have invested in ladders and power tools that enable them to do dramatically more installations in a day.”
Off.Grid:Electric installs solar home systems in homes and small shops, and customers pay per use via mobile money. Service levels start as low as US$0.20 per day and their systems can power bright lights, phone chargers and appliances such as radios or televisions. The company operates across three regions in northern Tanzania and is growing quickly. “It felt like a bridge too far for us to get into financing our own entrepreneurs so that is one area where we would like to see partnerships with microfinance institutions,” Sanderson continues. “Another area is appliances. As our systems get larger, and can power TV and other appliances, those are things that customers should be buying rather than leasing from us.” Innovation is not only about hardware However, the true test of innovation in the distributed energy market comes not only from the latest hardware, financing package or the business model, according to Schneider Electric’s Lelostec. “Having the product is just the beginning,” he explains. “You need to find the right partner, both the microfinance institution and distributor, you need to find the right installer, you need to get the pricing right, you need to find the right place to go, you need the right financing, the right supply chain. There are many many things in the complex equation.”
customer and it kills our ability to develop scalable market solutions,” argues Ajaita Shah, Chief Executive Officer of Frontier Markets, which provides energy solutions to rural customers in India. “We need to engage the customer more to understand their capital constraints, their purchasing patterns, their willingness to spend on clean energy, their preference for payment options and who should be delivering it.” Understanding and meeting customer demand should be the goal at every stage of manufacturing, marketing, distribution and financing. Doing this can be challenging within a partnership, though, since microfinance institutions and energy companies might have different ways of traditionally dealing with and approaching clients. “We all come from a different perspective about customers,” Shah continues. “The more we start collaborating and thinking through why those perspectives are unique and important and relevant to each other we can become more innovative. The more dialogue we have with consumers in mind, we can come up with not 1, not 10, but 50 solutions that can be scaled, customized and be more effective.”
It’s the consumers However, the number one concern should always be meeting and satisfying consumer demand. “The biggest missing element in our discussion is the end MAY 2015
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microfinance institutions
CleanStart’s two financial institution partners in Nepal—Jeevan Bikas Samaj (JBS) and Sana Kisan Bikas Bank Ltd. (SKBBL)—have big ambitions in expanding access to clean energy for their clients
a diversity of partners allows for greater outreach Since April 2014, the CleanStart Programme has been working closely with financial service providers in Nepal to expand micro-loans for cleaner and more efficient energy sources, such as solar lighting and improved cooking solutions in the form of biogas digesters. Its four partners are JBS; SKBBL; Ace Development Bank Ltd. (ACE); and Clean Energy Development Bank Ltd. (CEDBL). Together they have set out to reach at least 102,000 households and microentrepreneurs throughout Nepal by 2017 with CleanStart support. As of January 2015, these partners had collectively provided energy loans to over 10,000 clients, with the bulk of the loans financing solar home systems of
nepal: one year down the road CleanStart’s two financial institution partners in Nepal—Jeevan Bikas Samaj (JBS) and Sana Kisan Bikas Bank Ltd. (SKBBL)—have big ambitions. SKBBL wants the homes of every member farmer, totaling 384,000 households, to be smoke-free and lit through solar energy. JBS aspires to be the Grameen Shakti of Nepal. It is not only providing energy loans but also setting up JBS Urja, a renewable energy company, to provide the product, the finance and the service that clients deserve. In this article, we highlight the early experiences in energy lending of two of these two CleanStart partners, both
of which have been impressive in their proactive approach to meeting new challenges. Here is a glimpse into how they are doing it. Who are JBS and SKBBL? Both institutions operate quite differently. JBS has 60 branch offices in seven districts serving the poorest of the poor. SKBBL, meanwhile, partners with 384 small farmer cooperatives in more than 50 districts, many of them located in Nepal’s remotest regions. JBS has some experience with providing biogas loans, but for SKBBL energy lending is new territory. To date, JBS is offering energy
loans in all of its districts and SKBBL in 38 districts. Both have great ambitions. SKBBL wants the homes of every member farmer to be smoke-free and brightly lit through solar energy. JBS has set up a subsidiary called JBS Urja (which means “energy” in Nepali) that serves as a one-stop shop to both market its products and provide installation and maintenance services to customers. It has 29 technicians on staff and provides aftersales service within 48 hours of customer request. As a result, smaller financial intermediaries operating near JBS are keen to partner with it given their distribution and servicing capacity.
CleanStart’s financial partner institutions have distributed many clean energy devices in nepal 10,080 total
1,027 improved cookstoves
793 biogas digesters
8,260 solar home systems (20 Wp+)
Source: Annual report to CleanStart (April 2014 - January 2015)
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WP = Watt peak capacity
20 watt-peak capacity or higher, which typically powers four lights. The mix of institutional profiles is interesting. For example, ACE and CEDBL are providing wholesale financing to microfinance intermediaries of various sizes, including one of the largest regulated microfinance institutions that operates nationally in Nepal and a number of small financial institutions that operate at district levels. SKBBL, meanwhile, is a wholesale lending institution for over 380 farmer cooperatives, while JBS is a retail microfinance institution focused on seven districts in eastern Nepal. This diversity of partners allows for greater geographic spread, deeper client outreach and a diverse set of financing models.
Currently, JBS Urja is providing technical assistance and training to a number of microfinance institutions that have requested support.
Chatredeurali Village Development Cooperative in Nepal’s Dhading District is one of the hundreds of farming cooperatives that SKBBL supports.
Seeing is believing To boost client demand, SKBBL and JBS initially focused on building staff and client awareness about renewable technologies. SKBBL partnered with energy companies to do product demonstrations at its regional offices for its 384 member cooperatives. On one occasion, some 500 people ended up buying solar home systems after a single demonstration event. The ability to offer a captive market places SKBBL and JBS in a good position to negotiate prices for their clients. In fact, the solar home systems they offer are about 3,000 NPR (US$30) cheaper than market price. On top of this, SKBBL offers their energy lending at a one percent lower interest rate compared to their regular credit products. Every bit helps since many of JBS’ and SKBBL’s clients are living in grid-connected areas, making them ineligible for a government program that offers subsidies to solar companies selling products in off-grid areas. These clients are purchasing solar
Francesca Cioni / UNCDF
countryprofile nepal financing for energy
“Last October, the manager of one cooperative returned home with a half dozen solar home systems to illuminate households during Diwali celebrations. Her neighbors were impressed and now more than 100 units are installed in the community.” —Mr. Surya Prakash Hada, Programme Coordinator CleanStart Nepal, SKBBL home systems as a backup source for an unstable electricity supply. Finding solutions locally JBS and SKBBL continue to see an increasing demand for solar home systems in the communities that they serve,
while the demand for improved cooking solutions, including more efficient cook stoves and biogas digesters, has been relatively slow. The biggest challenge comes from the lack of technical expertise available in rural communities in installing and maintaining these systems.
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Social Good Investing: How and why clean energy enterprises are topping the list
districts covered by SKBBL
Robert Kraybill is the Managing Director of Singapore’s Asia IIX, an investment facilitator that helps social enterprises in Asia access investment capital. IIX provides these social enterprises with greater access to much-needed capital in addition to linking them to other investors, with the goal of tackling problems in a number of sectors that are critical to sustainable growth, including clean technology and microfinance.
districts where both SKBBL and JBS are active
CleanStart spoke with Kraybill recently about the growing interest and excitement around investing in social enterprises, including ones in the clean energy and microfinance sectors. Who are these social impact investors, and what drives their investments in social enterprises?
