Using Microfinance to Expand

Access to Energy Services:
The Emerging Experiences in Asia of Self-Employed Women’s
Association Bank (SEWA), Sarvodaya Economic Enterprise
Development Services (SEEDS), Nirdhan Utthan Bank Limited
(NUBL), and AMRET
by Helianti Hilman, Jyoti Gidwani,
Ellen Morris, Prem Sagar Subedi,
and Sonali Chowdhary
NOVEMBER 2007
Copyright © 2007 e SEEP Network
Sections of this publication may be copied or adapted to meet local needs without
permission from e SEEP Network, provided the parts are copied and distributed
for free or at cost—not for prot. Please credit e SEEP Network, “Using Micro-
nance to Expand Access to Energy Services: e Emerging Experiences in Asia of
e Emerging Experiences in Asia of Self-Employed Women’s Association Bank
(SEWA), Sarvodaya Economic Enterprise Development Services (SEEDS), Nird-
han Utthan Bank Limited (NUBL), and AMRET,” and e SEEP Network for
those sections excerpted.
For any commercial reproduction, please obtain permission from
e SEEP Network,
1825 Connecticut Avenue, NW, Washington, DC 20009-5721
Tel.: 1-202-884-8581 Fax: 1-202-884-8479
Email: seep@seepnetwork.org Web: www.seepnetwork.org
is paper is made possible by the generous support of the Citi Foundation and
by the American people through the United States Agency for International
Development (USAID). e contents are the responsibility of e SEEP Network
and Sustainable Energy Solutions and do not necessarily reect the views of the
Citi Foundation, USAID, or the United States Government.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 3
TABLE OF CONTENTS
Acknowledgments 8
Authors 9
Abbreviations 11
EXECUTIVE SUMMARY 15
Background 15
Obstacles 15
Market Potential 16
Possible Collaborations 16
Replication 17
Considerations for Successful Energy Lending 17
Challenges for MFIs 17
Strategic Conflict 18
Oportunities for Donors 18
Opportunities for MFIs and Other Market Players 19
Recommendations 19
Chapter 1. INTRODUCTION 21
1.1 BACKGROUND 21
1.2 METHODOLOGY 22
1.2.1 MFI Selection Process 23
1.2.2 Work Plan Summary 23
1.2.3 Field Visit 24
1.3 DATA ANALYSIS 24
1.3.1 MFIs 24
1.3.2 Energy and Microfinance Stakeholders 26
Chapter 2. SEWA BANK—INDIA 27
2.1 INDIA COUNTRY CONTEXT 27
2.1.1 Socio-economic Environment 27
2.1.2 Banking Sector Overview 27
2.1.3 Financial Service Suppliers 28
2.1.4 Regulation of Financial and Microfinance Sectors 28
2.1.5 Energy Scenario Overview 28
2.1.6 Renewable Energy Facilitators and Promoters 29
2.1.7 Energy Suppliers and Service Companies 30
2.2 ORGANIZATIONAL PROFILE OF SEWA BANK 30
2.2.1 Structure and Operation 30
2.2.2 Funding Sources 31
2.3 ENERGY LOAN PORTFOLIO OF SEWA BANK 32
2.3.1 Model and Methodology 32
2.3.2 Relationship of SEWA Bank, SELCO, and Clients 32
2.3.3 Characteristics 34
4 Using Microfinance to Expand Access to Energy Services
2.3.4 Administration and Management 35
2.3.5 Financial Analysis 36
2.3.6 Impact Analysis 36
2.4 DISCUSSION—SEWA BANK 37
2.4.1 Highlights and Challenges of SEWA Bank’s Energy Lending Model 37
2.4.2 Key Lessons Learned 38
2.4.3 Opportunities for Country Scale-Up and Regional Replication 39
Chapter 3. SEEDS—SRI LANKA 41
3.1 SRI LANKA COUNTRY CONTEXT 41
3.1.1 Socio-economic Environment 41
3.1.2 Financial Service Suppliers 41
3.1.3 Regulation of Financial and Microfinance Sectors 42
3.1.4 Energy Scenario Overview 42
3.1.5 Renewable Energy Implementation in Sri Lanka 43
3.1.6 Renewable Energy Facilitators 44
3.1.7 Energy Suppliers and Industry Players 45
3.2 ORGANIZATIONAL PROFILE 45
3.2.1 Structure and Operation 45
3.2.2 Funding Sources 47
3.3 ENERGY LOAN PORTFOLIO 47
3.3.1 Model and Methodology 47
3.3.2 Characteristics 48
3.3.3 Relationship of Energy Suppliers, SEEDS, and Consumers 48
3.3.4 Energy Clients and New Markets 50
3.3.5 Administration and Management 51
3.3.6 Financial Analysis 52
3.3.7 Impact Analysis 52
3.4 DISCUSSION—SEEDS 53
3.4.1 Highlights and Challenges of the SEEDS Energy Lending Model 53
3.4.2 Obstacles and Barriers 55
3.4.3 Key Lessons Learned 56
3.4.4 Opportunities for Country Scale-Up and Regional Replication 56
Chapter 4. NUBL—NEPAL 59
4.1 NEPAL COUNTRY CONTEXT 59
4.1.1 Socio-economic Environment 59
4.1.2 Banking Sector Overview 59
4.1.3 Financial and Microfinance Sectors and Regulation 59
4.1.4 Energy Scenario Overview 60
4.1.5 Renewable Energy Implementation and Facilitators 61
4.2 ORGANIZATIONAL PROFILE 62
4.2.1 Structure and Operation 62
4.2.2 Funding Sources 63
4.3 ENERGY LOAN PORTFOLIO 63
4.3.1 Model and Methodology 63
4.3.2 Relationship of NUBL, Biogas Companies, and Clients 65
4.3.3 Characteristics 65
4.3.4 Energy Service Companies 67
4.3.5 Administration and Management 67
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 5
4.3.6 Financial Analysis 67
4.3.7 Impact Analysis 67
4.4 DISCUSSION—NUBL 68
4.4.1 Highlights and Challenges of NUBL’s Energy Lending Model 68
4.4.2 Obstacles and Barriers 70
4.4.3 Key Lessons Learned 70
4.4.4 Opportunities for Country Scale-Up and Regional Replication 71
Chapter 5. AMRET—CAMBODIA 73
5.1 CAMBODIA COUNTRY CONTEXT 73
5.1.1 Socio-economic Environment 73
5.1.2 Banking Sector Overview and Key Financial Indicators 73
5.1.3 Financial Sector Regulation 74
5.1.4 Microfinance Sector Regulation 74
5.2 ENERGY SCENARIO OVERVIEW 75
5.2.1 Energy Access and Consumption 75
5.2.2 Renewable Energy Implementation 76
5.2.3 Renewable Energy Facilitators 78
5.2.4 Energy and Alternative Energy Suppliers 78
5.3 ORGANIZATIONAL PROFILE 79
5.3.1 Structure and Operation 79
5.3.2 Funding Sources 80
5.4 ENERGY LOAN PORTFOLIO 80
5.4.1 Model and Methodology 80
5.4.2 Characteristics 81
5.4.3 Service Company 81
5.4.4 Administration and Management 81
5.4.5 Impact Analysis 82
5.5 DISCUSSION—AMRET 82
5.5.1 Highlights and Challenges of the AMRET Bank Energy Lending Model 82
5.5.2 Obstacles and Barriers 83
5.5.3 Key Lessons Learned 83
5.5.4 Opportunities for Country Scale-Up and Regional Replication 74
Chapter 6. CONCLUSIONS AND RECOMMENDATIONS 87
6.1 SUMMARY OF FINDINGS ON ENERGY LENDING BY SEWA BANK, SEEDS, NUBL,
AND AMRET 87
6.1.1 Establishment and Funding 87
6.1.2 Energy Loan Products 88
6.1.3 Institutional Approach to Energy Lending 89
6.1.4 Relationships with Energy Suppliers 89
6.1.5 Management and Financial Capacity 90
6.2 LESSONS LEARNED 90
6.3 OBSTACLES 92
6.4 OPPORTUNITIES 94
6.5 RECOMMENDATIONS FOR REGIONAL REPLICATION 95
6.6 REPLICATING MFI MODELS 98
6.7 OPPORTUNITIES FOR MFIS AND OTHER MARKET PLAYERS 100
6.8 OPPORTUNITIES FOR CITI FOUNDATION AND OTHER DONORS 100
Bibliography 103
6 Using Microfinance to Expand Access to Energy Services
Appendices
Appendix 1 Framework of Questions Developed for the Field Research 105
Appendix 2 Detail of Field Visits and Respondents 110
Appendix 3 Research Methodology 111
Appendix 4 Roles and Regulation of Financial Institutions in India 114
Appendix 5 Roles and Regulation of Financial Institutions in Sri Lanka 115
Appendix 6 Roles and Regulation of Financial Institutions in Nepal 116
Appendix 7 Summary of Research Findings and the Comparative Features of the MFIs Studied 117
Appendix 8 Initial Stages and Establishment of Energy Lending of
SEWA Bank, SEEDS, NUBL, and AMRET 122
Appendix 9 AMRET’s Outstanding Loan Funds and Grants 124
List of Tables
Table 2.1 Applicable Fiscal Incentives and Facilities Available to Manufacturers and
Users of Renewable Energy 29
Table 2.2 Highlights of IREDA’s Financing Norms 30
Table 2.3 Differences Between SEWA Bank’s Non-Energy and Energy Loans 33
Table 2.4 Features of Energy Products Offered by the URJA Project 35
Table 2.5 Areas of Innovation to Leverage URJA’s Outreach and Impact 39
Table 3.1 Roles and Regulatory Requirements of Financial Sector Players in Sri Lanka 42
Table 3.2 Differences Between SEEDS’ Non-Energy and Energy Loans 47
Table 3.3 Characteristics of SEEDS’ Energy Loan Products 48
Table 3.4 Sample Client Loan Profile, SEEDS 52
Table 4.1 Differences Between NUBL’s Non-Energy and Energy Loans 64
Table 4.2 Cost, Subsidy, and Labor Cost for Biogas Plants and Credit Needed 66
Table 4.3 Comparison of Biogas Loans by Various Financing Institutions 68
Table 4.4 Stakeholders’ Perceptions of NUBL 69
Table 5.1 National Bank of Cambodia’s Mandatory Conditions for MFIs 75
Table 5.2 Current Lighting Sources and Consumption in Rural Areas in Cambodia 76
Table 5.3 Photovoltaic Installations in Cambodia, 1997–2004 76
Table 5.4 Profiles of Hydropower and Biomass Projects in Cambodia 77
Table 5.5 Differences Between Solidarity Group Loans and Individual Loans 81
Table 5.6 Stakeholders’ Perceptions of AMRET 83
Table 5.7 Comparison of Electricity Prices in Cambodia 84
List of Figures
Figure 2.1 Process of a SEWA Bank Energy Loan 33
Figure 3.1 Stakeholder Relationships in a Solar Loan 49
Figure 3.2 Stakeholder Relationships in a Village Hydro Loan 50
Figure 3.3 Stakeholder Relationships in Grid Loan 51
Figure 4.1 Intervention Model by Sector Facilitators 62
Figure 4.2 Process of a NUBL Biogas Loan 65
Figure 4.3 Proposed Scale-Up Model for NUBL Energy Loans 72
Figure 5.1 Present Lending Operation and Proposed Flow of REF 84
Figure 6.1 Energy Lending Co-operation and Co-ordination Among Key Stakeholders 96
List of Boxes
Box 1.1 The Four MFIs Studied in the Asia Region: SEWA Bank, SEEDS, NUBL, and AMRET 22
Box 1.2 Typical Data Collected During Field Research 25
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 7
Box 2.1 Photovoltaic Battery Charging: A Profitable Business 36
Box 3.1 Renewable Energy in Sri Lanka’s Program 43
Box 3.2 Other Renewable Energy Promoters in Sri Lanka 44
8 Using Microfinance to Expand Access to Energy Services
ACKNOWLEDGMENTS
e SEEP Network, Sustainable Energy Solutions, and the research teams that carried out this research would like to
express their profound respect and appreciation for the micronance institutions and energy companies and indi-
viduals that participated in the research in Asia:
AMRET (Cambodia): Chea Pallarin and Hout Soukha
Sat Samy (Ministry of Industry, Mining and Energy), Iwan Baskoro (GERES Cambodia), and Jan Lam (Na-
tional Biodigester Programme)
NUBL (Nepal): Prakash Sharma, and Prabin Dahal
Saroj Rai (Biogas Sector Partnership of Nepal), Alternative Energy Promotion Center of Nepal
SEEDS (Sri Lanka): Indrani Hettiarchy
Pradip Jayawardena (Solar Industries Association, SIA), Shell Solar Srilanka, HPI Solar/ENCO, RERED
Project, DFCC, Energy Forum
SEWA Bank (India): Jayshree Vyas and Sharmila Davra
Harish Hande (SELCO)
ese organizations and individuals generously shared their time with us, demonstrating commitment, creativity,
insight, and patience through the entire process, especially the eld research. ey also demonstrated a keen desire to
further industry knowledge and practice by sharing their experiences, successes, and missteps in using micronance
to provide access to energy.
We are grateful to the funders of this research, the Citi Foundation and the U.S. Agency for International Develop-
ment (USAID), for their support for this research and their willingness to advocate for the potential of using micro-
nance to expand access to energy services in the broader micronance and energy services communities. In this
regard, we are particularly thankful to Leslie Meek of the Citi Foundation and Patricia Flanagan and Simone Lawaetz
of USAID.
is research beneted from an advisory group, comprised of individuals from the energy and micronance sectors,
who provided voluntary technical advice and guidance at key junctures. We are especially grateful to Harish Hande
(SELCO), Phil LaRocco (E+Co), Erik Wurster (E+Co), Nicola Armacost (Women’s World Banking), Jennifer Han-
sel (Research Triangle Institute), and Evelyn Stark (Consultative Group to Assist the Poor), who generously shared
their time with us, demonstrating commitment, creativity, and insight through the course of this work. We would
like to thank Amy Feldman from Citi Foundation for supporting the planning of the August 2007 workshop where
this paper was presented and Ida Dokk Smith from SEEP for assisting with the project.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 9
AUTHORS
Jyoti Gidwani is a management executive at Micro-Credit Ratings International Limited (M-CRIL) and specializes
in micronance assessments and ratings, research, and trainings. She has experience working in India, Afghanistan,
Bangladesh, Cambodia, East Timor, and Sri Lanka. She helped research and write a cost benet analysis of BRAC’s
CFPR program, which focused on direct welfare gains of the Special Investment Programme by beneciary house-
holds and the associated costs of delivering the program to them. She worked on a study of CARE Bangladesh’s
Income Project and assessed the organizational and training needs of seven partner NGOs in Dhaka, Chittagong
and Khulna. She was also a team member in a study of 200 self-help groups (“e ‘Lights’ and ‘Shades’ of Self-Help
Groups in India”), which researched their group performance, social action, and impact in dierent contexts in the
Indian states of Rajasthan, Orissa, Andhra Pradesh, and Karnataka. Ms. Gidwani is a CGAP-certied trainer and
has conducted training modules for MFIs in India, Cambodia and Afghanistan. She has a master’s degree in forestry
management from the Indian Institute of Forest Management, Bhopal, and a batchelor’s degree in commerce and IT
(honors) from Delhi University, India.
Helianti Hilman is the founder and chairperson of Khaula Karya Foundation (www.khaula.org), an enterprise-de-
velopment rm based in Indonesia that focuses on transforming micro and small businesses into value-and-market-
driven enterprises. She is also a specialist on rural energy enterprise development and was the Global Village Energy
Partnership (GVEP) country coordinator for Indonesia. She has consulted widely on energy-related initiatives,
including UN Environment Programme initiatives to promote end-consumer credit for solar energy technology in
Indonesia, World Bank initiatives to promote decentralized electrication in Indonesia, GVEP’s assessment of its
Asia Country Partners’ activities, UN Development Programme/Global Environment Facility’s “Programming Kit
on Productive Uses of Renewable Energy,” PT PLN’s study of the opportunities for biomass co-generation in Indo-
nesia, as well as the Indonesian Ministry of Energy and Mineral Resources’ study on “Incentive Policy for the Utiliza-
tion of Renewable Energy and Energy Eciency.” Ms. Hilman headed the Asia consultant team for the Citi-USAID
study, presented here, to examine the energy lending of four micronance institutions in Asia.
Prem Sagar Subedi is a micronance specialist with Winrock International Nepal and has 10 years of experience
in micronance for energy services and MFI capacity building. He successfully coordinated a three-year USAID-
funded project to build the capacity of MFIs nancing renewable energy technologies (RETs), which was recognized
as a best-practice project for micronance and energy services by the Wuppertal Institute for Climate, Environment,
and Energy (WISIONS). He has developed manuals on micronance for RET and designed and conducted train-
ing programs for nancial institutions and energy companies. He has also worked as a technical expert for the Asia
Development Bank’s “Promotion of Renewable Energy, Energy Eciency and Greenhouse Gas Abatement” project,
was a member of the National Biogas Program’s feasibility study team in Uganda and Tanzania, and has conducted
nancial and economic analyses of biogas intervention in sub-Saharan Africa. He has a master’s degree in develop-
ment management from the Asian Institute of Management, and is an Asian Development Bank Scholar.
Ellen Morris started her consulting rm, Sustainable Energy Solutions in 1996, where she is engaged in interna-
tional development, policy analysis, and research on energy issues for national governments, development agencies,
foundations, and the private sector. Dr. Morris has been a senior consultant for the United Nations Development
Programme in the sustainable energy program for the last ten years. Her work at UNDP has focused on technical
and programmatic support for countries seeking to advance energy as a means for poverty reduction. Most recently,
10 Using Microfinance to Expand Access to Energy Services
Dr. Morris has done pioneering work on consumer lending and micronance to expand access to energy services by
engaging with the private sector and micronance institutions in developing countries. She is also an adjunct profes-
sor at Columbia University’s School of International and Public Aairs, where she teaches energy and development
courses. Prior to starting her own rm, Dr. Morris worked for the National Renewable Energy Laboratory, in the
international and geothermal groups. In the early part of her career, she worked as a Science Advisor for the U. S.
Congress and as an exploration geophysicist for Texaco. Dr. Morris has a Bachelor of Science degree in Geophysical
Engineering from the Colorado School of Mines and a doctoral degree in Marine Geophysics from the University of
Rhode Island.
Sonali Chowdhary is a micronance consultant with the SEEP Network where she provides project management
support and technical guidance to their action research projects on energy access, social performance, and knowledge
management. She has more than six years of experience in managing micronance operations, product development,
piloting technology initiatives, and institution building. Prior to joining SEEP, she worked with BASIX, one of
India’s leading micronance and livelihood promotion organization, as well as Intellecap, a consultancy specializing
in development nance and capital advisory. Chowdhary has headed consulting projects for leading Indian banks,
such as Small Industries Development Bank and ICICI Bank, which provided institutional building and technology
support to start-up and transforming MFIs. She also led action research projects related to livelihood promotion,
natural resource nancing, and local economic development for CARE, ODI, IWMI, Ministry of Rural Develop-
ment (India), and UNDP. She was a DFID scholar at the University of Bath, U.K., in 2004–05 where she received a
master’s degree in international development. She has completed a master’s in business administration, specializing in
environment and natural resource management, from Indian Institute of Forest Management, and holds a bachelor’s
degree in agricultural sciences from Acharya NG Ranga Agricultural University.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 11
ABBREVIATIONS
ACLEDA Association of Cambodian Local Economic Development Agencies
ADB Asian Development Bank
ADBL Agricultural Development Bank Limited
AEC Ahmedabad Electricity Company
AEPC Alternative Energy Promotion Centre
AFD Agence française de développement
AM area manager
AO area oce
APR annual percentage rate
BO branch oce
BOD board of directors
BPL below poverty line
BSP Biogas Sector Partnership
CBOs community-based organizations
CBSL Central Bank of Sri Lanka
CEB Central Electricity Board
CFSP Cambodian Fuelwood Saving Project
DANIDA Danish International Development Agency
DFCC Development Finance Cooperation of Ceylon
DMs district managers
ECS electricity co-operative society
ESD energy services delivery
FAO Food and Agriculture Organization
FCRA Foreign Contribution Registration Act
FD xed deposit
FINGO nancial intermediary non-government organization
FONDEM La Fondation Énergies pour le Monde
12 Using Microfinance to Expand Access to Energy Services
FY scal year
GCC general credit card
GDP gross domestic product
GEF Global Environment Facility
GERES Énergies Renouvelables Environnement et Solidarités
GHC grievance hearing cell
GL general loan
GM general manager
GNI gross national income
GSL government of Sri Lanka
GTZ Gesellscha für Technische Zusammenarbeit
HNB Hatton National Bank
HPI hydro power
HO head oce
HR human resources
IRDP Integrated Rural Development Programme
IREDA Indian Renewable Energy Development Agency Limited
JFPR Japan Fund for Poverty Reduction
Kf W Kreditanstalt für Wiederaufbau
KS Khmer Solar
KVA kilovolt ampere
KWh kilowatt hour
LAN local area network
Libor London Inter-bank Oce Rate
LLR loan loss reserve
LPG liquid petroleum gas
MACS Act Mutual Aid Co-operative Acts
MAFF Ministries of Agriculture and Fisheries
MBWin MicroBanker
MCPW Microcredit Project for Women
MFDB micronance development banks
MFIs micronance institutions
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 13
MHT Mahila Housing Trust
MIME Ministry of Industry, Mines, and Energy
MIS management information systems
MNCE Multi-National Collaboration Environment
MOU memorandum of understanding
MSD Micronance Supervision Department
MW megawatts
NBC National Bank of Cambodia
NBFC non-bank nance companies
NBL Nepal Bank Limited
NBP National Biodigester Program
NEA Nepal Electricity Authority
NEG New Energy Group
NGOs non-government organizations
NPL non-performing loan
NRB Nepal Rastra Bank
NUBL Nirdhan Utthan Bank Limited
p.a. per annum
PCI participatory credit institution
PCRW Production Credit for Rural Women
PO program ocer
PV photovoltaic
RBB Rashtriya Banijya Bank
RBI Reserve Bank of India
REB Rural Electrication Board
REDP Rural Energy Development Program
REE rural electricity enterprises
REF Rural Electrication Fund
REFS Rural Electrication Fund Secretariat
REPSA Renewable Energy Private Sector Association
RERED Renewable Energy for Rural Economic Development
RFSDA Rural Finance Sector Development Agency
14 Using Microfinance to Expand Access to Energy Services
RGC Royal Government of Cambodia
ROA return on assets
RSRF Rural Self-Reliance Fund
SACCOS saving and credit co-operatives
SCARDB state co-operative agriculture and rural development banks
SEB state electricity boards
SEEDS Sarvodaya Economic Enterprise Development Services
SEEP Small Enterprise Education and Promotion Network
SELCO Solar Electric Light Company
SES sustainable energy solutions
SEWA Self-Employed Women’s Association
SFCL Small Farmer Co-operative Limited
SG solidarity group
SHG self-help group
SHS solar home system
SIA Solar Industry Association
SIDBI Small Industries Development Bank of India
SPV solar photovoltaic
SRTS Sarvodaya Rural Technical Service
SWH solar water heater
TA technical assistance
TCCS thri credit co-operative societies
TOE ton of oil equivalent
UNDP United Nations Development Programme
UNEP United Nations Environment Programme
UNF United Nations Foundation
UNICEF United Nations Children’s Fund
USAID United States Agency for International Development
VA village association
Wp watt peak
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 15
EXECUTIVE SUMMARY
BACKGROUND
ere is no question that micronance and consumer lending can improve access to quality modern energy services
for poor consumers. Such loans help oset the high upfront cost associated with cleaner technologies, such as biogas,
micro hydro power, wind, solar, or liqueed petroleum gas (LPG). To date, an overwhelming majority of nancial
support for rural energy applications has been publicly funded. Although these programs are benecial, increased
access to loans for consumers is essential to engage the private sector, improve the investment climate for rural energy
services, and leverage the outreach and impact. A deeper understanding of the business opportunities for small-scale
lending for energy services, as well as the most eective way micronance institutions (MFIs) can respond to these
opportunities, will facilitate access to appropriate nancial services.
e potential for MFIs to oer protable loans for the purchase of energy services has not yet been realized because
both the energy and micronance elds lack experience and there are few documented successes to learn from. In
order to better understand the current experience with energy lending in this emerging arena, the United States
Agency for International Development (USAID) and the Citi Foundation are funding a comprehensive study on the
opportunities, barriers, costs, and impacts associated with MFI lending portfolios that have integrated energy into
their products. e approach is to learn from detailed proles of the business models, the clients, and the operations
of selected MFIs that currently have energy lending programs.
is action research project, Using Micronance to Expand Access to Energy Services, looks at energy lending on three
continents—Asia, Africa, and Latin America. e objective is to document the opportunities, challenges, costs, and
eects of integrating energy products into a MFI’s product mix, develop feedback for future expansions of these
energy-lending products, and share the lessons learned with the industry at large. e study in the Asia region exam-
ined in depth four existing MFI energy-lending programs through eld work and a desk/literature review. e eld
research included interviews with selected sta of the MFIs, energy suppliers, clients, and other energy stakeholders,
and analysis of the MFIs’ lending programs and nancial and accounting reports. e MFIs studied are SEWA Bank
(India), SEEDS (Sri Lanka), NUBL (Nepal), and AMRET (Cambodia).
e ndings reveal that each MFI has its own competitive edge that gives it a unique position, a wide array of best
practices and lessons learned that can benet other MFIs, and schemes and mechanisms that are most appropriate to
their respective contexts. e country context of each country in the study has signicant inuence on the implemen-
tation and the market potential of energy lending by MFIs. For a summary of the research ndings, which compares
the features of the four MFIs, see Appendix 1.
OBSTACLES
Both internal and external obstacles were faced by the MFIs in this study in implementing energy lending. ose aris-
ing from factors within the organizations have been classied as internal, while the others are external factors.
e researchers identied reservations about making a group-based lending model available to clients who were not
already members (i.e., completed successful loans), as seen in the case of NUBL. No barriers were identied for indi-
vidual lending models. Weaknesses seen in the management information systems and credit discipline by eld sta
16 Using Microfinance to Expand Access to Energy Services
have implications for nancial performance and may restrict growth of the energy portfolio. Weak portfolio quality
results in sub-optimal yields and may jeopardize the long-term sustainability of a program. Unfamiliarity with alter-
native energy options, the need for initial market development before energy-product introduction, and uncertain
sustainability of the nancing models for energy options were found to be issues. Although none of the MFIs studied
had fund constraints, this could be a limiting factor for other smaller MFIs operating in the region.
Some of the typical obstacles arising from a country’s policy environment included potential market distortions from
subsidized technology-driven programs—e.g., government subsidy for solar cookers in India, credit-enhancement
schemes oered by the government to select nancial institutions (oen favoring state-owned banks), and national
energy and electricity price subsidies which are not also available for renewable/cleaner energy technology.
e market for energy lending may become limited if the potential from poor consumers is not aggressively devel-
oped and does not grow. For AMRET, energy technology options in Cambodia are not yet readily available; and
NUBL’s only option thus far is biogas. e absence, too, of sucient numbers of energy players with decentralized
sales and service networks, that can deliver better and more cost-ecient technology, will denitely hamper expan-
sion of energy lending by MFIs. AMRET faces this condition, which is made worse by the general lack of awareness
of energy options (much less lending products) by the Cambodians themselves.
Absence of interactions between the energy and micronance sectors—particularly if they do not understand the
limitations and potentials of each other’s elds—can also be a signicant obstacle to expanding energy lending both
in micro- (MFIs) and macro- (country) economic contexts.
MARKET POTENTIAL
e market potential for energy lending by MFIs in the countries studied is huge, particularly because the electrica-
tion rate among poor and rural consumers is still low. For example, there are 2 million un-electried households in
Sri Lanka (with 10 percent annual growth in electricity demand), which are primarily located rural and estate areas
and constitute a large potential market for energy lending.
In general, the market potential for energy lending by MFIs can be inuenced by policies, markets, clients, geography:
Policy enironment: If electricity prices are not subsidized (India and Cambodia), and the policy environment sup-
ports and promotes energy lending and market development (Sri Lanka’s RERED project and intervention in Nepal
by AEPC/BSP), the market potential is gigantic.
Market demand: e gap between energy supply and demand reects market potential. In Nepal, the market poten-
tial for biogas plants has been estimated to be to 1.9 million units, and only about 160,000 units have been installed.
Existing client base: SEWA Bank and NUBL are strategically using their existing, relatively large client bases as the
primary targets for energy lending. About 50 percent of NUBL clients obtain cattle loans, which is a ready-and-wait-
ing market for biogas loans. e premise is that every MFI client has energy needs, and there are markets for more
cost-ecient or revenue-generating technology.
Geographical coerage: MFIs with wide geographical presence are better placed to capture the latent demand for
energy services.
POSSIBLE COLLABORATIONS
Based on the four MFIs in this study of the Asia region, possible collaborations for expanding energy lending lie
among MFIs, energy suppliers, and energy sector facilitators, where each compliments the other to expand energy
lending. ese collaborations include:
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 17
- Aligning energy lending with other livelihood programs that require energy provision, such as housing
loans and business loans;
- Aligning energy lending with business development programs that require energy for income-generating
activities;
- Aligning with NGOs or sector facilitators to source đeld proven, cost-eċcient energy technologies that
can be scaled up to commercial levels through a credit facility; and
- Tapping into credit enhancement and technical assistance schemes oĈered by sector facilitators (govern-
ment, donors) to surmount challenges encountered in the initial introduction of energy lending, as done
by SEEDS.
REPLICATION
e energy-lending models of the four MFIs have the potential to be replicated, but replication must take into con-
sideration prerequisite conditions and the specic country context, which are key for each model to function well.
Selecting from the best practices gleaned from the MFIs studied, choosing those aspects that are most suitable to a
given situation oer the best option for replication, rather than mimicking just one model.
SEWA Bank: SEWA Bank’s energy-lending model has the most pro-consumer approach and poses the fewest bar-
riers to the economically active poor. us, it is an ideal model to increase the access of poor consumers to modern
energy sources. SEWA Bank’s extensive involvement in market development led it to tap into the existing marketing
infrastructures and channels, without which marketing costs would be signicant. In addition to other prerequisites,
replicating this model requires an energy partner which shares a similar mission, approach, and target clients as the
MFI, and which is willing to balance social, commercial, and environmental bottom lines.
SEEDS: e SEEDS energy-lending program constitute is the oldest and has the widest geographical coverage and
biggest portfolio. Along with other prerequisites, replication of this model requires strong government policy, strong
sector facilitators and energy suppliers, and decentralized sales and service networks.
NUBL: NUBL is relatively new and has a small portfolio. Its energy-lending shows a healthy potential to expand.
NUBL’s energy loan has a unique feature: it allows energy loans to be paired and run concomitantly with other
loans (e.g., for purchasing cattle and upgrading sanitation), which complements the expansion of biogas loan market
among its client base. With other prerequisites, replication requires strong government policy, strong sector facilita-
tors and energy suppliers, standard and eld-proven products, and decentralized marketing and service networks.
AMRET: AMRET’s energy-lending product is the only one that is a general business loan and not a special loan
product. Its potential is limited because Cambodia’s energy sector is still immature. Replication would require strong
management commitment to an internal research and development (R&D) division in order to understand its cli-
ents’ energy needs and to identify energy suppliers to collaborate with them. Nevertheless, AMRET provides a good
example of an MFI operation with a strong loan appraisal system, good credit discipline, and good internal procedure
for research and development.
CONSIDERATIONS FOR SUCCESSFUL ENERGY LENDING
Challenges for MFIs
Each MFI examined in this study needs to carefully assess its cost structure, increase the eciency of its operation,
and scale up its market to achieve a critical mass. Without addressing these matters, the sustainability of their energy-
18 Using Microfinance to Expand Access to Energy Services
lending products may become very challenging. e success of energy lending by MFIs also depends on management
capability, which includes:
- designing and customizing energy loan products to service the varying needs of clients;
- collaborating with external agencies to enhance strategic strengths, minimize risks, and broaden the ser-
vice base;
- adopting professional management systems to enhance transparency and accountability;
- having the Ĕexibility to accept risk, experiment, and adapt to change; and
- balancing commercial and social objectives.
Subsidies and prociency in energy technology are two other factors that inuence the introduction and develop-
ment energy lending by MFIs. e supply-side subsidy for some energy products helps reduce the gap between the
market price and aordability by consumers. ese subsidies have proven eective in promoting the implementation
of clean energy in countries, such as in Nepal for domestic biogas plants, and in Sri Lanka for solar home systems
(SHS) and village micro hydro schemes.
As demonstrated by SEWA Bank and SEEDS, nance institutions can master the energy technology piece to benet
their clients. A bank’s prociency in the nature and characteristics of the energy technology can enable it to design
an appropriate technical-risk mitigation strategy; cra robust product and service standards for the energy suppli-
ers; construct an eective marketing strategy; monitor the product and service delivery by the energy suppliers; and
actively disseminate comprehensive information to prospective customers.
e demand for better energy solutions can mostly be found among the very poor or hardcore poor populations,
which most MFIs have still not been able to serve. is segment of society requires comprehensive, packaged support
before its citizens can join mainstream micronance programs. e expansion of energy access to the poor requires
designing special programs which provide the poorest of the poor handholding support for longer duration, not just
with credit but with a variety of other economic and social inputs.
Strategic Conflict
Adopting and introducing special loan products, such as energy lending, requires strategic decisions by the MFI,
especially when there is a potential conict of priority between promoting a general credit program and an energy
program. An energy program requires larger loans with longer terms, which for most MFIs means higher credit risk.
With commercialization, MFIs seek to attain protability in a short-to-medium time frame, which demands fast
portfolio growth. However, energy lending cannot be expected to be as fast-paced as generally sought, given the need
for marketing, client education, and sta training. Other possible hiccoughs are longer product “gestation periods”
(for example, construction of a biogas plant takes 20 days), seasonality (no construction is possible during mon-
soons), or the unfeasibility or unsuitability of certain locations for certain energy products (such as hilly regions or
regions with less sunlight), etc.
Opportunities for Donors
Strategic intervention by donors to promote micro-lending for energy consumers should combine nancial support
with strong technical assistance that has a pragmatic focus on building market infrastructure and market awareness.
Financial support could assist MFIs during the start-up phase of energy lending to ll in any mismatch between the
MFIs’ loan policy and the borrowers’ nancial capacity and characteristics. It could enable the bank to lower its equity
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 19
nancing requirement, extend the loan period (for example, micro hydro needs three years), provide a grace period, or
reduce collateral requirements. It could also help with transaction cost sharing, credit enhancement schemes (i.e., per-
formance-based interest rate subsidy or renancing for longer tenure or grace period), or risk mitigation schemes (i.e.,
credit guarantee facility and loss reserve funds). Specic loan funds could be made available to local energy companies
and enterprises and for energy delivery models that reach out to potential consumers who may not be bankable.
Areas for technical assistance that advance successful energy lending can be market studies to target the existing
client base of the nance institution, technical standards for product and service quality to be imposed upon energy
vendors by partner nance institutions, energy-lending program design, and supply chain development.
Opportunities for MFIs and Other Market Players
Micro-lending for energy consumers opens up great potential for MFIs to expand business beyond their existing
client base. However, prociency in energy technology and interactions with energy sector players are fundamental
elements for designing eective energy-lending programs with good loan portfolio quality.
e global initiatives to utilize micro-lending for small scale, decentralized, or individual energy products as strategic
means of expanding access to modern energy services also provide opportunities for energy market players to tap into
a critical customer mass. Greater availability of micro-lending will help remove the barrier to poor consumers posed
by their inability to aord modern, ecient energy. Furthermore, micro-lending facilities are key for energy players
in building markets that justify investment in developing decentralized sales and service networks.
As shown by the four MFIs in this study, initiatives to foster development of micro-lending for energy consumers
can come from any stakeholder as long as collaborations with other key stakeholders are established. e URJA
Project of SEWA Bank and SELCO demonstrate a successful collaborative energy-lending project between the MFI
and its energy partner. e RERED project in Sri Lanka and the AEPC/BSP partnership in Nepal are examples of
government and donors combining to promote energy lending by MFIs. e Solar Industry Association of Sri Lanka
is a perfect example of how solar companies can actively develop and foster an enabling environment by soliciting
government policy and support to create a strong market for the photovoltaic industry.
RECOMMENDATIONS
Strong coordination among relevant stakeholders. Good coordination helps leverage the market scale, minimize
market distortion, and increase eciency, creating a vibrant market system.
Innoative market development. is includes diversifying the target consumer and the delivery model, and opti-
mizing the client base as the primary target market.
Technology selection. Energy products need to be market driven and should contribute to cost eciency and/or
revenue generation, as well as have positive health and social impacts.
External funding for research, market promotion, and introductory pricing. As there is a strong need for further
exploratory research as well as promotional campaigning, funding must cover research and product innovation, mar-
keting, and product promotion as well as subsidies for introductory pricing.
Innoative technical and credit risk mitigation. In energy lending, the spectrum of risks involved is much broader
because it includes not only credit risk but also risk due to failure of technology, change, access to better technology,
or absence of service infrastructure, etc. ese risks can best be managed by joint collaboration of energy and micro-
nance stakeholders where they take advantage of each other’s expertise. e key is to ensure that these risks do not
pose a barrier to poor consumers. us, nancing energy solutions calls for innovative risk mitigation strategies, such
20 Using Microfinance to Expand Access to Energy Services
as pre-dening deliverables in an MOU on quality standards, detailing warranties, educating clients, building market
infrastructure, oering post-sale service, etc. Insurance for the energy product and credit guarantees may be other
options for risk mitigation.
Balancing triple bottom lines. A balance needs to be created among the commercial, social, and environmental
interests of the MFI (and energy supplier) so that it may tap into the full potential of the emerging growth of energy
lending.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 21
CHAPTEP฀1฀º฀!NTPDDUCT!DN฀
1.1 BACKGROUND
Approximately 2 billion people, or about one-third of humanity, lack access to modern energy services, and some 1.1
billion people in the developing world live on less than US$ 1 per day.
1
Access to modern fuels and electricity helps
increase incomes by improving productivity, creating employment, and providing access to markets. Contrary to
popular belief, expenditures by poor energy consumers on inecient and low quality energy sources are surprisingly
high. Most estimates suggest that families in rural areas of developing countries spend a large portion of their income
on poor quality and unreliable energy services. For example, among the rural poor with incomes of $10–$20 per
month, expenditures on inecient energy can represent 20–25 percent of household incomes—which underscores
the ability of energy consumers, even if poor, to pay for modern energy services.
2
e micronance movement in Asia has inuenced the growth of the sector globally. In the 1990s, microcredit was
viewed by many as a niche market. It is now well accepted that commercial nancial institutions can tailor nancial
services to t the needs of the poor. Further, there have been emerging trends to piggyback the role of micronance
onto new, commercial-based solutions and services for the poor that will help them to improve their quality of life.
e latter includes introducing energy-lending products.
If appropriately designed, loans oered by micronance institutions (MFIs) can provide clients with access to high
quality modern energy services by closely matching loan payments to existing energy expenditures or income ows.
Such loans can oset the high upfront cost associated with cleaner technologies, such as biogas, micro hydropower,
wind, solar, or liqueed petroleum gas (LPG). To date, an overwhelming majority of nancial support for rural en-
ergy applications has been publicly funded. Although these programs are benecial, increased access to loans for con-
sumers will be essential to engage the private sector and improve the investment climate for rural energy services.
3
En-
hanced understanding of the business opportunities for small-scale lending for energy services, as well as how MFIs
can most eectively respond to these opportunities, is essential to facilitate access to appropriate nancial services.
e potential for MFIs to oer protable loans to purchase energy services, and thereby help alleviate poverty, has
not yet been realized due to lack of experience by both the energy and micronance elds and the lack of documented
successes. In order to better understand the current experience with energy-lending products in this emerging arena,
the United States Agency for International Development (USAID) and the Citi Foundation are funding a com-
prehensive study on the opportunities, barriers, costs, and impacts associated with MFI lending portfolios that have
integrated energy lending into their products. is study, Using Micronance to Expand Access to Energy Services—e
Emerging Experiences in Asia of the Self-Employed Women’s Association Bank (SEWA), Sarvodaya Economic Enterprise
Development Services (SEEDS), Nirdhan Utthan Bank Limited (NUBL), and AMRET, expects to learn from the
detailed proles of the business models, the clients, and the operation of four existing MFIs in Asia that currently have
energy-lending programs. A brief summary of the four MFIs highlighted in this paper is given in Box 1.1.
1. Jose Goldemberg and omas B. Johannson, World Energy Assessment: 2004 Update (New York: United Nations Development
Programme, 2004).
2. World LP Gas Association, LP Gas and Micronance: A Study into the Applications and Use of Micronance in LP Gas Access Proj-
ects (Paris: World LP Gas Association, 2004).
3. Global Village Energy Partnership, proceedings of the “Consumer Lending and Micronance to Expand Access to Energy Ser-
vices” workshop, Manila, the Philippines, May 2004.
22 Using Microfinance to Expand Access to Energy Services
1.2 METHODOLOGY
e research in the Asia region was carried out by two experts representing the energy and micronance sectors. e
task for the Asia Research Consultant was to prole four existing MFI energy-lending programs in Asia, gathering in-
Box 1.1 The Four MFIs Studied in the Asia Region: SEWA Bank, SEEDS, NUBL, and AMRET
Self-Employed Women’s Association (SEWA) Bank, India
SEWA introduced energy lending in 2005, issuing small loans for solar home lights, solar lanterns, and solar
cookers. In addition, it is beginning to provide loans to purchase improved smokeless cookstoves, biogas
plants, and biomass dryers.
Energy partner: Under its URJA Project,* SEWA Bank offers energy lending exclusively through Solar Elec-
tricity Light Company, Ltd. (SELCO), a prominent energy supply company in India. SELCO was established
in 1995, and has a network of 25 sales and service centers and over 70,000 clients.
Sarvodaya Economic Enterprise Development Services Guarantee Ltd. (SEEDS), Sri Lanka
SEEDS provides lending for clean energy technologies throughout Sri Lanka, including loans to purchase solar
home systems (SHS), power grid connections, and village/community micro hydro power. SEEDS currently
serves more than 58,000 individuals with loans for the purchase of SHS, over 3,600 individuals with loans for
grid connection, and 14 villages and electricity co-operatives for micro hydropower loans.
Energy partner: For its solar lending, SEEDS has memoranda of understanding (MOUs) with 12 solar
companies in Sri Lanka under non-exclusive terms, which at present include: Shell Renewable Lanka Ltd.,
SELCO Solar Lanka Ltd., Alpha Thermal Systems Ltd., Access International Ltd., Alpha Solar Energy Sys-
tems (private) Ltd., E.B Creasy and Company Ltd., Energy Work (private) Ltd., High Tech Solar Systems
(private) Ltd., HPI (private) Ltd., Soft Logic Solar Company (private) Ltd., and Suryavahini (private) Ltd.
This list of energy partners is non-exhaustive, as SEEDS is open to establishing MOUs with other compa-
nies that meet SEEDS’ standards and requirements. For its grid-connection lending, SEEDS collaborates
with Ceylon Electricity Board (CEB), the public electricity utility. For its village hydro scheme loan, SEEDS
has not entered yet into any MOUs with project developers because such agreements are directly between
developers and electricity co-operative societies (ECS) as owners of village hydro schemes.
Nirdhan Utthan Bank Ltd. (NUBL), Nepal
NUBL offers a loan product line for the construction of biogas digesters. NBUL has distributed this loan to 65
borrowers and has plans to expand its energy program to include loans for solar photovoltaic devices.
Energy partner: NUBL thus far has not entered into any special agreement or working arrangement with
any particular biogas companies. The arrangement is rather on a case-by-case basis.
AMRET, Cambodia
AMRET provides loans for energy services, mainly for investing in electricity and purchasing battery chargers,
through its business loan product. As of May 2006, 2% of AMRET’s total loan portfolio was currently distrib-
uted to such energy uses. AMRET plans to provide loans to those clients (about 7% of its total clients) who
have a high consumption of energy for production.
Energy partner: This information was not available at the time of the study because AMRET does not have
a special energy-lending program. The loans currently offered to energy clients were via its general busi-
ness loans.
* “Urja” in Hindi means “energy.”
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 23
depth information on each MFI’s lending program, how it t within each organization’s overall lending portfolio, and
how the MFI engaged its customers and energy enterprises in order to provide products and services to customers.
e research carried out in Asia covers four MFIS in four countries, namely, India, Sri Lanka, Nepal, and Cambodia.
ese countries not only have enormous growth in their micronance sectors, but also lead the trend of integrating
energy lending to nancial services. e MFIs studied for this action research include SEWA Bank (India), SEEDS
(Sri Lanka), NUBL (Nepal), and AMRET (Cambodia). ey were selected to represent the wide array of MFIs of-
fering credit to energy consumers. Each MFI also exhibits a dierent approach in dealing with energy partners, rang-
ing from an exclusive scheme as demonstrated by SEWA Bank, to very well-dened arrangements through MOUs
that impose quality product and service standards on its energy partners by SEEDS, to government standard-setting
for biogas units to a non-specic approach by AMRET. e research encompassed a desk review; eld research;
documentation; and analysis of business models, clients, and operations of the four MFIs.
1.2.1 MFI Selection Process
MFIs who wished to participate in the action research project, Using Micronance to Expand Access to Energy Services,
were asked to submit an expression of interest along with details of their institutional prole, institutional perfor-
mance, energy products, and documents of commitment by management and board of directors to participate in this
action research. Based on the expressions of interest received (nine from Asia, six from Africa),
4
the Small Enterprise
Education and Promotion (SEEP) Network and Sustainable Energy Solutions (SES) selected six MFIs for the re-
search project. Pre-requisites for MFI selection were:
1. Legally registered MFI;
2. Established nancial sustainability or a clear commitment to and progress toward achieving nancial sus-
tainability (typically demonstrated by >75 percent operational sustainability and a business plan demon-
strating how nancial sustainability will be achieved);
3. ree or more years of operations; and
4. Existing loan product(s) to meet clients’ energy-related needs (for households and/or businesses).
e MFIs were paid an honorarium to partially defray any costs related to their participation, and in turn helped
coordinate the Asia Research Consultant team’s visit. More importantly, the MFIs received in-kind benets from the
extensive input by local and international experts on their energy loan product(s), exposure to new ideas and innova-
tions, lateral learning and information sharing with other MFI participants in the research, and opportunities for
greater international recognition and presence through the publication of this report, plus the dissemination activi-
ties of SEEP and the advisory group.
1.2.2 Work Plan Summary
e research was designed to explore the opportunities, barriers, costs, and impacts associated with MFIs that have
integrated energy lending into their portfolio of products. A framework of questions
5
was developed by SEEP and
SES to guide the team’s eld research.
Based on information from each MFI about its operation, outreach, and energy stakeholders, site visits of 5–6 work- site visits of 5–6 work- 5–6 work- work-
ing days were planned. Guided by the MFI, primary data was collected through direct interviews with key sta,
clients, loan ocers, and equipment suppliers.
4. Action research on the energy environment in Latin America and energy lending by MFIs is underway. To date, the desk study is
nished and will be published with this report.
5. See Appendix 1, “Framework uestions Developed for the Field Research.”
24 Using Microfinance to Expand Access to Energy Services
e Asia Research Consultant synthesized the research results and developed and nalized the report. e dra
of the nal report was distributed to an advisory board, SES, SEEP, and the other MFIs participating in the study
(NUBL, SEWA, SEEDS, and AMRET in Asia, and Faulu Kenya and KUSCCO in Africa) and their respective
energy service suppliers to get feedback prior to nalizing the report.
1.2.3 Field Visit
Before the eld visit,
6
a desk review was done to understand the socio-economic situation; banking/nancial, mi-
cronance and energy sectors; regulations governing the micronance and energy sectors; and key micronance and
energy players in the country. It also examined the institutional prole of each MFI, its energy service companies, and
any initiatives undertaken in energy lending.
e eld visits included meetings with the three stakeholders: MFI (bank management, loan ocers), clients, and
energy service companies. India was an exception because the team only met with the sole energy service company
partnering with SEWA, and not with other energy sector stakeholders. Also, again except in India, meetings were
held with government ocials and ministries, donor institutions and development agencies, nance institutions,
vendor associations, and NGOs to better appreciate the specic contexts of the energy and nancial sectors that
underlay energy-lending programs. Other MFIs, not part of this study, were also visited to appraise their experiences
with energy lending and whether they might introduce energy loan products in the future. (For details of the actual
respondents met by the Asia Research Consultant, see Appendix 2.)
e clients interviewed were selected by the MFI, although the team ensured that clients lived in at least two geo-
graphical areas (except in Cambodia) and represented the full range of energy products oered by the MFI. Howev-
er, in the case of SEEDS (Sri Lanka), the team was not able to visit any clients with micro hydro loans, although they
met as many clients as possible during the two days designated for client interviews.
Due to the limited amount of readily-available information and short time in the eld, the data on client character-
istics and energy demands was mainly based on country statistics (secondary data) and limited direct interviews with
clients. is was not sucient to generate accurate statistical data or direct analysis of MFI clients with energy loans.
Further, obtaining data needed for impact analysis was also a challenge. With the exception of SEEDS, the partici-
pating MFIs had not made any impact studies of their energy lending. Because NUBL had a specic biogas loan and
AMRET’s energy lending was treated as a business loan, their impact studies did not relate to energy loans specically.
SEWA Bank has commissioned the SEWA Institute to carry out an impact study of its energy lending, but date of its
availability is not known.
1.3 DATA ANALYSIS
1.3.1 MFIs
Data was collected on each MFI’s outreach (number of groups, clients, and branches), portfolio (disbursement, out-
standing, recoveries, etc.), and sources of funds (loan, grants, and equity). For SEEDS, the balance sheet for energy
portfolio was constructed from the income and expense statements, plus closing sub-ledger balances. is data was
used to analyze the portfolio quality, size of the energy portfolio, vis-à-vis the overall micronance program of the
MFI, and to conduct a protability analysis in the case of SEEDS. A protability analysis for the other MFIs was not
possible because their programs were too new and small. Data primarily came from the accounts and MIS depart-
ment at the head oce of the respective MFIs and through discussions.
6. See the detailed elaboration of eld visit methodology in Appendix 2.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 25
Box 1.2 Typical Data Collected During Field Research
Microfinance Institutions
1. Organizational information (ownership, governance and strategy, products offered, microfinance policies,
management systems, funding sources).
2. Financial statements necessary for carrying out financial performance assessment
3. Impact study (past research by MFI, if any, and system adopted to identify impacts)
4. Details of collaborations with energy suppliers; terms and conditions of contract(s); experience working with
energy suppliers, other energy suppliers, and energy products available in the market
5. Genesis of the energy loans and rationale on how product designs were determined
6. Specifics of energy loan product(s), such as target group, energy client profile, lending methodology, prod-
uct design, technology, energy delivery model, end uses of energy loans, portfolio tracking, funding sources,
risk mitigation strategy, external collaborations, trainings, marketing strategy, etc.
Clients
1. Direct and indirect impacts on households, individual livelihoods, and quality of life
2. Pattern of energy product usage in past and present
3. Past, current, and future energy needs of the clients
4. Client cash flows, willingness to pay for energy services, knowledge and understanding of energy technol-
ogy/products, training provided to operate energy technology, benefit derived from energy products
5. Problems faced by clients in managing energy loans (if any)
6. Details of interactions between clients and energy suppliers
7. Client’s access to information on energy products
Energy suppliers
1. Details of contract with MFI, direct sales, after-sale service to clients, details of interactions with MFI and
client
2. Details of the delivery model adopted to service clients
3. Rationale for technology selected for MFI energy lending products
4. Market infrastructure made available to clients
5. Marketing and outreaching strategy
6. Constraints and opportunities in working with MFIs
Others (conditional)
1. Sector facilitator: Details of type, level, and mechanism of interventions (technical assistance or financial
incentives) provided by the sector facilitator that influence current and/or future energy lending program of
participating MFIs
2. Other MFIs: Model and loan characteristics of energy loans offered by other finance institutions to under-
stand the general level of competition in the microfinance sector
3. Local market surveys: Energy products offered in the market and general level of competition locally in en-
ergy sectors
26 Using Microfinance to Expand Access to Energy Services
Because SEEDS does not prepare a separate balance sheet for its energy program, the Asia Research Consultant
collected gures for cash-in-hand, cash at bank, gross outstanding portfolio, loan loss reserve (LLR), and outstand-
ing debt from its ledgers to construct a balance sheet. e adjustments made while constructing the balance sheet
included appropriation of xed assets as it does not account for energy lending, LLR, and depreciation separately.
7

