Microfinance Goes Green: Energy Inclusion to Help Alleviate Poverty

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Partnerships against Poverty Summit Banner with logos PuzzleIcon_YellowOrganized in partnership with MicroEnergy International
Track: Partnerships Bridging Sectors
Date: Friday, October 11th

Speakers: Allan Sicat, Executive Director, Microfinance Council of the Philippines, Inc., (MCPI)
  Francesca Randazzo, Project Manager, Appui au développement autonome (ADA), Luxembourg
Won Jin Seol, Access to Energy Specialist, Asian Development Bank (ADB), Philippines
Hemant Lamba, COO, Prakti Design, India
Sebastian Groh, Project Manager, MicroEnergy International (MEI), Germany
Illac Angelo Diaz, Executive Director, MyShelter Foundation, Philippines


Sebastian Groh started the session saying, “Financial inclusion causes energy inclusion and energy inclusion causes financial inclusion. This is a bi-directional relationship and combine both financial and energy inclusion initiatives have synergy potentials.”

Groh revealed that there are an estimated 1.6 billion people who do not have access to both financial and energy services, hence there is market exclusion as well. However, he admitted that working on financial and energy inclusion is ambitious.

He shared that this organisation, Berlin-based MicroEnergy International, has projects in the Philippines (Bohol). Groh also showed two slides showing the synergy between financial inclusion and energy inclusion:

Financial Inclusion Energy Inclusion
Reducing barriers to financial services Reducing barriers to energy services
Economic development Boost development
Expenditure needs Increase human well-being
Working capital and investment Supporting poverty alleviation
Welfare of households; productivity of business Promoting economic competitiveness

Just before proceeding to the open discussion, the moderator gave a brief introduction of the panel members:

  1. Francesca Randazzo: Initiated the energy inclusion projects in Peru and the Philippines
  2. Allan Robert Sicat: His organisation is a co-host of the summit
  3. Hermat Lamba: Is involved in cook stoves and in women’s collective in India
  4. Illac Angelo Diaz: Has had a tremendous impact on projects in the Philippines which is going on in India, Indonesia, and Switzerland
  5. Won Jin Seol: Has very innovative projects on housing insulation in Tajikistan

Won Jin Seol, the ADB is very actively linking financial and energy inclusion. I would like to know a little bit more about your project in Tajikistan. What are the situations you faced there? How did you get the idea of a housing insulation project? What does it mean and how do you execute?

Won Jin Seol shared that this project began in 2011. Tajikistan was chosen to pilot this project because it has 18-20 hours for capturing sunlight for power during winter, going from October to March. Also, most of the houses that were built in the 1950s and 1960s needed refurbishment and renovation.

We saw a problem in energy deficiency and energy-inefficient environment. We wanted to approach it in a commercially viable and sustainable way so the approach was to provide affordable credits to the households. We chose microfinance institutions because they are far more efficient than any other financial institution like banks and other intermediaries. They also have the reach and at the same time, they provide credit to those who are accessing for the first time. Hence, microcredit was the best instrument for the households. We will launch this project next year.

How do you perceive your project can alleviate poverty in Tajikistan?

Poverty alleviation is something we do not addresse at once. It is a very fragile start; you cannot do everything at once.
This project is trying to provide an [investment] facility that will be given to the government, and the government will loan it to the MFIs at a rate which will be more affordable than the conventional rate of the central bank. We finance the rate that we are offering to the microfinance institutions.
We asked the government to establish a perpetual facility–to be involved on a perpetual basis–to support the microfinance institutions to be sustainable. MFIs will also pass on the lower rate given to them, thus people can access cheaper credit and be able to afford this kind of solution [and] access this energy efficient environment, which will indirectly [help alleviate their conditions of] poverty.
We are trying to manufacture some of the [energy] products [to be financed] under this project in Tajikistan. We will work with local cooperatives who will manufacture some of the basic products to be supplied under this project. And we will try to create more jobs in Tajikistan.

Francesca Randazzo, what is the energy inclusion that you provide in ADA? Why did ADA decide to engage and to co-initiate it? What is the role of the networks?

Francesca Randazzo said the energy initiatives serve as a small project just to test if they could advocate for MFIs to give people access to innovative green energy solutions.

We started in Peru, looking into how the MFIs identify energy and energy economics and tried to develop financial services that could help people access energy equipment.
We are now in our fourth year in Peru. We have worked with MFIs, and even if we have some [failures, we also have] multiple successes. I think we are really in a good spot.
And, then we decided to try another model with microfinance networks as part of the new ADA strategies. We have a new five-year mandate, and we are looking for cooperation.
We are reaching out to national and regional networks that provide financial services. We approached MCPI last year. The goal is that networks will build their capacity and engineering skills regarding energy products with the skills and knowledge we can impart. It is more like a leverage—by empowering those within the networks–and we will use that impact in the microfinance sector. So this is now the approach that we are working and testing with the MCPI.