Furthermore, JBS is finding that biogas digesters and metallic cookstoves are still expensive for its clients even after subsidies. Metallic cookstoves are used for cooking and space heating in high hill areas, and a good quality metallic cookstove can be up to 20 times more expensive than a mud stove, putting them well beyond the reach of these communities; cheaper ones are of poor quality so people quickly abandon them.
their energy company JBS Urja, a local biogas digester installation company. Additionally, JBS Urja’s technicians are testing different versions of improved mud stoves with women from the community. Several iterations have been developed, with a hybrid between a mud and metallic stove showing some promise. Meanwhile, in coordination with the Alternative Energy Promotion Center, SKBBL is training one person per
“We need to build on the cookstoves that people are already using. We need to make changes bit by bit. Every improvement in efficiency counts.” —Mr. Damodar Regmi, Senior Manager, Department Chief on Institutional and Social Development Department, JBS Both companies, however, know that the best solutions to such challenges can often be found within the communities themselves. For example, JBS is using its training center in Biratnagar, located in the eastern part of Nepal and also where JBS’s head office is, to train local people who have engineering skills on installing and maintaining biogas systems. JBS is also looking into buying, through
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cooperative on how to produce improved cookstoves. JBS is continuously seeking ways to develop better models of cookstoves with the help of its clients. For example, JBS is working with the village development committee of Letang, a municipality located close to Biratnagar, to create the first smoke-free village in south-eastern Nepal by installing improved mud cookstoves in about two dozen houses. If the cookstoves prove to be popular with
users, JBS will provide more financing, together with the development committee. Going forward, JBS and SKBBL foresee a growing demand for larger solar systems. SKBBL’s small farmers are putting their newly acquired solar home systems to productive use by installing them in poultry farms and veterinary shops. Several farmers have been inquiring about loans for solar irrigation pumps and solar-backed systems for public facilities like computer institutes. JBS is already providing loans for systems that can produce 150 Wp. The experiences of JBS and SKBBL so far demonstrate that there really is no one-size-fits-all approach to energy lending. Subsidies, while helpful in boosting market demand, are not and should not be the primary driving force behind microfinance institutions getting into energy lending in Nepal. It should be about fulfilling market demand and providing better customer service. Where there is demand, microfinance institutions are ready to go out and find the right partners using their community base as a valuable source for solutions that make local sense.
There are so many different motivations for investors in this space and we do see a real spectrum of investors. I think there are some who are willing to do just that, with a primary focus on the social return, and with less insistence on market returns. I think that’s fantastic. However, if we are really going to accomplish what we’re aiming for, which is taking impact investing from niche to mass, we need to realize there are perhaps a larger group of investors out there who are keen to have a social impact but they’re either unwilling or unable to sacrifice on the financial return. Of course the biggest group of investors in this area would be the institutional investors, such as pension funds, superannuation funds and others that may have a regulatory or fiduciary obligation to seek maximum financial returns but may very well have a clear desire to seek social impact as well. How would you describe the level of investment in the clean energy sector right now?
It’s a major focus area of ours, particularly clean energy access. Not necessarily the big wind farms or big solar farms but projects that bring clean energy to rural areas that otherwise would be in energy poverty. In addition, it combines with a
very strong environmental impact. We also see it as a sector where there’s a lot of opportunity for the market to work, and so you see that beautiful intersection where you can have a financially sustainable, financially viable business that delivers social and environmental returns. How do investors react when they learn about the clean energy sector’s potential in Asia?
We’re always surprised at how large the potential is. We have to remind ourselves just how many millions of people there are without access to modern clean energy in the developing markets of Asia. It’s always useful to go back and remember these aren’t small markets, these are very, very big markets. If you just think about lighting, there’s demand at the very low end for a solar lantern and charging, and there’s demand for household systems. Demand also tends to increase over time. It’s not a market that you saturate, where people have enough energy and then you’re done. The demand for electricity and power tends to grow over time. What are the reactions from your investors to opportunities in clean energy? Has there been an obvious increase in interest by them?
Success breeds itself. We always celebrate innovation but also as important as innovation is taking an idea and scaling it up. One of the ideas we’re starting to see more and more is that of taking an idea that has worked in one area and making it work in another area, in another state or country. Entrepreneurs see something that has worked in India. I can do that they say, I can invest in a similar [enterprise] in Myanmar. As there are proven success models, it feeds on itself.
Dunlop / UNCDF
Districts in nepal where SKBBL and JBS are active
Robert Kraybill speaking on social investing at CleanStart Connect 2013.
they say it should be entirely financially sustainable from day one with no [government] subsidy or aid whatsoever. But we shouldn’t expect that. There’s a spectrum between a fully donorfunded programme where cookstoves are given away for free and a completely sustainable programme that relies on no aid whatsoever. There’s a lot of space in between. There continues to be a role for donor governments, for example in helping enterprises get ready to access capital. We often encounter social enterprises that don’t have a proper business plan or financial model. There’s a fair bit of work to get them ready. Donor funding can bridge that gap. We see that as an area that’s critically important: providing technical assistance to a social enterprise and helping to get them ready for an investor.
From where you sit, what sort of potential do you see for significantly more private sector involvement in development work, a domain that has traditionally belonged to governments?
It’s not an either/or question. Too often, when people look at social enterprises MAY 2015
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firstperson
investing in cambodia’s energy future
Sun-eee seeks to bring electricity to thousands of people in under-developed areas of Cambodia
Sun-eee Pte Ltd. is a Singaporean registered energy company operating in rural Cambodia. It seeks to bring greater energy access to the rural poor while tackling the environmental problem of a reliance on cheap diesel fuel. In 2013, it successfully attracted a US$450,000 investment from angel investors in Singapore that allowed it to move forward with its goal of acquiring a number of independent power producers and aggressively expanding the country’s transmission line network. As a result, Sun-eee can now offer affordable, reliable power to underserved markets and help to improve the lives of thousands of rural Cambodians. CleanStart recently interviewed Sov Leang, Sun-eee’s founder, about the potential for investing in Cambodia’s energy sector in a way that is both socially conscious and profitable. How is Cambodia’s energy supply managed?
In Cambodia there is a single leading utility owned by the government, Electricité Du Cambodge (EDC), which only operates in the country’s main towns and cities and along the national
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roads network. In rural areas, energy is provided by around 300 different Independent Power Producers and Rural Electric Enterprises, each operating within their licensed areas. The Electricity Authority of Cambodia, an autonomous government agency, is responsible for issuing and enforcing regulations regarding the electricity sector, while the Ministry of Industry, Mines and Energy is responsible for preparing policies, strategies and plans for the energy sector. Only around 30 percent of households in Cambodia have electricity and demand for energy access is growing quickly. That demand is difficult to meet, however, because of high prices and a dependence on imported fossil fuels. In addition, the majority of
communities outside the main metropolitan regions are not served by the national grid. Currently, in terms of renewable, offgrid sources of energy in Cambodia, there exists a lack of marketable green energy technologies as well as the financing necessary to make it accessible to the general public. Nevertheless, a number of renewable energy companies are trying to increase people’s access to energy and, in order to do this, they are exploring “impact investments.” What is an impact investment and how does it work?
Impact investing is a form of socially responsible investing, in which an investment is meant to bring about
snapshot In Cambodia, 80-85% of the total population lives in rural areas; per capita consumption of electricity is about
50 kWh per person per year; the electricity supply is fragmented into 24 isolated power systems, all fully reliant on diesel power plants. Source: Cambodia Country Report—Status of Sustainable Energy Related Technology and Policy in Cambodia
measurable social or environmental impact along with a financial return. Impact investments are made in both developed and emerging economies and guarantee returns that range from below-market to above-market rates. A hallmark of impact investing is the commitment of the investor to measure and report on the investment’s social and environmental performance and progress.
Courtesy of Sun-eee
Courtesy of Sun-eee
Sun-eee employees installing meters in the village of Prey Poh, Prey Veng Province, as villager customers watch.
Sun-eee is one of the very few—if not only—power utilities in Cambodia that have benefited from impact investments, which has allowed the company to grow by as much as 1,000 percent in the first year. However, the process of getting the company to where it is now has been quite challenging and frustrating.
For example, there is a general assumption that investment funds, Impact investing has received increasing or so-called philanthropic funds, are attention in recent years as a potential easily obtained by companies that want way to unlock substantial for-profit invest- to make a social impact through their ment capital to address pressing social business model. But typically funds are and environmental challenges. looking at more than 40 percent internal rate of return for investments in It sounds like impact investors aim to Cambodia and a more than 30 percent achieve social goals according to the overall return rate, which is a challenge principle of “doing good while doing for many small companies. It is particwell,” which seems like a clear win-win ularly difficult for first-time applicants situation. But is this the case on the or for investments in the more rural ground? regions of Cambodia. Our experience has shown that, although impact investors are indeed a potential financing partner for bringing about measurable and sustainable social change, the on-the-ground reality may not translate easily into investment deals.
After more than a year and a half, Sun-eee finally managed to attract US$450,000 in 2013 from Singaporean angel investors, enabling the company to purchase its first license to become an authorized independent power producer in Cambodia. The
company is now providing over 4,000 households, totaling 30,000 people, with access to power for the first time in their lives. Although impact investors present a promising option for many emerging enterprises, real gaps remain. How could UNCDF help to bridge these gaps?
