The Small-Scale Sustainable Infrastructure Development Fund (S3IDF)

Social Merchant Bank ApproachSM (SMBA)

Using the SMBA to Leverage Philanthropic and Development Capital to Achieve Energy Access for the Poor
May 2012
S3IDF-India S3IDF-US Cambridge, MA, USA a public charity under Section 501(c)(3) of U.S. tax code Bangalore, India a Section 25 not-for-profit company with Section 80G tax exemption Copyright 2011 by Dr. Russell J. deLucia & S3IDF All Rights Reserved

Providing Infrastructure services for the Poor

Some Truisms
Infrastructure services necessary condition for poverty alleviation Large scale infrastructure projects not always inclusive Many barriers for the poor to access mainstream infrastructure

The poor are entrepreneurs too (Informal markets all over developing world)
Small Scale locally owned/operated infrastructure services are more responsive to local needs can be designed with explicit pro-poor focus

Need to get support eco-systems work for such entrepreneurs and their explicitly propoor projects

S3IDF

Providing Infrastructure services for the Poor

S3IDFs Two Mission Objectives
1.Use results-driven, enterprise-centric SMBA in India to build portfolio of explicitly pro-poor, pro-environment small-scale deals - infrastructure and related productive-use investments (e.g. grain mills). Current portfolio has 190 deals. 2.To achieve greater and broader impact, based on its lessons and experience, to proselytize, disseminate and transfer its approach.

Single-phase flour mills help women generate income and supply flour to neighbors.

S3IDF
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A Proven Alternative, Results-Driven Paradigm: S3IDFs SMBA, Designed to be Widely Applicable

Bundled Support: a merchant banking approach provides integrated business development, technical and financial support to portfolio enterprises. Leverage Local Financing: Drawing on a Revolving Fund (RF) local financial institutions are engaged in portfolio projects with a gap-filling menu of debt, equity, partial guarantees, etc. Our target leverage is 2:1 or better. Financial Engineering: Brings design and structuring elements typical of large infrastructure projects to smallscale, explicitly pro-poor deals. Technology Innovations: develop and/or integrate technology options that are appropriate for low income end-users - adapting off the shelf technology & using new evolutions in technology to meet the needs of poor people. Value Chain: Works all along the technology and know-how chain and includes linked productive-use applications (e.g. grain mills)

Investment Criteria: Pro-poor Replicable Pro-environment Entrepreneur has skin in the game Financially viable

Commercial strategy & capacity building

Gap-filling finance

Technology Know-how

(strengthening existing & creating others)

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Micro-Small Enterprise

S3IDF

Dissemination/Transfer of S3IDFs SMBA

Are the Minimum Conditions Present?
Legality of the approach and an organizational implementation possible under the rules of the game Strong local core partners for SMB implementation including FI to host RF Banks/FIs/MFIs with MSME term lending experience Other potential partners: know-how and technology suppliers, activist/business-like NGOs, development entities Sources of philanthropic or development funding Preparatory desk review of available material and communications, then rapid field work of interviews and documentation review to confirm minimum conditions, and
Identification of potential local partners (all categories) to implement S 3IDFs SMBA Preliminary design of organizational structure for implementation, including FI RF host role(s) Identification of priority energy/infrastructure needs Indicative pipeline of select deals, including partners (requires additional study budget or in next step)

Reconnaissance Level Study and Analysis

Feasibility/Pilot Investment Activities

Pre-investment analysis of select deals Testing of partnerships including FI RF host via Implementation of pilot portfolio of deals

Design of potential scale-up application of S3IDFs SMBA

[all of the above can be done in stages, all contingent on program funding]

Implementation of Major Scale-up Application of S3IDFs SMBA

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Characteristics of Portfolio Projects

Small-scale sustainable infrastructure and associated productive use investments Diverse in technology utilization for energy (biogas, PV, hybrids, LPG, biomass) => implications for carbon financing challenges Explicitly pro-poor
The poor benefit as: clients, customers, enterprise employees, and/or investment asset owners.
A solar powered ICT enterprise run by a local entrepreneur in a rural village.

Financial viability
Enterprises cash flow must cover capital and operating costs from implementation onwards.

Highly replicable Micro-meso-small finance

Debt, equity, guarantees ranging from US$500 to US $40,000

Skin in the Game

Entrepreneur has capital (cash and/or sweat equity) at risk.

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Project Examples

SMBA IN ACTION

S3IDF

Hawkers Light Points in Hassan

In light point projects such as this one in Hassan, S3IDF arranged the business development, technology and financial assistance (through local banks) to help the entrepreneurs increase their income, generate employment and provide cost savings and improved lighting for street hawkers.