Data on client proles, baseline energy expenditure, capital cost of alternative energy (such as solar systems), loan
amount, loan installments, current energy expenditure, and tangible and intangible benets from using alternative
energy was also gathered. is information was used to analyze the cost savings or increase in income from using
better energy solutions and to understand other intangible benets that the clients may have received. Data primarily
came from visits to individual client households, except in case of NUBL where the Asia Research Consultant held
discussions with groups of clients.
1.3.2 Energy and Microfinance Stakeholders
Secondary data, from annual reports and other publications, was gathered to understand MFI operations and pro-
grams. Research publications on the potential of energy sources and energy markets were also reviewed. Primary data
was collected during visits to the respective stakeholders.
Some of the biggest challenges in nding and collecting data was achieving a consistent level of information in
every target country and MFI and ensuring data accuracy. ere were cases where information provided by dierent
stakeholders on similar subjects was dierent. With AMRET, much of the required information was already well
documented and data collection went quickly. However, translation of the local Cambodian language(s) proved to be
a signicant barrier to obtaining accurate data from the clients and battery shops. Due to intense competition among
battery shops, the vendors were not willing to share accurate information on battery prices, so only approximate data
on prices could be obtained.
7. Fixed assets were apportioned based on the estimates provided by SEEDS, taking into account the energy portfolio as a percentage
of the total micronance portfolio. LLR has been increased from 3.8% to 12.6%, due to weak portfolio quality. e recoveries that
SEEDS will potentially be able to make from removing solar home systems in case of default have been taken into account when
creating the LLR. e income and expenditure statements were adjusted for depreciation based on the apportionment of xed as-
sets in the balance sheet. However, based on the gures provided by the MFI, the balance sheet draed by the Asia Research Con-
sultant did not balance. SEEDS could not identify the reason for the dierence and concurred that all the other gures presented
in the dra statements sent to them were correct. Consequently, the Asia Research Consultant reected the dierence (LKR 87
million [US$ 836,618]), representing 6 percent of total assets) as current assets on the balance sheet.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 27
CHAPTEP฀2฀º฀5EWA฀BANK-!ND!A
2.1 INDIA COUNTRY CONTEXT
2.1.1 Socio-economic Environment
India is the world’s second most populous country (1,129,866,000, estimated July 2007) and the seventh largest
country in area. Based on the UNDP 2002 Human Development Index, India ranked 127 of 177 in the world. In
India’s diverse economy, services are the major source of economic growth, accounting for half of India’s output with
less than one-quarter of its labor force. Income distribution is strongly skewed, with the top 10 percent accounting
for 33.5 percent of total household income/consumption, and the lowest 10 percent for 3.5 percent.
Its economy has posted an average growth rate of more than 7 percent since 1994, with poverty reduced by about 10
percentage points. India achieved 7.6 percent growth in gross domestic product (GDP) in 2005. Despite its strong
growth, the World Bank and others have reservations about India’s scal decit (a combined state and federal budget
decit), which has accumulated to approximately 9 percent of GDP. e huge and growing population (popula-
tion growth rate was 1.34 percent in 2006) is the fundamental social, economic, and environmental problem. As a
result—despite improvements—29 percent of the population was still living below the poverty line in 2005.
8

2.1.2 Banking Sector Overview
For the past three decades, India’s banking system has several outstanding achievements to its credit. e most strik-
ing is its extensive outreach. Banking has become easy for the urban population. In addition—in theory—there are
also 140,000 nancial outlets in the rural sector, which implies that there is one outlet for every 5,600 persons—a
seemingly excellent banking infrastructure. However, the reality is that the rural poor still lack access to formal
nance.
e entire network of primary co-operatives
9
in the country and the regional rural banks (RRBs)—which were
established to provide rural nance—has proved a colossal failure due to the prevailing sociopolitical architecture.
e resultant vacuum was lled by various NGOs providing micronance services. Financial institutions, such as
the National Bank for Agricultural and Rural Development (NABARD), Small Industries Development Bank of
India (SIDBI), and micronance promotion organizations, such as the Rashtriya Mahila Kosh, provide bulk loans
to NGOs and MFIs. is has resulted in MFIs becoming intermediaries between the largely public development
nance institutions and rural and semi-urban retail borrowers. In another model, NABARD renances commercial
bank loans to self-help groups (SHGs) to facilitate relationships between the banks and poor borrowers.
8. World Bank, “India Country Overview 2006,” (Washington, DC: World Bank, 2006),
9. Co-operatives and credit unions consist of primary urban co-operative banks, state and central co-operative banks, state and pri-
mary co-operative agriculture rural development banks, primary agriculture credit societies, mutually aided co-operative societies,
and self-help groups.
28 Using Microfinance to Expand Access to Energy Services
2.1.3 Financial Service Suppliers
In India, banks are classied into dierent groups. At present, there are 20 public sector banks, 20 private sector
banks, and 12 foreign banks in India. Each group has its own benets and limitations to operating in India, as well as
its own dedicated target market.
While informal nancial services have always been integral to the traditional economy of India, even semi-formal
and formal nancial services through agricultural co-operatives and banks are within physical reach (less than 5 km)
of perhaps 99 percent of the population of the country. A vast network of commercial banks, co-operative banks,
and RRBs, as well as other nancial institutions, provide such services. Other nancial institutions include non-bank
nance companies (NBFCs), insurance companies, provident funds, and mutual funds. ere are more than 158,000
retail credit outlets in the co-operative and banking sectors, augmented by approximately 13,700 NBFCs. ere are
also a growing number of foreign banks operating in India, but their reach, through some 200 branches, is limited to
the main cities. In addition, non-prot institutions, registered as trusts, societies, or Section 25 companies,
10
provide
micronance services to the rural poor. An additional 300–400 MFIs operate as co-operatives under the conven-
tional state-level co-operative acts, the national-level multi-state co-operative legislation, or the new mutually aided
co-operative act (MACS Act).
2.1.4 Regulation of Financial and Microfinance Sectors
e Reserve Bank has been focusing its regulatory and supervisory framework and initiatives on promoting a stable
and ecient nancial sector, specically to bring prudential regulation and nancial infrastructure in line with inter-
national best practices, ensure greater transparency, strengthen the capital base of banks, and build the appropriate
nancial architecture for risk management. While aiming for a globally competitive and robust banking sector, the
Reserve Bank has also emphasized nancial inclusion, where banking services are easily accessible by the underprivi-
leged sections of Indian society.
In order to help farmers obtain credit at a reasonable rate, the 2006–2007 Union Budget proposed oering short-
term credit to farmers (up to INR 300,000
[
US$ 6,622]) at an interest rate of 7 percent per annum, and the govern-
ment agreed to provide budgetary resources to co-operative banks as appropriate. A target of 40 percent of net bank
credit was stipulated for lending to the priority sector by domestically scheduled commercial banks, in both public
and private sectors. Within this, sub-targets of 18 percent and 10 percent of net bank credit, respectively, have been
stipulated for lending to agriculture and weaker sections, respectively. A target of 32 percent of net bank credit has
been stipulated for lending to the priority sector by foreign banks.
India’s regulation of its nance sector includes regulations for banks, non-bank nancial companies, co-operatives
and credit unions, and non-governmental organizations. Appendix 5 compares the regulations applied to these four
dierent nance institutions, especially participation in nancial sector, legal bases for regulating, regulator involved,
as well as capital and reserves.
2.1.5 Energy Scenario Overview
India’s energy scenario is complex due to the size and the diversity of the country. More than 80 percent of its 1.1 bil-
lion population is rural, and the challenge is to reach these people with modern energy services.
10. A section 25 company is a company with limited liability that may be formed for ‘promoting commerce, art, science, religion, char-
ity, or any other useful object,’ provided that no prots (if any) or other income derived by promoting the company’s objects may
be distributed in any form to its members.” United States International Grantmaking (USIG), Council on Foundations, “Country
Information: India,” website, http://www.usig.org/countryinfo/india.asp.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 29
India’s per capita energy consumption is one of the lowest among developing countries. It consumes only 0.31 tons
of oil equivalent (TOE) compared to the world average of 1.68 TOE; the average per capita energy consumption for
developing countries is 0.74 TOE.
11
India’s energy intensity
12
is 3.7 times Japan’s, 1.55 times the United States’, 1.47
times Asia’s, and 1.5 times the world average.
Although, ocially 86 percent of the villages in India are supposed to be electried, most households that are not in
the center of a village do not have access to the grid. Even in urban areas, poor households may have diculty con-
necting because the upfront connection cost is unaordable. In 2001, 76 percent of urban-area households were
connected, and 75 percent of rural households. e increase in access to electrication among the poor reects the
negative growth from 2000 to 2002.
India’s energy prices have been controlled by the government and subsidies provided to meet certain socio-economic
needs of the public, leading to distortion and inecient use of dierent energy sources. Recently, the Indian gov-
ernment has taken serious steps to deregulate the energy price. In the electricity sector, most of the State Electricity
Boards have initiated reforms and regulatory commissions have been set up to determine taris based on economic
rationale. Electricity taris in India are structured in a relatively simple manner: high-tension consumers are charged
for both demand (kilovolt ampere—VA) and energy (kilo watt hour—kWh), and low-tension consumers pay only
for energy consumed (kWh), per the tari system in most electricity boards. e price per kilowatt hour varies sig-
nicantly across the states as well as across customer segments within the states.
India has a signicant renewable energy potential, estimated at more than 100,000 megawatts (MW). In 2001 the
contribution of renewable energy reached 3000 MW, or about 3 percent of total grid capacity. However, the overall
impact of the renewable energy programs is still limited compared to the magnitude of the energy problems still faced
by Indian villages.
2.1.6 Renewable Energy Facilitators and Promoters
India has favorable scal and policy conditions for developing renewable energy sources economically. In the last 10
years, renewable energy technologies in India have been promoted through research and development and demon-
stration programs supported by government subsidies.
In 1987 the government of India incorporated the Indian Renewable Energy Development Agency Limited
(IREDA) to facilitate a wide spectrum of nancing to introduce renewable energy, energy conservation, and energy
eciency. e various instruments employed by IREDA are debt nancing with so term loans, equipment nanc-
ing, lease nancing, and on-lending through nancial intermediaries. Brief overview of scal incentives and IREDA’s
nancing norms are presented in Tables 2.1 and 2.2.
Table 2.1 Applicable Fiscal Incentives and Facilities Available to Manufacturers and Users of Renewable Energy
BY THE CENTRAL GOVERNMENT BY STATE GOVERNMENTS
Income tax holiday Energy buy-back, power wheeling, and banking facilities
Accelerated depreciation Sales tax concession and benefits
Concessional custom duty and duty-free import Electricity tax exemption
Capital and interest subsidies Demand cut concession for industrial consumers who establish renewable
based power-generating units
Price subsidy Capital subsidy
11. V. Raghuraman and Sajal Ghosh, “Indo-US Cooperation in Energy–Indian Perspective,” (Gurgaon, India: Confederation of
Indian Industry, 2003).
12. e energy intensity is energy consumption per unit of GDP of which it indicates the development stage of the country.
30 Using Microfinance to Expand Access to Energy Services
Table 2.2 Highlights of IREDA’s Financing Norms
Debt instruments - Project financing schemes
- Equipment financing schemes
- Manufacturing loans
Quantum of assistance - Up to 80% of project cost
- Up to 90% of equipment cost
Rate of interest 0.0–15.0% per annum (at present 2.4–14%)
Moratorium Up to 3 years (maximum)
Repayment period Up to 10 years (maximum)
IREDA’s lending is mainly in six areas: (1) solar energy technologies—manufacture and utilization of solar thermal
and solar photovoltaic systems; (2) wind energy—setting up grid-connected wind farm projects; (3) hydro—setting
up small, mini, and micro hydro projects; (4) bio-energy technologies—support for biomass-based co-generation
and power generation projects, biomass gasication, and energy from waste and briquette projects; (5) hybrid sys-
tems; and (6) energy eciency and conservation.
In April 2003, the United Nations Environment Programme (UNEP)
13
initiated a credit facility in southern India,
with the support of the United Nations Foundation (UNF) and the Shell Foundation, to help rural households
nance the purchase of solar home systems (SHS). Financial support from UNEP consisted of interest rate subsidies
for borrowers, assistance with technical issues, marketing support, vendor qualication, and other activities to devel-
op the institutional capacity for this type of nance. e interest subsidy was preferred by the banks over guarantees
or other support mechanisms, although they would not benet directly, because it enabled them to oer preferential
banking terms to their customers eciently and transparently.
As of January 2005, UNEP had nanced nearly 12,000 loans through more than 2,000 participating bank branches.
e fastest growth in loans is currently in rural areas, which in part attracted increasing participation of the nine Gra-
meen banks. is program is playing a signicant role in increasing the loans made available to solar energy consumers.
2.1.7 Energy Suppliers and Service Companies
e number of energy equipment suppliers and service companies in India has been growing rapidly in certain regions
(e.g., Karnataka State), especially for individual and small-scale energy solutions, such as photovoltaic, biogas, etc.
However, most of these companies (BHEL, BEL, Tata, etc.) are concentrating on either the government market (home
lighting, public lighting, trac lights) or the donor-driven market (mostly solar). During the research for this report,
only two companies were identied that concentrated on building market-based retail sales, namely SELCO and
Shell Solar. Furthermore, sucient rural infrastructure (sales and service networks) thus far has been developed only
in Karnataka State. Collaborations between SEWA Bank and SELCO are expected to develop a similar energy loan-
sales-service venture in Gujarat State, driven by their clients’ needs and capitalizing on SELCO’s experience delivering
energy options in Karnataka.
2.2 ORGANIZATIONAL PROFILE OF SEWA BANK
2.2.1 Structure and Operation
SEWA Bank’s primary objective is to provide working capital and savings facilities for poor self-employed working
women in Ahmedabad, Gujarat. Its mission is “to reach the maximum number of poor women workers engaged in
13. UNEP Indian Solar Home Programme Overview and Performance Report, March 2005.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 31
the unorganized sector and provide them with suitable nancial services for their socio-economic empowerment and
self development, through their own management and ownership.”
14