UNCDF could help small social enterprises like Sun-eee to partner with microfinance institutions, which would provide villagers with the financing they need to initiate their power hook-ups and develop the kind of market that impact investors are interested in. It could also assist small companies with business development and in finding bridge loans, which are short-term funds that bridge the gap between dayto-day operations and the final closing of a pending investment deal. UNCDF should plan for a medium- or long-term intervention, lasting at least five years, as there is a lot of work to be done in helping to connect social impact companies with impact investors.
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We, the UNCDF team, extend our heartfelt well wishes to all our partners and the people of Nepal who have been affected by the devastating earthquake of 25 April, 2015.
Solar panels on the roofs of several houses in a small town in Sindhuli district. Photo taken in 2013. Sinduli was one of the districts affected by the recent earthquake.
Narendra Shrestha / UNCDF
Nepal is near and dear to our heart. For CleanStart, Nepal is the first country we experienced first-hand the excitement of working with partners to make clean energy accessible for many more people. This work will no doubt continue with our partners, and now with an even greater sense of urgency.
countryprofile countryprofilenepal
ethiopia
Decentralized clean energy becomes an obvious choice with the Government of Ethiopia aiming to achieve middle-income status by 2025 through carbon neutral economic growth
cleanstart snapshot Funding
$3.1 million over five years (2015-2020). Beneficiaries
291,000 low-income households and microentrepreneurs will have access to clean energy through microfinance.
technology options
Solar lanterns
solar home systems
improved cookstoves
biogas digesters
Catalyzing financing to achieve carbon neutral economic growth for all
To continue fueling the country’s economic growth, the Government of Ethiopia is investing heavily in building a sustainable energy infrastructure. Ethiopia’s installed grid-connected capacity is expected to increase by nearly 10 times between 2013 and 2020.
guarantee a steady supply of energy. On average, Ethiopia’s national grid experiences power interruptions twice a week lasting between four to six hours each time. Moreover, at least 88 percent of its population use traditional biomass for cooking, mostly firewood that is collected from nearby forests. What traditional lighting and cooking solutions are people using?
In 2013, the World Bank and the International Finance Corporation Lighting Africa programme conducted a consumer survey on lighting among In fact, the Government of Ethiopia’s households and small- and medivision for the next decade is to become um-sized enterprises in Oromia, Amhara, a middle-income, climate-resilient Tigray and the Southern Nations, Nationeconomy by 2025. Widely known as the Climate Resilient Green Economy (CRGE) alities, and Peoples’ Region. Kerosene lamps, candles and dry cell batteries initiative, the goal is to achieve carbon were the most commonly used energy neutral economic growth by limiting greenhouse gas emissions in year 2030 to around today’s level at 150 million metric tonnes of carbon dioxide equivasnapshot lent (Mt CO2e). However, Iess than a quarter of households in Ethiopia have access to the nation’s power grid, a number that drops to five percent in rural areas. Moreover, connection to the grid doesn’t 22 cleanstart connections
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sources for lighting. Not only were the households dissatisfied with these sources, but they were expensive to use. Close to 12 percent of the reporting households’ monthly expenditure was spent on kerosene or dry cells for lighting and phone charging. What is the current market for off-grid lighting and improved cooking solutions? Solar Lanterns and Home Systems Although Ethiopia’s solar market is relatively young and has yet to develop any particular industry leaders, it is growing at the rapid rate of 15 to 20 percent a year. The biggest demand for off-grid solar home systems comes from the cash crop growing areas in southern and eastern Ethiopia, such as Jimma, Sidama and Hararghe.
Over 1 million solar lanterns, 80,000 solar home systems and 8,000 solar water heaters have been distributed so far in Ethiopia. Source: UNDP-GEF
Yohannes Zirotti Oriste / UNCDF
Over the last decade Ethiopia’s economy has grown at a consistent annual rate of around 11 percent, double the average economic growth for other countries in sub-Saharan Africa. In 2014 it was one of the top 10 fastest growing economies in the world.
Alcohol is brewed over firewood for a family business in Arsi Negele, Ethiopia. The brewed alcohol is then kept warm over fire powered by biogas. MAY 2015
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survey shows a high demand for solar products off-grid households surveyed were interested in solar products but few can afford the purchase in cash
snapshot
Energy spending accounts for 11% of a household’s average monthly consumption expenditure (in US$)
Over 4 million improved cookstoves have been distributed in Ethiopia.
of the off-grid households surveyed . . . Adi Alemu shows off his biogas tap. He installed a biogas digester with a loan from Oromia Credit and Saving Company three years ago. He lives in Abono Gebrel, Ethiopia, with his wife and their six children.
According to Lighting Africa, there are less than 15 solar photovoltaic equipment suppliers in Ethiopia, with six companies supplying 90 percent of the market. Only a handful of companies directly sell off-grid lighting products to consumers, and most have been active in rural areas for only a few years. Improved Cookstoves At least 70 percent of people in Ethiopia collect wood for cooking and use locally constructed stoves, typically made of soil and cement. According to the Global Alliance for Clean Cookstoves, the Ethiopian cookstove market has been able to disseminate 4.4 million stoves over the last 5 years, most priced between US$4 to US$8 (ETB 85-160). A driving force behind the progress in the improved cookstove market has been the ambitious plan of the Ministry of Water Irrigation and Energy to disseminate 9.4 million improved cookstoves between 2013 and 2016 in every region and city of Ethiopia. In fact, the Government of Ethiopia and its development partners have made significant investments in recent years 24 cleanstart connections
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into building up the capacity of local cookstove producers. Today, an estimated 645 cooking and baking stove manufacturers operate in Ethiopia, many of them profiting from a joint government and international development programme that provides training and start-up capital.
Yohannes Zirotti Oriste / UNCDF
Source: Global Alliance for Clean Cookstoves
Biogas technology is old and therefore stable. It is also well known in Ethiopia since being first introduced well over 30 years ago. Since 2008, the National Biogas Programme of Ethiopia has constructed more than 7,000 biogas digesters, and as of 2013 more than 20 small- to medium-sized biogas digester construction companies have set up What is notable is the range of localshop in the districts of Oromia, Amhara, ly-designed cookstoves on offer, Tigray and the Southern Nations, Nationparticularly those catering to an essential alities and Peoples’ Region. cooking requirement for Ethiopians: baking injera, a spongy flatbread that is a Installing a biogas digester can be staple in the country. quite costly for low-income households. The average cost of a six cubic While trained local technicians and metre biogas digester is about US$730 manufacturers exist, the distribution netalthough it can go down to US$600 in works still need to be built out to reach some regions. To help address this, the the most remote parts of the country. National Biogas Programme worked with the local energy bureau of Oromia Biogas Digesters to provide biogas loans through microfiCattle and water are vital for operating a nance institutions. biogas digester. A typical family-size biogas digester of six cubic metres requires the dung of at least four cattle and year- Financing for consumers and energy enterprises round access to water. This bodes well for Ethiopia where the livestock popuFinancing for consumers and energy lation is one of the largest in Africa. In businesses is critical to expanding the fact, 77 percent of farmers own cattle, distributed energy market amongst the although this proportion varies widely rural poor and to capitalize on the marthroughout the country. ket’s full potential.
. . . 85% are interested in purchasing solar products . . .
. . . but 85% of those interested need credit to afford them
$7.85
$68.85
$4.50 on dry cell for lighting $2.05 on kerosene for lighting $1.30 on phone charging
Source: Lighting Africa Program Ethiopia Market Intelligence, June 2013
Consumers According to Lighting Africa’s 2013 research, the estimated demand for solar lighting loans in Ethiopia is US$952 million. In comparison, the total gross loan portfolio of Ethiopia’s microfinance industry is only US$715 million. Lending to the energy sector is a market that microfinance institutions in Ethiopia cannot ignore, but they will need help to make it happen. The National Biogas Programme for Ethiopia has partnered with two microfinance institutions—Oromia Credit and Saving Share Company and Wasasa—to provide biogas loans to clients. The Programme financed half of the biogas digester construction through a subsidy, while consumers could finance the remaining half through a loan from either Oromia Credit or Wasasa.
benefit from a credit scheme. Mirt stoves or Rocket stoves for commercial use cost US$35 to US$50 and the market price for industrial baking ovens is in the range of US$200 to US$900.
top four reasons people want to buy a solar lighting product:
portability
improved light output
ability to charge phones
safety and ease of use
Energy enterprises A fairly large scale solar lighting product supplier in Ethiopia requires a credit of about US$200,000 every quarter to import solar products, locally manufacture components and assemble solar lighting products. In particular, these solar companies that import parts find it difficult to get hard currency credit, which they need to place orders abroad.