Transportation of batteries

Entrepreneurs with solar charging station & lantern batteries

Lighting for hawkers

Daily Rental of Batteries for improved Lighting

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Hawkers Light points : Scaling

Institutional Linkages with Entrepreneurship Development Institutes fostered by Banks Entrepreneurs automatically eligible for loans S3IDF sets up due-diligence and monitoring process in conjunction with banks, sets up mass-guarantees .. But then Technology (LEDs) changed the game and informal Entrepreneurs beat us at our own game

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Enabling Pico-hydro and Micro-hydro in Western Ghats

S3IDF has provided and continues to provide support to a value-chain of pico- and micro-hydro technology and services players. S3IDFs support is in the form of working capital finance , efforts to intermediate with banks to mobilize end-consumer and project financing, efforts to identify and implement productive-end uses for the power generated and linkages with new technology solutions
Credit Cooperatives

End customers

~600 pico systems On ground already

Bridge Loans

Technology Technologists and manufacturers

Technology And Subsidy bundled Dealerships Government agency

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Potential (Karnataka) Pico Hydro

Average Product Unit Cost Estimated Potential in Karnataka over next 5 years Current Rate of Installation Aspired rate of installation Range of Annual value of loans (@ approx Rs 1,00,000/- per unit) Total Potential 1,50,000/Around 2000 - 2200 systems 200 250 systems / year 500 systems / year 2.5 to 5 Crores / year 20 -22 Crores

Linking surplus energy to Income generating Micro-enterprises Development of these Micro & Small Enterprises (more later) Financing of these Micro & Small enterprises Far greater potential for < 1 KW range

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Micro-hydro Conservative Estimates

Type Community Estates & plantations Canal Drops Potential 200 sites @ 8 KW = 1600 KW 100 sites @ 30 KW = 3000 KW 300 sites @ 40 KW = 12000 KW Cost / KW 1.5 L / KW 1 L / KW 0.8 L / KW Total Cost 24 Crores 30 Crores 96 Crores Financing Gap 17.6 Crores 26.4 Crores 81.6 Crores

Grid connected 10 Clusters of 1 8 Crores / Clusters MW each = 10 cluster MW Totals 26.6 MW

80 Crores

68 Crores

230 Crores

193.6 Crores

Note : Gap is based on subsidy availability of Rs 40,000/KW for communities And Rs 12,000/KW for Private developers

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Different Financing needs for sector development

End-User Financing for Pico-hydro systems Project financing for capital costs of Micro-hydro schemes Financing of Productive end use enterprises and microenterprises Enterprise financing for Technology development and Technology delivery companies Key Barrier to scaling up : Critical mass of high risk low/no return-capital (10 to 15 Million INR)
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With Caveats and Apologies it should have been Dr Russell deLucia And Thanks to colleagues and friends at CRT/N

SMBA IN NEPAL

S3IDF

The Improved Water Mill Program (IWMP)

Water Mill Owners providing services (eg: grain milling) out there infrastructure entrepreneurs, most of them poor S3IDF

IWM Short Shaft & Long Shaft

Short Shaft
Traditional Water Mill
For grain grinding only (25000 nos., 30 MW) Not efficient: 20-25% Available power 0.5-1.5 kW Processing capacity : 10-20 kg / hour (maize)

Improved Water Mill

For grain grinding and other end-uses, locally manufactured Efficient : 40 -50% Available power: 1-3 kW Processing capacity: 20-50 kg/ hour

Only for efficient grain grinding

Long Shaft
Opportunities for grinding and various end-uses like: paddy hulling, oil expelling, saw milling,electricity generation etc. S3IDF

Schematic of Long shaft : Higher investments

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S3IDF

IWMP : Key Elements

Technology development and upstream technology manufacturing
multiple manufacturers : whose clients are service centres

Institutional development and their technical capacity building

Service Centres : Local orgs which can install and service water mills
Ghatta / water mill owners associations : clients to with Service centres. Sometimes these take on service centre responsibility themselves

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S3IDF

IWMP : Key Elements (contd)

Capital Investment subsidies for both short and long shaft
Directly disbursed post installation to Service centres and Manufacturers Service centres / Manufacturers need working capital Water Mill owners invest upfront whatever necessary beyond what is covered by subsidy (including end productive use investments)

Applying SMBA :
Acknowledge key asset are the water mill owner Entrepreneurs & acknowledge their services are critical for poverty alleviation. Acknowledge their financial constraints S3IDF

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IWMP : Applying SMBA

Create linkages between Water mill owners and local financial institutions (FIs)
get local FIs to participate in IWM projects by lending to Water mill owners

Create A Revolving Fund for gap fill finance to make viable projects bankable for poor water mill owners
(eg: secondary debt to co, risk guarantee) this is designed to be recovered with some returns from implementation

Make this Revolving Fund integral to IWMP

FI host for Revolving fund which can strike partnership with other FIs and be bank correspondent

Using Development Capital to leverage Social Investment Capital AND Commercial capital
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S3IDF

SUMMARISING SMBA

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S3IDF

Scaling the SMBA Portfolio : The key elements

Reaching out to and enrolling entrepreneurs and their markets en masse Delivering bundled services business development and technology capacity building through institutional linkages Mobilizing and leveraging commerical Finance through networks of local financial institutions

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Contact Us
Avinash Krishnamurthy
S3IDF India The Small-Scale Sustainable Infrastructure Development Fund No. 700, 15th Cross, 24th Main JP Nagar, 2nd Phase Bangalore - 560 078 Karnataka, India Tel: +91 80-65902558 avinash@s3idf.org

Russell J. deLucia
S3IDF US The Small-Scale Sustainable Infrastructure Development Fund, Inc. 5 Hastings Square, The Carriage House Cambridge, MA 02139 USA Tel: +1-617-576-0652 delucia@s3idf.org

For more information about S3IDF visit www.s3idf.org S3IDF

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