SEWA Bank, registered as an urban co-operative bank, operates both in urban and rural areas. As of 31 March 2006,
it had a total of 291,535 active savings accounts and 44,909 shareholders. Eighty percent of the SEWA Bank’s clien-
tele is based in urban areas and the rest in rural areas. At the time of the eld research visit, the bank had branches in
11 of Gujarat’s 13 districts. SEWA Bank operates under the direct regulation of Reserve Bank of India (RBI—India’s
Central Bank) and has the permission to operate only in the city of Ahmedabad. In rural areas, the bank functions
through its registered district associations (a federation of unregistered savings and credit groups, registered under
the Mumbai Societies Act).
Accounting and management information system (MIS): At the time of the eld research visit, new Windows-
based soware was being installed. is soware has integrated modules for accounts, MIS, and customer proles
and has a better capacity to handle accounts than the previous soware. MFI accounting policies are governed by
RBI norms and can generate a portfolio-quality analysis report on a daily basis.
Portfolio management: A repayment tracking mechanism is operational at all levels except for collection agents.
Although SEWA Bank oers loans for 35 months with monthly repayments, it also allows clients the exibility of
repaying loans in variable installments within the loan term. However, since overdue payments are calculated against
monthly dues (RBI norm), this reects a weak portfolio quality. Should a client not repay a loan within its term, it
can be rescheduled at the request of the collection agent. Overall, SEWA Bank’s repayment collection mechanism
seemed lax. However, the energy portfolio, being new and small, had a 100 percent repayment rate.
Business planning and nancial management: SEWA Bank has a structured mechanism for monitoring its invest-
ments and compliance with liquidity norms. ere is an investment committee (chairperson, the managing director,
general manager, chartered accountant, and two client-members from the board), and the bank also seeks counsel
from an investment company. SEWA Bank has cash-in-hand insurance of INR 40 million (US$ 883,000) and cash-
in-transit insurance of INR 10 million (US$ 220,750) from the New India Insurance Company. Its credit-deposit
ratio was low, around 35 percent as of 31 March 2006, indicating a lower deployment of funds in portfolio. is is a
result of SEWA Bank’s conservative approach to disbursing loans.
Internal audit: SEWA Bank has an internal audit department with four sta members. Its extension counters are
audited on a monthly basis. An audit includes physical verication of cash and verication of loan and saving docu-
ments. is audit report is submitted to the head oce and the respective extension counter. However, the audit
report is brief and does not include observations, details about cause of events, or recommendations. e eld-level
audit is also limited.
Product development: SEWA Bank has a pronounced service orientation and thus has designed various loan and
savings products around the life cycle needs of its clients. ese products are driven by client need and demand and
include school loans and other services aimed at supporting and preparing the client to meet various social and eco-
nomic needs at dierent stages in the life cycle.
2.2.2 Funding Sources
SEWA Bank began with the contribution of share capital from 4,000 women. e members contribute 5 percent of
the loan amount for secured loans and 2.5 percent of the loan amount for unsecured loans as share capital. Dividends
14. SEWA Bank, http://www.sewabank.org/mission.htm. Its potential clients are variously identied as “hawkers, vendors, and small
business women selling vegetable, fruit, sh, eggs and other food items, household goods and clothes; home-based workers like
weavers, potters, bidi and agarbatti workers, papad rollers, ready-made garment workers, women who process agricultural products,
and artisans; manual laborers and service providers like agricultural laborers, construction workers, contract laborers, handcart
pullers, head-loaders, domestic workers, and laundry workers.”
32 Using Microfinance to Expand Access to Energy Services
(15 percent) are paid into shareholders’ accounts annually. As of 31 March 2006, SEWA Bank had a total share capi-
tal of INR 25,783,000 (US$ 569,161).
Total saving deposits as of 31 March 2006 were INR 665.7 million (US$ 14,695,364). In addition to this, the bank
has borrowed US$ 680,000 from the Housing and Urban Development Company Limited in 1998, and $630,000
from HDFC Bank Limited in 1999 for long-term housing nance.
Since SEWA Bank is not registered under the Foreign Contribution Registration Act, grant funds for its energy
program of US$ 150,000 from the Lemelson Foundation and $20,000 from the United Nations Oce for Project
Services (UNOPS) were routed through the Mahila Housing Trust, an associate organization of SEWA Bank. e
grant from Lemelson Foundation in December 2005 was for loan funds to energy entrepreneurs and end users, along
with capacity building support. e grant support from UNOPS was used before starting the energy program to as-
sess the potential of energy needs.
2.3 ENERGY LOAN PORTFOLIO OF SEWA BANK
2.3.1 Model and Methodology
SEWA Bank oers energy loans for SHS and battery chargers to its clients. It oers other energy saving products,
such as the sarai cooker and improved cookstoves, with SELCO, but these do not require credit due to their low cost
and are paid for in cash by the customer. SEWA provides these energy services to its existing client base in Ahmed-
abad and follows an individual banking model. e main dierences between the non-energy and energy loan prod-
ucts of SEWA Bank are presented in Table 2.3.
A key feature of SEWA’s loan provision is its exible repayment mechanism within the term of loan. ere is also an
interest subsidy of 7 percent oered on the energy loans (refunded on the timely completion of loan), but it is depen-
dent on grant support from the Lemelson Foundation.
e specically-designed features of energy loans include a compulsory 15-day trial period for solar photovoltaic
(during which the bank makes sure that clients are buying the product only if they feel they need it), advice from
SELCO sta on the type and capacity of the energy product (a needs assessment to help clients purchase the least
costly and best suited option for their needs), user training for maintenance and operation at time of installation, and
free aer-sale service during the warranty period. Another important dierence between the non-energy and energy
loans is that the energy loan payment is made directly to SELCO, and the client is directly given the equipment. e
loan appraisal and disbursement mechanism of energy loans are presented in Figure 2.1.
2.3.2 Relationship of SEWA Bank, SELCO, and Clients
One of the unique characteristics of SEWA Bank’s energy program is the strong partnership with SELCO to provide
energy services to their clients. SELCO is a prominent comprehensive energy company in India that provides prod-
ucts, service, and consumer nancing for unserved populations.
e similarity in mission, target clients, and organizational values form the foundation of their partnership, and
clearly dened roles and responsibilities under dierent possible circumstances are crucial. Both SELCO and SEWA
Bank aim to provide one-stop energy solutions to clients under this joint initiative—the URJA Project—by identify-
ing the energy needs of its clients and developing and introducing new products with the potential to reduce drudg-
ery and improve productivity.
Under the project, both SEWA Bank and SELCO rely on each other’s experience and expertise to provide energy
services to the clients. While SEWA Bank provides nancial services and use of its existing infrastructure to market
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 33
Table 2.3 Differences Between SEWA Bank’s Non-Energy and Energy Loans
NON-ENERGY LOAN ENERGY LOAN
Model - Urban areas: Individual
- Rural areas: Group
Individual, offered only in Ahmedabad city
Interest rate 17% declining p.a. 17% declining p.a., but 7% is refunded upon
completion of loan on time
Loan period 35 months 35 months
Installments Flexible within loan term Flexible within loan term
Loan size (in INR) - Unsecured loans: Maximum INR 50,000 (US$
1,103)
- Secured loans: 100% of the value of security
- Unsecured loans: Maximum INR 50,000 (US$
1,103)
- Secured loans: 100% of the value of security
Loan criteria Saving with the bank for at least 6 months Has to open savings account with SEWA Bank
Loan appraisal Done by banksaathis, loan officers - Energy need pre-assessed by vendor and staff
- Loan appraisal by banksaathis
- 15-day product trial before loan sanction
Loan approval - Bank/branch manager: Loans up to INR
50,000 (US$ 1,103)
- Head office: Loans > INR 50,000 (US$ 1,103)
Centralized at head office
Loan processing time 1–2 days 1 day
Disbursement Through extension counter Head office, but will be decentralized in future
Cash transfer Clients paid in cash Disbursement to SELCO, client receives equipment
Post-disbursement
services
Free maintenance and operation during the war-
ranty
Loan collection Collected by banksaathis or directly deposited at
branch/head office
Collected by banksaathis
Other unique
features
Financial and business counseling training ses-
sions
Dedicated training: 1-hour session during financial
and business counseling, special energy training by
vendor and user training at the time of installation
CLIENTS
Loan Application
Loan
Installment
BANK
SAATHIS
Agree to
Purchase
(Post Trial
Period)
Appraisal by
Loan Officer
Need Assessment
15-days Trial
Maintenance Service
Loan Disbursement
(Payment directly to SELCO)
1
2
Figure 2.1 Process of a SEWA Bank Energy Loan
34 Using Microfinance to Expand Access to Energy Services
the energy products, SELCO gives advisory support to the clients on energy products, installs the products, provides
aer-sale service, oers a buy-back option to clients, and trains clients and sta of SEWA Bank on the energy prod-
ucts. SELCO benets from SEWA Bank’s huge client base of 290,000 and existing infrastructure, which reduces
its transaction costs. On the other hand, SEWA Bank can meet its clients’ energy needs through customized energy
products without bearing any technical risk. Moreover, SELCO has a well-developed, decentralized service infra-
structure and provides prompt aer-sale service. rough its robust international relations, SELCO has also brought
its network of energy technologies and funding resources to the URJA Project. e Lemelson Foundation’ support
of the URJA Project was one benet of SELCO’s network capital.
SELCO has opened an oce in Ahmedabad with three sta members who frequently visit SEWA Bank and any
clients requiring assistance. SEWA Bank makes the loan appraisal and markets the energy products. An amount
equivalent to the value of energy product is paid directly by SEWA Bank to SELCO aer the installation. Clients
repay energy loans to the SEWA Bank through banksaathis.
SEWA Bank markets energy products through its existing promotional channels, which include:
- Amrud Jarnu van, a mobile van used to promote SEWA Bank's products;
- Business and đnancial counseling services oĈered routinely to enhance đnancial management skills of
members;
- Banksaathis, who are encouraged to purchase energy products as demonstration units;
- Brochures and pamphlets on energy products;
- Marketing at monthly fairs (¯mela") with stalls set up to demonstrate energy products; and
- Other SEWA (parent NGO) programs, such as healthcare, education, etc.
2.3.3 Characteristics
Client prole: SEWA Bank serves poor self-employed women in urban and rural areas. Energy clients includes en-
ergy end-consumers (needing energy solutions for household consumption), hawkers (energy for productive use), as
well as energy entrepreneurs (battery-charging services). Unlike other lending products, energy clients do not neces-
sarily need to be existing savings members of SEWA Bank. However, before energy loan disbursement, clients must
open a savings account with the bank.
Energy products: e energy-lending program of SEWA Bank oers technologically neutral energy solutions.
rough intensive collaboration with its energy partner SELCO, SEWA Bank aims to explore, identify, and intro-
duce energy products and loans, which they believe will help to reduce drudgery, increase income, reduce cost, and
improve health conditions of its clients.
Based on the market survey conducted by SEWA Bank before introducing the URJA Project, lighting and cook-
ing were identied as the main areas where intervention was needed to provide access to better energy technology.
However, because the clients of SEWA Bank are involved in varied activities, energy needs for lighting may be very
dierent for hawkers than for midwives. For example, midwives need headlamps that allow them to adjust the direc-
tion of the light without using their hands. Similarly, client preferences for cooking may dier based on convenience
in utilization, time involved, impact on health, and cost. It is important to understand that lighting and cooking
extend beyond domestic and household use, and that products need to be customized to serve the dierent produc-
tive activities of the clients.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 35
At the time of this research study, SELCO was in the process of identifying specic needs to be able to develop and
oer cheaper and better modern energy solutions to clients. As SEWA and SELCO commit to provide better energy
solutions, there is a good chance that they will introduce more energy products in the near future, including biogas,
gas cookers, and solar driers.
Table 2.4 Features of Energy Products Offered by the URJA Project
PHOTOVOLTAIC SYSTEM
ANNAPURNA STOVE SARAI COOKER
SHS Battery Charging Solar Lanterns
Salient
features
A stand-alone electri-
cal power system that
enables households
with no access to grid
to have electricity
Expands access to
photovoltaic system
to those who can-
not afford to buy it,
via rental system
Replaces
kerosene as a
cleaner and
cheaper light-
ing solution;
saves 15–30%
Smokeless and energy
efficient cookstove
that saves time and
reduces fuel consump-
tion by 30%; has posi-
tive health impact
Saves time and cost,
reduces cooking
cost to INR 1/day
(US$ 0.02) for a 4-
member family and
cooking time to 45
minutes
Capacity 40–180 watt peak (Wp) 8 and 12 liters
Price
of the
equipment
INR 12,400–94,000
(US$ 274–2,075)
INR 5,000 (US$
110) per battery
INR 5,000
(US$ 110)
Maximum INR 350
(US$ 7.72) plus INR
100 for mason’s fee
(US$ 2.20)
INR 625 (US$
13.80) and INR 825
(US$ 18.21)
User
profile
Household Enterprises offering
battery rental or
battery charging to
hawkers
Hawkers Household Household
Energy uses: To expand the outreach of its energy services, the URJA Project also promotes energy for productive
uses and income-generating activities. is includes introducing solar lanterns for hawkers, as well as photovoltaic
battery-charging stations for small energy enterprises, which provide battery rentals or battery charging services to
street hawkers. is scheme allows the hawkers to substitute a better, cheaper, and cleaner lighting source for kerosene
and creates a protable business opportunity for entrepreneurs. Further, by introducing battery-charging entrepre-
neurs, the delivery model is diversied to accommodate hawkers of dierent economic proles. Hawkers who might
not be able to purchase a solar lantern now have the option of renting a battery from the energy entrepreneurs. Since
2006, four energy entrepreneurs have received loans from SEWA Bank to establish their battery-charging and rental
business. is has been protable for these entrepreneurs, one of whom has even taken out a second loan to expand
her business. To scale up the energy entrepreneur scheme, SEWA Bank and SELCO conduct special trainings with
funding support from the Lemelson Foundation.
Market potential prole: With over 290,000 members, SEWA Bank has a strong client base for its energy program.
Every one of its members needs better energy solutions, whether for lighting, cooking, or productive and income-
generating activities. Having a technologically neutral, demand-driven, and personalized energy program enables
SEWA Bank to capture wider market potential among its existing client base. In addition, SEWA Bank is showing
strong promise to further extend its energy program to the 700,000 members of the full SEWA organization. For
example, SEWA Bank can collaborate with the Mahila Housing Trust to integrate SHS loans into its housing loans.
Integrating SHS loans into other SEWA programs would benet the energy-lending program by piggybacking on the
existing client base.
2.3.4 Administration and Management
Since SEWA Bank is not registered under the Foreign Contribution Registration Act, it cannot receive funds from
outside India. SEWA’s associate, the Mahila Housing Trust has an account with SEWA Bank, as does SELCO. Loan
36 Using Microfinance to Expand Access to Energy Services
funds are transferred from Mahila to SELCO’s account at the time of loan disbursement. Equipment purchase docu-
ments (receipt, warranty card, etc.) are prepared in the name of the client, but they are maintained by SEWA and
released to the clients only aer the loan is repaid.
SEWA Bank has set up a separate energy division to manage its energy program. Two accountants have also been
permanently assigned to energy lending. Nearly 200 sta members of SEWA Bank have been trained by SELCO on
energy products. Because the program is very new, it is still being administered and monitored directly from the head
oce. However, in the future, some of the functions will be decentralized.
2.3.5 Financial Analysis
SEWA Bank’s energy lending under the URJA Project only began in April 2006. By August 2006, SEWA Bank had
installed 28 SHS units, 66 single solar lanterns, and 630 sarai cookers. e total loan amount disbursed during this
period for SHS was INR 328,442 (US$ 7,471), and for single solar lanterns was INR 313,550 (US$ 6,921). Aver-
age loan size for SHS was INR 11,730 (US$ 259) and INR 4,750 (US$ 105) for single solar light. e total energy
portfolio as of August 2006 was less than 1 percent of the total loan portfolio of SEWA Bank
With only 94 loans disbursed (total of INR 641,992 [US$ 14,172]) by the August 2006 eld visit, SEWA Bank
showed no energy loan defaults and a 100-percent repayment rate. It is premature to state whether the energy lending
will reap prots for SEWA Bank, especially since the information on the operation cost was not available. SEWA
Bank expects to reach the break-even point and operational eciency by scaling up its portfolio and reducing trans-
action costs. It plans to divide its client base into segments based on their economic activity (street hawkers, mid-
wives, etc.) and then develop and provide energy solutions for them. SEWA Bank has over 40,000 members working
as street hawkers alone.
2.3.6 Impact Analysis
With the creation of energy entrepreneurs, the organization has been able to target hawkers with dierent economic
proles. In the most productive activities, lack of basic infrastructure facilities poses limitations, such vegetable ven-
dors whose business suered at night due to inadequate lighting and high cost of kerosene (INR 35–45 per day [US$
0.77–0.99]). e introduction of solar light has improved the vendors’ business by increasing the number of work-
ing hours: better lighting attracts customers and the vendor saves money by renting a solar light (INR 20–25 for 6–8
Box 2.1 Photovoltaic Battery Charging: A Profitable Business
Capital Expenditure: Approximately INR 5,000 (US$ 110) per battery unit for each solar light that operates 6–8
hours/day, and INR 3,500 (US$ 77) for one that operates 3–4 hours/day
Clients: Hawkers (fruit vendors, vegetable vendors etc)
Revenue: The daily rental fee for battery with 6–8 hours running capacity is INR 20–25 (US$ 0.44–0.55), a
savings of INR 10–15 (US$ 0.22–0.33) over kerosene light.
The annual revenue for renting a 6–8 hours battery is INR 20 x 340 days = INR 6,800 (US$ 150). Assum-
ing that the loan period is 2 years at an interest rate of 17% p.a. (declining) and the client pays on time, the
client will pay INR 5,885. In the first year, the amount paid would be INR 3,155, and then INR 2,730 in the
second year. If the expense for transporting the battery to clients is INR 45 per month for petrol, or INR 540
per year, the business owner could see INR 3,105 of revenue in the first year and INR 3,530 in the second
year. When the loan is paid off, assuming that the price of petrol and the rental fee remain the same, the cli-
ent should save INR 6,260 (US$ 138) per year per unit system.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 37
hours [US$ 0.44–0.55]). Box 2.1 describes the business prole of the battery-charging business, based on interviews
with a client of SEWA Bank.
For other products, such as improved cookstoves and sarai cookers, the benet includes more ecient use of fuel
(e.g., wood), better hygiene, greater comfort, and better health. ese stoves vent smoke outside the house, by-prod-
ucts like ash are used to clean utensils, and coal can be used. A sarai cooker saves time because a complete meal can be
cooked in just 45 minutes using only 100 grams of charcoal, costing around INR 1 (US$ 0.02).
2.4฀ D!5CU55!DN-5EWA
2.4.1 Highlights and Challenges of SEWA Bank’s Energy-Lending Model
Highlights
- ăe URJA project does not just provide banking service to the energy clients. Rather, it is a comprehen-
sive and conenient one-stop service, providing more ecient energy products and services combined
with a credit facility in one location at the doorstep of the clients.
- ăe URJA project adopts technologically neutral energy solutions and makes an eĈort to oĈer customer-
iendly energy loan products. SEWA Bank and SELCO continue to explore and introduce new energy
products and customize existing ones based on their clients’ needs. Furthermore, through a 15-day trial of
the energy product, clients are empowered to select the energy solution that is right for them.
- e strengths of SELCO as the energy partner of the URJA Project include (1) addressing poverty
through energy services; (2) introducing customized energy options; (3) building a strong decentralized
sales and service infrastructure; (4) applying a demand-driven, responsive, and sustainable service model;
and (5) incorporating a strong international network for accessing various technologies and funding.
- SEWA Bank’s focus on technical capacity has produced loan ocers who have been trained in energy
products, loan characteristics, and loan methodology. e training materials include SEWA Bank’s ratio-
nale for oering energy loans as well as impacts to be achieved; specic, dierent procedures for energy
lending; technical knowledge of energy products; and technical capacity for pre-assessing client energy
needs.
- One of the strengths of the URJA Project is its special emphasis on advancing energy for productive uses
and income-generating activities, including promoting new energy enterprises as business opportunities.
- To help reduce start-up and transaction costs, the URJA Project beneđts from SEWA Bank's existing
market inastructure, including various marketing channels and events as well as the role of banksaathis
who can be optimized as marketing agents for energy products.
Challenges
- ăe provision of a 7-percent interest return to energy clients who pay regularly upon completion of install-
ment (which acts as a loan subsidy) has the potential of distorting the URJA Project. SEWA Bank needs
to carefully calculate its loan cost structure as a basis for analyzing whether such an interest rate structure is
sustainable, since it is subject to the availability and continuation of the Lemelson Foundation grant.
- Although the Ĕexible mechanism adopted by SEWA Bank provides greater access to đnancing for their
target group, this loan methodology also creates challenges, particularly maintaining sound portfolio
quality and tracking repayments to avoid fraud or misappropriation.
38 Using Microfinance to Expand Access to Energy Services
- SEWA Bank promotes other SELCO products (the sarai cooker and smokeless stove called Annapurna)
even if they do not require a credit facility. It was sometimes observed that non-members had been able to
purchase the energy products from SELCO via the bank. However, the bank does not charge any com-
mission to SELCO or non-members for this service. SEWA Bank should work out a model, in consulta-
tion with SELCO, to coer all of its market expenses. In case services are provided to non-members, a
commission can be charged to cover associated costs.
- While banksaathis have been eĈective in promoting and servicing SEWA's energy products, they are not
employees of the SEWA Bank but agents commissioned to collect loan repayments. ough a eld level
checking has begun recently to verify collection data against eld data, it is important that adequate
controls for the banksaathis’ role and performance be built in to safeguard against various potential
credit risks (human error, fraud, or the death, illness, or resignation of the banksaathis). Without a more
disciplined system, SEWA Bank could experience diculties in sustaining the portfolio quality of energy
loans when it scales up its energy lending.
- Unlike in Karnataka, where the market has long been exposed to energy products, alternative energy is
relatively new in Gujarat. It will require intensive, extensive, and expensive market education to pro-
mote and develop a new market there, which the URJA Project may not be able to nance. In addition,
SELCO is slowly building its sales and service networks in Gujarat and currently depends signicantly
on the existing infrastructure of SEWA Bank to reach rural areas. Without sucient scale of market, it
would be too costly for SELCO to set up a sales and service network, but without widespread presence,
SELCO will nd it dicult to optimize market development for its products and services.
- SEWA's single energy partner SELCO is a pillar of the program. However, clients do not have the choice
to buy energy products from any other companies. is could become a drawback if SELCO starts to
enjoy its monopoly too much. With NUBL and SEEDS, clients have the right to choose the company
which serves them best.
2.4.2 Key Lessons Learned
Donor or goernment support is not always crucial. e SEWA Bank model for energy lending showcases the point
that the absence of a donor/government support program (such as the UNEP Solar Loan Program) does not neces-
sarily stie the creation of a credit market for energy lending. However, such a model can only work if the respective
MFIs are strongly committed to investing their resources beyond the micronance component. Also, having a strong
energy partner that shares a similar mission and platform is vital. Nevertheless, in cases where energy lending is com-
pletely new to a country, the UNEP-type of support (nancial support and technical support) is more eective for
maximizing resources and osetting risks during the program kick-o.
A client database and proles are necessary. For SEWA Bank and SELCO to develop demand-driven and custom-
ized energy products eectively and eciently, SEWA Bank should establish a database of client proles, which in-
cludes the energy, cash ow, and geographic proles, as well as other demographic information. is database would
be useful not only for the energy program, but also for any other special lending program. It would also increase the
visibility of the bank’s energy project among funders and donors.
Learn to capitalize on reputation to attract outside funding. SEWA Bank and SELCO need to further mobilize
external resources (nancial and technical) to leverage the outreach and impact of the URJA Project. ey should
consider taking advantage of their reputations and use their existing record of accomplishment and credibility to
scale up energy lending or other energy programs. Such external support is crucial, especially for introducing new
products, improving systems, building market awareness, and building capacity. Some areas of innovation to leverage
Urja’s outreach and impact are presented in Table 2.5.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 39
Table 2.5 Areas of Innovation to Leverage URJA’s Outreach and Impact
Energy
product
Exploring other energy solutions for productive use and income-generating activities, such as solar driers and
customized photovoltaic systems. The role of SELCO is crucial in providing the technical knowledge and capa-
bilities as is its access to national and international technology sources—which will enrich SEWA with better
and more technology selections for its clients.
Lending
product
Integrating energy lending with other lending products, such as housing loans and business loans. Interaction
with other organizations of SEWA is crucial for exploring new but captive markets for energy products.
Financing
product
Collaborating with insurance companies to mitigate potential risks resulting from natural disaster, accidents,
etc. Interactions with sector facilitators and players (microfinance and energy sector) nationally and interna-
tionally. This offers contact with best practices and lessons learned for designing effective and sound internal
energy risk funds.
Marketing
approach
Mainstream energy products and lending to conventional distribution and sales network, i.e. kerosene agents,
market shops, etc. Collaboration with government, donors, and NGO support programs can be explored to piggy-
back on their marketing channels.
2.4.3 Opportunities for Country Scale-Up and Regional Replication
Unique energy lending model. e SEWA Bank energy-lending model is unique in the sense that it emphasizes
better energy solutions for its clients over the protability of the product. Such an approach, as demonstrated by
the adoption of a exible nancing mechanism and customized products, denitely answers the need of the poor
community for better access to more ecient and cheaper energy solutions. However, this model experiments with
standard micronance lending practice, which many business-as-usual MFIs may not nd acceptable. erefore,
replication of the SEWA Bank model need to take into account the context that makes the URJA Project workable.
Replicating the SEWA Bank energy-lending model will require the availability of a strong energy partner which is
willing to invest its resources to jointly develop the energy-lending program and able to undertake tasks and respon-
sibilities that are beyond the core business of an MFI. It also will need a cohort of commission-based credit agents
(the SEWA Bank’s banksaathis), who can expand energy lending without creating a burden on program overhead.
Replication will depend on existing marketing and outreach channels, on which the energy-lending program can
piggy back.
Well-planned strategy. e introduction of customized nancial service and customized energy products requires
a well-conceived energy-lending model. erefore, without a good strategy on cost structuring, funding, and risk
mitigation, the SEWA Bank energy-lending model would be dicult to replicate. However, if such a strategy can
be developed well, this energy-lending model (with its strong collaboration between the MFI and energy partner to
introduce consumer-friendly energy-lending products) stands as an answer to removing barriers to modern energy
among poor communities.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 41
CHAPTEP฀3฀º฀5EED5-5P!฀LANKA
3.1 SRI LANKA COUNTRY CONTEXT
3.1.1 Socio-economic Environment
Approximately 20 million people live in the Democratic Socialist Republic of Sri Lanka, which has an average per
capita income of US$ 1,030 in 2004. Per capita gross domestic product (GDP) is the highest in South Asia (exclud-
ing the Maldives). e government of Sri Lanka places a high premium on social development, and the country has
made substantial achievements in education, gender equality, and safe water and sanitation facilities. Yet, poverty re-
duction has been slow, with only a 3-percent reduction between 1991 and 2002. ere are also sector growth dispari-
ties among industry (26 percent of GDP), agriculture (19 percent of GDP), and services (55 percent of GDP).
Some indicators are positive: economic growth increased and ination fell from 14.2 percent in 2001 to 6.3 percent
in 2003. e most recent gures, however, show a trend of increasing ination and budget decits that could hamper
macro-economic stability.
3.1.2 Financial Service Suppliers
Sri Lanka’s modern nancial sector has undergone signicant reforms since the early 1990s, mostly to reduce the
government’s role as a direct provider. A wide range of institutions oer nancial services, including public and
private banks, specialized nancial institutions, MFIs, leasing companies, and insurance companies. e majority of
them are not specialized in nancial services, but rather combine micronance with other development or welfare
programs. e government of Sri Lanka plays a signicant role in delivery of nancial services. It provides credit and
savings services directly through the Samurdhi banks
15
and Gamiediriya.
Some commercial banks provide nancial services to poor people. Of the 22 licensed banks regulated and supervised
by Central Bank of Sri Lanka, fewer than six provide services to the low-income and poor populations. ere are
also 14 licensed specialized banks supervised by the Central Bank, including six regional development banks owned
by the government, a public savings bank, other state-owned specialized banks, and various private banks. ere are
28 registered nance companies in Sri Lanka (supervised by the Central Bank), of which at least one, Lanka ORIX
FINANCE Company Ltd., provides some nancial services to the poor and low-income population.
e co-operative sector includes 1,539 co-operative rural bank branches that are associated with multi-purpose co-
operative societies, more than 7,400 thri credit co-operative societies (TCCSs) set up by the SANASA group, and
various local co-operatives oering credit and savings services. Institutions that are neither licensed nor regulated by
the Central Bank or the Ministry of Co-operatives are generally registered as societies, companies, or NGOs. Of the
more than 3,400 unregulated co-operatives, around 250 provide nancial services.
15. Elena Glinskaya, “An Empirical Evaluation of the Samurdhi Program,” prepared as a background paper for “Sri Lanka Poverty As-
sessment,” Report No 22-535-CE (Washington, DC: World Bank, 2003).
42 Using Microfinance to Expand Access to Energy Services
3.1.3 Regulation of Financial and Microfinance Sector
e Central Bank of Sri Lanka supervises the formal banking sector, which includes institutions and organizations
oering micronance services. Besides the Central Bank, various ministries are also involved in supervising micro-
nance. However the existing regulation and supervision guidelines are not very comprehensive and there are initia-
tives to introduce regulations for the rural nancial institutions.
e Ministry of Finance and Planning tracks donor money through the external resources/foreign aid and budget
monitoring departments. Although it does not provide funds itself, it allocates funds to various ministries (co-op-
eratives, Samurdhi, rural development, agriculture, sheries, etc.) through the newly created development nance
department. e role and regulatory requirements of various nancial sector players are presented in Table 3.1.
Table 3.1 Role and Regulatory Requirements of Financial Sector Players* in Sri Lanka
BANKS CO-OPERATIVES NON-PROFIT INSTITUTIONS
Participation
in rural finan-
cial sector
State-owned banks through gov-
ernment programs target poor and
rural entrepreneurs
Engage in mobilizing deposits and in-
vest such deposits in community-based
lending programs
Created to eradicate pov-
erty by empowering the poor
through mass mobilization
Regulation Banking Act No. 30 (1988) as
amended by the Banking (Amend-
ments) Acts No. 39 (1990) and
33 (1995)
Co-operative Societies Law No. 5
(1972) as amended by Act No. 32
(1983) and Act No. 11 (1992); Co-op-
erative Societies Rules No. 93/5 (1996)
- Companies Act No. 17
(1982)
- Voluntary Social Service
Organizations Act (1980)
Regulator Central Bank of Sri Lanka Co-operative Development
Department
Activities
undertaken
Engagement in full range of bank-
ing activities, including deposit-
taking and payment services
Institutions engage in banking activi-
ties with members only.
Many take deposits, even
though it is not legally allowed.
Capital and
reserves
US$ 4.82 million (LKR 500 mil-
lion). Minimum capital adequacy
of 10% (minimum tier 1 ratio: 5%)
None None
* Microfinance activities can be undertaken by any of the financing institutions (e.g., banks, co-operatives, NGOs) in the table.
3.1.4 Energy Scenario Overview
Energy for cooking accounts for 42.5 percent of the total energy use, of which 90 percent is generated from biomass
and 10 percent from kerosene and LPG. Energy for lighting is 7 percent of total energy—55 percent from electricity
and 45 percent kerosene. Energy for industries accounts for 20.2 percent of total energy—68.8 percent from biomass,
2.7 percent from LPG, and 29 percent from oil. Sri Lanka’s energy intensity is 0.68 times Asia’s and 0.57 times the
world average. Electricity consumption per capita per year in Sri Lanka in 2003 was 325.1 kilowatt hours,
16
which is
lower than India or Pakistan.
Approximately 75 percent of the population inhabits rural areas where biomass is the largest energy source (primarily
for cooking). Nearly 80 percent of biomass supply is obtained from non-forest resources—agricultural and planta-
tion activities. About 70 percent of the biomass is collected free and 30 percent is purchased (mostly in urban areas).
Of the biomass used in the domestic sector, 73 percent is for cooking. Rural and small-scale industries use 27 percent
of biomass.
16. World Resources Institute, Earth Trends: e Environmental Information Portal (website), “Electricity: Electrical Consumption
per Capita, Sri Lanka, 2003.” 574
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 43
Of Sri Lanka’s population of 20.1 million in 2004, only 65 percent had access to electricity.
17
e rural electrication
rate varies from 20 percent of the households in the north to 92 percent in Colombo. e average rural electrication
rate in rural areas and estate areas in Sri Lanka are 47 percent and 50 percent, respectively. It has been estimated that
over 2 million households are not yet electried, and electricity demand grows by 10 percent annually.
e low population density and the high transmission costs have made supplying power to remote areas dicult and
non-viable. It has been estimated that 20 percent of the households needs to be electried through o-grid systems.
To meet the rural electricity gap, about 60,000 solar photovoltaic systems are sold by the private sector to households
with micronancing. About 5,000 households beneted from 300 o-grid micro (village) hydro projects initially
developed by NGOs.
3.1.5 Renewable Energy Implementation in Sri Lanka
e share of renewable energy technologies in total electricity production is about 0.1 percent.
18
Implementation of
renewable energy in Sri Lanka has been supported by the Ministry of Power and Energy and developed commercially
through the World Bank and the Global Environment Facility (GEF)-funded Energy Services Delivery (ESD) proj-
ect. e US$ 55-million ESD project has galvanized the private sector to develop the solar photovoltaic market with
micronance, micro (village) hydro projects, as well as grid-connected micro hydro projects. is project has evolved
into the Renewable Energy for Rural Economic Development (RERED) project. Some highlights of Sri Lanka’s
renewable energy programs are presented in Box 3.1.
17. Lalith Gunaratne, “Grid Connected and Decentralized Power Generation Options: How to Level the Playing Field—A Focus on
South Asia,” paper presented at the “Asian Regional Workshop on Electricity and Development,” Asian Institute of Technology
(AIT), Pathumthani, ailand, April 2005.
18. National Engineering Research and Development Center, “SWERA Country Report for Sri Lanka” (SWERA, 2005).
Box 3.1 Renewable Energy in Sri Lanka’s Program
Biogas plants: Sri Lanka has considerable experience in biogas technology. In 2004 it reported that nearly 3,000
units were in operation, mostly constructed by the private sector. A study of the potential of biogas from
biomass sources by Intermediate Technology Group (Sri Lanka) estimates a total power generation potential of
288 MW, which includes 86 MW from livestock waste. A report on biogas potential in Sri Lanka, prepared by
Multi-National Collaboration Environment of India, estimates 3,600 million m
3
per annum with the possibility
of 3 million family-sized biogas plants.
Biomass thermal plants: At present a 35-kW model dendro plant has been commissioned in Sapugaskanda and
operated by a private company. A grid-connected dendro power plant of 1 MW is presently in operation at
Walapone.
Micro hydro: Over 400 micro hydro sites have been reported in the country. The total capacity of small/mini
hydroelectric plants currently connected to the national grid system is around 37 MW. All were developed by
private developers. In addition, 28 village mini-grids ranging from 4–45 kW, serving about 1,400 households
were established under ESD project. ITDG reported that more than 250 village hydro schemes have been
implemented in 8 districts (225 were in operation in 2003), with combined capacity of 2,500 kW, serving
5,150 beneficiaries. Sri Lanka has a suitable environment for harnessing hydro power at large, small, and mi-
cro levels. Excluding the presently installed capacity, the identified hydro potentials include 30 MW of small
hydro potentials in about 60 underdeveloped sites, 8 MW in about 290 irrigation tanks and reservoir sites,
150 MW of small hydro potentials tapped from 390 sites that can either be rehabilitated or redeveloped, and
18 MW in about 444 technically viable sites in the village hydro category.
Solar photovoltaic system: Solar photovoltaic implementation in Sri Lanka has been commended for systemic
achievements made in a short period of time. The Solar Industry Association reported that by the second quar-
ter of 2005 over 100,000 solar photovoltaic systems were sold and installed by private companies.
44 Using Microfinance to Expand Access to Energy Services
3.1.6 Renewable Energy Facilitators
e government of Sri Lanka, with the assistance of the World Bank and GEF, implemented the Renewable En-
ergy for Rural Economic Development (RERED) project over a ve-year period (2002–2007). e project aims
to expand the commercial provision and utilization of renewable energy, improve the quality of life and economic
development in rural areas by providing access to electricity to 100,000 rural households, and add 85 MW of grid-
connected electricity generation capacity.
RERED provides renance, grant, and technical assistance for two primary development objectives: 1) providing o-
grid electricity services to invigorate the rural economy, empower the poor, and improve their standard of living; and
2) setting up grid-connected investment projects to encourage competition in the power sector, provide additional
capacity and diversity, and achieve greater sector eciency and transparency. RERED runs four types of projects:
o-grid community projects, o-grid individual solutions, grid connection (commercial loans), and energy eciency
projects. e nancing facility for o-grid renewable energy projects is channeled via designated “Participating
Credit Institution” (PCI) renancing schemes, which thus far include 3 development banks, 4 commercial banks, 2
leasing companies, and 1 MFI (SEEDS—Sarvodaya Economic Enterprise Development Services).
e RERED project is nanced by a US$ 75-million line of credit from the International Development Association of
the World Bank and an $8-million grant from GEF. RERED provides medium- to long-term nance to private compa-
nies and enterprises, NGOs, co-operatives, or individuals for grid-connected and o-grid, community-based or house-
hold-based renewable energy projects. e executing agency of RERED is an administrative unit set up within DFCC
Bank in Sri Lanka. Besides the GEF grant through RERED, the government has provided grants of US$ 100 per
system per household since August 2003. (e grants were introduced island-wide in the nancial year 2006–2007).
e Asian Development Bank is also implementing a pilot project through a grant of US $1.5 million from its Japan
Fund for Poverty Reduction (nanced by the government of Japan) to enable poor households in Sri Lanka to directly
benet from rural electrication. A list of other renewable energy promoters in Sri Lanka is also presented below.
RERED, as part of its initiative in o-grid areas, helps establish village hydro schemes. Village hydro schemes are
built, owned, and operated by communities themselves through electricity co-operative societies (ECS) that are set up
for this purpose. Of the total cost of village hydro, only 30–50 percent is nanced through loans. e balance is mo-
bilized as equity contribution through ECS (as cash and in-kind contributions) and grants from various other sources.
Box 3.2 Other Renewable Energy Promoters in Sri Lanka
Energy Conservation Fund: A government organization which has the statutory power to promote renewable energy
and provide policy support. It is in the process of formulating a biomass energy policy.
Energy Forum: A local NGO primarily involved in promoting renewable off-grid power generation. Energy Forum
sets up networks to promote renewable energy technologies supported by Asia Pro Eco of the European Com-
munity.
IDEA: Serves as the national focal point of ARECOP (Asia Regional Cookstove Program) and is a member of
INFORSE (an international network for sustainable energy). It supports NGO networking and capacity building
to promote use of more efficient wood stoves and upgrading kitchens, including the Anagi stove.
Practical Actions: The regional branch of the international organization previously known as ITDG. They provide
support for promoting village hydro schemes (off-grid), grid-connected small hydro power plants, and other
decentralized options, such as biogas system and small wind systems.
The National Engineering Research and Development (NERD) Centre: Has developed and adapted several renewable energy
technologies to local conditions associated with solar, wind, and biomass.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 45
3.1.7 Energy Suppliers and Industry Players
One of the key factors of renewable energy implementation in Sri Lanka is the availability of suppliers of renewable
energy technology with strong sales and service networks, especially for photovoltaic and hydro systems.
Sri Lanka has 14 registered solar companies with more than 180 sales and service outlets in total, employing more
than 1,700 people (mostly rural). Of these 14 companies, Shell Solar and Suryavahini are the most popular. e
growth of the solar industry in Sri Lanka has also beneted from the price subsidies provided by RERED and local
governments. ese subsidies are channeled via the companies and passed on to the consumers as price reductions.
Per the Solar Industry Association (SIA) of Sri Lanka, in 2005 SIA members achieved aggregate average monthly
sales of more than 2,000 systems with a total annual turnover of US$ 9.7 million. e industry has been supported
by six rural credit providers that oer nancing for the purchase of photovoltaic SHS, with SEEDS as the leader. At
present, 8 of 14 registered solar companies are members of SIA.
For micro hydro projects, independent project preparation consultants known as project developers are crucial to a
successful process, especially for village hydro schemes. Project developers provide village communities with techni-
cal services, capacity building, and negotiation assistance to set up a village hydro scheme, for which they receive
grant support under RERED. To qualify for such grants, the project developers must be registered with RERED and
comply with its standards.
3.2 ORGANIZATIONAL PROFILE
3.2.1 Structure and Operation
SEEDS’ mission is to “eradicate poverty by promoting economic empowerment of rural people for a sustainable live-
lihood.”
19
To achieve its stated mission, SEEDS not only provides credit for enterprises and livelihood improvement
but also a bundle of non-nancial services, such as business counseling, transfer of technology and technical skills,
market information and linkages, and training in business management and entrepreneurship.
In its target market, credit is extended to enterprising individuals to start or expand micro-business ventures or
engage in self-employment activities. In addition, SEEDS provides credit to those who need capital support to access
energy solutions, such as SHS, and access to primary grid or village hydro projects.
SEEDS is registered as a limited liability company (not-for-prot) under the Companies Act No. 17 (1982), and has
been in operation since 1998. In 2006, SEEDS had branch oces in 27 districts in Sri Lanka, with a client base of
887,430, and 161,461 active borrowers.
SEEDS’ senior management has considerable micronance experience. Most of its district managerial sta has been
with the organization for a decade (initially with Sarvodaya, the parent NGO). Over the years, SEEDS has made
considerable eort to improve its systems and bring them to par with international standards. However, it has not
enforced stricter performance and eciency standards among its sta, leading to a slow decline in portfolio quality
and nancial performance.
SEEDS has a separate sub-division for energy lending, called Alternative Energy. e banking director heads the non-
energy lending while the deputy banking director oversees energy lending. Of its 27 branch oces, 20 branches oer
energy loans. ese branches have separate sta for energy lending, headed by a deputy manager who also reports to the
district manager. Non energy-lending is conducted through Sarvodaya societies (village societies), which have around
100 members and are further sub-divided into smaller groups of 5–7 members. Energy lending is generally oered to
individual clients (who mostly are not members of a Sarvodaya society) and electricity co-operative societies (ECS).
19. See http://www.seeds.lk/.
46 Using Microfinance to Expand Access to Energy Services
Accounting and management information system (MIS): SEEDS has installed new accounting/MIS soware,
developed by Informatics Private Ltd., specically for its energy program, which at the time of the eld research visit
was being pilot-tested in two branches. e soware has the capacity to generate a number of detailed client, eld
ocer, vendor, and area portfolio analyses plus overdue ageing analysis. e other branches maintain portfolio qual-
ity information on Microso Excel, which is updated monthly. At present, the organization only prepares a separate
prot and loss statement for the energy program and no balance sheet. (A consolidated balance sheet is prepared for
the entire micronance program, energy plus non-energy lending.) For accounting, MIS soware is installed both at
the head oce and branch/district levels. Loan loss reserve is based on Central Bank norms, which are liberal, com-
pared to international micronance standards.
Portfolio management: Portfolio management for SEEDS’ energy program needs to be strengthened by gearing up
its internal checks and balances. Although the clients are mostly small farm and non-farm entrepreneurs who have
reasonably stable cash ows, SEEDS’ overall portfolio quality and management capabilities have been eected by
several extraneous factors—e.g., natural calamities (oods and landslides in many districts and the 2004 tsunami),
ethnic clashes in certain regions, and harvest problems. Unplanned grid extensions have also negatively aected the
quality of the energy portfolio, especially in the areas with solar loans. SEEDS has a buy-back arrangement with ven-
dors in the event of grid extensions; however, this has not been always feasible when the removal rate is high.
Business planning and nancial management: e process of business planning within RERED is quite elaborate,
based on previous year’s gures, market trends, and expansion plans of suppliers and targets are allocated to each
district accordingly. ese gures form the basis for SEEDS’ corporate plan for its energy division and is ne-tuned
by the local cohort and sent back for approval. However, it appears that the banking division’s central plans have not
yet fully incorporated the energy plans and projections into their central business planning process.
ere have also been a few instances where management crises at some energy companies have seriously aected
SEEDS’ business plans, and SEEDS has had to take over managing the energy product stocks, which is not its core
competency. Other factors that have aected its energy lending program are a market crisis where sales dropped
island-wide, and a decision to consolidate the energy lending program despite ambitious plans for it. As a result, the
current challenge for SEEDS management is to maintain the ne balance between expansion and scaling up in order
to make the energy portfolio protable as early as possible versus consolidating the energy lending processes, systems,
and plans in the face of external shocks and market failures.
Cash management: SEEDS has adopted a conservative cash and liquidity management strategy, since a large propor-
tion of its assets are either bank deposits or cash. is approach was followed to maintain adequate cash reserves so
as to oset current liabilities, including loan repayments to RERED (given its weak portfolio quality), and to meet
short-term business targets (renance from ADB was delayed). is also explains why the energy portfolio has not
grown over the last year despite an increase in the prices of SHS.
Future funding: SEEDS’ support from RERED ends in 2007, but RERED is currently contemplating a program
extension for another three years and details are being worked out. SEEDS is also exploring other funding opportuni-
ties by engaging with Ashden Awards 2006 and others. Management is positive and feels that mobilizing new sources
of funds may not be a major issue in the medium term; however it has yet to decide whether it will expand its energy
lending to newer areas or just consolidate the existing program. Although SEEDS is working to improve operational
eciencies and provide better services to its clients, an important factor that may aect SEEDS’ decision to continue
the energy lending program is the steady inuence of various external market forces and the extent to which they can
be managed.
Internal audit: SEEDS has an internal audit department which is responsible for conducting branch audits annually.
However, policy and eld audits are almost non-existent. As a result, any current audit lacks adequate scale, frequen-
cy, and rigor. e senior sta at the branch oce is not well-skilled in operational risk management.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 47
3.2.2 Funding Sources
For its operations, SEEDS has obtained loans funds from various sources. In addition to this, SEEDS is supported
by donor funds and has access to society savings and savings of individual members through various deposit schemes
(used only for non-energy lending). Both ESD and RERED loans are to be repaid in ten years in half-yearly install-
ments. Besides these loan funds, the organization received training grant support from Estimos and the World Bank,
and revolving loan funds from Asian Development Bank of around LKR 62 million (US$ 596,211) for grid-connec-
tion loans until June 2006.
3.3 ENERGY LOAN PORTFOLIO
3.3.1 Model and Methodology
e energy lending model and methodology adopted by SEEDS is entirely dierent from their non-energy lending.
Its general credit product is oered through Sarvodaya societies, comprising of 60–100 households in a village, while
the energy program mostly lends to individuals and has little client overlap with the non-energy program.
Of the three energy loan products oered by SEEDS, it adopted individual lending methodology for SHS and grid-
connection loans. However, micro hydro loans are oered through an electricity co-operative society (ECS), which is
comprised of all beneciary households who gain access to electricity through the micro hydro project.
Table 3.2 Differences Between SEEDS’ Non-Energy and Energy Loans
NON-ENERGY ENERGY
Products Income generation, consumption, employment and
pawn loan
SHS, grid, and micro hydro
Loan size LKR 10,000–500,000 (US$ 96–4,808) LKR 15,000–100,000 (US$ 144–968)
Interest rate 16–22% declining p.a. - SHS: 10% flat p.a.
- Grid: 8% flat p.a.
- Village hydro: 16% declining p.a.
Loan Term and
Installment
1–5 years, mostly monthly installment 2–6 years, monthly installment
Equity
contribution
25% of the project cost in case of employment genera-
tion loan
- SHS: 15%
- Grid: 20%
- Village hydro: 50–70% (incl. grant)
Loan appraisal Up to LKR 50,000 (US$ 480): Field staff
Up to LKR 100,000 (US$ 960): District committee
Loans > LKR 100,000 – Head office
- SHS and grid loans: District office
- Micro hydro loans: Similar to society loans and
appraised at district office
Disbursement Members of Sarvodaya societies - SHS and grid: Individual clients (mostly non-
Sarvodaya members)
- Micro hydro: Members of ECS
Collection of
Repayments
Responsibility of Sarvodaya society manager Responsibility of field staff
Cash handling Field staff not allowed to collect or disburse cash Field staff collects repayment in cash, disburse-
ments are made as checks
48 Using Microfinance to Expand Access to Energy Services
Table 3.3 Characteristics of SEEDS’ Energy Loan Products
SHS GRID CONNECTION VILLAGE MICRO HYDRO
Target area No expectation of grid con-
nection for 4 years
Availability of grid for last 2
years
Areas where grid is unlikely to
reach
Interest rate 10% flat p.a. 8% flat p.a. 16% declining p.a.
Other fees LKR 700 (US$ 6.73) for non-
Sarvodaya society member
Loan period 3–4 years 2 years 4–6 years
Grace period During construction
Loan size (LKR) LKR 25,000–100,000
(US$ 240–962)
LKR 15,000
(US$ 144)
30–50% of total project cost
Equity requirement 15% 20% 50–70% (include grants)
Capacity 20–60 Wp 230 watt 5–20 kW
Capital expenditure LKR 40,000–100,000
(US$ 385–962)
LKR 18,000–40,000 (US$
173–385)
LKR 1–2 million
(US$ 9,616–19,232)
User profile Individual Individual Electricity co-operative society
Marketing and Outreach Company CEB Project developer
Nature of Contract MOU that stipulates minimum
product and service standards
Affidavit that allows CEB to dis-
connect if clients fail to repay
Other features Buy-back scheme Village technicians
No. of units installed or
customers
Approximately 58,000 units 3,692 customers 14 units
Payment scheme Monthly Monthly Monthly
3.3.2 Characteristics
e total number of borrowers for energy program was, as of June 2006, over 58,000 for solar loans, 3,692 for grid
loans, and 14 ECS for village hydro loans. e SEEDS energy loan portfolio is 30.8 percent of its total micronance
portfolio, and the total loan outstanding, as of June 2006, was LKR 955.1 million (US$ 9,184,537). Of this, 94.2
percent of the portfolio was solar loans, 5.5 percent was grid loans, and 0.2 percent was village hydro projects.
SEEDS’ solar loans has shown strong growth, approximately 200 new systems installed in 1999 compared to 13,527
new systems in 2005—in other words, averaging 10 systems per month in 1999 and 1,119 systems per month in 2005.
3.3.3 Relationships Between Energy Suppliers, SEEDS, and Consumers
Solar loans: Solar loans constituted 94.2 percent of the total energy portfolio as of 30 June 2006. SEEDS has col-
laborated with 11 solar companies in Sri Lanka and has signed MOUs with them that dene roles, work norms, and
procedures to be followed by each partner. SEEDS provides the nancing while the solar companies handle mar-
keting, preliminary loan appraisal, installation, user training, and aer-sale service. e sta members of the solar
companies present information about the SEEDS loan products and have loan application forms in case a client
cannot purchase the equipment in cash. If the client is interested in a loan, the sta members make a preliminary loan
appraisal, oen le the loan application on behalf of the client, and submit it to the SEEDS district oce. Once the
loan is appraised and sanctioned by SEEDS, the company sta installs the equipment at the client’s house and col-
lects 15 percent of the equipment value as a down payment. SEEDS disburses 85 percent of the equipment value as
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 49
a loan to the client, but payment for the equipment is made directly to the solar company. New or small solar com-
panies are paid only 80 percent of the equipment value because SEEDS retains 5 percent of the disbursed value as a
savings deposit to be used in case the company fails to perform.
e solar companies must ensure that they comply with quality standards established by RERED to be eligible for
its renance facility. To reduce technical risk, standards are set for warranty requirements, hardware specication,
maintenance, inspection, and buy-back guarantee. e companies are required to provide user training to the client
at time of installation along with a properly documented user manual, including the warranties. ey must also pro-
vide compulsory routine maintenance within ve months of installing the equipment and routinely every six months
thereaer for three years. A client can register complaints directly to the company or through SEEDS.
Village hydro loans: Village hydro units are built, owned, and operated by the community itself through electricity
co-operative societies (ECS) set up for the purpose. ey are nanced by a mix of sweat equity from the community
(which provides labor and in-kind contribution toward construction of the essential infrastructure, such as diversion
channels and turbines), loans from SEEDS, and project grants. A micro hydro project is initiated and managed by a
project developer (an independent project preparation consultant), who plays a critical role in bringing together dif-
ferent stakeholders and managing multiple requirements for the successful implementation of the project.
A project developer manages community mobilization, ECS formation, site selection, feasibility studies (including
technical and socio-economic aspects), and submission of business plans and other documentation for bank loan
negotiations. e developer also assists the ECS in mobilizing equity and grants, obtaining regulatory and local
government approval for the project, soliciting independent quotations from suppliers, and advising it on selection of
suppliers. Once all the ground work is nished by the developer, SEEDS—based on the individual loan applications
from ECS members—approves the loan (30–50 percent of the total project cost). Most of the loan is paid directly to
equipment suppliers and the balance to the ECS.
e equipment quality standards are established by RERED. Suppliers must be registered with RERED and comply
with the standards to be eligible for renance. e ECS is expected to enter into a direct agreement with the energy
equipment supplier. To ensure that the project runs smoothly, the developer is required to train ECS members in the
operation and maintenance of the micro hydro and in record keeping. e developer gets a project preparation grant
of up to US$ 6,000, which is only paid when a specic project milestone dened by RERED is reached. e size of
each individual loan is subject to the cost of the system, the grants made available to ECS by government or donor, and
15% Equity
(Upfront)
Marketing & Outreach
Energy Need Assessment
Installation & User Training
After-Sales Service
(System Removal)
Refinance
80% of Equipment Value
MOU
Information &
Data Exchange
85% Credit
Non-Cash
C
r
e
d
i
t