In addition, smaller distributors or dealers that operate at subregional levels also need smaller amounts of working capital. Solar lighting distributors typically need about US$2,000 to US$3,000 every month to stock up on inventory and Credit demand from households for meet other operational needs. Improved purchasing improved cookstoves is likely cookstove producers and biogas digester to be low, simply because the price of installers also need capital to expand most household level improved stoves their production capacity. is in the range of US$5 to US$10 and However, the reality is that collateral is affordable enough to be purchased requirements from banks and microwith cash. However, small businesses finance institutions—which tend to such as injera bakers or restaurants that use commercial-sized stoves would include guarantees on salary, house
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CleanStart’s guarantee fund provides partial guarantees to encourage lending to energy businesses The fund that CleanStart is setting up with the Development Bank of Ethiopia will partially guarantee capital going to energy enterprises both large and small.
Remaining collateral
commercial banks
A woman cooks with biogas. Her biodigester was installed with a loan from Oromia Credit and Saving Share Company.
and company stock—are too stringent for small- to medium-sized businesses. Even stove producers and biogas masons who operate locally and who could be an attractive client base for microfinance institutions typically need to provide collateral for up to 100 percent of the loan amount since it is a loan being made to an individual. How ready is the financial sector to provide credit? Ethiopia’s financial sector is relatively small by global and regional standards and has been historically dominated by government-owned financial institutions, although several private sector banks have become prominent in recent years. The microfinance sector in Ethiopia is well developed, with 31 licensed microfinance institutions operating in the country, serving nearly 3.27 million active borrowers and carrying a loan portfolio of US$715 million (ETB 14.3 billion). Microfinance institutions in Ethiopia typically operate at the regional level, with the largest one in each region often owned or backed by the respective regional government in conjunction with 26 cleanstart connections
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Yohannes Zirotti Oriste / UNCDF
Development Bank of Ethiopia
non-governmental organizations (NGOs). With close to a million active borrowers, Oromia Credit and Saving Share Company is the country’s largest microfinance institution.
The Rural Electrification Fund To inject much needed liquidity into the rural energy market, the Development Bank of Ethiopia (DBE) set up a lending
Partial credit risk guarantee up to 50% of loan principal
microfinance institutions
guarantor
Average loan size: US$2,000
large national/ regional energy companies
small local/ district energy suppliers
Remaining collateral
facility for microfinance institutions and energy businesses in 2012. The fund provides soft loans to microfinance institutions and energy enterprises to boost consumer financing and supply chain development for renewable and efficient energy products.
Several private sector microfinance institutions operate too, although they are smaller in size. Also, there are over This US$20 million fund is part of the 39,000 cooperatives and credit unions in Rural Electrification Fund, which is also Ethiopia. administered by the DBE, a specialized bank owned by the government to Like the country’s banking sector, finance development activities in the most microfinance institutions need country. significantly more liquidity than what is available in the market today. While government-affiliated microfinance institutions are reinforced by equity finance from regional governments, non-governmental microfinance institutions face significant loan capital constraints. At the same time, very few commercial banks are willing to lend to microfinance institutions, and only rarely do this if fully guaranteed by either an international development agency or government authority.
Credit Risk Guarantee Fund (~$1.4 million)
Average loan size: US$200,000
DBE’s credit to microfinance institutions under this project is highly concessional, with market-based interest rates being determined by DBE on a case-by-case basis, based on their credit profile and risk assessment. The Fund has either disbursed or approved funding to five microfinance institutions: Oromia Credit and Savings, Wasasa, Amhara Credit and Savings Institution, Dedebit Credit and Savings Institution and Omo Microfinance Institution. Together, these institutions cover Ethiopia’s four largest regions of Oromia, Amhara, Tigray and the Southern Nations, Nationalities and People’s Region. Except for Wasasa,
the institutions are all linked to local governments. Oromia Credit and Savings and Wasasa, which primarily operates in the Oromia region, were the first two institutions to receive funds in August 2013. In addition to microfinance institutions, DBE has also approved and disbursed funds from this credit line to energy enterprises. Loans ranging from US$47,500 (ETB 950,000) to US$1.96 million (ETB 39.3 million) have been approved for seven companies that assemble and distribute mainly solar lighting technologies in Ethiopia. As of April 2014, over 80 percent of the loans approved to six of these seven suppliers have been disbursed. However, loan approval and disbursement to energy enterprises has been limited so far because suppliers find it difficult to raise the necessary collateral and equity contribution to access DBE credit. In addition, DBE’s minimum loan size of US$2,500 is higher than what smaller enterprises can absorb as working capital. These are the micro-sized and small businesses that operate locally, distributing the products of larger solar
companies or manufacturing improved cookstoves and biogas digesters. These local entrepreneurs find it even harder to meet DBE’s stringent collateral and equity contribution requirements. CleanStart in Ethiopia Ethiopia is the second country in Africa where CleanStart is operational, after launching a similar initiative in Uganda in 2014. CleanStart will work in Ethiopia for the next five years (2015–2020) to connect 291,000 low-income households and microentrepreneurs—representing around 1.4 million people—to renewable energy technologies through the use of microfinance. It will provide risk capital and technical assistance to financial service providers and energy enterprises so that capital flows throughout the supply chain become more efficient and low-income consumers are better served.
and reduce some of the stringent collateral requirements that have hindered loan uptake. CleanStart in Ethiopia will be implemented in partnership with a United Nations Development Programme’s (UNDP) Global Environment Facility project that starts in 2015. The Ministry of Water, Irrigation and Energy is the key government counterpart and coordinating agency. Through these activities CleanStart hopes to demonstrate that financing renewable energy technologies for the poor is not only a necessity but a viable business proposition. The long-term vision is to integrate the financing mechanisms tested through CleanStart into the financing facility of the Government of Ethiopia’s Climate Resilient Green Economy strategy, which aims to achieve carbon neutral economic growth by 2030.
CleanStart will also set up a guarantee fund with the Development Bank of Ethiopia to partially guarantee capital investment or working capital loans to energy enterprises. This should encourage local banks and microfinance institutions to lend to energy businesses, MAY 2015
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firstperson
Oromia Credit and Saving Share Company
Cash boxes and pass books stacked up in Oromia Credit and Saving Company branch office in Meki, Ethiopia.
Oromia Credit and Saving Share Company is one of the largest microfinance institutions in Ethiopia, reaching more than 800,000 clients through 301 branches. For over three years now, Oromia has been offering a biogas loan product to its customers both on and off the energy grid in the eastern state of Oromia, where raising cattle and other livestock is one of the economic mainstays of its population, second only to growing coffee. Biogas and the biodigesters that create it provide a sustainable source of energy for the poor in Ethiopia. They rely on animal dung fuel instead of kerosene, wood or charcoal, thus reducing rates of deforestation and carbon emissions while improving air quality. It also allows homeowners to use a cheap and ready-made source of fuel. Oromia Credit and Saving has plans to start offering a similar loan option for the purchase of solar home products. Currently, it offers what it calls alternative energy financing to 18 districts in Ethiopia, with plans to expand to 70 in total. CleanStart spoke with Tefera Tesfaye, the company’s District Director.
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What response did you get from your existing clients when your company decided to offer the biogas loan?
The communities in our target area were very interested in this product, one because of cooking and two because of lighting. They can have light but also improve their health conditions. For women, they especially welcomed this loan product. They are worried about air quality; there is a big difference between cooking with wood and cooking with biogas … they say it is clean, no health problems, and their productivity is increased. How many customers do you have for your biodigester loan product? Why would people take out a loan for a biodigester?
We are providing loans to 286 households, with a total loan disbursal of US$83,520 (ETB 1.7 million). All of our clients are household clients. The importance of biogas is different between women and men. Usually it’s the female doing the cooking and managing the household, so they give much more attention to the biogas digester.
Since you first started offering this loan product over three years ago, are there any lessons learned you can point to?
The lessons we learned is one: This biogas product is very important to businesses because of the income generation potential. And two: There is demand and therefore we need to expand the coverage of this product. People can afford it and use it, so why not just expand it to other areas? What is the average size of a household loan for this product? Does the loan cover the entire cost of the biodigester?
Loans are on average US$294 (ETB 6,000) per household. There is a subsidy provided by the government for the cost of construction. The client can contribute some of the local materials such as stones and bricks. How exactly does your loan product work, and what is the average length of a loan?