Allan Sicat, what will make you say, “Yes we can work with you”? What and how do you see the role of MCPI now and in the future?

ADA and MicroEnergy approached us last year. It was December and nothing gets done in December because it is Christmas season. But, we said this is something worthwhile.
We discussed with the MCPI board the energy inclusion project that would be replicated in the Philippines. And, then as the head of the institution, I went back to our goals which specifically stated that we want to help and enhance our members’ capacity in terms of innovations in products and services. Now it is in the final stage.
In the Philippines, we selected two MFIs. We are still in the energy assessment stage, but we are very confident that what happened in Peru can be replicated here in the Philippines.

Illac Angelo Diaz, in ten years where will this energy inclusion be in the Philippines?

I can say that in ten years, if these two MFIs proceed and provide energy loans to our microfinance clients, other MFIs can also replicate this project in the Philippines.
Let us begin basically with the question for solar access. It is important but it is difficult to repair these products. It looks good at the start but no one is trained to handle these. Then after 3 ½ years, these things become junk.
How can we get something more local, where the women will assemble most of the components, where we just bring in the most minimal like the solar cell? We wanted something where we could take a plastic bottle of water, stick it into the roof, and there would be light.
What has been the result? In the past 20 months, we started with 0 and now we have 350,000 solar volts around the world in 15 countries, going on 20 countries by the end of this year. We built a community solar [energy] system out of a simple copper plate and some easily available electric units. The solar cell and the LED lights are widely available. And though these may break, they can actually repair it since they built it.

How to make a mobile system? How do you make a pedestrian light system?

Most of the kids have been advised to make a mobile system from locally available sources. Rather than us saying, this is something that you should buy, this is something that you should borrow microcredit.
What is important is they start learning the skill on what solar energy is and how they can modify this product. Some they can make into flashlight, some into lantern. We do not tell them that in three years that thing is going to be out so you have to buy again.
We see [that mentality] as a very Western way.
I still remember my grandfather saying that if it can still be fixed, we fix it. And that is what is happening now with solar energies.

Hermat Lamba, the history of microfinance is a very local, very bottom up beginning. Was it really the people who came into the business? Do you foresee a similar path for green microfinance?

Hermat Lamba said that the very fact that microfinance is a financial service is a bigger enabling factor because it affects other aspects such as health and education.

We have active goals that require micro-revolution. And that revolution is either the same as what we have seen in mobile phone technology or bigger than that.
It is not only going to be in the rural areas that people are not connected. That revolution is going to change the whole paradigm of energy in the coming years or the next two decades.
The biggest change, the biggest push, the biggest thinking has to come in biometry [the application of statistical analysis to biological data]. Actually, biometry is the biggest contributing factor for local employment, in bringing change with the least capital investment. People stick to it more easily than to a particular system. It is not a sophisticated system; the local system is very simple.
As facilitators from our community, we need to take initiative with technology and bring the focus on the ecosystem, on the promotion of environmentally friendly tools for development. We are building an ecosystem for these micro-energy entrepreneurs who can back that ecosystem.
In Kenya, for example, we have a unit that was triggered by the need for energy. Some 80% of our population is poor, and 80% of that population is outside the energy [grid], [living] below the poverty line. Now this unit was to provide energy as well as provide organic fertilisers which directly helped the agriculture. Through microfinance, energy was provided, health was taken care of, and financing became available. We are now trying to see if we can replicate this.

Question for the financial experts: We have a lot of MFIs representatives seated here, but only few raised their hands in the beginning that they offer green credits. Is any MFI eligible for that? Or how do we know what MFI has the capacity?

Francesca Randazzo:

Generally speaking, I think all MFIs have the credentials to deliver such a project. There is credit and there are lots of core financial problems. At the same time, energy micro-finance is a new field. Here in the Philippines, it is quite advanced. When we think about microfinance it is not something new.
From our perspective, we are the support organisation. We wanted to conduct some more tests to show that in the microfinance community, we can do it. We used some huge training job criteria plus some financial criteria. Because in our minds, we will not put additional work to MFIs. That is the hard part as they have to solve first this problem before going into a new product.

Another speaker:

I think the right first question that we have to asked before selecting the MFIs is, are we really going to use the MFIs as a means to provide an instrument for households providing solutions? Because microfinance in nature is very expensive, at 25% [interest]. Say buying a solar solution is worth USD 3,000, and they have to pay an additional USD 60-70. So I always think about whether this is the solution.
Also to consider is whether MFIs will taken take well to us? I think that should come first, and I think it is also right to mention that most of the solutions are not sustainable after three to four years, and it is all garbage. Is it worth to invest big money and spend that much and then throw them away after three to four years?
Those questions always come to me. Am I doing the right thing? Am I just pushing the loan to the clients who are going to throw these solutions away after so many years? I think one of the things that MFIs are really good at is providing financial access.
In Tajikistan, and I am sure this is also true for other MFIs, 60-70% of the entire client portfolio are first time borrowers. So, in that regard MFIs are really providing the financial needs to work for a solution.