A
p
p
r
a
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s
a
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R
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p
a
y
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R
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a
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&

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f
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L
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S
T
A
F
F
CLIENTS
SEEDS
RERED
SOLAR COMPANIES
Cash Transfer
Figure 3.1 Stakeholder Relationships in a Solar Loan
50 Using Microfinance to Expand Access to Energy Services
the number of ECS members. An ECS representative collects monthly payments from the other members to cover the
maintenance and operation costs of ECS as well as the loan repayment, which is then remitted to SEEDS every month.
Grid loans: SEEDS collaborates with the Central Electricity Board (CEB) of Sri Lanka. CEB markets SEEDS’ loan
products to potential clients visiting its oce and provides the grid connection. CEB also provides cost estimates for
clients interested in a loan to install the grid connection—this is mandatory to conrm that the loan applicant is a
prospective grid client. Based on cost estimates, SEEDS screens the creditworthiness of the client. Besides evaluating
livelihood and income, it also ensures that the client owns the house. As required by the loan scheme, when the loan is
approved, 20 percent equity is collected by SEEDS from clients and utilized for payments to service suppliers. SEEDS
transfers the loan (loan ceiling is LKR 15,000 [US$ 144]) directly to CEB and only then is the grid connection initi-
ated. Any additional costs must be covered by the client. ADB provides 100-percent renance to SEEDS for grid-con-
nection loans. SEEDS has grid loan clients sign an adavit that authorizes CEB to disconnect power in case of default.
3.3.4 Energy Clients and New Markets
e energy clients visited during the eld research were mostly involved in rubber and tea plantation and farming.
Others were self-employed in non-agricultural businesses, such as iron welding, carpentry, tailoring, etc. e income
pattern for most was seasonal, or monthly for the others, and average monthly income ranged from LKR 4,000 to
LKR 23,000 (US$ 38–221).
e typical electrical energy needs of these clients are for lighting, TV, video player, fan, and some kitchen appli-
ances. Before installing SHS or a grid connection, these clients mostly used kerosene for light (8–20 liters at LKR 48
[US$ 0.46] per liter). For cooking, most clients burned fuelwood, which they collected from the surrounding area.
Many clients, however, also used an LPG cookstove, but LGP consumption was minimal—about one cylinder every
four to eight months.
SEEDS energy lending is characterized by its client-friendly, door-step services, which are highly valued by its clients
(more than 50 percent, according to an internal SEEDS’ impact study of solar loans in 2002). From providing
Project Development Grant
Arrangement
Project
Development
Financing
Arrangement
Institutional
Building
O/M
Electricity Service
Repayment through
representative of ECS
Refinance (80%)
Loan to ECS
(30%-50%
of capital
investment)
Labour & Materials
Repayment
Approval
Co-financing Grant
ENERGY CONSUMERS
CONSUMER SOCIETY
AUTHORITY DEVELOPER VILLAGE HYDRO
RERED
DONOR SEEDS
Figure 3.2 Stakeholder Relationships in a Village Hydro Loan
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 51
product information to installation to user training, maintenance, and loan collection, all services are provided at the
house of the clients.
By August 2006, total installed capacity from SEEDS’ loans reached 2,360 kW for solar, 849.1 kW (estimated) for
grid connection, and 118.4 kW for village hydro. Based on the SEEDS impact study, the energy use by the clients
ranges from household to productive activities. Based on SEEDS statistic, 565 clients use solar photovoltaic for
productive and social uses, ranging from groceries/markets (402 clients, by far the most use), manufacturing/home
industry (54 clients), animal husbandry, solar centers, agricultural product processing, service industry (hotels, res-
taurants, salons), farm security, and religious centers (temples, mosques).
Clients visited during the eld research visit used kerosene for lighting prior to buying SHS or getting connected to
the grid. Almost all households used fuelwood for cooking.
Energy Forum, an NGO promoting renewable energy in Sri Lanka, has estimated that the market potential for solar
systems is at least 200,000 systems, and 1,000 schemes for village hydro. (So far, 250 schemes have been installed.)
Another alternative technology that is still being developed and implemented is biogas. With farmers constituting
more than 56 percent of energy consumers in rural areas, biogas has huge potential.
3.3.5 Administration and Management
SEEDS has a separate energy division with separate sta to administer and manage the energy lending. Although
it uses SEEDS’ infrastructure (head oce as well as branches), the energy division pays SEEDS a xed sum every
month to use its resources. e energy program maintains detailed accounts of its income and expenses, preparing an
annual income and expenditure statement (but it does not prepare a separate balance sheet). e energy program is
monitored by the energy division at the head oce and deputy district manager at the branch oce. However, eld-
level monitoring is inadequate for its present scale.
SEEDS’ energy division along with its training division has organized several training sessions for its sta and hired
professionals—who are either technical managers of solar companies or trainers from the Solar Industries Associa-
tion (SIA)—to conduct them. Some of the initial awareness programs for CEB and nancial institutions were of-
fered by Energy Forum on behalf of ADB.
1
Marketing & Outreach Connection
Cost Estimation
L
o
a
n

R
e
p
a
y
m
e
n
t
* Grid Connection Fee
(paid from loan proceeds)
R
e
q
u
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s
t

f
o
r

G
r
i
d

C
o
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n
e
c
t
i
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2
0
%

E
q
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y
(
u
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f
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)
F
i
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l
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S
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A
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s
a
l
Refinance
100% of Disbursed Value
*Repayment through field officer, society, or directly deposited by clients at district office
CLIENTS
SEEDS
ADB
CEB
8
7 4 5
6
3
Figure 3.3 Stakeholder Relationships in a Grid Loan
52 Using Microfinance to Expand Access to Energy Services
3.3.6 Financial Analysis
SEEDS energy loan portfolio is less robust than its non-energy portfolio. As of 30 June 2006, SEEDS had portfolio-
at-risk greater than 60 days as high as 35 percent, and a cumulative repayment rate of only 86 percent. Solar loans
constituting 94.3 percent of total energy portfolio have high defaults, partly due to the diculty in following up with
these clients, who largely live in remote villages. Of the three energy loan products oered, solar loans had an 85-per-
cent recovery rate by due date. Grid loans, on the other hand, had a 100-percent repayment rate.
Of the 13 village hydro projects, 12 projects had a 100-percent repayment rate, and one project has defaulted despite
operating successfully. e project in default had LKR 980,000 (US$ 9,424 outstanding). e initial target was to
promote 25 village hydro projects, but currently SEEDS wants to slow down because it is not sure of the long-term
sustainability. While ideally the ECS-based village hydro scheme is a good concept, in practice, however, the success
of the project rests on the cohesiveness of the ECS and its leadership. Any problem within the ECS has the potential
to threaten the long-term sustenance of village hydro.
Table 3.4 Sample Client Loan Profile, SEEDS
DESCRIPTION % OF TOTAL INCOME
Income per month LKR 7,000 (US$ 67)
Loan purpose Grid connection
Loan amount LKR 15,000 (US$ 144)
Loan installment LKR 730 (US$ 7) per month 10.4%
Energy cost prior to grid connection
Baseline expenditure on kerosene LKR 720 (US$ 6.92) per month 10.2%
Energy cost after loan repayment
Grid billing cost for the month LKR 449.5 (US$ 4) 6.4%
Overall, the energy program was protable as of 31 March 2006, with a Return on Asset (ROA) of 1.5 percent.
However, the margins are thin and have declined from 2005 due to increased cost. An increase in salaries along with
new sta recruits has resulted in higher personnel costs. e portfolio has remained stagnant, as has the income from
portfolio (only 9 percent growth), leading to a decline in prots. e yield on portfolio is low at 12.1 percent against
a weighted annual percentage rate of 18.2 percent due to weak portfolio quality.
3.3.7 Impact Analysis
Most clients visited by the Asia Research Consultant used the energy loan for consumption. Before purchasing solar
photovoltaic equipment, these clients used 15–20 liters of kerosene per month, costing approximately LKR 720–960
(US$ 6.92–9.23). e monthly loan payment for these clients ranged from LKR 1,250 to LKR 1,830 (US$ 12–
17.60), depending on the loan amount and loan term, and constituted 4–12 percent of their monthly income. How-
ever, once the loan is fully repaid, the client then saves the expense of kerosene, about 2–7 percent of monthly income.
Clients with grid-connection loans also had used 15–30 liters of kerosene per month for lighting, costing LKR
720–1,440 (US$ 6.92–13.85) per month; their loan installment ranged from LKR 730–LKR 940 (US$ 7–9). Of
ve grid-loan clients visited, only one had received a bill from CEB. e cost of the loan installment was almost
equivalent to the baseline expense of client for kerosene, but the client still had to pay the electricity bill. Once the
loan is paid, the client pays only for electricity consumption. If this continues at the same usage, it will be lower than
the baseline expense for kerosene. Some of the obvious benets observed during the eld visit were overall better
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 53
quality of life, access to better light for children for studying, ability to work longer in existing productive activities,
and access to better and more diverse TV and radio entertainment.
3.4฀ D!5CU55!DN-5EED5
3.4.1 Highlights and Challenges of the SEEDS Energy Lending Model
Highlights
- Client-iendly, door-step services that SEEDS oers are highly valued by clients.
- SEEDS energy-lending program has a separate department for management and administration, an
important factor enabling SEEDS to scale up its energy-lending portfolio.
- SEEDS has excellent market credibility and reputation as a pioneer in micronance and energy lending
in Sri Lanka. It has been able to mobilize funds from a wide range of lenders for its micronance program
and obtain favorable long-term credit from RERED.
- Its micronance outreach is almost island-wide, and its energy program is operational in 20 districts.
Current infrastructure provides a wide geographical base from which to expand energy access.
- Strong, well-developed energy stakeholders have made SEEDS’ credit facility for energy products pos-
sible. SEEDS’ energy partners work well in tandem, optimizing their particular expertise to develop and
strengthen the energy market. Solar companies market energy and loan products, prole client energy
needs, conduct preliminary credit appraisals for SEEDS loan, and provide sales and aer-sale service via
decentralized networks. CEB oers expanding access to grid connection and helps market and promote
SEEDS loans to its clients. Project developers are instrumental in conceiving and managing entire village
micro hydro projects. SEEDS provides the credit facility to bridge the nancial gap.
- ăe dierent risk mitigation strategies adopted by SEEDS are key to minimizing technical and credit
risk: these were buy-back options, ve percent of the loan held as a hedge for small and new solar compa-
nies, and provisions to repossess solar panels or disconnect electricity in case of loan default. SEEDS also
initiated an internal insurance program for solar loans to help borrowers and to cover itself from damages
caused by natural disasters or other external conditions. e risk fund was started because low-income bor-
rowers were unable to invest 2.5 percent of the asset value annually as an insurance premium. is innova-
tive product of SEEDS has also been replicated by other experienced, international energy lenders as well.
- e SHS subsidy has enabled energy and micronance stakeholders to scale up SHS outreach in rural
areas, especially in light of increasing SHS prices.
- SEEDS’ insistence on RERED-required quality standards for both SHS and micro hydro keeps it eli-
gible for renancing funds, and its MOUs with solar companies dene operational standards, dene work
norms and procedures to ensure quality packages for clients.
- SEEDS was self-motivated to introduce energy lending, in keeping with its mandate to provide compre-
hensive service to its clients. Its early eorts focused on creating awareness of solar photovoltaic technol-
ogy and installing solar systems in communal locations, such as temples and churches, to demonstrate and
introduce them (through Sarvodaya, its parent company). ese initiatives, although small, were funded
by internal funding sources. Over a period of time, SEEDS was able to show a measure of success and was
made a PCI (especially noteworthy, since MFIs were not qualied to become PCIs at that time), and was
able to attract subsidized funds from RERED and ADB.
Challenges
- SEEDS is dependent on the RERED-subsidized loan fund. Presently the weighted average cost of funds
from RERED is 6.6 percent per annum, which just allows the program to break even and make small
prots. However, if the government programs were to end, which currently form the bulk of SEEDS
funding sources, it may be dicult for SEEDS to break even by borrowing at existing market rates of
10–12 percent per annum.
SEEDS’ pricing policy needs back-up solutions should interest rates signicantly increase—which would
also aect the market for energy lending. Past experience has shown that the solar consumers in Sri Lanka
are sensitive to price. e availability of a price subsidy and subsidized interest rates contributed signi-
cantly to the high growth of solar market in Sri Lanka; without these, the market could drop considerably.
- SEEDS' non-energy program has a huge client base, but the energy program has not been able to take ad-
vantage of this existing client network. SEEDS originally tried, but failed given the market segmentation
and client prole of its energy and non-energy clients. Energy clients in non-grid areas, especially those
opting for solar loans, generally reside in remote villages, whereas non-energy clients reside in villages
which have better access. is has kept the operating cost of servicing energy clients on the high side.
- SEEDS has limited initiatives or opportunities for product development or innoation—as do most
other MFIs. e designs of its existing loan products were based on a market survey, considering such
factors as amount of client’s income spent on lighting, seasonality of cash ows, and aordability of cash
security, and are modied periodically based on experience. Still, RERED and donor trends remain a
major driving force in the continuation of the current government energy program. SEEDS has wanted
to do a full market study to identify the varied energy needs of its clients and explore additional energy
products to introduce, but nds it a heavy investment. For the same reason, few manufacturers are willing
to invest in new products as well. Also, no specic eort to create a market for energy entrepreneurs or
promote energy for productive purposes has been made.
- SEEDS’ nancial analysis of its energy program is not adequate, despite having a separate department
for energy lending. SEEDS does not prepare a separate balance sheet for the energy program, although a
detailed branch-oce protability analysis on energy analysis is underway.
- Considering SEEDS’ portfolio size, its insurance fund is small. SEEDS’ internal insurance fund, as of
31 March 2006, was LKR 39.8 million (US$ 382,729), and claims have usually been around 10 percent
of the fund. However, SEEDS also has a risk assurance fund on a contributory basis, which helps borrow-
ers and covers SEEDS from natural disasters and external conditions. e terms for honoring claims are
explained to the clients and are properly documented.
- SEEDS has weak portfolio quality with PAR>30 days as high as 42 percent and PAR>60 days at 35 per-
cent. e weak portfolio quality is primarily the result of SHS loan defaults: SHS loans constitute more
than 90 percent of the energy loan portfolio. Weak portfolio quality has resulted in thin margins despite
low operational costs. SEEDS’ priority is to improve the quality to acceptable levels, and a work plan has
been drawn up and targets set for such purpose. Since the weak portfolio is also aected by uncontrol-
lable external conditions, it is important that MFIs have the capacity to absorb volatile conditions.
- SEEDS management is not yet fully geared to handle the challenges of energy lending which has led to
a relatively weak portfolio of energy loans compared to their general portfolio. e primary reason for
this is the prole of clients for energy loans is very dierent from the non-energy clients in terms of their
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 55
location and accessibility. erefore SEEDS needs to build in systems to incentivize the eld ocers as
well as other sta for the additional eort that needs to be put in place to build and successfully monitor
an energy loan portfolio.
- SEEDS’ support om RERED ends in 2007. RERED is currently renegotiating a program extension
for another three years (details are being worked out), with a substantial fund reserved for o-grid solar.
SEEDS is also exploring other funding opportunities, such as the Ashden Awards 2006 and others.
SEEDS has a substantial amount of internally generated funds for energy lending as well, and repeat
funds should also be available for grid loans. Although management feels positive that mobilizing new
sources of funds may not be a major issue in the medium term, it is contemplating whether to expand
its energy lending to newer areas or just consolidate the existing program. SEEDS is working to increase
operational eciency and provide better services to its clients, but an important factor that may direct
SEEDS’ decision to continue the energy lending program is the eect of various external market forces
and the extent to which they can be managed.
- SEEDS’ energy stakeholders feel that micro hydro projects are expensive and cannot be implemented
without grant support, questioning sustainability. SEEDS funds only 30–50 percent of the project cost
while the rest of the funds originate from grants and ECS-member contributions. Grants also support
project developers who are crucial to micro hydro projects. e long-term sustainability of the project
also depends on the socio-economic and political dynamics among ECS members.
3.4.2 Obstacles and Barriers
- Although SEEDS is fortunate to have diĈerent energy stakeholders to collaborate with, it continues to
face problems in implementing its solar loan product. One reason for the high default rate in solar loans
is the unplanned expansion of grid lines to new areas by CEB. Moreover, competition between solar
companies at times has prompted them to sell equipment to clients without a loan appraisal by SEEDS
sta. is created problems for SEEDS in the past, but SEEDS has emphatically communicated to the
companies that it would not nance such sales.
- Prices of solar home systems have increased by almost 25–30 percent over the past few years, becoming
expensive for the rural poor. SEEDS fears that further increases in prices will make SHS unattractive and
unaordable for the poor.
- Providing energy lending to consumer-based societies, such as an electricity co-operative society, made
SEEDS vulnerable to the leadership quality and consistency of the respective ECS—which is much
more dicult to control than loans to individuals. Such a challenge has dampened SEEDS’ interest in
expanding its portfolio for the village hydro scheme loan, and a dierent approach may need to be taken
by RERED or sector facilitators to mitigate such risks.
- Most stakeholders feel that innoation and introduction of new products is too costly. Unless grant
support is available to infuse seed capital and bear the initial high cost, it is not possible for stakeholders
to design and market new products. SEEDS itself has several interesting ideas for deploying solar tech-
nologies, such as promoting use of solar lights to protect crops by chasing away elephants, and solar water
pumping and drip irrigation. It has also completed a pilot project for nancing solar driers for pepper
drying. However, the production costs for some of this equipment is prohibitive and does not encourage
new suppliers to enter the supply chain or nancers to nance these untested ventures.
56 Using Microfinance to Expand Access to Energy Services
3.4.3 Key Lessons Learned
Adequate risk protection is necessary. In designing an energy-lending program, such as SEEDS’, it is important to
build in adequate controls to safeguard various technical and credit risks. MOUs and clauses to dene clear roles and
responsibilities of micronance and energy stakeholders under dierent possible circumstances are an important
starting point. It is also imperative that both energy and micronance stakeholders understand each other’s opera-
tions and co-ordinate and co-operate with each other in expanding energy access.
Establish clear performance indicators for energy program. Creating a separate division with its own resources
and sta for energy lending helped SEEDS scale up its energy portfolio. However, it is also important that the clear
operational and nancial performance indicators be established to analyze the progress and performance of energy
program upon which prudent nancial decisions can be made. SEEDS does not conduct the required analyses of its
energy program separately, as of now.
Extend outreach to energy entrepreneurs. SEEDS has done well in reaching out with its energy products to end us-
ers. However, the energy program should not limit itself to that and should widen its outreach by promoting energy
entrepreneurs. Creating energy entrepreneurs will reduce the transaction and delivery costs for the MFI on one hand,
and on the other, enable it to reach out to a wider client-base with dierent economic proles.
Proide insurance. Insurance is an important and valuable service that the client requires, especially if the average
loan amount is high. e client can suer substantial loss if the equipment is damaged. However, this service should
be oered either in collaboration with a formal insurance company or as an internal policy where the liability is re-
stricted to the amount of the insurance fund. SEEDS, for example, has a huge contingent liability since the insurance
fund it can mobilize is small in comparison to its overall energy portfolio, which is not advisable.
3.4.4 Opportunities for Country Scale-Up and Regional Replication
Client database and proles: MFIs need to build a specic database of client information that proles the energy
needs of potential clients among other characteristics. e energy prole of the client should look into their energy
requirements for household consumption as well as income-generating activities. e database can be essential for
introducing innovative alternative energy solutions that have the potential to save on costs or generate more income
for the clients.
Product and market innoations: Innovations are required on three fronts to expand and scale up energy access.
Energy stakeholders need to identify and introduce income-generating energy products for end users, such as solar
dryers, in addition to energy products only for household purposes. Scalable energy products that do not need to be
heavily subsidized by grants and can be easily sold or installed are obvious targets to focus on. New energy service en-
terprises that sell or rent energy services and expand outreach to end users should also be introduced and encouraged.
Franchises can be employed to nurture the decentralized growth of energy service companies. So far, the marketing
and promotional role in the SEEDS model has been the exclusive purview of energy service companies. e MFI’s
separate energy division could also employ a team to design new marketing strategies to expand energy access. Mar-
keting by energy players helps maintain low cost, but at the same time participation by MFIs can help scale up the
energy portfolio much faster. For its energy program, an MFI should build some marketing and promotional costs
into its interest rate structure.
External funding and support: Donor funding can be sought to support market studies that identify the potential
of existing as well as new alternative energy solutions in Sri Lanka (based on the energy client database). It also can
infuse initial seed capital and help with early operational costs to build a service infrastructure to introduce new in-
novative technology and replicate it on a wider scale.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 57
MFIs also require capacity-building support to meet international nancial accountability standards for energy lend-
ing. e institutional capacity needs to be increased to include various elements, such as delinquency management,
credit and technical risk management, better internal controls, and energy-specic nancial planning and budgeting.
More ecient operations: If SEEDS intends to scale up its energy lending program without external support from
programs like RERED, it needs to improve the protability of its energy lending portfolio and generate larger prot
margins to make the program self sustainable. SEEDS is making eorts to enhance its portfolio quality by building
systems for improving its cost eciency and credit discipline for better loan repayment. It is also working to instill
measures for better sta accountability. However, SEEDS still needs to expand its target market to achieve econo-
mies of scale for energy lending by collaborating with energy sector facilitators and players and vigorously exploring
better energy products and new provision strategies. Guided by its future vision, SEEDS is moving in that direction.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 59
CHAPTEP฀4฀º฀NUBL-NEPAL
4.1 NEPAL COUNTRY CONTEXT
4.1.1 Socio-economic Environment
Nepal has a population of about 28 million and a land area of 14 million hectares and is one of the least developed
countries in the world. Estimates suggest that 40 percent of the population lives below the poverty line. e gross
domestic product of 2.7 percent (2005 estimate) is low, the population growth rate of around 2.2 percent per annum
is high, and 84 percent of the population lives in rural areas.
Further, a weak social infrastructure—evident by its 2002 UNDP Human Development Index rank of 140 out of
177—reects gender inequality, rural-urban regional disparities, and poor health facilities. Income distribution is
also strongly skewed: the highest quintile accounts for 44.8 percent of total income or consumption between 1995
and 1996 and the lowest quintile for 7.6 percent.
20