Though we decided the maximum loan term is two years, it depends on the
Gebeyehu Eshete is a chemistry teacher and the proud owner of a biogas digester that he purchased with a loan from Oromia Credit and Saving Share Company. He teaches his students about the chemistry behind biodigesters, and is often visited by other people who are considering the purchase of one. He is always quick to explain that it is affordable, clean, easily fueled by cow manure and a boon to the environment. “The fuel is quite cheap, and it can come from animal byproducts, which people just throw away,” he explains. “Biogas is very important to our family.”
cash flow of the client. If the client is better off and has some cash flow we can make it one year. Otherwise the maximum loan time is two years. Are you targeting your existing customers?
Yes. We are using them and their households as a demonstration site. If someone wants to visit this household these people can be one of our ambassadors. They can tell how they are using the biodigester, why they are using it, and what benefits they obtain from the biodigester and the loan for it, as both a household owner and as our customer. Of all the different kinds of loans you offer, which is the biggest part of your portfolio?
The biggest portfolio we have is agriculture related. Loans for micro- and small enterprises are our second largest portfolio. This one is quickly growing because there is high unemployment in every town. To reduce the unemployment rate in urban areas we provide financial access so people can create their own business and can
Yohannes Zirotti Oriste / UNCDF
Yohannes Zirotti Oriste / UNCDF
Alternative Energy Financing: Both a social obligation and a sound investment
generate their own income, not only for themselves but also for others who work for them.
company because we will increase our clients by providing this product to our community.
What about loan products for solar home systems? What is your company doing with that?
Is there anything else you would like to add?
We are focusing on biogas first, and then we will diversify our alternative energy source financing to solar energy. Solar is very important and it can be purchased at an affordable price. We are still negotiating an agreement to provide this product to our client. How many microfinance institutions in Ethiopia understand the potential or the importance of working in alternative energy?
We are striving to provide alternative energy financing not only for profit. We have a social obligation to introduce these loan products to our community so they can use alternative sources of energy. We can rejuvenate our forest conditions and it can also help to improve the health of farmers and of the community. I recommend all communities to use alternative energy, not only the ones off-grid but also on-grid. They will have a substitute [source of power] if there is an outage.
There are more than 30 microfinance institutions operating in Ethiopia, and a number of them are already involved in providing loans for this alternative energy source. Some of them clearly understand the importance of these biogas and alternative energy sources. There is a huge demand for energy. If there is a huge demand for energy, there could be a huge benefit for the
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Why are charcoal stoves preferred for making coffee?
What are the main drivers of the National Improved Cookstoves Programme?
The main driver is Ethiopia’s national Climate-Resilient Green Economy strategy. The cookstoves programme supports two of the strategy’s main pillars. One is reducing greenhouse gas emissions by avoiding further forest degradation, and the other is producing more energy from renewable resources.
As many as 94 percent of Ethiopians rely on traditional fuels to meet their cooking needs, mainly wood, charcoal and animal dung. The insatiable demand for fuel wood undermines gains from large-scale reforestation campaigns intended to restore Ethiopia’s severely depleted forest cover; it also leads to high levels of greenhouse gas emissions. Add to this the additional challenges of energy poverty and the major health issues associated with poor indoor air quality from smoke-belching stoves, and it is clear why the country launched an ambitious national initiative to scale up the use of more efficient cookstoves. Indeed, Ethiopia’s National Improved Cookstoves Programme aims to place an additional 9.415 million improved cookstoves in homes by 2016. Why do many households in Ethiopia have three or four stoves?
In Ethiopia we use multiple stove types for different kinds of purposes. One kind of stove is for baking injera. This food is the main part of our diet and is served frequently. It’s unique 30 cleanstart connections
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Zeleman / UNCDF
CleanStart Connections met with Abraha Misghina, the head of Ethiopia’s National Improved Cookstoves Programme within the Ministry of Water, Irrigation and Energy, to learn what makes the country’s household energy challenge so unique.
These are the two biggest driving forces, but we have other comparably important development goals, including reducing indoor pollution, which is comparable to malaria in terms of fatality rates. The Programme is also encouraging income generation by assisting cookstoves producers in building their business and production capacities.
to Ethiopia so stoves from other countries cannot accommodate its preparation. We have a number of different brands of cookstoves specifically for injera and they’re made of different materials and use electricity or different fuels. So Ethiopians need a special stove only for baking injera in every household. We often cook sauces, as well as heating and boiling water for different purposes, and for that we can use electric stoves, if covered by the national energy grid. But when there is a power blackout, you need to have an alternative stove to do any ordinary cooking, so we have gas stoves also. These are fuelled with liquid petroleum gas or kerosene. Where there’s no electricity—which is in most parts of the country—open fires are typically used unless, of course, a household has an improved cookstove. Roasting coffee may be done on any of these stoves, except for electric ones, and for the specific purpose of boiling coffee we normally use charcoal stoves, at least in urban areas. Ethiopia is one of the very few countries where coffee is boiled and roasted on the spot in every household.
Another goal is the empowerment of women and children, and the growth of household incomes. By using fuel more efficiently, you are going to save money spent on fuel or save time spent collecting firewood. So you’re going to buy extra time for children to study their lessons and for women to participate in community meetings and use the time for other kinds of productive work.
“The Programme’s priority is to promote improved injera stoves that burn biomass in a cleaner and more efficient way, and the market is quite immense and growing.” So at this time, and probably for a reasonable time into the future, clean technologies using biomass are the country’s priority, such as more fuel-efficient wood and charcoal stoves. Additionally, the improved electric cookstoves—where electricity is available—and solar cooking solutions in remote, off-grid areas currently on the market in Ethiopia provide remarkable benefits to both urban households and rural ones where there is no biomass fuel. For example, Ethiopia has many remote, arid areas where we want to promote reliable solar solutions.
What is the Programme’s focus at the moment?
The focus of our current phase is on coordinating the efforts made by various market players such as producers, distributors, government organizations and NGOs in the adoption and dissemination of improved cookstoves to make sure the products better meet household cooking needs and quickly reach the communities most in need. We distribute and promote improved cooking technologies, whether they involve biomass, electricity, biogas or biofuels. We are open to any type of fuel (except fossil fuels) or technology, so long as it’s clean and meets mandatory international standards. All these efforts, whether by government stakeholders or private NGOs and entrepreneurs, have to be coordinated in such a way that it helps achieve our national goals for household energy development.
Yohannes Zirotti Oriste / UNCDF
Leading light: ABRAHA MISGHINA
When we boil coffee in our traditional pots it needs to be boiled gradually. It’s not just a case of boil and drink. Charcoal provides radiant energy, which allows for that process. Additionally, you cannot roast the beans on an electric stove because you need to have a flame or high radiant energy that is distributed uniformly on the bottom of the roasting pan. It’s because of this tradition that most households in Ethiopia own a charcoal stove or other non-electric stove serving this purpose, even in Addis Ababa.
the household level, and most of the supply comes from traditional biomass sources such as virgin wood, crop residue, cow dung and charcoal. So the idea is that to reach the majority of Ethiopians, the best immediate solution is to help them use more efficiently what they already own. These are people who are suffering from energy poverty, household pollution and all the associated problems that come with substandard energy access.
A woman in Lalibela, a town in northern Ethiopia, cooking her injera over a traditional stove.
Of all the new ideas for improved cookstoves, which ones stand out?
Most of our national energy demand and consumption is at MAY 2015
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countryprofile nepal firstperson cementing a cleaner baking future in ethiopia A group of stove producers in Ethiopia dream of building a Mirt stove industry one stove at a time
snapshot Since 85% of Ethiopia’s estimated 17 million
households still use firewood for cooking, the total market size for improved cookstoves is 14.45 million households. The government plans to distribute 9.4 million improved and energy efficient cookstoves by 2016.
To what extent is the demand for improved injera biomass cookstoves affected by the expansion of the electricity grid?
In bigger cities and towns where there is electricity, households are replacing these stoves with electric ones because our electricity comes from mega-hydropower and so is very cheap. Our electricity rates are probably the cheapest in the region. However, more than 80 percent of Ethiopia’s population live in rural and remote locations, many of which are off-grid. Of course, the Government is rigorously expanding the grid but not at a rate that will cover all of Ethiopia’s 90 million people anytime soon. So the Programme’s priority is to promote improved injera stoves that burn biomass in a cleaner and more efficient way, and the market is quite immense and growing. What role can the finance sector play in supporting the Government’s agenda?
