Using Microfinance to Expand Access to Energy Services

Contributed by James Robinson
05 August 2008

This study takes an in-depth look at the opportunities, barriers, costs, and impacts associated with portfolios of microfinance institutions that have integrated energy lending into their loan products. The final reports are now available.

Published in November 2007

This research, led by Sustainable Energy Solutions (SES) and the SEEP Network, offers a detailed look at the business models, the clients, and the operations of selected microfinance institutions in Asia, Africa, Latin America, and the Caribbean that currently have energy-lending programs. The goals of the study are to offer initial recommendations for project implementation to the global financial service community, energy companies, donors, and policy makers; to highlight lessons to learn from; and to identify areas that warrant further attention for using microfinance to improve access to energy services.

There are three Regional Papers, covering Asia, Africa and Latin America and a Summary of Findings paper that summarizes and consolidates the major findings from three regional studies for you to download now.

Another paper of interest is the "Partnerships" paper that speaks to the need to build and maintain effective partnerships between energy companies and microfinance institutions to expand energy lending for the poor.

For the Sustainable Energy Solutions website click here

Download the report here or for a brief overview see below:

Introduction and Methodology

The potential for microfinance institutions (MFIs) to offer profitable loans to purchase energy services, and thereby help alleviate poverty and promote modern, efficient energy use, has not yet been realized due to lack of experience by both the energy and microfinance fields and the lack of documented successes. In order to better understand this emerging arena, the Citi Foundation and United States Agency for International Development (USAID) funded a comprehensive study on the opportunities, barriers, costs, and impacts associated with MFI lending portfolios that have integrated energy lending into their products. This action research? by Sustainable Energy Solutions (SES) and the SEEP Network, Using Microfinance to Expand Access to Energy Services, offers a detailed look at the business models, the clients, and the operations of selected MFIs in Asia, Africa, and Latin America and the Caribbean that currently have energy-lending programs. The goals of the study are to offer initial recommendations for project implementation to the global financial service community, energy companies, donors, and policy makers, highlight lessons to learn from, and identify areas that warrant further attention for using microfinance to improve access to energy services. This paper summarizes and consolidates the major findings from three individual papers on MFIs in Asia, Africa, and Latin America and the Caribbean, that are a companion to this paper.

If appropriately designed, loans offered by MFIs can provide clients with access to high quality modern energy services by closely matching loan payments to existing energy expenditures or income flows. Such loans can offset the high upfront cost associated with cleaner, more efficient technologies, such as biogas, micro hydropower, wind, solar, or liquefied petroleum gas (LPG). To date, an overwhelming majority of financial support for increasing energy access has been publicly funded. Although these programs are beneficial, increased availability of loans for consumers will be essential to engage the private sector and improve the investment climate for rural energy services. Enhanced understanding of the business opportunities for small-scale lending for energy services, as well as how MFIs can most effectively respond to these opportunities, is essential to facilitate access to appropriate financial services.

To carry out this research, SES and the SEEP Network invited MFIs in Africa, Asia, Latin America and the Caribbean (LAC) to participate in an interactive field research program. With the help of an advisory group of energy and microfinance experts, a competitive selection process was used to select six MFIs, four from Asia and two from Africa for this research. Criteria for selection included things such as organizational commitment to sustainability, minimum years in energy lending, and current loan products for meeting clients’ energy needs. No MFIs from Latin America and the Caribbean responded to the invitation to take part in the field research program. Therefore, SES and the SEEP Network commissioned a desk study, augmented by telephone interviews, for a broad overview of what is happening in the Latin America and Caribbean region.

Two teams of consultants, each including an expert from the microfinance sector and from the energy sector in their respective regions, carried out the research in Africa and Asia. The field research consisted of visits to the offices of each participating MFI to interview MFI staff and management, energy companies, and clients using a common set of questions to guide each team’s research. Primary data was collected and analyzed based on each MFI’s business indicators, client and stakeholder perceptions, partnerships with energy companies, and long-term business strategies. An extensive literature review on the regulatory framework and past energy lending experiences in each region complemented the field research. It should be noted that for the LAC region it was not possible to go into as much depth as the Asia and Africa reports because there were no field visits and access to information was somewhat limited.