4.1.2 Banking Sector Overview
Nepal’s formal nancial system began with the establishment of the Nepal Bank Limited (NBL) in 1937, followed by
Nepal Rastra Bank (NRB, Nepal’s Central Bank), in 1956. Over time, other institutions, banks as well as non-banks,
were set up and integrated to form a substantive nancial system. However, foreign banks were only allowed to oper-
ate in Nepal in 1985. Aer liberalization, the nancial sector made substantial progress in increasing the number of
both nancial institutions and beneciaries of nancial services. However, a large proportion of the market (more
than 86 percent) remains in the hands of commercial banks.
Total assets of the nancial system grew continually over the last ve years, at an average rate of 16 percent per an-
num. A major proportion of the loan portfolio of the banking system was distributed as productive loans (35 per-
cent) and to the wholesale and retail business sectors (almost 20 percent).
Various nancial sector reform programs, implemented over the past few years, have contributed some improvement
to the nancial health of problem banks. However, the nancial sector is still at risk. It is challenging to maintain
nancial sector stability in the face of the current level of non-performing loans (NPL) at 18 percent.
4.1.3 Finance and Microfinance Sectors and Regulation
e formal nancial sector consists of commercial banks, development banks, nance companies, and micronance
banks. Development banks formed under the Development Bank Act (1996) are extending micronance activities
into rural areas. ese banks include both regional rural development banks in the government sector and micro-
nance development banks established by the private sector. A large number of societies and co-operatives occupy
20. Sanjay Sinha, “Nepal, ” in e Role of Central Banks in Micronance in Asia and the Pacic: Country Studies, vol 2, by John Conroy,
Robyn Cornford, Ruth Goodwin-Groen, Gilberto Llanto, Paul McGuire, and Sanjay Sinha (Metro Manila, the Philippines: ADB,
2000). It can oen be extremely dicult to nd sucient, accurate economic and nancial data (which may not even be available
at all, much less be conrmable) in Nepal, hence the use of the aged gures here.
60 Using Microfinance to Expand Access to Energy Services
an important position in the rural nance sector. Financial intermediary non-government organizations (FINGOs)
are NGOs that oer nancial services and are licensed by NRB. Savings and credit co-operatives (SACCOS) are
member-owned, -controlled, and -capitalized organizations that provide nancial services to members. ere are
more than 2,400 SACCOS registered with the Co-operative Department in Nepal. ere are also many unregistered
savings and credit groups in Nepal. e vast majority of these grew out of assorted development initiatives.
21

Over the last few years, consolidating the nancial sector and maintaining its stability have been important objectives
of NRB’s monetary policy. To achieve these objectives, various nancial sector reforms, such as strengthening the
inspection and supervisory capacity of the Central Bank, establishing the Debt Recovery Tribunal, strengthening the
Credit Information Centre, etc., have been implemented.
NRB has also played an unusual development role, justied by lack of commercial bank interest in lending in rural areas
and the weakness of the formal micronance sector. As a result, commercial banks are required to invest 3 percent of
their total loan portfolio in the unserved sector. Based on current gures, 17 commercial banks now extend credit to
the poor, and it is estimated that two-thirds of these loans are made by two public commercial banks, NBL and Rash-
triya Banijya Bank.
NRB has directed such micronance-oriented programs as the Intensive Banking Program, which introduced group
guarantee mechanisms in place of formal collateral; and the Production Credit for Rural Women and Microcredit
for Women, which targeted low-income women and were supported by donor agencies (such as IFAD and ADB).
In 1992, NRB introduced the Grameen Bank model in Nepal by establishing ve regional rural development banks,
each operating in a separate development region. NRB also manages the Rural Self-Reliance Fund, established in
1991, which provides wholesale lending to NGOs, co-operatives, and nancial intermediaries.
Various laws regulate MFIs in Nepal: the Nepal Rastra Bank Act (2002), Agriculture Development Act (1967),
Co-operative Act (1972), Finance Company Act (1985), Development Bank Act (1996), Social Welfare Act (1991),
Company Act (1947), Financial Intermediary Act (1998), and the Insurance Act. e micronance sector appears
to be over-regulated, but the reality is just the opposite. It is dicult to regulate MFIs because they have been es-
tablished under dierent acts, each of which may have legislated micronance activities when enacted. e role and
regulation of the dierent nancial institutions in Nepal are detailed in Appendix 6.
4.1.4 Energy Scenario Overview
Energy consumption in scal year (FY) 2004–2005 increased by 1.35 percent to 8,616 TOE, compared to FY
2003–2004, and increased by 3.34 percent to 8,904 TOE in FY 2004–2005. Energy in Nepal is divided into three
categories according to its sources—traditional (86.71 percent), commercial (12.72 percent), and renewable (0.56
percent)—as of FY 2004–2005. Nepal’s energy intensity is 1.28 times Asia’s and 0.92 times the world average, which
indicate the ineciency of Nepal’s energy consumption and impact on economic growth.
22
Electricity consumption in Nepal is among the lowest in Asia, both per capita and per unit of gross national product
(GNP): 186 kWh of electricity was consumed per US $1,000 of GNP. Sector consumption of electricity in Nepal is
38.1 percent in the industrial sector, 37.3 percent in the domestic sector, 6.0 percent in the commercial sector, and
7.8 percent for export. Annual consumption by poor people in rural settings (metered below 5 amperes) is 20 kWh
per capita, and consumption by semi-urban/urban households (metered from 5 to 60 amperes) is 680 kWh.
Electricity prices in Nepal are determined based on the number of units used (1 unit = 1 kWh). On average, the elec-
tricity tari in Nepal (for 20–250 units used) is 5.65 per kWh. e tari per kWh for up to 20 units is NR
23
4 (US$
21. Centre for Micronance (CMF), Bhatbhateni, Kathmandu, Nepal, http://www.cmfnepal.org/mf-nepalp.htm
22. Government of Nepal, Ministry of Finance, “Economic Survey, Fiscal Year 2005/2006.”
23. Exchange rate = 1 USD = 71.088 NR
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 61
0.06), for 21–250 units is NR 7.30 (US$ 0.10), and over 250 units is NR 9.90 (US$ 0.14). Further, the government
applied bulk rate for rural electrication is NR 3.5 per kWh.
24
Currently about 40 percent of Nepal’s total population has access to electricity: 33 percent from the national grid and
7 percent from o-grid systems. With no signicant deposits of fossil fuel, Nepal relies heavily on traditional energy
sources. Less than 3 percent of Nepal’s rural population has access to electricity. e electricity grid is not expected to
reach many of the remote areas in the next 30 years because of the dicult terrain in the Himalayas, long distances,
and low population densities. For the remote areas, the Nepal Electricity Authority (NEA) frequently uses diesel
power stations. Currently NEA has an estimated 55,000 kW from diesel power stations in regular use. Current pros-
pects for extending rural electrication using existing overburdened power sources are not encouraging.
Lighting generally comes from kerosene lamps, and accounts for around 1 percent of rural energy consumption.
Kerosene is a signicant expense for rural households, costing 10–20 percent of a typical family’s earnings.
4.1.5 Renewable Energy Implementation and Facilitators
Renewable energy electricity systems—solar photovoltaic or micro hydro—have provided modest but useful
amounts of electricity to rural villagers. For cooking, thanks to the extensive national program administered by the
Alternative Energy Promotion Centre (AEPC) and implemented by the Biogas Sector Partnership Nepal (BSP),
biogas plants are becoming more popular.
e government of Nepal established the AEPC in 1996 to promote renewable energy technologies, support policy,
administer subsidies, and conduct research. AEPC supports for biogas include (1) a price subsidy of NR 5,000–
11,500 (US$ 69–159) per plant depending on the size and location, which is channeled through biogas companies
approved by BSP; (2) biogas loan funds (EUR 2.5 million) for MFIs at 6 percent per annum for two years (without
collateral) or three years (with collateral); and (3) an additional subsidy for poor consumers.
BSP is an executing agency for AEPC and provides technical support and quality control for biogas implementa-
tion. BSP activities include vendor qualication, technology certication, capacity building, research, marketing and
promotion, quality control, and endorsement of requests for subsidies from biogas companies. At present, 60 biogas
companies have been strengthened and 15 biogas manufacturing companies have been established. e primary ele-
ments fostering the growth of biogas sector players are the technical support and quality control by BSP, availability
of price subsidies from the government channeled via AEPC, and availability of credit for biogas plants from more
than 118 MFIs. e government’s promotion of biogas plants is funded in the state budget and by various grants
(Kreditanstalt für Wiederaufbau, Germany; and DGIS/SNV, the Netherlands). e relationship between the facili-
tating agencies is presented in the form of a ow chart in Figure 4.1.
NRB has recently classied renewable energy technology for lending to the unserved sector. is will enable com-
mercial banks to channel their funds into expanding energy access as their 3-percent lending commitment. NRB
has also increased the microcredit limit per household from US $425 to $715. Winrock International, supported
by USAID and other donors, provides instrumental support for mainstreaming energy nancing by MFIs. Winrock
helps build the capacity of MFIs and facilitates linkages between energy companies and nancial institutions. As a
result of the enabling environment (nancial incentives and technical assistance) instituted by the government (with
support of foreign aid), Nepal’s energy suppliers are growing stronger and improving technical and service standards.
24. Nepal Electricity Authority, http://www.nea.org.np.
62 Using Microfinance to Expand Access to Energy Services
4.2 ORGANIZATIONAL PROFILE
4.2.1 Structure and Operation
Nirdhan Utthan Bank Limited (NUBL) envisions itself as a bank with a social mission of enabling the poor to con-
tribute equally in a prosperous, self-reliant rural society through self-employment and social awareness, and helping
reduce poverty in Nepal. NUBL denes its target market as poor entrepreneurs, particularly women, in unserved
areas of Nepal. NUBL focuses on the bottom 40 percent of the population in Nepal.
NUBL is registered under the Development Bank Act (1996) and has been in operation since November 1998,
although its parent NGO, Nirdhan, began micronance operations in March 1993. NUBL follows a Grameen Bank
methodology and is directly regulated by NRB. It has authority to operate in 10 of 75 districts, and as of 30 Septem-
ber 2006, had 4 area oces, 43 branch oces, and a client base of 75,874 serviced by 2,527 centers.
e functional responsibilities at the head oce have been decentralized into separate departments. Field operations
are conducted through branch oces. Area oces are responsible for monitoring branch oces. As of September
2006, NUBL had a total of 276 sta. NUBL has reasonably sound management and adequate nancial systems for
its program. Although the institutional aspects discussed below are not specic to energy lending, NUBL’s overall
management capacity is a strong predictor of the future performance of its energy lending program.
NUBL has an authorized share capital of NR 50 million (US$ 690,169) and a paid-up share capital of NR 27.4 mil-
lion (US$ 378,212) as of 30 June 2006. All members of its board of directors are prominent ocials from banking
or development elds. e chairman of the board, a former vice chairman of the National Planning Commission,
represents private investors.
CLIENTS
BIOGAS COMPANY
Installation,
User Training,
After Sales Service
Second Disbursement
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MFIs
AEPC
BSP
Figure 4.1 Intervention Model by Sector Facilitators
Source: Field visits during research
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 63
Accounting and Management Information System (MIS): NUBL’s Oracle MIS soware has ve modules (nance,
inventory control, human resource, payroll, and a client data monitoring system). All branches are computerized, and
data is transferred from the branches to the head oce every week. e soware at the branches generates nancial
statements. e MIS can generate reports on sta performance and eciency; overdue payments; ageing analysis;
and member, center, sta, and product portfolio analyses, etc. e head oce also runs detailed branch protability
and sustainability analyses.
Portfolio management: e management has faced problems in maintaining portfolio quality, partially due to the
uncertain external environment (Maoist conict) and partially due to NUBL’s own internal weaknesses. NUBL had
a faulty incentive policy in the past that weakened the focus on client selection and loan appraisal, leading to dete-
rioration of portfolio quality. e incentive policy was revised in July 2006 to include quality indicators. As of 30
June 2006, NUBL’s PAR greater than 60 days was 10 percent. Its new but small energy portfolio had a 100-percent
repayment rate.
Business planning and nancial management: NUBL’s nancial planning capacity is reasonable and quite participa-
tive. e head oce, branches, and area oces nalize the nancial plan in line with the bank’s overall vision. At the
suggestion of Winrock Nepal, NUBL set a conservative target of 204 biogas loans by 15 July 2007. It is still some-
what unsure of the potential of biogas loans and has decided to go slow with biogas disbursements. Cash planning is
done at both the head oce and the area oces. NUBL has also introduced a system of budgetary control whereby
the expenses of the branches are linked to their respective incomes. Each branch is treated as a prot center.
Internal audit: e internal audit department has a team of four sta members. In addition to surprise audits, the
team audits older branches twice a year and new branches once a year. e audit department is understaed for the
current scale of operation, so audit frequency is inadequate at present. NUBL has had several cases of fraud in the
past. To minimize such instances, it introduced control measures, such as rotating eld ocers through its eld cen-
ters every year, and enforcing compulsory home leave of 10 days per year for branch sta.
4.2.2 Funding Sources
NUBL’s funding sources are shareholder’s equity, client savings, borrowings, and grants. It borrows from commercial
banks, micronance apex institution (RMDC), and NRB at a commercial interest rate as the primary sources for
funding operations.
4.3 ENERGY LOAN PORTFOLIO
4.3.1 Model and Methodology
NUBL mostly follows Grameen methodology. In principle, as an MFI, NUBL prefers to provide loans for income
generation. However, it oers several loan products for other purposes—housing, education, emergencies, etc.—al-
though these are only available to existing clients who have demonstrated several cycles of good credit discipline
and repayment capacity. Financial transactions are conducted through “centers” comprised of 6–8 groups with ve
members each. e loans disbursed through centers do not require physical collateral, whereas individual loans, such
as microenterprise loans, are provided only if the client can produce physical collateral. e energy loans disbursed
so far have been through the centers with two-year terms and no collateral requirement. As of now, NUBL’s energy
program only oers loans for biogas plant installations.
64 Using Microfinance to Expand Access to Energy Services
Table 4.1 Differences between NUBL’s Non-Energy and Energy Loans
PARAMETERS NON-ENERGY LOAN ENERGY LOAN
Income and non-income generating loans Biogas loan
Loan period 0.5–6 years Up to 2 years (without collateral) and 2–5 years
(with collateral)
Interest rate 18–20% declining p.a. 16% declining p.a.
Grace period One month Up to 3 months
Loan size First loan (general loan): Maximum NR 15,000
(US$ 207)
Up to NR 40,000 (without collateral, US$ 552)
NR 40,000–100,000 (with collateral, US$
552–1,380)
NR 15,000 (US$ 207)
Equity requirement Not required Minimum 20% (cash or in-kind)
Other features Can have two parallel non-energy loan products Biogas loan is the only exception that can be
taken as a third parallel loan
Appraisal Field officer, sample verification by branch manager Cost estimates/price quotation by biogas com-
pany, loan appraisal by field officer, complete
verification by branch manager
Approval Up to NR 15,000 (US$ 207) by branch manager
NR 15,000 to 40,000 (US$ 207–552) by area
manager
Above NR 40,000 (US$ 552) by head office
Branch manager
Disbursement To client First phase: Client
Second phase: Biogas company
Collection By field officer in center meeting By field officer in center meeting
e interest on an energy loan is lower than any other NUBL loan product. NUBL allows parallel loans, which
means that clients can have two dierent loans at the same time, as long as the total outstanding loan does not exceed
NR 40,000 (US$ 552). It is worth noting that although clients cannot take out a third non-energy loan, they can ob-
tain an energy loan as a third parallel loan, in which case the maximum outstanding loan amount rises to NR 55,000
(US$ 759).
e biogas loan at NUBL is considered a non-income generating loan for two reasons. One, implementation of
NUBL’s biogas loan is channeled through the national biogas program, which promotes domestic-scale biogas plants.
Two, the program aims to substitute the biogas plant for rewood, kerosene, and LPG as the baseline energy source
for cooking, which is not an income-generating activity. NUBL provides energy access only to clients who have suc-
cessfully repaid at least two general loans. Although there is no dierence in the amount of an initial general loan and
a biogas loan (NR 15,000 [US$ 207])—implying no additional credit risk—this policy was adopted to ensure that
energy loans (consumption loans) are only available to clients with good credit histories. e other prerequisites for
energy loans include presence of adequate land and cattle and construction of the plant.
Dierences observed in the energy loan appraisal mechanism demonstrate the need for standardizing loan proce-
dures. e other main dierence lies in the disbursement mechanism. A biogas loan is released in two installments.
e rst installment of around NR 10,000 (US$ 138) is paid to the client to purchase equipment, materials, labor,
etc. Aer successful completion of construction, the balance of NR 5,000 (US$ 69) is disbursed to the company, but
only aer the client signs a plant completion report at the branch oce.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 65
Should actual expenses by the biogas company be less than NR 5,000 (US$ 69), the balance is paid to the client. e
client repays the loan to NUBL in center meetings either on a weekly or fortnightly basis.
4.3.2 Relationship of NUBL, Biogas Companies, and Clients
Nepal has more than 60 registered biogas companies handling biogas plant installation, and at the time of eld
research, NUBL was working with 12 of them. Currently, NUBL provides price quotations from the dierent com-
panies to the client, appraises the loan request, provides credit to clients, and disseminates information to clients in
center meetings. It has made an eort to establish and improve co-ordination with the biogas companies. ey, on
the other hand, assess the feasibility of installing the biogas plant at the client’s house, provide cost estimates, con-
struct the biogas plant, train the client on the operation and maintenance of the plant (a day of formal training with
brief descriptions of biogas plant, maintenance, repairs, etc.), and provide aer-sale service. ere is a three-year war-
ranty with free service; aer that the vendor charges for the cost of equipment/appliance replaced. e companies
also provide a detailed user manual to the client with their contact details.
As of now, NUBL has not signed any MOUs with the biogas companies to dene the roles and responsibilities of
each party. Neither NUBL nor the companies understand each other’s operation and overlook the potential of col-
laborating to provide energy access to the rural poor.
4.3.3 Characteristics
us far, NUBL provides energy loans only for biogas plants, a proven technology with easy installation, operation,
and maintenance. In general, the prole of biogas plants nanced by NUBL follows the standards established by BSP,
both in terms of product quality as well as service quality (user training and aer-sale service). e typical size or
capacity of biogas plants implemented in Nepal for domestic use is 4 m
3
, 6 m
3
, 8 m
3
, and 10 m
3
.
Subsidy: To promote nationwide utilization of biogas in Nepal, the government (through AEPC) provides a price
subsidy of NR 5,000–11,500 (US$ 69–159) per plant, depending on the size and location. e subsidy constitutes
25–45 percent of the total biogas plant cost and is available to all households installing biogas plants, regardless of in-
come level. In addition, the government recently introduced an additional subsidy for poor households (also targeted
by MFIs), to oset their general inability to aord biogas plants. Even with this additional subsidy, poor households
CLIENTS
Loan Application
1
2
COMPANY CENTERS
Installation, User Training
Cost Estimates
Disbursement of Loan
Amount Balance (if any)
Loan Appraisal
Disbursement of Company's
Payment (Post Completion Report)
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66 Using Microfinance to Expand Access to Energy Services
still pay 25–40 percent of the cost of a biogas plant. e price subsidies are channeled by AEPC through biogas
companies approved by BSP. Biogas companies certied with “good grades” are entitled to a 25-percent advance of
the subsidy, with the remainder paid upon completion of installation and user training. Some of the subsidy, NR 600
(US$ 8), is held back to ensure that mandatory aer-sale service visits are carried out for two years (at least one visit
per year).
Pricing and cost structure: As shown in Table 4.2, price quotations are based on plant capacity and geographical lo-
cation in Nepal, e.g., terai (low land), hill, and remote hill. e subsidy amounts in the table apply to all households.
For the most poor, the additional subsidy drops the price to 25–40 percent of market price.
Table 4.2 Cost, Subsidy, and Labor Cost for Biogas Plants and Credit Needed
PLANT LOCATION
4 m
3
6 m
3
8 m
3
10 m
3
Terai Hill
Remote
hill
Terai Hill
Remote
hill
Terai Hill
Remote
hill
Terai Hill
Remote
hill
Total cost 272 301 347 308 340 390 378 416 479 417 457 528
Subsidy 77 120 162 77 120 162 70 113 155 70 113 155
Labor contribution 21 21 21 28 28 28 32 32 32 35 35 35
Loan amount needed
(Total cost minus sub-
sidy and labor, in NR)
174 161 164 203 192 200 275 270 292 311 309 337
Source: Nepal Biogas Promotion Group.
Client prole: At the time of the eld visit, NUBL had no statistics from which to analyze the income prole,
amount, and patterns of their biogas loan clients. e 15 clients interviewed during the eld visit were mostly dairy
or vegetable farmers. eir income patterns varied from daily to monthly to seasonal, and their average income range
was NR 2,500–12,000 (US$ 34–166) per month. Indeed, typical clients for biogas loans are farmers with cattle,
mostly living in lowland areas of Nepal (where most of the population farms), with some small businesses (groceries,
salons, etc.).
During the eld visit, it was obvious that energy for cooking and lighting is the highest priority for NUBL clients.
In Nepal, biogas is used mainly for cooking (80 percent) and lighting (20 percent),
25
so its adoption mostly relates
to women, who make up the majority of NUBL energy clients. Baseline energy expenditure is NR 150–1,000 (US$
2–14) per month for kerosene, fuelwood, and LPG. In general, clients seemed satised with the performance of their
biogas plants.
Market potential: BSP estimates that the potential market for domestic biogas plants can be 1.9 million-plus, but
thus far only about 160,000 units have been installed. Further, with more than 75,000 clients, 50 percent of whom
have taken cattle loans, NUBL has a large client base for expanding biogas lending.
Maturity of the supply side: Any MFI in Nepal oering biogas loans benets from the strong government control
of biogas companies, whose certication and grading by BSP set high standards for quality of products and services.
Company certication and grading is based on aer-sale service, number of plants installed, few-to-no penalizations,
no defects, etc. Only accredited biogas companies can channel the biogas subsidy. Currently the 60 biogas companies
approved under BSP have more than 200 sales and services points across Nepal.
25. Other uses of biogas in Nepal include refrigeration, engine operation, and electricity generation. e by-product of biogas plants is
called “slurry” and is valued as a superior fertilizer. e fertilizer is safe for crop and vegetable production as well as feed for sh.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 67
4.3.4 Energy Service Companies
To date, NUBL has collaborated with 12 of the 60 BSP-approved biogas companies which construct, market, install,
and provide guarantees for the biodigesters. ese companies include Triveni Biogas Company Ltd., Neelkamal
Biogas Company Ltd., Rastriya Biogas and Construction Service Ltd., and Biogas and Energy Development Com-
pany Ltd. However, because of the strong BSP-quality control compliance by these companies, NUBL has not signed
specic MOUs to manage the performance of these companies.
4.3.5 Administration and Management
As of now, NUBL does not have a separate energy division or separate sta to manage its energy lending. Energy
lending is administered by the planning and monitoring department of NUBL, and is treated like any other loan
product it oers. Since the number of energy loans is still small (i.e., only 65 clients), it does not have separate ac-
counting and MIS. However, the current soware is able to analyze the portfolio quality and loan details of just the
energy loans.
Some of the measures introduced specically for the energy program include obtaining cost estimates from each
company for plant construction and having the client certify that plant installation is made (without which payment
is not released to the company).
All NUBL branch sta members, including 125 loan ocers, have attended training on biogas technology and bio-
gas loans jointly organized by NUBL and Winrock.
4.3.6 Financial Analysis
e energy portfolio of NUBL was very small at the time of the eld visit, comprising only 65 biogas loans with a
total disbursed value of NR 975,000 (US$ 13,458) and 100-percent repayment. Moreover, NUBL’s policy of giving
energy loans only to clients with two successful general loans (non-energy) has ensured a good repayment record.
4.3.7 Impact Analysis
e energy clients of MFIs have demonstrated that poor households can aord biogas plants at the subsidized prices
and benet from them. All clients interviewed during the eld research expressed their satisfaction and have ben-
eted in a number of ways. Biogas users claimed they save between NR 150–1,000 (US$ 2–14) per month on energy
costs (kerosene, fuelwood, and LPG), medicines (eye-drops and hand lotions), and soap for cleaning utensils.
Use of biogas plants helps reduce drudgery, especially for those whose baseline energy source for cooking is fuelwood.
Clients felt that use of biogas reduced the time required to collect fuelwood, cook, and clean utensils and kitchen,
beneting them directly. e time saved is being utilized for income-generating activities, child caring, socializing,
and resting.
Using biogas helps create a smoke-free indoor environment, which traditionally has inicted most rural women and
children with eye, respiratory, and skin problems (from indoor res). Since most of the biogas plants have also been
connected to the toilet, it has helped improve sanitation.
e slurry that emerges at the end of the biogas process is a high-nutrient organic fertilizer which surpasses farmyard
fertilizer and replaces need for chemical fertilizers (saving money). e slurry gives higher yields and can increase
crop production, thereby augmenting income. Although the women could not provide any monetary estimates, they
claimed that the production had improved with the use of slurry in the eld.
68 Using Microfinance to Expand Access to Energy Services
4.4฀ D!5CU55!DN-NUBL
4.4.1 Highlights and Challenges of NUBL’s Energy Lending Model
Highlights
- e biggest strength of NUBL’s energy lending model is the presence of all key energy players—BSP,
AEPC, Winrock, and biogas companies. ey perform their vital roles well, and with the support from
the Nepal government, serve as the main pillars for expanding energy access through biogas.
- ăe biogas technology adopted in Nepal is simple, proen, and locally manufactured. Unlike in other
countries, this makes the job of MFIs in Nepal easier because the technical risk involved in nancing
biogas is very low.
- With its highly-regarded reputation in Nepal for sourcing wholesale funds and its large client base of
over 75,000 clients in 2,500 centers across 10 districts, NUBL can easily bridge the credit gap to meet the
energy needs of its clients with its nancing scheme for biogas plants. Since 50 percent of its loan portfo-
lio is for livestock purchases, NUBL has a broad existing base for its energy lending.
- AEPC subsidizes the installation of biogas plants. is brings down the eective cost of installation for
the client and has been instrumental in establishing biogas plants across the country on a wide scale.
- NUBL has a strong competitive edge, compared to Agricultural Development Bank Limited (ADBL)
and regional Grameen Banks, because its biogas loans are non-collateralized, have a two-year term, and are
processed quickly. Although ADBL charges a lower interest rate than NUBL, interviews with clients and
overall discussions revealed that clients were more sensitive to other loan features (amount of loan, ease of
access, and collateral requirement) than to the interest rate.
- NUBL has a favorable loan policy that permits a biogas loan as a parallel loan to two other loans. is
facility enables potential clients without sucient biogas feedstock to obtain cattle loans or sanitation
loans to complement the biogas loan.
Table 4.3 Comparison of Biogas Loans by Various Financing Institutions
LOAN SIZE MAXIMUM 15,000 MAXIMUM 20,000 MAXIMUM 20,000 MAXIMUM 22,000
Interest Rate 16% 11% 15% + 1% upfront charge 15%
Loan Period 2–5 years 5 years 2–2.5 years 18 months
Target Clients 2-yrs old member not limited member & non member
Repayment Period weekly & fortnightly quarterly monthly
quarterly (with
monthly option)
Parallel Loans
Policy
biogas loan + addt’l
loan of 40K
yes, upon availability
of sufficient collateral
parallel loan to HH under
diff name
not applicable
Collateral
Requirement
apply for over 2 yrs loan
term (accounted 50%)
collateral collateral (accounted 40%) no collateral
# Installed Plants 65 over 110,000 plants data not available data not available
Challenges
- Agricultural Development Bank Ltd. (ADBL) is the leading đnance institution oĈering biogas loans in
Nepal. However, due to political conict (Maoist movement), it was forced to pull its operations out of
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 69
rural areas and restrict itself to districts. Although it still oers nancing in rural areas, ADBL’s ow of
credit in rural areas has been reduced. MFIs such as NUBL are lling the gap by nancing biogas plants
to expand access to energy. However, based on the estimates provided by BSP, there still exists a huge gap
between the demand and supply of biogas installations in Nepal.
- Even with a conducive environment for biogas lending, a reasonable client base, and clear beneđts that
biogas provides to clients, overall disbursement by NUBL for biogas energy loans has been very slow.
Discussions with various stakeholders during the eld research indicated various gaps and weaknesses in
the current energy landscape that have resulted in this slow growth.
- Biogas companies poorly understand micronance operations, and MFIs are equally uninformed about
the demands of energy services, which have resulted in weak co-ordination and co-operation.
- For biogas loans to take oĈ, the energy market players need to inest in marketing and client educa-
tion. NUBL feels this is the responsibility of biogas companies and that it deviates from its core business
of nancing. e biogas companies, on the other hand, feel that it is a service that they ought to oer
to NUBL clients, and that they should invest in market education. However, neither NUBL nor biogas
companies has dedicated budget or sta resources to promote biogas loans or market education.
- Biogas companies have worked with ADBL for a long time, and their staĈ has become accustomed to
targeting individual clients. NUBL has centers—where on average 30 members meet every week at a
predened date, time, and place—but the biogas companies have not made use of NUBL’s network of
centers. As marketing channels, the centers could reduce time and cost of marketing and generate more
business. A general lack of skills, condence, and resistance to change seems to be a hindrance.
- Client feedback during the đeld research revealed that clients thought the loan ceiling for NUBL bio-
gas loans was too low (NR 15,000 [US$ 207]), compared to other nance institutions, and should be
raised. In addition, clients felt that the minimum two-year membership criteria should be removed. Since
NUBL provides credit only to clients with proven creditworthiness, new clients must wait for a long time
before they can access biogas loans, despite their repayment capacity.
- Perhaps because the biogas loan is new, NUBL’s lending processes were not standardized in the two
branches visited. Standardization of processes will help NUBL scale up.
Table 4.4 Stakeholders’ Perceptions of NUBL Energy Loan
PARAMETERS PERCEPTIONS
MFI (NUBL) Clients Company
Client eligibility 2-year membership New clients should be eligible based
on repayment capacity
MFI should finance members and
non-members
Loan size Adequate Should be raised to NR 20,000
(US$ 276)
Should be raised to NR 20,000
(US$ 276)
Interest rate Lower than other products Not an issue Too high
Loan period Acceptable Only a few clients interviewed
preferred a 3-year term (non-col-
lateralized); most were satisfied with
2-year term
Want longer term of up to 5 years
without collateral
Repayment period Acceptable Acceptable Should be monthly instead of weekly
70 Using Microfinance to Expand Access to Energy Services
4.4.2 Obstacles and Barriers
- NUBL and the biogas companies have dierent perceptions of client needs, which prevent them om
co-ordinating and co-operating with each other. Biogas companies need to understand micronance
operations and the legal limitations under which MFIs operate. MFIs have high operational costs and
cannot oer loans at the interest rates expected by the biogas companies. Clients did not nd interest
rate charged by NUBL to be too high because the alternative sources of credit (informal sources, such as
moneylenders, etc.) available to them are usually much more expensive. For clients, adequate and timely
availability of credit and convenience is more important than the interest rate. Other beliefs held by the
biogas companies, such as a need for a ve-year loan term and monthly loan repayment, were also found
to be baseless. With support from Winrock, NUBL has approached biogas companies several times (in-
vited them to center meetings, organized workshops with senior management, etc.), but their eorts have
not been successful so far. e perception by biogas companies that micronance is not suitable for rural
clients poses a signicant barrier for NUBL.
- NUBL is not completely certain of the potential of energy lending or the sustainability of its biogas loan
product,
26
and it lacks technical understanding of the energy sector, although its existing energy product
has been growing well. On the other hand, most biogas companies at their present scale of operation
seemed to be getting business either through cash payments or a nance facility (such as ADBL), lack
vision to expand into the untapped market, feel micronance is too expensive and not well designed well
for rural clients, and wonder why MFIs like NUBL do not lend to non-members.
- Biogas companies in Nepal have weak market inastructure. e companies sell door-to-door and at
times hire agents to attract new clients. However, none of these companies has any budget detailed for
promotion and marketing, and they feel more comfortable with traditional marketing practices.
- Channeling wholesale funds is not a barrier for NUBL, which has its own funds for energy lending, but it
should be noted that many MFIs nancing biogas in Nepal cannot rely on timely availability of whole-
sale funds. Almost two-thirds of AEPC’s funds are lying idle because its procedures for selecting, approv-
ing, and disbursing funds to MFIs are lengthy, and then funds are oen delayed, which discourages MFIs
from borrowing from AEPC.
4.4.3 Key Lessons Learned
Favorable goernment policy enironment. Nepal has huge biogas potential that is still untapped and the govern-
ment is clearly inclined to promote biogas in rural areas, making the overall policy environment favorable. e
presence of BSP reduces the technical risks and transaction costs for institutions nancing biogas in Nepal. Biogas
subsidies are linked to quality that ensures that the benet trickles down to the client and that funds are used e-
ciently. Biogas technology is also simple, proven, and mostly manufactured locally, which helps make expansion easy.
Necessity of co-ordination between stakeholders. Despite a favorable policy environment, an energy-lending model
may not take o if there is little co-ordination between dierent stakeholders, such as the case with NUBL and
Nepal’s biogas companies. is clearly reects the need to build both capacity and awareness among energy and mi-
cronance actors about each other’s operations and the potential benets of partnership.
26. Interestingly, two contrasting views on energy loans were heard from the two NUBL branches visited. Sta of one branch felt that
biogas loans were an additional burden because they required technical knowledge and needed promotion and marketing. e
second branch felt that biogas loans had good potential and were much easier to make than animal husbandry loans, (e.g., risk of
cattle dying, etc.), because the risk was lower, thanks to the strong quality control enforced by BSP.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 71
Market and client education. Not educating the target market can thwart attempts to scale up energy lending.
Market education requires a huge investment and cannot be accomplished without participation by all stakeholders.
ere needs to be mutual understanding and clear demarcation of roles and responsibilities between the companies
and MFIs. Educating clients is a win-win situation for all: MFIs can provide a value-added service to their clients
as part of their core business, energy companies can reach lower economic segments that are still untapped, and the
government can deliver alternative energy solutions to rural households to fulll its mandate.
Ecient delivery of wholesale funds. It is important to have wholesale funds in place and an ecient system to
channel those funds to MFIs to expand energy access. Although AEPC has funds, they are not being disbursed due
to bureaucratic procedures that cause sub-optimal utilization. Even funds for unserved sector lending are not avail-
able to all MFIs because the commercial banks are not comfortable lending to most MFIs, thus reducing the scope of
nancing alternative energy solutions on a wide scale.
4.4.4 Opportunities for Country Scale-Up and Regional Replication
Enhance stakeholder co-ordination through trainings, interactive workshops, and meetings between MFIs and
biogas companies inoling dierent levels of sta: e past workshops and meetings held between NUBL and bio-
gas companies were not enough to build eective awareness and coordination because the meetings were limited to
senior management and did not involve operational and eld sta. Technical support provided by BSP and Winrock
can be used for this purpose. Donor support for capacity building would be very useful to various stakeholders.
Develop a mechanism for client education through joint initiatives between MFIs and biogas companies. Biogas
companies should piggyback on the existing infrastructure of MFIs, such as NUBL, to reduce their transaction costs
and expand business. By using NUBL centers, biogas companies can reach more clients in less time, and NUBL can
disseminate information about their energy loan product and biogas companies at center meetings. Inviting new
clients to visit existing biogas clients can be an eective promotional tool.
Designate a separate department or sta in the head oce to oversee the expansion of biogas loans. is should be
considered by NUBL and other MFIs. Moreover, instead of eld ocers assuming full responsibility for promoting
and marketing biogas loans, agents can be hired (as is sometimes done by biogas companies) on commission to pro-
mote the product. e agent would get the commission only when the loan is approved and disbursed by the MFI.
e agent’s commission can either be paid by the company or jointly by NUBL and company. e cost of commis-
sion can be built in the interest rate structure of biogas loan.
Design a scalable product or add it to an existing product. When client feedback revealed that the amount and
timely availability of credit was more important than a lower interest rate, NUBL should consider charging an
interest rate at par with the other credit products to build in the initial expansion, promotion, and marketing costs.
NUBL should also reconsider its two-year eligibility condition that has restricted new members from accessing
the loan. Similarly, since all stakeholders felt that the loan limit of NR 15,000 (US$ 207) was to low and should be
increased to NR 20,000 (US$ 276), NUBL needs to revisit its product design and even conduct an in-house survey
to make its product more scalable.
Develop an innoative nancing mechanism. It is clear that biogas loan clients require loans with terms of at least
two to three years. However, the funds usually available to MFIs from commercial sources are on a one-year basis.
is mismatch of asset liability is a problem unless the MFI can mobilize funds for longer terms. erefore, provision
of wholesale funds must be in line with the energy loan product design, or some other innovative nancing mecha-
nisms should be put in place, such as pre-nancing longer-term loans (Figure 4.4), providing credit guarantees, and
employing loan loss reserve funds, etc., to make the energy lending more attractive and feasible for MFIs. Although
AEPC funds have been designed with the biogas loan product in mind and have a two-to-three-year repayment
period, inecient disbursement procedures have kept MFIs from taking advantage of these funds.
72 Using Microfinance to Expand Access to Energy Services
Pursue product and market innoation. Since biogas plants are appropriate only for farming populations, NUBL
need to explore other renewable energy technologies for the urban and peri-urban clients in its 75,000-plus client
base. It should also consider dierent market segments based on the existing businesses and enterprises of its loan
clients—beyond households and consumption—to further scale up its energy lending program. Financing energy op-
tions for productive use and income-generating activities (solar driers, biomass generation to operate machinery) and
other energy enterprises (battery-charging stations, electricity service enterprises) is an obvious next step. Due to the
lack of technical knowledge about renewable energy, external support from the government (AEPC), donor institu-
tions, and NGOs (i.e., Winrock) is crucial.
Importance of national-scale support. BSP has played a remarkable role in accelerating the utilization of biogas
systems for domestic purposes in Nepal. BSP has helped the country create strong market players and helped nancing
institution minimize the potential technical risks associated with the performance of the biogas company. BSP-like
support is needed for replication in other countries if the energy industry is not mature, the number and quality of
reliable energy suppliers are limited, and the nancing institutions lack technical knowledge to develop strategies to
mitigate technical risks.
Figure 4.3 Proposed Scale-Up Model of a NUBL Energy Loan
MARKETING
AGENTS
NUBL
MEMBERS
N
U
B
L
COMPANIES
CENTERS
Second
Disbursement
Promotion Fee
per Installation
Information Exchange
Installation,
User Training,
After Sales Service
Information
Dissemination
Loan Appraisal
First Disbursement Transfer
Information
Channeling
Transfer of promotion fee Solicit new Biogas clients
Loan Repayment
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 73
CHAPTEP฀5฀º฀AMPET-CAMBDD!A
5.1 CAMBODIA COUNTRY CONTEXT
5.1.1 Socio-economic Environment
Cambodia’s social and economic infrastructure has suered severely through long years of invasions and war. e
process of restoring peace began in 1991, but relatively peaceful elections were not possible until July 2003. Econom-
ic reforms in Cambodia started in 1999, and from 2001 to 2004, the economy grew at an average rate of 6.4 percent,
driven largely by an expansion in the garment sector and tourism. However, long-term development of the economy
remains a daunting challenge. e population lacks education and productive skills, particularly in the poverty-rid-
den countryside, which suers from an almost total lack of basic infrastructure. About 74 percent of the population
remains fully engaged in subsistence farming, yet the contribution of agriculture to GDP is only 35 percent. Today,
Cambodia is one of the poorest countries in the region: 36 percent of its 13.8 million citizens live below the national
poverty line. Furthermore, a weak social infrastructure—as evident by Cambodia’s rank of 130 of 175 in the UNDP
2003 Human Development Index—means that gender inequality, rural-urban regional disparities, and poor health
facilities continue to be signicant hindrances to development.
5.1.2 Banking Sector Overview and Key Financial Indicators
e nancial and banking sector was destroyed by the Khmer Rouge, which abolished money for a number of years.
In the 1990s, Cambodia’s banking sector went from a single public bank to a two-tiered public banking system that
separated the functions of the Central Bank from the commercial banks. e Royal Government of Cambodia intro-
duced banking regulations in 1999 and a bank-restructuring program in 2000, which liquidated a number of non-vi-
able banks. Today, 17 banks remain in operation: 1 state-owned bank, 3 foreign bank branches, 10 local banks, and
3 specialized banks (one of which is state-owned). e government has liberalized interest rates, established reserve
requirements, capped the total exposure allowed to any one individual or client, and capped bank positions in foreign
currency as a percent of the bank’s net worth.
e total assets of banking sector almost doubled from 2001 (KHR 2.9 million, US$ 723) to 2005 (KHR 5.5 mil-
lion, US$ 1,370). However, more than 52 percent of these assets are in the form of cash, loans, and deposits with the
National Bank of Cambodia (NBC) and other banks, and only 30–45 percent is with non-bank customers as loans
and advances. e liquidity ratio of banks was much higher, at 120 percent in 2005, than the required minimum of
50 percent by prakas.
27
e banking sector has shown a strong capital adequacy in compliance with the regulation
requiring a solvency ratio of 15 percent. e banks had a solvency ratio of 27 percent and equity-to-total-assets ratio
of 22.3 percent in 2005. e ratio of non-performing loans to total assets peaked in 2002 at 5 percent and declined to
3 percent in 2005. e proportion of loan exposure in agriculture has remained stagnant at 2–3 percent from 2002
to 2005, despite the fact that 74 percent of the population is engaged in farming. Most loans are in the service sector
(33 percent), wholesale and retail (21.5 percent), and manufacturing (10 percent), reecting a weak exposure in rural
areas. Return-on-equity (ROE) has grown rapidly from 1.7 percent in 2001 to 7.8 percent in 2005. Return-on-assets
(ROA) also increased from 0.5 percent to 1.7 percent during the same period. Despite such improvements, prot-
27. A regulation issued by a minister or by the governor of the National Bank of Cambodia concerning banking or nancial issues.
74 Using Microfinance to Expand Access to Energy Services
ability of the banks is globally weak, as ROA and ROE remain low.
Cambodia’s nancial sector is still at a rudimentary stage: the number of commercial banks (15) is limited and they
are eectively non-existent outside the capital. With the exception of ACLEDA Bank (commercial bank), the Rural
Development Bank (one of four specialized banks), and to some extent, Canadia Bank (commercial bank), formal
banks do not yet serve the poor. In this context, micronance institutions and the informal nancial sector have been
the de facto providers of nancial services in rural areas, albeit concentrating mainly on rural credit. Currently there
are at least 100 registered and unregistered lending bodies serving rural Cambodia, including 16 licensed micronance
institutions and 24 registered rural credit operators. e nine major players in the micronance market in Cambodia
serve over 95 percent of the formal sector market. One is a commercial bank and eight are MFIs licensed by NBC.
5.1.3 Financial Sector Regulation
e Royal Government of Cambodia adopted a nancial sector plan for 2001–2010 in August 2001. e plan aims
to develop a sound market-based nancial system by promoting competition and encouraging private players to
support resource mobilization and broad-based sustainable economic growth, and thus establish a framework for su-
pervision and upgraded prudential regulation. It anticipates that the nancial sector’s ratio of nancial assets to gross
domestic product will at least double in 10 years, and that the spread between loan and deposit rates will narrow as
intermediation becomes more ecient.
As part of the rst phase of the nancial sector plan, the government has adopted the Rural Credit Policy to develop
an eective rural nancial system, and has initiated the Rural Credit and Savings Project and Technical Assistance for
Capacity Building for Rural Financial Services. Its policy measures include:
- introducing a provision in the banking law that enables eligible NGOs and other rural đnance service
providers to become regulated licensed MFIs;
- creating a microđnance supervision department within NBC to conduct oĈ-site and on-site inspections
of licensed MFIs and a specialized team to monitor the nancial activities of NGOs;
- establishing the Rural Development Bank (RDB) as an apex institution to provide đnancing for MFIs
and commercial banks and to extend technical support and training to MFIs; and
- enhancing collaboration among the government, NBC, and NGOs to promote sustainable rural đnance.
Phase II of nancial sector plan calls for:
- establishing a range of service institutions and organizations (legal provisions would be created to support
the establishment of venture capital funds and equity funds);
- promoting innovative pilot microđnance projects; and
- introducing safety nets to reduce risks and vulnerability through insurance services.
Phase III will review, consolidate, and further strengthen all the measures undertaken to that point.
5.1.4 Microfinance Sector Regulation
e National Bank of Cambodia is responsible for regulating and supervising micronance in Cambodia. NBC pro-
motes rural nance by monitoring the soundness and sustainability of micronance institutions, building up public
condence, protecting small depositors, and endorsing good governance. In terms of supervision, NBC conducts o-
site and on-site inspections, monitors MFIs and the programs they implement, promotes appropriate credit policies
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 75
and procedures by MFIs, and makes recommendations. e NBC has also been delegated the authority to regulate,
supervise, license, and revoke licenses of MFIs; issue prudential regulations; and strengthen supervisory capacity.
e Law on Banking and Financial Institutions (enacted November 1999), and the government decree, or prakas, for
implementation (enacted in early 2000) recognizes three categories of banking institutions:
- Commercial banks, which require a minimum registered capital of US$ 13 million, can carry out all
banking activities.
- Specialized banks, which require a minimum registered capital of KHR 10 billion (US$ 2.5 million), can
carry out a limited number of banking activities, as specied in the terms of their license.
- MFIs, which are required to be incorporated as a limited liability company or as a co-operative, require a
minimum registered capital of KHR 250 million (approximately US$ 62,500).
Registration or licensing of MFIs by NBC is compulsory when operators meet one or more of the conditions in
Table 5.1. In other words, NBC licenses medium-sized MFIs and registers small MFIs.
Table 5.1 National Bank of Cambodia’s Mandatory Conditions for MFIs
IF ENGAGED IN REGISTRATION BY NBC LICENSING BY NBC
Credit Loan portfolio outstanding:
> KHR 100 million (US$ 25,000)
Loan portfolio outstanding:
> KHR 1 billion (US$ 250,000) or > 1,000 borrowers
Savings Voluntary savings mobilized:
> KHR 1 million (US$ 250) or > 100 depositors
Voluntary savings mobilized:
> KHR 100 million (US$ 25,000) or > 1,000 depositors
5.2 ENERGY SECTOR OVERVIEW
5.2.1 Energy Access and Consumption
Per capita energy consumption in Cambodia (55kWh per capita, 14 percent of GDP) is one of the lowest among the
developing countries and even the world. is can be partly attributed to the high price of electricity and a low per
capita gross national income of US$ 300. In 2001, it was only 14 kilogram (kg) of oil equivalent per capita (com- In 2001, it was only 14 kilogram (kg) of oil equivalent per capita (com-
pared to the world average of 1,692 kg of oil equivalent per capita).
Cambodia has few exploitable energy sources other than biomass. Wood and other biomass account for 85.06 per- d and other biomass account for 85.06 per- account for 85.06 per-
cent of the total national energy consumption. Its natural forests, the main source of fuel wood, have been severely
depleted due to widespread logging and forestland conversion. (Fuelwood and charcoal together represent about
96.3 percent of all cooking fuel consumed in Cambodia.) Fossil fuels, mainly diesel and heavy oil, are imported for
electricity production and transportation. Wood-based energy consumption is mainly in the household sector, which
consumes about 79,906 TJ (terajoules). Rural households consume 74,449 TJ and urban households, 5,457 TJ.
Only 17 percent of the population has continuous access to electricity via a reliable public grid, mostly in Phnom
Penh. For the rural population—83 percent of Cambodia’s total population—less than 13 percent have access to
“grid-quality” power, although an increasing number have access to either private part-time mini-grids or battery-
charging services. It has been estimated that there are 600–1000 rural electricity enterprises (REEs) that supply vari-
ous power services in rural areas to approximately 60,000 households.
28