In Ethiopia we are approaching renewable energy development in a vigorous manner. There’s a very big market for financial investors as well as industrial investors. There are some limited loans available for energy projects, and also aid from different NGOs. There is bilateral government-to-government collaboration with other countries with a common interest in reducing greenhouse gas emissions. Carbon financing is not yet being used much in Ethiopia but it will be in the future. The Government is also helping entrepreneurs active in the renewable energy sector by helping to develop the necessary infrastructure and providing training programs, loan and credit arrangements and tax exemptions. So everybody coming into this area is welcome and essential. The Programme has established itself and will be in operation 32 cleanstart connections
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until 2030, phase by phase, scaling up at different levels. It’s a huge programme and it is attracting a number of development partners from abroad as well as locally. Our view is that everybody, including the finance sector, is welcome to participate, contribute and help achieve results. Can microfinance support the uptake of improved cookstoves?
This is a good opportunity for the microfinance area, particularly because other financing solutions aren’t readily available. Energy entrepreneurs here are mostly small and micro-level. The financing power they require is not huge. At the same time, though the loans may be small and the margins may be small accordingly, there’s a massive demand so I would think there’s a very big scope for generating revenue.
Yohannes Zirotti Oriste / UNCDF
Coffee is traditionally brewed slowly on charcoal stoves.
Yohannes Zirotti Oriste / UNCDF
Source: Central Statistical Agency of Ethiopia
Abonesh Tesema at her home in Repi mixing cement.
Abonesh Tesema jabs her spade into a mound of volcanic ash in her yard and scoops some onto a metal grill. Picking up the grill, she sifts the gritty red ash, then carries a bucketful of it into her shed where she sets about mixing it with cement powder and water. Next, Abonesh coaxes the cement mixture into a metal mould and pounds it into place with a wooden rod before gently lowering the smooth cement piece onto a shelf to dry. It is a familiar routine for the entrepreneur who, for the past four years, has been manufacturing Mirt cookstoves, a popular brand of domestic stove in Ethiopia that burns wood and dung more efficiently than traditional open stoves and emits less smoke. The stove is specifically designed for baking injera, a spongy flatbread that is a staple food in Ethiopia. The Mirt stove is distinctive not just because of its solid construction and efficient design. It features a small door through which fuelwood is inserted and a chimney that channels smoke to one side, reducing eye irritation for cooks and greatly reducing indoor air pollution. Injera is baked in large rounds
like giant pancakes on the stove’s clay cooking plate, which has a 60 centimetre diameter, the perfect measurement for cooking injera. Abonesh lives in Repi, a town near the outskirts of Ethiopia’s capital city of Addis Ababa. In her shed, she manufactures the six interlocking cement pieces that form a Mirt stove. She buys the clay plates and cane lids separately. Abonesh sells the basic set of six pieces for ETB 120 (US$6) and charges her customers—mostly her neighbours—ETB 240 (US$12) for a complete stove, including plate and lid. “It’s a good business because I can produce around five stoves in a day by working for four or five hours but I don’t have to work every day and that suits me,” Abonesh says. “The life of the stove is one or two years, or even longer, depending how well it’s kept and how often it gets used. I have many, many customers who have come back to me for more than one stove.” Abonesh is one of half a dozen women in her town who was trained to manufacture, sell and install Mirt stoves through a project run by the German Agency for Technical Cooperation
(GIZ) in conjunction with the Government of Ethiopia. The project also helps participants to set up their business, and hundreds of budding entrepreneurs like her across the country are benefitting from the training and support. The history of the Mirt stove dates back to the early 1990’s, recalls Melessaw Shanko, the director of MEGEN Power, an Ethiopian energy consultancy. “We had a household energy crisis,” Melessaw explains. “We were so dependent on trees for fuelwood but we had predictions that by the year 2000 there would be no trees left in Ethiopia. Everybody was scared.” It quickly became apparent that with 40 to 50 percent of household fuel going to baking injera, any solution must include an efficient way to cook Ethiopia’s staple food. So the improved injera Mirt cookstove was developed by the then Ethiopian Energy Authority. The World Bank provided funding for its design and testing. Support for the production, marketing and distribution of Mirt stoves has since continued under various project titles,
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with the involvement of a number of Ethiopian government ministries, regional bureaus and energy agencies. Different donors have provided financing, including the United Kingdom Department for International Development, Shell Foundation, the Ministry of Foreign Affairs of the Netherlands and GIZ.
by better protection from stove heat, reduced smoke, speed of cooking and better quality injera. Years of intense marketing and awareness-raising campaigns by the Government and GIZ have resulted in widespread use of the stove, especially in urban markets.
the number of stoves they are able to produce. However, a number of challenges remain. For example, despite being a two-decade-old industry, most Mirt stove businesses are informal and based on family labour. Very few producers have evolved from home-based
The Mirt stove is distinctive not just because of its solid construction and efficient design. It features a small door through which fuelwood is inserted and a chimney that channels smoke to one side, reducing eye irritation for cooks and greatly reducing indoor air pollution. The Government’s strong involvement led to the creation of Ethiopia’s National Improved Cookstoves Programme, which today is managed by the Ministry of Water, Irrigation and Energy.
One household using a Mirt stove for injera baking saves around 500 kilograms of fuelwood annually, potentially saving the equivalent of four trees over the life of the stove. The stoves are also saving families time and money. For example, rural households typically spend an average of six hours a week collecting fuelwood just to bake their injera in the traditional way over a fire.
Training local entrepreneurs to set up Mirt-related businesses has become a hallmark of the Mirt model. The project’s focus has been on four regions: Amhara, Oromia, Tigray and Southern Nations, Nationalities and Peoples. The Meanwhile, Mirt stove manufacturers stove has been popular with consumare earning annual incomes ranging ers who have rated fuel economy as between US$100 (ETB 2,000) and their top reason for purchase, followed US$795 (ETB 16,000), depending on 34 cleanstart connections
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small businesses into large-scale manufacturers. Mesfin Belay Dagnachew leads a communal Mirt stove workshop in Sebata, a town in the Oromia region. Mesfin spearheaded the Mirt stove movement in Sebata and its surrounding areas after being trained by GIZ nine years ago. He went on to train other men and women who now work with him in the workshop. Currently, 10 Mirt artisans use the communal shed and their salaries are paid by the local community. Each
producer keeps a small share of the profits while the remainder goes into a central fund that is used to buy raw materials. For some Mirt producers, the stoves are their only source of income, while it provides a supplementary income for others like Abonesh, whose husband works, and for Mesfin himself, who has his own shop. While Abonesh, Mesfin and his colleagues run viable businesses, they are acutely aware of growing market pressures. The availability and price of raw materials in often in flux, leading to lower profit margins for producers and an overall lack of widespread uptake by potential consumers. The stove’s bulkiness is also a turn-off, requiring on-site installation and limiting off-the-shelf sales and easy distribution to other neighbouring areas of Ethiopia. Abonesh and Mesfin have also noticed a drop in demand, with more of their neighbours switching to electric stoves as the reach of the country’s electricity grid has expanded in recent years. In fact, Abonesh is the only remaining stove producer from her original group
Yohannes Zirotti Oriste / UNCDF
Yohannes Zirotti Oriste / UNCDF
Abonesh Tesema at her home in Repi building a Mirt stove.
Etagegne Agiza, Debiritu Ferega and Asnakeeh Bireda at the Mirt stoves workshop in Sebeta, Ethiopia.
of trainees. The fact she is the sole Mirt stove supplier in her area has ultimately helped her business, she says. Although she has electricity connected to her home, Abonesh prefers to bake injera on her Mirt stove. “The power supply is unreliable. Some people get up at 3 a.m. to bake injera hoping there will be enough power because after three days if you don’t bake, you must throw out the mixture. But you can use a wood-powered stove anytime,” Abonesh explains. Injera is made from a mixture of ground teff (a nutritious grain) and water and must ferment for around three days before baking can begin. In addition to government resources, the Ethiopian stove sector receives significant support from donors and NGOs that provide training in cookstove construction, business development and finding start-up capital. While initial subsidies helped to boost sales, they did not lead to sustainable market growth and were dropped.
we use brochures provided by GIZ,” Mesfin says. “There’s a huge need for working capital for producers in order to overcome some of the existing barriers and get the balance right.” Melessaw believes as many as three-quarters of Mirt stove producers may have quit their businesses following a drop in demand but says potential energy consumption by Ethiopian households and the practice of “fuel-stacking”—in which consumers depend on multiple sources of energy, such as keeping a wood stove to back up an electric stove in case of power loss—means there is still significant promise for the improved biomass stove market. Mesfin is optimistic as well. “My vision is to set up a big Mirt stoves industry. I believe there is still very good potential for this here. Even if I die tomorrow, my children can continue this business,” he predicts.