Look into the field of international organisations. After seeing subsidies on the product itself, will it be modeled this way to prove the supply chain to put that money back? You are still subsidizing the technology itself?

Unknown speaker:

In my view, subsidy now is the biggest danger to these sectors or groups because subsidy depends on the budget. And whether it is a 1 million dollar budget, or a 1 billion dollar budget, it does not matter. Solar energy will not reach the 2 million people who [don’t have access to energy].
In fact, subsidies are limiting the market. We have to get the subsidy better. The incentives should be extended to financing through a system from the energy market. So, if there is somebody who is dealing with delo or dirty fuel, they have to pay [a tax penalty]. So this kind of tax incentive innovation, there has to be an incentive like tax benefit or no taxes on renewable energy.

Are incentives for farmers to buy a system available? Is there interest?

Unknown speaker:

It is a challenge today with MFIs; you are really working hard to help your consumers. But MFIs, if you are going into energy, green energy, I think it is a tremendous way to go with the hard questions.

  • Is it a consumer product?
  • Will it have a [long] life span if there are companies that cannot provide the service?

If MFIs get into energy, they have to provide the services, the education. They have to train the consumer on everything, so that they have the best product that they can have whether it is solar, bio-gas, or both.
You have to work it out if you want to get involved or not because it is a consumer product and it will always be a consumer product. The solar technology is as huge as the solar system but the MFIs I think have done a lot of work. They can work at the micro level with their consumers and provide something that can help.
We have so many people but they do not have the usual capital to even buy the smallest product that they need. Gauge your market and not just because it is a consumer product. And do your homework and help the consumers understand what it is all about.

The moderator asked the speaker with experience on micro risk.

Unknown speaker:

I believe there are new products coming in. But I also believe that doing good sometimes has a bad effect. There should be a balance where local industries are able to grow [because of what we do].
Why don’t we build a product designed as well as any other in the world? We should build a local industry in case the foreign industry decides to stop production. We should secure our own. People come and go but the industry should stay. I have seen too many people do one-time deals in the country. There should be a balance, a mix of locally-built industries and imported. I really believe that we should maximise each and every part.
I really like to see women build green energy products and other women from other villages buy them. I like the local jobs; women are opening up and learning how to fix them. It is not one of those mysterious boxes that come well-shaped, colourful but then they never open up.
I like building skills in women and teaching them about solar energy, or any kind of technologies, and I like scaling it down. We will depend on green energy for the next generation, for green energy from a foreign source—[no,] I do not believe in it and I never will. I have seen so much junk thrown into our 7,100 islands. I believe in locals because I have seen it last for years and years and years. And I like the locals to know what they are doing.
Building streets lights with solar, once they know how to do it, these are stories that we should share, like how does it all work.
In the training centre, you know what the biggest training for green energy is? How to detect, how to fix solar. Why are we supporting everyone else except starting our own security? I believe in our own security. The fact that we are buying a lot of stuff that we do not know how to fix, I believe is wasting a lot of money.
Start small, start local.


Unknown speaker:

There has to be diversity in microcredit. Even if you invest a lot of money and believe in a particular technology, it could still fail. But it is not the technology that would fail; it is the delivery of energy.
Energy, once you understand it, is fundamentally a service into another product. It has changed into a product now because I can buy that product.
Microcredit is a solution but it cannot be a solution on theory, capital investment. It has to be driven by a prevailing environment chain. Just one source of energy is not going to solve the solution because energies move in peaks. There are lots of issues with microcredit.

Discussion wrap-up by the moderator, Sebastian Groh.

What we are doing with our energy product for our initiatives, we are trying to support the private sector to implement and try out different business models that could work.
This is especially true for energy because we want to provide financial support. But we also need the support from the private sector because only the private sector takes up these ideas, to be replicated in a larger scale and in the long-term.
We are looking at the different models at the moment and the possibility to make it sustainable. Most of the time, the models are of very cheap quality. It means there are entrepreneurs who have ideas but they do not care what will happen in five years.
We have to balance not only high quality and sustainability but also affordability. I encourage everyone who also has ideas in this field to approach us because we want to look into business models that are sustainable. We want to look at ways we can contribute into the energy initiatives of the ADB.
At the start of the workshop, I said that financial inclusion causes energy inclusion and energy inclusion causes financial inclusion. The discussion demonstrated this relationship.
We have also seen how people can become financially included through assets financing and how they can access banking and MFI services. However, energy inclusion is a complex subject and there is really no easy way.

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