28. SME Cambodia, “Renewable Energy and Electrication study, 2003,” found on the Cambodia Renewable Energy and Rural
Electrication website, “Reports and Papers,” www.recambodia.org/rpree.htm.
76 Using Microfinance to Expand Access to Energy Services
Table 5.2 Current Lighting Sources and Consumption in Rural Areas in Cambodia
Lead acid batteries 55%
Dry cell batteries 24%
Other (candles) 12%
REE grid 4%
Small generator 3%
EDC grid 2%
e electricity prices in Cambodia are the highest in Asia, and some of the highest in the world, due partly to the
heavy use of old small generators, reliance on imported diesel fuel, and signicant losses from low-quality medium-
voltage distribution systems. Electricity cost is US$ 0.14/kWh in EDC’s grid (Electricité du Cambodge
29
) and US$
0.30–0.92 per kWh in rural areas served by REEs.
5.2.2 Renewable Energy Implementation
Renewable energy implementations in Cambodia are still dominated by government and donor-driven projects.
e retail market for renewable energy is at a premature stage compared to other countries in this report (India, Sri
Lanka, and Nepal). e Ministry of Industry, Mines, and Energy (MIME) has made a rm commitment to promote
renewable energy to meet the country’s energy need. ese renewable energy projects include solar photovoltaic
systems, biomass co-generation, biodigester plants, biogasier plants, hydropower plants, and wind power plants.
e use of photovoltaic systems in Cambodia began with a few installations donated by United Nations Children’s
Fund (UNICEF), the Red Cross, La Fondation Énergies pour le Monde (FONDEM), NEDO, EBARA, and other
NGOs. Specic installation gures of photovoltaic are listed in Table 5.3.
Table 5.3 Photovoltaic Installations in Cambodia, 1997–2004
APPLICATIONS CAPACITY (Wp)
Lighting 55.9
Pumping 13.3
Refrigerator 7.8
Computers 6.9
Radio repeater 1.9
Telecommunication equipment (for mobile phones) 1,050.0
Total 1,135.8
29. In 1992, Electricité du Cambodge was attached to the Ministry of Energy. Aer the elections in 1993, EDC was restructured
under the Ministry of Industry, Mines, and Energy (MIME) and was responsible for the development, management, and operation
of the power system in Phnom Penh and 6 large commercial towns. http://www.edc.com.kh/about.html.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 77
Table 5.4 Profiles of Hydropower and Biomass Projects in Cambodia
HYDROPOWER PROJECT TYPE
NUMBER OF
PROJECTS
TOTAL INSTALLED
CAPACITY (MW)
ANNUAL GENERATING
POTENTIAL (GWH/YEAR)
Installed projects

Large (5 MW to 465 MW) 1 12.00 53.00
Mini-hydro (500 kW to 5 MW) 1 1.00 2.50
Micro-hydro (10 kW to 500 kW) 1 0.04 0.14
Identified projects
Large (5 MW to 465 MW) 20 1,788.30 8,839.97
Mini hydro (500 kW to 5 MW) 9 23.05 108.50
Micro hydro (10 kW to 500 kW) 10 0.68 1.78
Totals 119 2 17
Installed projects by 2003

Hybrid bioreactor and photovoltaic 1 0.07 0.56
Domestic biodigesters 112 Not applicable 0.52
Identified projects
Biomass gasifiers (wood, rice husk) 3 0.285 1
Biomass-fired cogeneration (rice husk, cashew nut shell) 2 2 14
Landfill gas capture or flaring 1 * *
Totals 119 2 17
e master plan for electrication argues that, given “the topography and high rainfall,” many areas of Cambodia
are suitable for the development of mini-hydro schemes of 100 kW–5 MW (World Bank and HECEC, 1998). e
oen-quoted gure for Cambodia’s hydro power potential was provided by an ADB report, which argued that the
Mekong River and its tributaries have potential to generate 8.6 GW of electricity (ADB, 1999).
30