“We need to advertise but we can’t afford it so we promote our stoves at markets and religious gatherings, and
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countryprofile nepal financing for energy
pay-as-you-go financing
Bringing the Pay-As-You-Go Model to Solar Energy Customers In the past decade, dozens of companies have developed high quality, solar-powered solutions to meet the needs of the energy poor, many of them off-grid consumers living in rural and remote areas of developing countries. Affordability remains a significant barrier to mass adoption, however. For most people living off-grid, lack of access to financing options—loans, leasing, payment mechanisms and so on—makes it nearly impossible to adopt modern solar solutions since they cannot afford to buy them with cash only.
Currently, the pay-as-you-go model is proving to be most successful when used for the sale of solar products, including solar lanterns, small solar systems and large solar home systems that can cost as much as US$1,000. Already, 25 companies are actively using the pay-as-you-go model to sell solar energy to people living in sub-Saharan Africa, Asia and Latin America. At least 150,000 solar products have been sold this way since 2011, and an additional 100,000 customers will have accessed solar energy through pay-as-you-go financing by the end of 2014. By 2019 an estiA number of startup energy companies, mated three million pay-as-you-go solar however, are adapting pay-as-you-go digsystems will have been sold. ital technology in the developing world to make modern energy accessible to the In the past five years, a number of conrural poor. These consumers often spend verging trends have made it possible to money on inefficient energy sources like bring pay-as-you-go pricing and financing kerosene through small, user-defined to the small-scale solar energy market: payments—in other words, when they • The cost of solar panels, batteries have the cash in hand or funds loaded and light-emitting diodes (LEDs) has on a mobile wallet. Pay-as-you-go pricdropped significantly in the past five ing allows customers to flexibly pay for years, and research indicates these clean, modern energy sources in a simtrends will continue. Solar panels ilar way using prepaid mobile airtime, today are about half the price they with the potential to expand access to were in 2008 and are expected to safe, cheap renewable energy sources dip to less than US$1 per watt in the to millions of people living without next two years. electricity. 36 cleanstart connections
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• The small-scale solar product market has experienced dramatic growth in terms of units sold and new businesses and users in the past five years. In Africa alone, 5.8 million solar lighting products were sold between 2009 and 2014 with an annual sales growth of almost 100 percent per year. • Significant advances have been made in the past decade to improve the reliability and life of solar products, making them more attractive to customers. For example, average battery life has increased by over 20 percent in the past four years, and high-quality solar products often boast a useful life of over three years with minimal maintenance. Several leading manufacturers now offer a three-year standard full warranty covering full product replacement. • The rapid adoption of mobile phones and network coverage across most off-grid areas makes it easy to communicate with customers. In Africa, the number of off-grid mobile subscribers is expected to reach 400 million by 2015.
Julie Marksof/ Mobisol UNCDF Courtesy
Digital pay-as-you-go financing is transforming the way people pay for energy
A Mobisol employee makes a marketing presentation at Kikatiti Maasai Market, Tanzania.
While the business model and customer offerings can vary widely among companies, the pay-as-you-go approach does share a few common elements. For example, consumers are required to make a small deposit or down payment, typically 10 to 30 percent of the full cost, to receive the solar product or to have it installed. In addition, they must prepay for the ability to use the solar product via mobile money or through a mobile-based energy credit model. Payment enforcement technology within the product denies energy service if the customer’s prepaid balance has been used or expires, enabling access again when the customer adds prepaid credit to their account. Beyond that, companies use a variety of payment and service delivery models, often determined by whether or not their client base live in places with reliable cellular coverage or use established mobile money payment systems. For example, pay-as-you-go energy companies in East Africa such as M-KOPA and Mobisol use existing mobile phone money transfer platforms to receive payments, update customer accounts and deliver proof of payment data directly to the solar product via the cellular data
network. If customers have access to mobile phone services but not mobile money systems, or else have no cellular coverage at all, companies will sell energy credits—for example scratch-off cards—through an authorized agent, who usually work by commission and are found at stores, supermarkets, cafes and mobile phone shops. Several companies such as Angaza Design and divi Power are making it easier for first-time users who live off both the electrical and cellular grids to purchase and use simple, portable solar lights that retail for as low as US$8. Customers bring their solar light to an appointed agent, pay in cash, and the agent unlocks the device using a smartphone provided by the energy company or distributor. Agents can also do this by going door-to-door. While there are some drawbacks, such a business and technology model allows companies to offer people affordable solar power without adding significant hardware expenses to already low-cost products.
snapshot Already, 25 companies are actively using the pay-as-you-go model to sell solar energy to people living in subSaharan Africa, Asia and Latin America.
At least 150,000 solar products have been sold this way since 2011, and an additional 100,000
customers will have accessed solar energy through pay-as-you-go financing by the end of 2014.
In some pay-as-you-go models, the customer can ultimately own the energy asset through a rent-to-own program, often providing the client a credit history for the first time in their life. Other MAY 2015
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Going forward, a key challenge to expanding the pay-as-you-go model for solar power equipment is the need to build strong distribution networks that bring payment and products straight to the customer’s doorstep. Given the logistical challenges of reaching deep into rural areas, companies often establish partnerships with for-profit—such as mobile network operators and their extensive network of agents—and nonprofit organizations to help with sales and product distribution. To truly expand across the developing world in the same way that mobile phone access has, the pay-as-you-go solar sector will need significant capital to both support new business development and initial market experience, and to improve existing models. The fact that half of the
Top right: Mobisol Adademie trainees install a solar home system in Nyamata, Rwanda.
Julie Marks / UNCDF
Mobisol’s technician discusses the angle of the sun with his customer in Nyamata, Rwanda.
Bottom right: A new Mobisol customer in Nyamata, Rwanda, shows off his solar home system.
US$69 million early stage investments in off-grid solar companies went to two payas-you-go companies has shown that investors see this as a highly viable and even profitable business. This trend will enable the rural poor to access clean, cheap solar energy in a way that fits their budgets and lives.
This article has been adapted from the Consultative Group to Assist the Poor’s 2014 report Access to Energy via Digital Finance: Overview of Models and Prospects for Innovation. (http://www.cgap.org/ publications/access-energy-digital-financemodels-innovation)
Courtesy of Mobisol
Other options for pay-as-you-go models include determining payments based on time such as number of days or weeks, or by the amount of actual electricity usage, such as number of watt or kilowatt hours. Specific financing terms—such as down payment amounts—also vary by company and are often determined by the size and type of solar product. Regardless of these options, the most common selling point
for customers of pay-as-you-go solar energy companies is to deliver energy at a price that is competitive with other affordable, but inefficient and dirty alternatives like kerosene.
Courtesy of Mobisol
Courtesy of Mobisol
companies, specifically ones in Ghana, Tanzania and Zimbabwe, deliver prepaid energy as an ongoing service, making the energy company responsible for the cost and ongoing maintenance of solar equipment. Companies can avoid the extra overhead costs of determining the payment risk of their customers who, in turn, do not have to worry about the upkeep and cost of their equipment. This model is particularly useful for companies hoping to quickly develop a large subscriber base that includes a mix of high-end and low-end users.
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countryprofile nepal financing for energy
partnership
Courtesy of PAMIGA
Schneider Electric and PAMIGA join forces to make solar energy accessible through microfinance
The first group of Schneider’s Energy Entrepreneurs to finish training in September 2014 will oversee customer service in Cameroon’s rural villages.
Making Solar Energy Accessible Through Microfinance How can a multinational company and a non-profit organization combine their skills to improve access to energy for the poor? Schneider Electric is a French company specializing in electrical distribution and the world’s largest manufacturer of low- and medium-voltage equipment; PAMIGA is an international NGO providing technical assistance to 16 rural microfinance institutions in sub-Saharan Africa. The two organizations are working together to address the issue of energy poverty, each bringing its unique expertise and resources to the table. In March 2013 they launched the Energy and Microfinance Programme in three pilot countries, including Cameroon, Ethiopia and Tanzania, with plans to expand into Burkina Faso, Kenya, Senegal and Togo by 2016. Their objective is to help rural households, micro- and small enterprises and entire communities to purchase and use solar powered energy sources through microfinance. The Programme’s solar product offerings include solar lanterns, solar home systems and solar stations for lighting, mobile phone charging and other electrical devices, as well as solar
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water pumps for irrigation. We sat down with both organizations to get a clearer understanding about what motivated them to create this partnership, and about their respective roles, achievements and the key lessons they have learned.
to ensure a high quality and sustainable programme, we needed to find a strong energy partner, like Schneider Electric.