An NEDO study
31
indicated that Cambodia has the potential to generate an estimated 18,852 GWh/year from bio-
mass. However, since biomass production is so widely dispersed and is limited by the availability of sucient quanti-
ties of residues and their collection and transport to energy production facilities.
A pilot project for 9-kWh biomass gasication has been implemented in Anlong Tamey village, Banan District,
Batambang, under the support of SME Cambodia. is facility is run by a community co-operative, and provides
electricity to 70 co-operative member households. e biomass gasication system operates 100-percent on locally
farmed trees.
To meet the domestic energy need for cooking and lighting (optional), the National Biodigester Program (NBP) was
established in early 2006 to promote and deploy commercial biodigester technology.
30. Cambodia’s master plan, World Bank and HECEC, and ADB are cited from the Cambodia Renewable Energy and Rural Electri-
cation website, www.recambodia.org.
31. NEDO (New Energy and Industrial Technology Development Organization), “Assistance Project for the Establishment of an
Energy Master Plan for the Kingdom of Cambodia, Final Report,” (Phnom Penh, Cambodia: NEDO, 2002). See http://www.
recambodia.org/rpnedo.htm.
78 Using Microfinance to Expand Access to Energy Services
5.2.3 Renewable Energy Facilitators
Rural Electrication Fund (REF). REF is an important component of the six-year-old Rural Electrication and
Transmission (RE&T) Project, funded by a loan from the World Bank and a grant from GEF and ADB. REF is
administered by an independent state agency with a mandate to accelerate rural electrication and reduce the cost of
supplying energy and thus help reduce poverty in rural areas.
e Ministry of Industry Mines and Energy (MIME) understands that in order to meet the targets dened for REF,
it needs a supply of credit since it is not possible for the rural population to contribute 75 percent of cost as equity.
It is also aware that Cambodia’s commercial banks (except ACLEDA) cannot help expand access to energy because
they have no presence in rural areas. However, a lack of understanding of how MFIs operate and an assumption that
MFIs charge high interest rates that are not viable for REEs has kept MIME from approaching MFIs.
National Biodigester Program. In January 2006, the Ministries of Agriculture and Fisheries and SNV Netherlands
Development Organisation jointly developed the National Biodigester Program as a way to create an indigenous, sus-
tainable energy source in Cambodia and utilize the potential of biogas. NBP aims to construct 17,500 biogas plants
in six provinces over a period of four years. Progress toward this target has been slow because it needs the support of
MFIs and has failed to attract them so far.
Renewable Energy Private Sector Association (REPSA). REPSA was formed as a private association in 2003 to
represent the interests of private businesses supplying renewable energy products and services in Cambodia. REPSA
meets regularly and has over 10 members who are recognised by the government and World Bank as important
stakeholders in REF.
SME Cambodia. is NGO provides business development services for small and medium rural enterprises, includ-
ing those in the energy sector. SME Cambodia also helped establish, and supports the operation of the Rural Elec-
tricity Enterprises Association.
5.2.4 Energy and Alternative Energy Suppliers
Since the conventional electricity source in Cambodia is battery generated (charged by diesel and light oil genera-
tors), energy suppliers in Cambodia are predominantly diesel generator and battery suppliers. Suppliers for alterna-
tive energy equipment in Cambodia are still very few and companies are immature compared to those in the other
countries in this report. Alternative energy suppliers mainly provide solar photovoltaic, biodigester, and biomass
gasier technology. However, most of the energy suppliers are still dependent on the government and donor-driven
market. Retail markets exist, but are limited to consumers with the capacity to pay cash.
ese are some of the leading alternative energy suppliers:
- SME Renewable Energy Ltd. (SME-RE): SME Cambodia and E+Co (a US non-prot renewable en-
ergy investment organization) jointly established this renewable energy company in Cambodia. SME-RE
promotes renewable energy technologies and market biomass gasication power generation systems in
Cambodia and throughout the greater Mekong region.
- New Energy Group (NEG): NEG is one of the suppliers working in Phnom Penh for the last three years.
It has installed solar home systems, micro hydro, and gasiers as a pilot project. ey have installed 300
SHS on a retail basis.
- Khmer Solar (KS): KS is one of the leading solar photovoltaic suppliers in Cambodia, with a branch of-
ce in Batambang Province.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 79
5.3 ORGANIZATIONAL PROFILE
5.3.1 Structure and Operation
AMRET’s organizational structure, policies, products, and strategy are designed in line with its mission statement
and aim to provide need-based nancial products to its clients while ensuring its own long-term sustainability.
AMRET’s primary objective is to contribute to rural development in Cambodia by providing micronance services
and help improve the living standards of the rural population. It caters to groups of ve clients (called a solidarity
group, or SG) plus creditworthy individuals who may or may not be members of an SG. One of the prerequisites for
membership in AMRET is that the client be married and older than 18 years of age.
AMRET customers must have a permanent residence in one of its operational districts without plans to leave the
district before repaying all debt owned to AMRET. Target clients for individual loans reside in the regions, vil-
lages, districts, or provincial towns, have low or middle incomes, and specically desire to upgrade their household’s
economy via individual or family loans or loans for micro, small, or medium enterprises. Clients must also provide
physical collateral to be eligible for loans.
AMRET is registered as a licensed MFI in Cambodia. Its micronance program is one of the country’s largest, oper-
ating mostly in rural and semi-urban areas. As of 30 June 2006, AMRET had operations in 59 districts in 13 south-
ern and central provinces, with 30 district branch oces. It had a total of 2,622 solidarity groups clubbed together in
almost 1,450 village associations (VAs). AMRET has a total client base of 113,702.
Its organizational structure has clearly dened roles and responsibilities at each level. e functional responsibilities
have been decentralized in various departments at the head oce. Field operations have been decentralized to district
oces and provincial oces. Overall, AMRET has solid management and administrative capacity. Four institutional
investors, namely GRET, SIDI, La Fayette, and I & P, hold the present equity base of AMRET. Of the total paid-up
equity, GRET holds 47.4 percent.
Accounting and Management Information System (MIS): AMRET has good accounting and MIS. Although prepa-
ration of nancial statements is centralized in the head oce, MIS is fully decentralized. AMRET uses AccPac ac-
counting soware and has shied to a Windows-based soware, MicroBanker, called MBWin, for MIS. e soware
has been installed in district oces and enables AMRET to track client loan details which it could not do before.
Portfolio management: e operations department is responsible for seeing that the health of the portfolio is main-
tained and any delinquency is immediately taken care of. AMRET has a sturdy and well-designed process for client
selection and loan appraisal. Detailed analysis of client cash ows, good tracking of loan repayments and overdue
payments, strong repayment follow-up mechanism, and good credit discipline both at the sta and client levels has
enabled AMRET to maintain excellent portfolio quality. e organization has PAR >30 days of only 0.1 percent and
a repayment rate greater than 99 percent.
Business planning and nancial management: AMRET’s entire process of nancial planning is quite participative.
e planning exercise is done annually and it originates from the plans of the credit agents. Based on these plans, the
district oce prepares its plan for the year. Each of the departments in the head oce undertakes a similar exercise
and then the plans are consolidated. e annual plan is further broken down into monthly details with specic
targets to be achieved during each period. In addition to this, the organization has also prepared a detailed ve-year
operational and nancial budget.
e district oces do cash planning on a monthly basis. Excess cash from the district oces is deposited at the pro-
vincial oce, which deposits the same in the bank.
80 Using Microfinance to Expand Access to Energy Services
Internal audit: AMRET has an inspection department with eight sta members, but it is clearly too understaed to
conduct an adequate number of internal audits, given the size of AMRET’s operations. e audit includes policy, op-
erational, and nancial compliance checks. However, operational and nancial compliance checks at the client level are
done on a very small sample of 7–10 percent. e organization has dealt with several minor cases of fraud in the past. In
addition to the audit department, AMRET has an audit committee at the head oce comprised of a representative from
the board, the general manager, and the audit manager. It meets once every six months and recommends internal audit
and internal control activity.
Product development: AMRET has employed a MicroSave product development model since 2000. It created a
product development task force team made up of representatives from all the head oce departments. e market-
ing and communications department is responsible for conducting client satisfaction and demand surveys, assessing
potential needs, and making recommendations. Specic surveys are also conducted based on indicators from MIS re-
ports, such as a rising client drop-out rate. Aer the product costing, a product prototype is developed and necessary
systems and documentation created to pilot test the product. If everything goes well, the product is nally launched.
5.3.2 Funding Sources
AMRET has obtained a subordinated loan of about US$ 1 million from the Ministry of Economy and Finance. is
resulted from the transfer of the project’s credit fund, liabilities, and reserves, which were granted by Agence française de
Développement (AfD), to AMRET in June 2000.
In addition to the subordinated loan, AMRET has borrowed loan funds in local currency (KHR) as well as US dol-
lars from a diverse set of lenders (both national and international nancial institutions). Appendix 9 shows the dierent
sources of AMRET’s outstanding loan funds, plus the grants for micronance operations, as of September 2006.
5.4 ENERGY LOAN PORTFOLIO
5.4.1 Model and Methodology
AMRET has adopted a mix of group and individual models. It lends through solidarity groups (SG) and to individu-
als, which reect its two main loan products, a “Solidarity” loan and an individual loan. Solidarity loans are oered to
the members of an SG and can be used for any purpose. Individual loans, on the other hand, can be used for business,
house repair, education, or consumption. Individual loans require physical collateral, unlike solidarity loans, which
operate on the concept of social collateral. Individual loans can be approved at the district oce or at the house of
the client. However, the interest rate is higher if the loan is provided at the client’s doorstep. Energy loans fall under
the individual business loan product category.
AMRET does not have any specic vendor or energy company, since energy loans are only oered for the purchase
of battery or diesel generators. AMRET sta is only responsible for conducting the loan appraisal (including the fea-
sibility analysis of the enterprise and a detailed study of client cash ows) and sanctioning, disbursing, and collecting
loans, as is standard for micronance loans. e consumer repays the energy loan to AMRET based on the repay-
ment schedule decided at the time of disbursement.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 81
Table 5.5 Differences Between Solidarity Group Loans and Individual Loans
SOLIDARITY GROUP LOAN (Any purpose)
INDIVIDUAL LOANS (Business, including energy loans,
home improvement, education, consumption)
Target client Individuals organized under JLG in a group of five Creditworthy individual, SG/non-SG clients
Loan amount Maximum KHR 600,000 (US$ 150) Maximum KHR 20,000,000 (US$ 5,000)
Interest rate 42% p.a. on declining basis 36–42% p.a. declining for loan at client’s house
24–36% p.a. declining for loan at AMRET office
Term 6–12 months Up to 24 months
Installment Flexible principal with an option of bullet pay-
ment; monthly interest
Flexible/monthly for business loans up to KHR
1,000,000; others only monthly
Collateral Group guarantee (social collateral) Up to 2 times the loan value (1.5 times with land and
building)
Grace period Not applicable Maximum 6 months
Appraisal District office < US$ 2,000: District office
> US$ 2,000: Provincial office
Approval Credit committee at district level Credit committee at district/province level
Disbursement Field Field (at client’s house) or district office
VDC (incentive 8–10%) Field by credit agent (at client’s house) or district office
5.4.2 Characteristics
At the time of the eld research, AMRET had made energy loans to over 707 clients, although they were managed
as individual business loans. e energy loans can be used to purchase diesel generators to provide energy service
through rural electricity enterprises. e majority of clients use it for their households or to enhance existing produc-
tive enterprises (e.g., making wine, powering a tobacco kiln, making ice, ring tiles and bricks, etc.) or to purchase bat-
teries for their own use or to rent to others. Over 79 percent of AMRET energy clients are female, and 36 percent are
30–39 years old. AMRET energy clients are spread across 50 districts, with most of them concentrated in the districts
of Ba Phnum, Kampong Trabaek, Me Sang, Kampong Trach, Kien Svay, Prey Nob, Svay Chrum, and Preah Sdach.
5.4.3 Service Company
AMRET has not collaborated with any energy service company so far. e clients interact directly with their service
company, without any involvement of AMRET. Service companies in Cambodia are dominated by generator and
battery suppliers, as those are the common electricity source for most households unserved by the electricity grid.
5.4.4 Administration and Management
AMRET does not have a separate sta or mechanism in place to administer or monitor energy loans. ere is no
separate accounting system for energy or business loans. However, from the MIS, the loan portfolio can be analyzed
by extracting data on loan utilization, such as purchase of battery charger, etc., which makes it possible for AMRET
to monitor or track its energy loan portfolio separately.
Per the nancial analysis performed during the eld visit, AMRET so far has no defaults in its energy loan portfolio.
Repayments have been on time and reect a strong credit culture built up by the MFI. e total energy portfolio as
of 30 June 2006 was KHR 354 million (US$ 88,213). Since energy loans are not accounted for separately, it is not
possible to do a protability analysis of the energy loan portfolio.
82 Using Microfinance to Expand Access to Energy Services
5.4.5 Impact Analysis
Because Cambodia’s rural areas have very little electrication, the demand for batteries and grid connection from
rural energy enterprises is high. AMRET’s credit facility has enabled rural energy enterprises to emerge and provide
energy service to the rural population who have no access to the EDC grid. It has also provided small scale producers
(winemakers, icemakers) with access to an energy source that enables them to scale up production
5.5฀ D!5CU55!DN-AMPET฀
5.5.1 Highlights and Challenges of the AMRET Bank Energy Lending Model
Highlights
- AMRET has a huge client base and wide geographical presence with a good rural branch network. As
of 30 June 2006, the organization had 113,702 clients in 59 districts and 30 branch and district oces.
Although AMRET had only 707 clients with energy loans, the overall client base is a potential market for
the energy product.
- AMRET has demonstrated a good balance between oering exible nancing and maintaining portfo-
lio quality. e exible repayment mechanism provides greater exibility to the clients and allows them
to repay loans per their own cash inows within a dened loan term. AMRET has maintained a healthy
portfolio quality due to professional systems and good credit culture.
- AMRET was the rst micronance institution to be licensed in Cambodia. It has mobilized funds and
equity om diverse sources and enjoys a good market reputation. Its excellent credit record and highly
transparent operations make AMRET an attractive institution for donors or lenders willing to fund it.
- AMRET has a sturdy MIS system in place. It installed new soware (to overcome the weaknesses of
its previous soware), which enabled AMRET to improve its loan tracking system. In addition, the
in-house IT department has enabled AMRET to generate reports with aggregation per administrative
hierarchy (village>commune>district>province) as well as AMRET’s own hierarchy (group>village
association>credit agent>district).
- Unlike many other MFIs, AMRET has a separate department for marketing and communications,
which is responsible for conducting in-house research, including impact assessment. It also develops new
products using internationally acknowledged best practices and promotes existing products. AMRET
has a well-dened process for research and development. e organization also has a separate budget for
promotional activities.
Challenges
- Unlike SEWA Bank and SEEDS, which are highly conversant with various energy alternatives, AMRET
has limited knowledge of energy sector. AMRET has not initiated interactions with energy stakeholders
and energy sector facilitators. Consequently, it is not well informed about the opportunities for nancing
renewable or alternative energy options or about incentives that can be tapped from the government and
donors to oer lending products to energy consumers.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 83
5.5.2 Obstacles and Barriers
- ăe Cambodians' knowledge of energy and power solutions is still limited to batteries, oil-fueled genera-
tors, kerosene, fuelwood, and LPG. Without a strong and intensive market awareness program to pro-
mote cheaper and better energy technology options, the potential for such options remain untapped.
- ăe absence of readily available, low-cost energy products in the market as well as the absence of strong
market players with good decentralized sales and service network severely constricts the growth of
Cambodia’s energy sector.
- ăe diĈerent perceptions held by various stakeholders on energy micro-lending and AMRET (illustrated
in Table 5.6) only underscore the lack of coordination and knowledge of each other’s operations among
the stakeholders in the businesses of energy and lending.
Table 5.6 Stakeholders’ Perceptions of AMRET
STAKEHOLDER PERCEPTION
Government MFIs are needed to expand the energy access in rural areas, but do not know how to go about it.
Donor or develop-
ment agency
Willing to provide financial incentives, but MFIs should pass along these incentives to the clients by
reducing interest rates.
Energy company or
supplier
The interest rates of MFIs are too high for the energy company or enterprise to be profitable.
Energy facilitator Willing to provide technical risks guarantee, but sees a need for a flexible financing mechanism that
meets the needs and income patterns of clients.
MFIs They think charging a lower interest rate on one product will create distortion (ACLEDA); they are
willing to create special energy lending if there is a guaranteed fund (AMRET); and incentives (i.e.,
reduced interest rate) are needed to allow energy enterprises to gain good profit margin (Maxima).
5.5.3 Key Lessons Learned
Co-ordination between dierent stakeholders. Despite the Cambodian government’s inclination to expand energy
access, an energy-lending model may not be successful if there is no co-ordination between dierent stakeholders,
like that witnessed between AMRET, energy companies, and sector facilitators. is clearly reects the need for both
energy and micronance stakeholders to build capacity, specically to learn about each other’s elds and the poten-
tial benets of partnership.
Market education. Market education must be tackled and made a priority in order to scale up energy lending. It
requires huge investment and cannot be accomplished by any one stakeholder alone. It is important that both energy
and micronance stakeholders as well as sector facilitators (government, donors, NGOs) work together to overcome
this barrier.
Balance between exible nancing and a strong nancial portfolio. It is important that MFIs create a balance
between exible nancing mechanisms (removing any barrier to capital access) and maintaining nancial health (to
sustain the energy-lending program). AMRET has successfully demonstrated such a balance.
Necessity for a separate energy-lending product. As long as AMRET’s energy lending is only for battery chargers or die-
sel generators, then it can continue as part of its business loan product: this kind of lending does not demand any special
features or collaborations with other agencies. However, if AMRET wants to oer a specic energy product, such as
solar photovoltaic or biodigesters, then it would do well to establish a separate energy-lending product line. In such case,
it would need to enter into MOUs and design special loan appraisal, disbursement, and collection components.
84 Using Microfinance to Expand Access to Energy Services
5.5.4 Opportunities for Country Scale-Up and Regional Replication
High cost of traditional energy sources. e baseline (conventional) energy solutions in Cambodia (e.g., dependency
on fuelwood and imported oil fuels) oer great opportunities to introduce better and least-cost energy solutions. e
role of MFIs is considered crucial to scale up these alternative energy solutions. Table 5.7 compares electricity prices
generated from dierent energy sources in Cambodia.
Table 5.7 Comparison of Electricity Prices in Cambodia
Types Price per kWh (US$)
Solar home system $ 0.07–0.15
Micro/mini hydro power $ 0.04–0.07
Biomass electricity generation $ 0.30
REE diesel generator $ 0.50–0.90
Goernment support and dedicated goernment programs: e Rural Electrication Fund (REF) was introduced
to provide credit and grant support to private sector and nancial institutions to expand energy access in all districts
of Cambodia. AMRET can tap this opportunity by expressing interest in collaborating with the government and
accessing low-cost loan funds and grant support. e ow chart in Figure 5.1 shows the present lending process of
a Cambodian MFI and the proposed ow of REF. MFIs can serve as a vital channel for REF and route its funds to
rural areas through their existing rural bases to expand energy access.
CLIENTS
CLIENTS
L
o
a
n

A
p
p
r
a
i
s
a
l

&
D
i
s
b
u
r
s
e
m
e
n
t
L
o
a
n

A
p
p
l
i
c
a
t
i
o
n
PRIVATE SECTOR
CAMBODIA RURAL
ELECTRIFICATION FUND
CLIENTS
Rural Electricity Enterprise
Battery Charging Service
Cookstove Producers
25% Grant
25% Soft Loan
Funding Proposal
+50% Equity
Energy
Company
Financing
Institutions
Deployment at
Subsidized Terms*
World Bank ADB GEF
Figure 5.1 Present Lending Operation and Proposed Flow of REF
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 85
Nepal’s Biogas Support Program (BSP) oers a valuable example for Cambodia in how to run eective support for
biodigester implementation. (In Figure 5.2, the red lines indicate possible collaboration.) One of the best practices
that Cambodia can draw from Nepal’s BSP is the holistic support that it provides to all stakeholders within the sup-
ply and demand chain of biogas systems. On the supply side, it ensures that suppliers can deliver quality products and
services, and on the demand side, it osets the inability of the target market (farmers) to acquire a biogas system for
domestic use.
NBP is interested in collaborating with AMRET as they share similar target clients. NBP is ready to assume complete
nancial responsibility of any technical risk. AMRET’s exible nancing mechanism provides a great opportunity for
AMRET to meet the need of NBP target clients. Since AMRET has demonstrated a robust loan appraisal system re-
sulting in a good loan portfolio, the combination of NBP’s nancial responsibility of any technical risks and AMRET’s
robust loan appraisal would create a good risk mitigation strategy for delivering eective biodigester credit program.
Sector facilitators. Cambodia has few energy sector facilitators—National Biodigester Programme (NBP), GERES,
and SME Cambodia. NBP and GERES are willing to collaborate with MFIs to expand energy access, and SME
Cambodia has already obtained nancing support from E+Co to deliver energy via leasing. All energy stakeholders
emphasized the need for credit to improve energy access. e existing infrastructure of MFIs in rural areas provides a
ready-made foundation for promoting and marketing energy services and products.
Energy sector facilitators need to promote the growth of strong energy suppliers in the market and build strong mar-
ket infrastructure. Donors need to provide technical assistance to energy stakeholders to help them design eective
intervention mechanisms that promote a strong business environment for alternative energy and that take advantage
of experiences in other countries.
Opportunities to expand lending to the energy market. With the low electrication rate in Cambodia, high energy
and electricity costs, and very low income per capita, the role of MFIs like AMRET are key to providing compre-
hensive energy solutions. By combining a wider range of appropriate energy products and a credit facility to defray
upfront capital requirements, AMRET has great potential to expand its nancing business by catering to the energy
market. Since the awareness by the target market of the alternative energy solutions is poor, and the market players
are still immature, AMRET needs to be more actively involved in selecting the energy products, managing relations
with the energy suppliers (to mitigate technical risks that potentially arise from poor product and service perfor-
mance of the suppliers), and promoting its energy-lending products to its client base/target clients.
Healthy, exible MFIs. What AMRET contributes to successful regional replication is its exible nancing mecha-
nism and portfolio management rather than its limited and nascent energy-lending model. It should be noted that
because Cambodia’s energy business landscape is so immature, scaling up AMRET’s energy loans is greatly dependant
on external factors—policy makers, sector facilitators, and market players. Without serious collaboration with these
stakeholders, AMRET will not stand a chance expanding its energy loans, nor will any of the stakeholders succeed
without doing some basic groundwork.
It is important that MFIs join hands with MIME while it is still in the process of dening the mechanism for nanc-
ing support through REF. Also, AMRET needs to collaborate with existing energy sector facilitators like NBP to
create a win-win situation for everyone—MFI, energy service company, and client. e government and its agencies
need to educate themselves about the MFI sector, and MFIs need to educate themselves about the energy sector and
the opportunities therein for energy lending. Donors can play an important role by providing funds and expertise for
capacity-building to both energy stakeholders and MFIs.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 87
CHAPTEP฀6฀º฀CDNCLU5!DN5฀AND฀
RECOMMENDATIONS
6.1 SUMMARY OF FINDINGS ON ENERGY LENDING BY SEWA BANK, SEEDS, NUBL, AND
AMRET
is research has shown that micronance for small-scale energy consumers has contributed signicantly to greater
access to, and aordability of, modern energy technology for the poor and rural consumers. Strategic partnerships
between MFIs and energy service companies are instrumental to eectively deliver modern energy solutions. Estab-
lishment of the energy lending programs studied is largely inuenced by governments, donors, NGOs, and other
sector players. eir support may be seen in pilot projects, market studies, policy, technical assistance, and provision
of loan funds. Replication of energy lending by other MFIs or by other countries in Asia, may also need external
interventions from the government or donors in the start-up phase.
Some measurable positive impact of energy lending has been demonstrated by the MFIs in this study. However, the
extent to which energy loans can be optimized as a means to alleviate poverty and promoting business activities is
not yet visible. At present, with the exception of AMRET, energy lending by SEWA Bank, SEEDS, and NUBL is
primarily focused on household needs. SEWA Bank and SEEDS have promoted productive use of energy among
their clients, but their records show this is still a very small percentage of the total energy loan portfolio. Focusing on
loans for energy for income-generating activities may in fact hold the greatest market potential for an energy-lending
program because the incremental revenue or cost eciency generated by energy lending will increase the feasibility of
the loan itself. On the energy supply side, the maturity of energy companies and the availability of decentralized sales
and service networks are critical conditions for energy lending.
6.1.1 Establishment and Funding
e establishment of energy-lending programs among the four MFIs studied was mainly driven by emerging trends
within their respective countries. Such trends were either introduced by government institutions, donor societies,
or NGOs, or in response to repeated client requests. In the case of SEWA Bank, although its early exposure to the
need for energy lending came from donor society meetings, its energy lending was driven by internal initiatives and
funding, plus partnership with the energy company, SELCO. SEWA Bank also received various funds for its energy
lending, directed to either technical assistance or market development.
In the case of SEEDS, as a response to the emerging demand for photovoltaic solar home systems, its parent organiza-
tion (Sarvodaya) ran a pilot project that provided photovoltaic SHS with a credit facility, and then transferred the
service to SEEDS. It receives loan funds and support from various institutions and projects, including ESD, RERED,
National Development Trust Fund, DFCC Bank, National Entrepreneurship Development Board, SDLF, and
Etimos. is strong government and donor society engagement in promoting renewable energy in Sri Lanka is one of
the instrumental factors in scaling up and diversifying SEEDS’ energy lending. is engagement included a market
study, price subsidy, so loans for energy lending funds, capacity building, and market education activities.
NUBL’s rst foray into energy lending was fully driven by a government loan fund for biogas micro-lending (AEPC,
an apex agency established by the Nepalese government to promote alternative energy). However, this rst attempt
88 Using Microfinance to Expand Access to Energy Services
was unsuccessful in attracting clients, so with the assistance of Winrock Nepal, NUBL restructured the design of its
biogas lending product and re-introduced it on a smaller scale using its own funds. e new structure has proven to
be successful as indicated by the growing numbers of clients requesting such a loan.
AMRET does not have a special lending product for energy loans, yet under its business loan scheme, it has been
providing loans for the purchase of energy equipment. (For more details on the early stages of energy lending for each
MFI, see Appendix 8.)
Comprehensive studies (in-house study; external study by government, donor, or NGO; or collaboration with other
external parties) of needs assessment and energy market potential preceded the introduction of energy lending by
SEWA, SEEDS, and NUBL. e characteristic of energy lending programs by these three MFIs are convenient
“door-step” energy solutions, although SEWA has gone further by customizing energy products to meet the generic
needs of its client base.
6.1.2 Energy Loan Products
e energy products oered by SEWA Bank, SEEDS, and NUBL were driven by the market trends within their
respective countries. eir clients are able to take advantage of micronance options to purchase energy equipment
that is pre-designated by each MFI. SEWA Bank has a taken a more progressive approach by oering a wider selection
of energy products, ranging from photovoltaic solar home systems, photovoltaic battery charging, solar lanterns, sarai
cookers, and improved cookstoves. It is actively exploring other energy products such as biogas. SEEDS products in-
clude SHS, grid connection, and village micro hydro. NUBL is currently comfortable with providing a single energy
product, the biogas loan. Both SEWA Bank and SEEDS have designated the energy suppliers from which their clients
purchase energy equipment. SEWA Bank engages exclusively with a single energy company, while SEEDS has non-
exclusive agreements with numerous energy companies. Exclusive arrangements, as SEWA Bank and SELCO have,
work well only if the energy partner shares the similar passion, mission, clientele proles, and business approach as the
MFI. Because AMRET does not have a special energy-lending program, their clients have the liberty to choose the
desired energy products from any suppliers, as long as their cash ows indicate good repayment capacity.
Except for AMRET, the loan amount for the energy lending is normally pre-determined by the respective MFIs,
given the type of energy product. SEEDS energy lending represents a wide range of loan amounts—up to US$ 1,000
for photovoltaic SHS, $150 for grid connection, and up to $20,000 for micro hydro. Specic to NUBL, since it only
provides a single product, the loan amount is set at around $215.
In general, there is a huge dierence between the MFIs in South Asia (here India, Sri Lanka, and Nepal) and those in
South East Asia (Cambodia), especially in interest rates and collateral requirements. AMRET’s interest rate is more
than double the other MFIs in the study. AMRET also requires collateral up to two times the loan amount, while oth-
er MFIs do not ask for collateral (except for SEWA Bank, on loans of more than INR 50,000 [US$ 1,103]). SEEDS’
interest rates for energy lending are relatively lower than the other MFIs due to subsidized loan funds received from
a Sri Lankan energy-sector program. Grant support from the Lemelson Foundation enables SEWA Bank to give a
7-percent interest refund to clients with successful loan completion and good credit discipline. Since such support is
not sustainable in the long run, MFIs need to eectively communicate with donors to avoid distortion of their usual
lending terms and use the grant or subsidy support only for initial development of an energy-lending program.
e clients of SEEDS and NUBL are able to obtain energy products at lower-than-market prices due to price subsi-
dies provided by government and donor programs. Such price subsidies make the energy products more aordable to
larger market groups. As recorded by SEEDS, soon aer the introduction of the price subsidy by the government, the
number of its new solar loan clients increased signicantly.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 89
Compared to other three MFIs, SEWA Bank clients enjoy the most exible loan installment scheme in terms of fre-
quency and amount. Although the NUBL and AMRET schemes do not have the same level of exibility as SEWA
Bank, they do however provide customized loan schemes to match the cash ows of their clients.
In terms of eligibility, the lending programs of SEWA Bank, SEEDS, and AMRET are available to both old and new
clients. is stands in contrast to NUBL, which requires that clients complete two loan cycles before being eligible
for a biogas loan. However, by allowing the biogas loan be a parallel loan to one or two other loans, NUBL’s biogas
lending program extends accessibility, particularly to clients who want loans for cattle (or sanitation improvement) to
supply the organic component needed by biogas systems.
SEWA Bank’s energy lending program adopted customized energy solutions as a unique feature. By providing their
prospective energy clients with a 15-day trial of the energy product, the clients have the opportunity to experience
whether the selected energy product is the right energy solution for them.
6.1.3 Institutional Approach to Energy Lending
AMRET’s energy-lending strategy is limited to oering credit for purchase of energy equipmentlike any other product
and thus has a limited scope. By contrast, SEWA Bank and SEEDS take a more hands-on approach to the provision
of energy services with close associations with energy suppliers and establishment of a special bank unit for energy. At
NUBL, although the eld ocers receive technical training, they tend to be too passive in advancing the loan due to
their workload promoting all products. NUBL ocers expect the biogas company to take a more active role.
6.1.4 Relations with Energy Suppliers
e MFIs studied demonstrated a wide range of approaches to their relations with energy suppliers. For the URJA
Project, SEWA Bank craed an exclusive arrangement with SELCO to develop and implement a one-stop energy
shop that oers a wider selection of better energy products together with a credit line. is exclusivity is under-
pinned by similarity of mission, approach, and target clients. Both parties invest resources and funds to promote the
URJA Project: SELCO’s contribution ranges from assessing energy needs and advising SEWA Bank clients on the
best technology for them, providing trainings/capacity building (product knowledge) to SEWA Bank’s loan ocers
and commissioned agents, conducting market awareness and promotions hand-in-hand with SEWA Bank, installing
and removing energy systems for 15-day trials at clients’ premises, installing equipment permanently, and providing
user training, equipment warranties, and aer-sale services.
In contrast, SEEDS pro-actively engaged a range of energy partners in the provision of energy supply for its energy
loan clients in non-exclusive arrangements. To ensure quality deliverables to its clients, SEEDS entered into MOUs
with SHS suppliers.
In the case of NUBL, due to strong technical support and quality control of biogas companies in Nepal by the Biogas
Sector Partnership (BSP), MFIs like NUBL do not have to control the quality of biogas company deliverables.
erefore, NUBL thus far is not compelled to set up special MOUs with any of the biogas companies. e side eect
of such a situation is that there are obvious gaps in the expectations of the NUBL and the biogas companies. Each
expects the other party to take an active role on promoting the biogas system and the biogas loans.
Special relations with energy suppliers is not applicable in the case of AMRET since they do not have special lending
program for energy and limit themselves only in providing the credit facility to their business loan clients.
90 Using Microfinance to Expand Access to Energy Services
6.1.5 Management and Financial Capacity
ese four MFIs are recognized as leaders in their own rights, making signicant contributions to improving access
to nancial service among poor consumers. Using the nancial parameters alone to evaluate the performance of their
management and nancial capacity may not give full justice to them. Rather, one needs to understand the mission
and objective of the respective MFIs, as well as the country contexts that underlie their operation.
SEWA Bank’s “service-rst” philosophy has shaped its loan product, and it has oered highly exible terms for the
frequency and amount its energy loans. Consequently, using the standard MFI rating methodology to evaluate
SEWA Bank’s portfolio quality may not be suitable. SEEDS’ portfolio quality can be tracked at the head oce and
branches. However, repayments have suered to some extent due to unexpected expansion of the electricity grid in
areas where SEEDS has provided SHS loans. NUBL’s portfolio management suered because of external political
disturbances and a faulty incentive structure that it implemented in the past. AMRET, as a relatively new MFI, has
the benet of being a “follower” and beneting from the best practices of other MFIs. is is apparent from their
portfolio management which includes good client selection, a sound loan appraisal process, prompt follow-up on
loans, and consistent credit discipline.
SEWA Bank’s use of commissioned agents to extend the reach of its nancial service operations and energy lending
leverages its human resources without creating a xed nancial load on its overhead. SEEDS’ prociency with the
energy technology, strong control of energy suppliers’ deliverables, risk management strategy, wide geographical pres-
ence, and impressive number of disbursed energy loans highlights its strong management capacity for energy lending.
NUBL’s decisions to limit eligible biogas client only to old clients with good credit records and to allow biogas loans
as parallel loans also are good risk mitigation strategies. In the case of AMRET, although they have no prociency in
energy technology, they have excellent portfolio quality, imposed good credit discipline among its clients, and have a
well-dened methodology for product development.
For SEWA Bank and NUBL, it is too soon to evaluate the portfolio quality of their energy lending because during the
time of this study, their energy operations were relatively new and loan repayments were 100 percent. e nancial
performance of AMRET’s energy loans is not accounted separately from its overall business loans. SEEDS’ separate
energy division at the head oce and separate sta to provide energy services at eld level have contributed to the scal-
ing up of its energy lending. SEEDS energy lending accounted for over 30 percent of its total micronance operation.
6.2 LESSONS LEARNED
e experiences of SEWA Bank, SEEDS, NUBL, and AMRET, although still in their infancy, can oer several les-
sons in the design, implementation, and scaling up of energy lending activities in Asia.
Understand the country context. Designing and establishing an energy-lending program should carefully take into
account the country context that may inuence the selection of technology, energy service company, loan product,
and loan methodology. Understanding existing energy supply chains and the energy-technology nancing environ-
ment before introducing an energy loan product is crucial. In the case of SEWA Bank, because India’s energy and
electricity prices are moving towards true market prices, the introduction of better and cheaper energy solutions that
are integrated with a credit facility is becoming a lucrative market opportunity. However, the price dierential be-
tween existing energy prices emerging out of a subsidized energy market and alternative energy sources like solar can
be oset by SEWA’s customized service and exible nancing scheme, making it attractive to potential consumers.
Dierent situations exist for SEEDS and NUBL, both of which beneted greatly from renewable energy support
pro-grams in their respective countries. e availability of a low-interest loan fund and price subsidy for SHS clients
in Sri Lanka contributed to the scaling up of SEEDS’ energy lending portfolio. e strong monitoring of biogas com-
panies in Nepal and provision of price subsidy provided by the Nepalese government enabled nancing institutions
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 91
like NUBL to benet from mitigation of technical risk and extensions of the biogas loan to more, poorer clients.
us, for countries where such supports do not exist, the nancing institutions and energy service companies need to
work creatively to overcome the challenges.
AMRET, given Cambodia’s very low electrication ratio and the very high baseline price of electricity and energy,
should be able to take advantage of the opportunity to provide better and cheaper energy solutions to its clients.
Both the MFI and energy service company must be committed to energy lending. e provision of micronance for
renewable energy technologies requires serious commitment from both the MFI and energy service companies, espe-
cially if the technologies oered are new to the target clients. In such cases, market awareness of both the technology
and the loan product, the quality of product and service, user training, and aer-sale services need to be instituted.
From the MFI’s perspective, introducing energy lending requires full support from management due to the enor-
mous resources needed at initiation and development phases. Because energy-lending is a relatively new eld in Asia,
as are the energy technologies to clients, it is important for MFIs to partner with energy companies that also want to
provide aordable energy services to lower-income populations and are willing to take on additional responsibilities
in order to do so. e reliability of energy companies as well as the quality of the technology and services very much
inuences the reputation of the emerging eld. All stakeholders should play a proactive role in minimizing potential
problems. e consistency and persistence in marketing energy products require joint eorts from both the MFI and
the energy companies. SEWA Bank and SELCO demonstrated an excellent example of strong partnership: both take
responsibilities beyond their normal roles. Although NUBL interacts well with energy companies, the absence of
MOUs with them, however, leads to less clear denitions of roles and responsibilities, and common understandings
oen are not eectively passed down to the eld ocers of the MFI and the energy companies.
Prior market research is necessary to understand market need, characteristics, and size. Designing an eective
energy-lending program requires a comprehensive understanding of the energy solutions the market needs; the char-
acteristics of the market (especially the baseline energy consumption prole); client income prole; and geographic
spread of clients, energy suppliers, and nance institutions. Such information allows MFIs and their energy partners
to choose the type of energy technology and design the loan schemes and the delivery mechanisms to oer. e best
practice is to start with the MFI’s existing client base.
Piggyback on existing inastructure whenever possible. Introducing a new loan product requires substantial
resources during the start-up phase; hence taking advantage of, and using, existing infrastructure or resources is
important to minimize the initial investment. SEWA Bank is the perfect example because it utilized every existing
infrastructure and marketing channel to create awareness of their energy lending products. at includes employing
commissioned agents to deploy information or carry out product trials, and pitch the energy products during meet-
ings with SEWA’s business and nancial clients (as well as during other programs and events of their sister organiza-
tions). ey also promote energy product information via their mobile banking, and participate in SEWA’s monthly
trade fair by stang an energy stall.
Loan delivery mechanisms should be reviewed periodically and revised when necessary. Introducing a new loan
product for an emerging eld may not always begin with a “perfect” scheme. Aer implementation, periodic review
is needed to evaluate the eectiveness of each energy product model so that service delivery and outreach to more
clients continuously improves. Possible revisions could be adjusting eligibility criteria, interest rates, loan repayment
terms, loan tenure, payment and equipment disbursement, installment scheme, and aer-sale service. Some addition-
al instruments, such as credit insurance, may also be added. Feedback from target clients and other stakeholders may
provide the best input to guide necessary revisions. NUBL had to majorly restructure its biogas loan before it paid o
and seriously attracted clients.
Energy lending needs to be institutionalized. To succeed in the long-run, MFIs need to understand the huge market
potential and opportunity oered by energy products to expand their operation. However, management support at
92 Using Microfinance to Expand Access to Energy Services
the strategic level is needed to institutionalize energy lending within the MFI, for example, to avoid dependency on
one sta person for promoting and coordinating energy operations. is dependency exposes the sustainability of the
energy lending to great risk, should the sta member leave for any reason or must dedicate time to other products.
e institutionalization of energy lending needs to be decentralized at the branch level as well because that is where
the MFI primarily interacts with clients. Branch managers and loan ocers must be appropriately motivated to
promote energy products when also they also oer competing products that require less time and are not as technol-
ogy intensive. SEEDS’ success—its energy lending is more than 30 percent of its micronance portfolio—is very
much due to the fact that it has specialized energy lending units at both the head and branch oces. In the case of
AMRET, because they do not have a special energy-lending program, much less a dedicated unit to promote it, its
portfolio of loans for energy products most likely will remain small and insignicant, while the market potential in
Cambodia is huge.
6.3 OBSTACLES
Implementing energy lending by the MFIs studied has two categories of obstacles: internal and external. Internal
obstacles have arisen from factors within the organization related to model, methodology, systems and capacities,
portfolio quality, internal perceptions and funding availability. ose external to the organization relate more to
policy environment market infrastructure, availability of technology and selection, presence of energy players, market
competition, market awareness, and interactions between the energy and micronance sectors.
Model. e micronance model adopted by an MFI can limit outreach of an energy product to some extent. NUBL
uses a group-based lending methodology and, as a result, it does not oer nancing to clients who are not part of
its loan groups. is has been a big turn-o for many biogas companies. By contrast, SEEDS will nance any clients
selected by the energy company as long as they are creditworthy. Although NUBL has individual clients for one of
its loan product (a micro-enterprise loan), the overall experience has not been good because of a high number of
defaults. As a result, NUBL feels more comfortable with group-based lending.
Methodology. Some features or conditions in the methodology may restrict the growth of energy lending. For
example, the risk mitigation strategies of MFIs like NUBL, though in line with micronance best practices, restrict
rst-time clients from taking energy loans. Due to the technical risk involved and consumptive nature of the loan
only repeat clients with successful credit history are eligible to take energy loans. Keeping in view the potential of
biogas lending in the area, NUBL needs to strengthen its appraisal techniques for the biogas plant loans so that new
clients can be also eligible. In addition, there is a prevailing perception among clients that the current loan size (NR
15,000) is too low and should be raised to 20,000 NR. us raising the loan cap in the medium term supplemented
by a more robust appraisal methodology may be helpful to encourage more clients to take biogas loans.
Systems and capacities. As observed during the eld research in the case of SEEDS, management capacities and sys-
tems of many MFIs restrict servicing and monitoring remotely located clients, from where a major chunk of demand
for energy services, is likely to come. Such internal capacities of an MFI may restrict the growth of its energy port-
folio. For example, SEEDS management has slowed down its disbursements, beginning with repayments to lenders,
because it is not very sure if it will be able to meet the multiple challenges of energy lending on a continuous basis.
Although SEEDS is the pioneer in energy lending, its internal weaknesses have restricted it in achieving optimal scale
of operations, despite having good infrastructure and long-term fund support at favorable terms.
Portfolio quality. Portfolio quality has a direct bearing on nancial performance and institutional sustainability. For
a micronance program to become sustainable, it is important that the MFI maintain good portfolio quality. As with
SEEDS, weak portfolio quality has resulted in sub-optimal yield and has been one of the main limitations in expand-
ing energy access. As a result, despite its low costs, the energy program is only marginally protable.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 93
Lack of awareness and institutionalization of systems for promoting energy. Lack of knowledge of energy sec-
tor and alternative energy options, lack of certainty about the sustainability of nancing, and misperceptions about
micronance were observed to be limiting factors. In the case of NUBL, the management has set overly conservative
targets for nancing biogas loans because it is not sure of the product o take. Some of the sta in the branch of-
ces feel that energy loans are additional burden to them as currently there are no institutional systems to incentiv-
ise frontline sta for promoting energy loans. As an institution AMRET has not yet explored the full potential of
energy lending which limits its current scope.
Funding. Although none of the organizations studied has fund constraints, it is important to note that this could
be a limiting factor for smaller MFIs operating in same regions. For example in Nepal, there are many co-operatives
and MFIs that depend upon AEPC for funds for energy on-lending; however, its extraordinarily lengthy and slow
disbursement process has been a major constraint in expanding energy access by MFIs. Also cost of initial market
development and technical orientation of the MFI sta for introducing energy products could be high and thus there
is a need for eective donor coordination and deployment of resources to meet this requirement.
Policy enironment. e practices of energy lending by these four MFIs, to a certain extent, have been much inu-
enced by the policy environment. Some of the typical obstacles rooted in the policy environment may include:
- potential distortion of the energy product market from subsidized, technology-driven programs (e.g.,
government subsidy for solar cookers in India);
- potential distortion of the energy product market, resulting from government credit enhancement
schemes provided to select nance institutions (oen focused on state-owned banks); and
- potential market barrier due to price distortion if the national energy and electricity pricing policy does
not represent true market value (e.g., being subsidized), and thus creates an asymmetric playing eld for
renewable or cleaner energy technology that is the object of an MFI’s lending program—unless there are
also subsidies for the renewable energy technology.
Available technology options. Credit facilities for energy lending require that available energy technology options be
eld proven and be more cost ecient, have better performance, and be more user friendly than baseline technology.
In AMRET’s case, the absence of readily available, better, and cheaper technology options in the Cambodian market
hampers the potential of expanding an energy-lending portfolio. e energy-lending market of MFIs shrinks consid-
erably if the energy market for poor consumers is not growing. Similar but slightly better conditions exist in NUBL’s
case, where the eld-proven and more cost-ecient option thus far is limited to biogas, although rural energy con-
sumers require more energy solutions to meet all of their needs (lighting, energy for productive use, etc.).
Strong energy players and market inastructure. For energy markets to grow and produce potential market op-
portunities for energy lending by MFIs, it is crucial to have strong energy players and market infrastructure. e
starting point is a pragmatic focus on those networks that will disseminate, install, service, and support rural energy
systems—in other words, a focus on building market infrastructure with decentralized sales and service networks.
is must involve commercial energy suppliers of better technology with reliable aer-sale warranties and service.
e absence of strong and sucient energy players denitely hampers the expansion of energy lending by MFIs.
AMRET faces such a condition, where energy suppliers of alternative energy technology are limited, mostly driven
by government and donor projects. Many are still in pilot projects and have small and/or geographically limited sales
and service networks.
Market awareness. Expansion of energy lending requires understanding whether better energy technology options
are available in the market, as well as the potential for energy lending. e ideal scenario for building good market
awareness is strong coordination and collaboration between all relevant energy market players and stakeholders. e
market can thus grow because the burden is spread among them. Compared to the other MFIs in the study, AMRET
94 Using Microfinance to Expand Access to Energy Services
faces the greatest challenge in expanding its energy lending because there is little market awareness of energy options
and lending products among Cambodians in general. Energy for Cambodians in areas not served by EDC is limited
to diesel generators and batteries. If there is no market education to introduce better technology options, the energy
market will be saturated by traditional energy sources and the market potential of energy lending will also decline.
e limitation caused by poor market awareness can also be seen in NUBL’s experience, where the lack of clarity of
the roles to be played by NUBL and energy suppliers has curbed market awareness of NUBL biogas loans.
Market competition and business entry risk. ough MFIs have a very special product to oer in terms of customized
products and services for energy, competition for SEWA, NUBL and many other new MFI entrants may come from
mainstream commercial banks that are very actively entering into the micronance arena especially in countries like In-
dia. While it is a welcome idea, the need for high initial investment in market development and capacity building may
pose serious business entry risk for new MFI entrants as there is a chance that banks may take over the MFI’s client base
in the medium term and MFIs may not be able to recover this initial investment for market development. erefore
there is a strong need for coordination with the banking sector in order to complement roles and bring in synergies.
Interactions between energy and micronance sectors. e absence or lack of interactions between the energy and
micronance sectors is a signicant obstacle to expanding energy lending, not only from a micro-context (MFIs) but
also from a macro-context (the whole country). Lack of general awareness about energy products as well as absence of
felt need for coordination seems to be an important bottleneck. is is exemplied by the case of AMRET in Cam-
bodia, where the MFI and energy companies have not yet explored any partnerships either for product enhancement
or improving client and geographical outreach.
6.4 OPPORTUNITIES
e market potential for energy lending by the MFIs studied is huge, especially because the electrication rate among
poor and rural consumers is still very low. In addition to lighting, energy demand among these consumers mostly in-
cludes cooking and energy for productive use or revenue generation activities. Strategically using existing client bases
as primary market targets for energy lending opens a relatively big market, given the premise that most clients have
energy needs and will be responsive to the oer of cost-ecient or revenue-generating energy option. Feedback from
clients also helped the MFIs shape their energy product, such as the design of the energy product—e.g., user-friendli-
ness, maintenance and operation, product pricing, users manuals and eective training, as well as quality, usability,
and durability. It also inuenced the design of the lending product (e.g., loan amount, loan term, interest rate, eligi-
bility requirement, and loan repayment scheme) and the design of the lending methodology (e.g., loan application
process and collection mechanism)
Market potential can be assessed from the gap between supply and demand of energy, such as the low electrication
rate in the case of all the countries studied. For example, the 2 million households in Sri Lanka without electricity are
mostly located in rural and estate areas and are the potential market for energy lending. In Nepal, BSP estimates that
there is a market for 1.9 million units; so far 160,000 units have been installed. Further, since more than 50 percent
of NUBL’s 75,000 clients have loans to purchase cattle, NUBL has a strong client base for biogas loans.
SEWA Bank surveyed the energy demand of its 290,000 clients to understand their demand for energy and charac-
teristics, and developed energy products and energy lending based on these proles. In addition, SEWA Bank could
tap the 700,000 client base of the full SEWA organization, which opens a huge market within which it could inte-
grate energy lending with a housing program, health program, education program, and other SEWA parent business-
es. e market potential in Cambodia is even higher because, compared to India, Sri Lanka, and Nepal, its electrica-
tion rate is among the lowest (17 percent nationally, and 13 percent in rural areas) and prices are among the highest
(between US$ 0.3–0.92 per kWh). However, this market potential is illusory unless better and cheaper technology
options become available and strong energy market suppliers emerge. e advent of new business opportunities for
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 95
the clients of MFIs, namely energy service entrepreneurs, multiplies the impact of an increasing new revenue stream
and employment opportunities.
MFIs have geographical presence in potential market areas for small-scale energy. While the current trend in Asia
is for the formal banking sector to begin to oer micronance services to small-scale energy clients, MFIs have greater
exibility to work in more remote and volatile areas. ey already have better geographical presence in the rural areas
that constitute a huge market for small-scale energy products. In the case of NUBL, political conicts have forced
banks to move away from rural areas, leaving MFIs as the sole nancial service institutions there.
6.5. RECOMMENDATIONS FOR REGIONAL REPLICATION
1. Strong co-ordination among relevant stakeholders. Good co-ordination among all stakeholders—MFIs, inves-
tors, sector facilitators, technology owners, energy service companies, and other market players—helps leverage the
scale of the market, minimize potential market distortion, increase eciency, synchronize the various and comple-
mentary roles of the stakeholders, and create a vibrant market system. e ideal map for various stakeholders that
builds an enabling business environment for expanding the energy lending is illustrated in Figure 6.1.
Based on the experience of the four MFIs here, it can be concluded that collaboration between MFIs, energy suppli-
ers (technology companies), and energy sector facilitators (policymakers, donors, NGOs, industry associations) oer
a number of options:
- Aligning energy lending with other livelihood programs that require energy provision, such as housing
loans
- Aligning energy lending with enterpriseíbusiness development programs that require energy for produc-
tive use or income-generating activities
- Aligning with NGOs and other sector facilitators which are ready to scale up proven energy technology
to commercial levels via a credit facility
- Tapping into credit enhancement and technical assistance schemes oĈered by sector facilitators (most
likely government and donors) to help oset challenges during the initial introduction of energy lending
2. Innoative product development, both technology as well as credit, appropriate to the market. e design of
an energy lending product must meet the needs of energy consumers, oer a exible delivery model, and optimize
the client base as the main target market. At the same time the energy product technology oered should: be demand
driven, contribute to cost eciency or the revenue-generation activities of clients, t the income and cash ow prole
of clients, and have positive health and social impacts. us it might be a good idea for the MFI to rst explore all
available technology options and identify the best t for the community and then build suitable nancial products to
improve its o take.
3. Innoative technical and credit risk mitigation. As with any lending business, nancing energy solutions involves
credit risk as well as risk from failure of the energy technology, change in technology or access to better technology,
lack of service infrastructure, and misuse or underutilization of the energy equipment (if there is poor or no client
education), etc. e various risks can best be managed through joint collaboration of energy and micronance stake-
holders. Risks should be shared among stakeholders based on their expertise and should not create incremental barriers
for poor consumers. Financing energy solutions calls for innovative risk mitigation strategies, such as pre-dening de-
liverables in MOUs signed with energy suppliers (high standards of quality on suppliers, warranties, buy-back options,
and client education), building market infrastructure, requiring and monitoring aer-sale service, establishing links to
formal insurance companies (if possible) or creating an internal insurance fund (with a limited liability clause) to cover
various risks to consumers and MFIs, co-ordinating with other energy companies or facilitators (e.g., an electricity
96 Using Microfinance to Expand Access to Energy Services
board to avoid areas where it plans to extend the grid), and involving partner energy stakeholders in credit appraisals,
feasibility analyses, and cost estimates, etc.
4. External funding for research, market promotion and introductory pricing. It is crucial to provide nancing to
both the MFI and energy service company that might cover product innovation (research and development), market
development, and product promotion in the initial stages as there is less felt need among clients for sustainable and
eco-friendly energy products. In the initial stages there is a need for a good marketing campaign for the energy tech-
nology and supply-side subsidies for making the lending products aordable and attractive. In addition, innovative
approaches, such as product trials by the prospective consumers, or tie ups with other broad based non-prot organi-
Figure 6.1 Energy Lending Co-operation and Co-ordination Among Key Stakeholders
Source: Khaula Karya Foundation, “Energy Business Development,” working document (Jakarta, Indonesia: Yayasan Khaula
Karya, 2006), http://www.khaula.org.
Manufacturers
Technology
Providers
Distributors
Market Awareness,
Capacity building for
microentreprenuers
Retailers/
ESCOs
End Users
NGO's
(economic livelihood
programs)
Regulated
Financial
Institutions
Fis' Local
Branches/MFIs
Donors/
Government
Microfinance
Facilitators
Technology
Service
Providers
BDSPs
Product
Testing
& Certification
Credit fund
Credit guarantee
Capacity
Building
Start-up
Capital
Credit
Guarantee
Credit
Channeling
Funding for
Institutional/
public users
Technical
Assistance
Capacity Building
(productive uses)
K
E
Y