Schneider Electric: Since 2008, Schneider Electric has been involved in increasing access to energy for the poor in developing countries through its Business, Innovation and People at the Base of Why have you decided to be part of such the Pyramid initiative, which we coma partnership? monly refer to as BipBop. We use three complementary approaches. First, we PAMIGA: As a result of regular field visits provide financing for the development and market studies that we did with our of local companies that supply energy partner microfinance institutions, we solutions to remote areas; secondly, identified a clear demand by clients for we create solar products and business solar powered energy products. Rural models that address the energy needs microfinance clients are poor and have of rural households and businesses; and very limited access to energy. They lastly we provide training to local people use traditional sources of energy that to help them become electricians or are costly, unhealthy and hinder their solar product retailers and technicians, economic development. Our member with over 50,000 people trained so far. microfinance institutions are aware of these needs and believe they can play Helping the rural poor access affordable a role in helping these clients’ access sources of energy through microfinance to solar powered energy. However, they appears to be one of the most promisalso realize that the quality of solar prod- ing business models in which we are ucts and aftersales services varies a lot currently investing our efforts. Following from one provider to another. Thus, they the BipBop model, we can minimize asked for our support in exploring this two of the main obstacles that other new market. To limit credit risk for our actors seeking to provide energy access member microfinance institutions and may face in this market: reaching out
to the target populations and overcoming the financial barriers to purchasing and maintaining solar powered energy solutions. This is why we were willing to engage in a partnership with a microfinance network like PAMIGA. What is your role within the Energy and Microfinance Programme?
SE: Thanks to our six years of experience in the access-to-energy market, we are able to provide solar energy solutions that specifically address our client population’s needs; we also provide a commitment to quality, a warranty and after-sales services. Within the BipBop programme we are also building up our local network of solar product distributors. Moreover, we provide technical training to the staff of participating microfinance institutions and local distributors so they understand our products better. Finally, we are also in charge of developing a network of local technicians, called “Energy Entrepreneurs” or “Village Electricians,” who are located close to the rural populations they serve and who are responsible for the installation and maintenance of solar solutions. P: Our role in the Programme is to
provide technical assistance to our member microfinance institutions, including assessing the energy and financial needs of their clients, designing customized financial products, adapting internal processes to support the management of the energy portfolio and developing awareness and marketing tools. We are also in charge of evaluating the market testing results of the new financial products and designing a plan for a full-scale launch of the programme once the pilot phase is finished.
snapshot Photovoltaic capacity worldwide is increasing. For 2018, worldwide photovoltaic capacity is projected to double
or even triple from current levels. By 2050, solar power is expected to become the world’s largest source
of electricity, with solar photovoltaics and solar thermal respectively accounting for 16 and 11 percent of total electricity produced by solar power.
Additionally, PAMIGA acts as a facilitator between participating microfinance institutions and energy companies and coordinates the Programme and all of its on-the-ground activities. Furthermore, PAMIGA is setting up an investment vehicle, PAMIGA Finance, dedicated to financing the energy portfolios of partner microfinance institutions. As they develop a track record in financing clean energy, the idea is to attract additional capital from banks and investors when it comes time to offer the loan products on a much larger scale. What has been achieved so far?
P: So far, the Programme has been
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partnership role distribution effort needed to raise clients’ awareness about solar energy—including its benefits and limitations—should not be underestimated. Communication is crucial for good up-take and proper use of solar solutions. This is why we are currently developing networks of local technicians who are based in the villages we are trying to reach to promote solar solutions and provide after-sales services.
= Schneider Electric
S
P
=P AMIGA = Rural households, microand small enterprises
1
Technical Training Center 6
3 Local Distributors
Partner Microfinance Institutions
Partner Microfinance Institutions
Local Distributors
Village Electricians
4
Partner Microfinance Institutions
7 5
2
1
onduct joint marketing actions to C promote solar solutions and financial products
launched in three countries—Cameroon, Ethiopia and Tanzania—with seven microfinance institutions now offering financial products such as microloans and savings accounts that are designed to help poor clients purchase solar products such as lanterns and solar home systems. All the participating microfinance institutions have been trained on solar technology and now feel confident in promoting the new products and answering clients’ questions.
SE: Since 2013, we have marketed our solar products to over 3,010 clients in Cameroon, Ethiopia and Tanzania through technology demonstrations and promotional activities. As of the end of 2014, 644 rural clients in these countries have been able to invest in a solar kit for lighting and mobile phone charging through microfinance loans.
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2
Apply for loan
5
Pay back their loans
3
O nce loan is validated, pays for the solar solutions on behalf of the clients
6
T rain young people to become solar energy technicians
4
7
D elivers the solar solutions with user guide and provides warranty
P rovide installation and aftersales services
This is only the beginning, as we aim to reach at least 50,000 rural households, 350 rural enterprises and 175 villages in a total of five countries in the region, including Burkina Faso and Senegal, by the end of 2016. What lessons have you already learned from this partnership?
P: First, we realized that people living in rural areas want solar solutions that are not only affordable, but also reliable, and that include accessible after-sales services. Thus it was critical that we work only with partners who offer quality products. The pilot programme also showed that training the staff of partner microfinance institutions on solar energy is key to build a sense of ownership and to make sure that accurate and helpful messages about solar power and energy
access are communicated to potential clients. Finally, our experience has shown that building a trusted relationship between microfinance and energy companies is essential but remains a challenge. Both parties need to learn how to work together and understand each other’s priorities, constraints and ways of working. It may take time but is crucial for the sustainability of such partnerships.
SE: The Programme showed us that in addition to household needs, micro- and small enterprises in rural areas could also greatly benefit from access to solar solutions. Based on feedback from the field, we have developed a new solar home system called the Homaya MS specifically tailored to the needs of micro- and small enterprises. The Programme also showed that the
SE: After evaluating the pilot phase, we will roll out the full programme in the first three countries and replicate it in additional countries, including Burkina Faso, Kenya, Senegal and Togo. P: In addition to solar solutions for rural households and rural micro- and small enterprises, we will start reaching out to villages to promote community solar stations that could supply energy to public buildings like schools, health centers and village offices as well as to small businesses. Given the public nature of this investment, with Schneider’s assistance we will test a public-private partnership approach that combines microcredit and public funds in order to finance such community solar stations.
Courtesy of PAMIGA
1
Courtesy of PAMIGA
What are the next steps?
Top: Children in this Oromia region village can now study in the evening thanks to solar lighting.
In October 2014, PAMIGA published a case study of its experience in Cameroon, as well as a methodological toolkit to guide practitioners in microfinance and energy on how to develop financial products for small-scale energy products for households and micro-enterprises.
The case study is available on the Microfinance Gateway: http://www. microfinancegateway.org/library/ energy-and-microfinance-cases-a3c-anduccgn-cameroon
Bottom: A villager in Ethiopia’s Oromia Region positions a solar panel from her new solar kit onto the roof of her house.
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CleanStart’s approach to country-level engagement CleanStart has different ways of approaching country-level engagement. This mainly depends on the maturity level of the energy and microfinance markets.
nepal
senegal
ethiopia burkina faso
cambodia
uganda
cameroon
tanzania
The boundaries and names shown and the designations used on this map do not imply official endorsement or acceptance by the United Nations. Dotted line represents approximately the Line of Control in Jammu and Kashmir agreed upon by India and Pakistan. The final status of Jammu and Kashmir has not yet been agreed upon by the parties. Appears without prejudice to the question of sovereignty.
Sector-wide approach CleanStart is working to build a strong energy finance market for the poor on a national level. The programme does this by supporting financing for both consumers and energy enterprises while partnering closely with government agencies aiming to expand energy access. CleanStart also connects on-the-ground knowledge and experience to national policy, and thus contributes to national visions of achieving sustainable energy for all. ethiopia, Nepal, Uganda
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business model incubation CleanStart supports energy business models with the potential to expand nationally. It provides initial capital in the form of grants or loan guarantees that enable energy businesses access larger sources of capital from local markets. CleanStart also helps financial service providers to test new ways of financing. Cambodia, Tanzania
strategic partnerships Expanding the energy finance market is a huge undertaking that cannot be achieved alone. Partnerships allow CleanStart to expand its programming in the countries where it works, learn about new markets and adopt new tools. Cameroon, Burkina Faso, Ethiopia, Senegal, Tanzania (PAMIGA partners)
Download a copy of CleanStart Connections or read online at www.uncdf.org/en/cleanstart
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