A
C
T
O
R
S
Supply-Chain Actors
Supporting Institutions Market-based transaction Supportive Intervention
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 97
zations in the area may be eective means of market education and spreading the costs across multiple organizations
as it might be dicult for most MFIs to absorb the cost of market development by themselves. MFIs that have a non-
prot arm may be well suited to initiate energy lending in order to absorb some of the initial costs of product promo-
tion as well as capacity building. is could also help absorb the initial risk of product development without aecting
the overall portfolio quality of the MFI.
A supply-side subsidy may be needed in the beginning for some energy products to bridge the gap between market
price and consumers’ aordability. ese subsidies have proven to be eective in promoting domestic biogas plants
in Nepal, and SHS and village micro hydro schemes in Sri Lanka. e price subsidy helps to bring down the eective
cost of equipment and/or installation for the clients. Supply-side subsidies are important if the price of equipment
increases beyond the reach of poor. (In Sri Lanka, the price of solar photovoltaic increased by almost 30 percent over
the last 1.5 years to the point where SEEDS believed that any further increase would put it beyond the reach of most
of its clients.) e challenge with a price subsidy is to target and reach the right clients, which requires clearly identi-
fying those clients who qualify for the subsidy and applying the concessions based on sound criteria.
And nally a balance needs to be created among the commercial, social and environmental interests of the MFI so
that it can tap the emerging growth of energy lending. is balance would help sustainable business growth, strong
customer loyalty, and the ability to take advantage of mission-based funding opportunities.
5. Aligning energy program with MFIs’ capability to manage technology-related solutions. e success of energy
lending by MFIs depends on management capability to design, customize, and service the various needs of clients; to
successfully collaborate with external agencies to enhance strategic strengths, minimize risks, and widen the service
base; to adopt professional management systems to enhance transparency and accountability; to take on risk, experi-
ment, and adapt to change; and to balance commercial and social objectives. Since Energy lending is not the core
business of most MFIs, it is seen that MFIs involved have gone through a learning cycle wherein they have initially
retained some functionalities in house—for example, stock management as in case of SEEDS—but have outsourced
it at a later point as the organization’s learning process evolved. e cases of SEWA Bank and SEEDS demonstrate
that MFIs can in fact master the energy technology piece. SEWA Bank’s prociency in understanding the nature and
characteristic of available energy technology enabled it to design an appropriate technical risk mitigation strategy,
institute robust product and service standards for the energy suppliers via MOUs, design and customize energy prod-
ucts that meet the needs of its members, design eective marketing strategies, monitor and control the product and
service delivery by the energy suppliers to its clients, and actively disseminate comprehensive information to prospec-
tive customers on both the energy product and the loan product. erefore it may be important for MFIs to consider
these multiple dimensions in order to create a sustainable and robust energy lending model.
6. Understanding the MFIs’ larger challenge to cater to the “poorest of the poor” markets. e need for better
energy solutions can mostly be found among the most poor, the segment of population which most MFIs still fail to
serve. is is a signicant challenge, especially for MFIs because the scale of nancing involved in energy lending may
require a larger quantum of loan as compared to traditional micro-credit and needs to be secured through some mode
of collateral. Of the MFIs involved in the study, SEWA Bank’s approach is friendlier to the poorest of the poor, due to
its customized energy product and exible loan repayment scheme. SEWA Bank also emphasizes energy technology
selection that contributes to better cash ow for its clients (by reducing the cost of energy or increasing productivity
and yield as a direct result of using a product). e direct or indirect incremental cash generated from such an ap-
proach enables the energy clients to repay their loans. SEEDS while highly proactive in reaching out to a diverse set of
clients, nds its management capability inadequate to handle the challenges of reaching out to the poorest of the poor.
Under its current biogas loan policy, NUBL cannot target the poorest of the poor energy consumer because its biogas
loan is classied as a consumption loan and eligible borrowers must have a proven credit history with NUBL and also
should own some form of farm/backyard enterprise like dairy as a prerequisite for qualifying for biogas loans. is
type of policies, while a prudent nancial practice, may create barriers for rst time borrowers, even those with good
cash ows.
98 Using Microfinance to Expand Access to Energy Services
7. Addressing the strategic conict. Adopting and introducing special loan products such as energy lending
requires strategic decisions, especially when there is potential conict of priorities between promoting a general
nancing program and an energy program. Energy programs require large loans with longer loan terms—which for
most MFIs mean higher credit risk and are limited to those clients who have proven creditworthiness. Moreover,
most MFIs prefer to lend for productive purposes and energy loans are oen perceived to be for consumption. In
addition oering energy products may be sometimes a dis-incentive for the frontline loan ocers given the relatively
higher investment of time in client development. All this could make oering energy loans somewhat less attractive
to MFIs. At the same time interest rates charged by MFIs are perceived as high by energy stakeholders, who may not
understand the realities of micronance upfront. is could prevent strategic collaborations between energy compa-
nies and MFIs.
With commercialization, MFI operations are driven to attain protability in a short-to-medium time span, which
demands fast portfolio growth. However, growth of energy lending cannot be expected to be as fast-paced. Market-
ing and client education eorts may require a longer gestation period, installation of energy equipment takes time
(construction of a biogas plant takes 20 days), two or more agencies may be involved (with cost and/or feasibility
analyses by each energy player), seasonality is a consideration (no construction or dysfunction of certain technologies
during monsoons), certain geographical locations are challenging (hilly regions or regions with less sunlight), and
eld ocers need special technical training.
MFI collaboration with energy stakeholders for energy lending, if not done under an appropriate institutional
framework, can be perceived as interference since MFIs may need to build exclusive systems to suit the requirements
of energy stakeholders. Moreover, external challenges over which MFIs have no control—such as the sudden, unan-
nounced grid expansion can make investment in energy lending uninviting.
6.6 REPLICATING MFI MODELS
e rule of the thumb is that there is no one-size-ts-all model for replication. Any MFI interested in introducing
energy lending program needs rst to understand their country context and market prole and then choose those ele-
ments from best practices that best t its situation.
SEWA Bank model: Among these four MFIs, SEWA Bank’s energy lending has the most pro-consumer approach
and the fewest barriers to the economically active poor, and thus is the most ideal model to increase the access of
poor consumers to modern energy. However, there are a number of pre-requisites and a country context that speci-
cally contribute to the viability of its model, which must be taken into consideration:
- ăe energy and electricity price within the country must be market driven (representing true cost) be-
cause this condition enables renewable and cleaner technology to compete with conventional energy and
electricity solutions.
- It requires strong commitment and support by top management to promoting energy lending as one of
the ways to achieve the MFI’s mission.
- Any energy partner that exclusively collaborates with the MFI must share a similar mission, approach,
and target clients with the MFI, and essentially be a social entrepreneur that is willing to balance the
social, commercial, and environmental goals.
- ăe energy partner must have the strategy to build adequate decentralized sales and service networks to
suciently cover the geographical areas where the MFI operates.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 99
- Both the MFI and its energy partner must agree and commit to a similar program of energy lending (e.g.,
such as a one-stop energy shop with customized and demand-driven energy and lending products) and be
willing to invest their funds, resources, and networks jointly to build the energy lending program.
- ăe MFI must have a signiđcant client base as the potential market for energy lending product. In addi-
tion, to increase the cost eciency of introducing customized energy products, it is preferable if the client
base has similar, rather than varying, energy needs.
- ăe MFI must have a strong market infrastructure which the energy-lending product can build upon and
thus reduce the marketing and promotion costs.
- ăe MFI needs either to secure grant funds or carefully calculate its cost structure before introducing an
interest refund as an incentive for clients to pay regularly.
SEEDS Model: Among these four MFIs, the SEEDS energy lending program is the oldest and has the widest geo-
graphical coverage and biggest portfolio. However, it had signicant help in developing its program and the favorable
conditions it operates under.
- Strong government policy and support from sector facilitators adds a huge advantage to introducing a
renewable energy/electrication program. In Sri Lanka, this included providing technical assistance (e.g.,
imposing minimum standards for product and services, fostering the growth of strong energy suppliers
and other market players, creating public awareness, and helping build the capacity of nance institu-
tions) as well as a nancing facility (e.g., loan fund, credit enhancement schemes).
- Strong market players need large decentralized sales and service networks, which overlap with the geo-
graphical presence of MFIs. ese market players must comply with good standards of products and
services to minimize potential arrears resulting from technical risks.
- Strong top management commitment to develop the energy-lending program should include a dedicated
division, supported by sucient sta that are specically trained for energy lending.
NUBL Model: Compared to the other MFIs, NUBL is a relatively new MFI and has a small portfolio. However, its
energy-lending model has strong potential to expand, given certain considerations. MFIs should commit to develop-
ing energy lending and even be willing to use their own funds, and to customize the loan product to meet specic
demands. NUBL oered its biogas loan as a parallel loan to its clients’ loans for cattle and sanitation improvements,
which in turn provided them with necessary organic elements for their biogas system.
- Having a widespread geographical presence in areas where there is a large need for alternative energy solu-
tions should be taken advantage of.
- Sector facilitators should fully support capacity building, standards for products and services, and market
awareness.
- Strong market players should provide decentralized sales and service networks that overlap with the MFI's
geographical presence in order to provide quality products and services as mandated by the government.
AMRET Model: AMRET’s lending model is the only one of the four MFIs whose energy lending falls under a
general business loan and is not a special product. Although its potential thus far is limited by Cambodia’s immature
energy sector, AMRET shows that an MFI can provide exible nancing to its clients while maintaining its portfolio
quality. Areas for intervention include product documentation, establishment of standards, training and employment
of sucient numbers of installation and maintenance technicians, knowledge management, and creation of market/
client awareness.
100 Using Microfinance to Expand Access to Energy Services
6.7 OPPORTUNITIES FOR MFIS AND OTHER MARKET PLAYERS
Micro-lending for energy consumers oers great potential for MFIs to expand their business beyond existing client
bases. However, being knowledgeable about energy technology and actively interacting with energy sector players are
key when designing an energy-lending program that produces a robust loan portfolio. e best practices and lessons
learned from this research, as well as country-specic contexts (e.g., policy environment, energy scenario, market
infrastructure, and energy supply chain players), provide a good starting point for other MFIs in developing countries
for craing their own eective energy-lending programs.
e global initiatives that call for utilizing MFIs and micronance as a strategic means to expand access to modern
energy services among poor consumers also provide opportunities to reach economies of scale, particularly with
small-scale, decentralized, or individual energy solutions. For many years, the market for such energy solutions was
frustrated by the fact that its potential consumers could not aord the technology. e availability of micro-lend-
ing to help defray the upfront costs of cleaner, more ecient energy technology has removed that barrier. Further,
such micro-lending facilities for poor energy consumers should be instrumental to energy suppliers in building up a
market that justies the investment in developing decentralized sales and service networks.
As demonstrated by this study, initiatives for fostering the development of micro-lending for energy consumers in
each of the four countries can come from any of the stakeholders, as long as they collaborate with other key players.
e URJA Project of SEWA Bank and SELCO demonstrated a highly successful collaborative energy-lending proj-
ect. e RERED Project of Sri Lanka and AEPC/BSP of Nepal showed how governments and donors can promote
energy lending by MFIs. e Solar Industry Association in Sri Lanka urged solar companies to contribute to an
enabling environment by soliciting government policy and support for a strong market for the photovoltaic industry.
Further, NGOs such as Winrock International (Nepal), Energy Forum (Sri Lanka), and GERES (Cambodia), repre-
sent the active role NGOs can play in promoting energy lending for poor consumers.
6.8 OPPORTUNITIES FOR CITI FOUNDATION AND OTHER DONORS
Donors and other organizations with a sustainable development mission, such as Citi Foundation, may nd micro-
lending for energy consumers to be an eective tool that increases poor people’s access to modern energy, fosters use
of renewable or cleaner energy in developing countries, and improves social and economic livelihood of the poor. e
most eective strategic interventions by donors are nancial and technical support.
Financial support for energy lending is primarily needed to kick o a lending program and to bridge any mismatch
between an MFI’s loan policy and borrowers’ nancial capacity. is could be support that enables the bank to lower
an equity nancing requirement, extend the loan period beyond three years (such as for micro hydro), provide a grace
period, and reduce collateral requirements. However, it should be understood that such nancial support ought to be
available only until an MFI reaches enough momentum where business-as-usual terms and conditions can be applied.
is understanding is important to avoid potential market distortion by donors that can jeopardize the sustainability
of an MFI’s energy-lending program.
Financial support can be crucial when an MFI enters a business sector—such as decentralized and small scale energy
solutions—that not only is new to the MFI but also to its target market and the market players. Options for donor
nancial support to MFIs in this case may include transaction cost sharing, credit enhancement schemes, risk mitiga-
tion schemes, and specic loan funds for nancing local energy companies that adopt energy delivery models to
reach potential consumers who are not bankable.
Financial support needs to be combined with strong technical assistance that has a pragmatic focus on building
market infrastructure (networks that disseminate, install, and service, and reach customers’ locations) and market
awareness. Taking into account the challenges and baseline conditions that exist in many of the developing countries
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 101
where MFIs operate, technical assistance to help energy lending succeed include (1) developing market studies that
specically target the existing client bases of the MFIs, (2) formulating technical standards for quality products and
services and requiring compliance by the energy vendors, (3) advising the MFI on the design of an energy-lending
program, (4) assisting with market development activities, and (5) fostering development of the supply-chain. In
many developing countries, the weakest point for scaling up energy lending program is the lack of sucient numbers
of stable energy vendors that have decentralized sales and service networks. Any MFI’s energy-lending program needs
to be supported with means to gure out and conquer such a challenge.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 103
BIBLIOGRAPHY
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Perspectives.pdf. Accessed July 1, 2007.
104 Using Microfinance to Expand Access to Energy Services
Rural Integrated Development Services-Nepal. n.d. “Smokeless Metal Stoves.” http://www.rids-nepal.org/index.
php?option=com_content&task=view&id=82&Itemid=115. Accessed July 1, 2007.
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not all reports accessible.
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The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 105
APPEND!X฀1฀º฀FPAMEWDPK฀DF฀DUE5T!DN5฀
DEVELOPED FOR THE FIELD RESEARCH
is template shows the basis questions used in collecting data from each MFI and, where appropriate, from energy
enterprises and clients. Based on individual country and MFI situations, and discussions with stakeholders, the ques-
tions were modied slightly by the Asia Research Consultant where appropriate.
BACKGROUND RESEARCH
1. Country Context—Macro-Level Policy and Regulation
a. What are the overall economic and political characteristics of the country and region that impact volatil-
ity of markets (rate of ination, growth of GDP, transition economies, conict or political unrest, corrup-
tion, etc.)?
b. Who are the major suppliers of nancial services in country—development bank, central bank, credit
unions, village banks, etc.—and what role does each play?
c. What role do government agencies and donors play in providing support to the MFI (funding, capital,
technical support, capacity building, etc.)? What role does government play in microenterprise develop-
ment and how do these activities inuence the environment for private micronance—distort the market
or positively contribute to the supply of services?
d. What is the availability of and access to infrastructure (roads, communication, water and sewer systems,
etc.) and social services
1
* (health, education, and nutrition) for the MFI’s client base?
e. How do existing nancial sector policies aect the provision of micronance in country—interest rate
policies, government-mandated credit allocations, legal enforcement of contractual obligations, ability to
seize pledged assets, etc.?
f. What forms of nancial sector regulation exist, and are MFIs subject to these regulations? Are there
minimum capital requirements to enter the nancial sector? What are the standards for debt versus eq-
uity (degree of leverage), asset quality, and liquidity?
2. Microfinance Institution Profile—Portfolio Risk, Management, Ownership and Governance, etc.
a. What is the MFIs institutional structure—non-governmental organization (NGO), savings and credit
cooperative, commercial bank, etc.?
b. What are the characteristics of the MFI’s ownership and governance—oversight of management, organi-
zational governance and ownership structures, decentralized operational system, management eciency
and information, etc.?
c. What are the MFI’s expressed objectives (reduce poverty, empower women, create employment, en-
courage business development, etc.) and who is the target market (rural/urban, gender, ethnicity, caste,
religion, language, etc.)?
1. * For example, the availability of education and health services greatly inuences the capacity of microentrepeneurs to increase their
enterprise activities.
106 Using Microfinance to Expand Access to Energy Services
d. Does the MFI provide social services in addition to nancial mediation, such as health, nutrition, educa-
tion, and literacy training?
e. What are the ways in which the MFI’s activities are funded—government or donor funding, equity,
investment funds, guarantee funds, etc.?
f. What is the MFI’s institutional capacity in terms of business planning, product development, manage-
ment information systems, and nancial management?
g. Do donated funds constitute equity under current practices? Do concessional funds provided by donors
constitute debt and therefore aect the leverage of the MFI?
DUE5T!DN5฀FDP฀MF!฀AND฀ENEPSY฀PPDV!DEP
3. Loan Product Design and Lending Methodology
a. What are the specic loan characteristics unique to lending for energy and which are more generic and
found in other loans?
b. Does the MFI use dierent lending methodology within the energy portfolio than other portfolios? If so,
what was changed to accommodate energy-specic needs?
c. Does the MFI oer competitive interest rates in relation to the market? What are the energy loan interest
rate options? Are interest rates and fees transparent and well documented?
d. Do loan ocers require additional training to be able to administer energy loans? If so, what kind of
training?
e. How robust is the accounting and administration of the lending portfolio? Is it computer or manually
administered?
f. When and how are lending portfolio analyzed? What criteria are used in the analyses, and are new pro-
grams subject to dierent analyses than established programs? Is the energy lending program analyzed
separately from other programs?
g. Are there other specialized end-use loans in their overall lending portfolio? What are the general criteria
for adding a new type of loan?
h. What kind of market research was done in preparation for establishing the energy lending program?
What was determined to be the size of market demand for energy lending?
i. Was the energy lending program initiated based on a demand for such a loan? Were other loans serving
energy consumers insuciently? If so, how?
j. Are the energy loans subsidized in any way, and if so, by whom?
k. How was the energy loan interest rate determined?
l. Is the MFI partnering with an energy entrepreneur to provide the needed technology and operation and
maintenance?
m. What is the energy loan methodology—i.e. does the MFI provide credit for the purchase of energy tech-
nologies or does the MFI provide the capital directly to the client? How is the energy loan provided—in-
dividual lending, group solidarity lending, etc.?
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 107
4. Characteristics of Energy Loans
a. Client demographic data: sex, age, household income, savings, residential population density, family size.
b. What is the average cash pattern and debt capacity for energy-loan clients? Is there a minimal equity
requirement for the energy loan?
c. What is the energy loan cost structure—nancing costs, operating costs, cost of capital, etc.? Are there
any other fees or services charges?
d. Does the MFI’s accounting system record depreciation on energy-related capital? If so, how is it deter-
mined?
e. What are the end-uses of energy loans? Is energy product used a consumer product or productive uses
(i.e., income generation) or both? What types of technologies are used and how? How large are the instal-
lations? (in watts)
f. Is there a correlation between clients seeking energy loans and other types of loans? For example, are
energy loans oen preceded by other types of loans such as housing or small business loans? Conversely,
do clients who begin with energy loans progress to other types of loans such as small business loans?
g. How much of the total lending portfolio does the energy lending program constitute? What is the nan-
cial performance of the energy lending program?
h. What is the protability, total outstanding balance, repayment rate of the energy program?
i. Does the energy lending program include reliable and capable operations and maintenance support for
clients? If so, who provides this service?
5. Impact Assessment of the Energy Program or Product
a. How does the MFI currently determine who is being reached by micronance services and track how
these services are aecting their lives?
b. If the energy loan is provided in the form of cash rather than capital, does the MFI track how the loans
are spent? If so, how does the MFI sta track this?
c. Are there identiable reasons why borrowers may not accurately report how they are using the loan—em-
barrassment, fear of taxation, not wanting others to know about the loan, etc.?
d. What are the direct and indirect impacts of the program on individuals’ livelihoods and quality of life
(economic, sociopolitical, psychological, physical health, etc.) on both the household and individual
levels? Have these impacts been measured before, during, and aer the initiation of nancial services?
e. What impacts have been observed on household income, assets, education, health, housing, and commu-
nity participation?
f. What methodologies were used to quantify these impacts? What is the socio-economic target market of
the energy lending program? Who is being served? Is this the intended market for the energy loan?
108 Using Microfinance to Expand Access to Energy Services
6. Interactions among MFI, Energy Enterprises, and Customers
a. What information does the MFI provide to potential customers and what is the content and process by
which a lending relationship proceeds?
b. What information does a customer need and receive from an MFI and what information and actions oc-
cur before and during a lending relationship?
c. What is the process and information through which a customer and an energy enterprise become intro-
duced? What information does the enterprise exchange with the customer? What information is ex-
changed concerning the programs of the energy enterprise?
d. How does the energy enterprise interact with the MFI? What information does it provide?
e. Where MFIs nance energy enterprises directly (rather than just for consumer / customer loans), what is
the basis of this relationship? What is the status and type of program being oered by the MFI? What are
the terms and experience base? What is the history of these relationships?
f. Sales and Marketing—does the MFI have a sales and marketing or business development services (BDS)
department? If so, how does the BDS sta go about marketing the energy product? How do they mentor
and support clients and businesses in general and those that are energy-related, in particular?
DUE5T!DN5฀FDP฀THE฀CL!ENT5
a. What are the energy needs of the household (cooking, lighting, heating, etc.) per day? How many people
live in the household?
b. When did you buy the improved energy product? At what cost?
c. Is this the 1st, 2nd, 3rd, etc improved energy product you’ve bought? If a repeat buyer, did you buy from
same or dierent MFI (s). If so, why?
d. What were you using before you acquired the improved energy product? Why did you choose to switch?
Since you acquired the new product, do you only use the new/improved product or both (i.e., used both
old and new)?
e. How did you learn about the types of energy technologies available in the market? Who trained you on
the operation and maintenance of the product you bought? If trained, how have you beneted from the
training? If not trained, what problems have you experienced and how did you solve them? Would you be
interested in receiving training? What is your willingness to pay for such training?
f. What other non-energy products have you bought in the last 2-3 yrs and at what cost? Which ones did
you buy cash and which ones via MF credit? Before your MFI created the energy product, were you aware
such improved energy technologies were available in the market? Were you planning to buy such energy
products? Why didn’t you buy the energy product without credit?
g. Did the MFI give you cash to buy the energy product or did the MFI supply the actual product? If MFI
or its partner supplied the product, is it exactly what you wanted? Does it match your needs? If given a
choice, would you rather receive cash and buy the product yourself or receive the product from the MFI?
What are the advantages/disadvantages of each approach?
h. Are there other energy products you would want but are not currently oered by your MFI? If so, what
are they?
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 109
OTHER IMPORTANT INFORMATION
To enable us calculate the Cost-Recovery Factor (CRF) for improved/modern energy products, the following data is
needed:
a. Technology type (e.g., LPG, solar PV, improved wood/charcoal stove, biogas, etc)
b. When was it bought?
c. Capital cost:
i. at which it was bought with credit
ii. capital then without credit*
iii. capital now with credit
iv. capital now without credit (local market price if paid in cash)*
d. Life time of the technology (yrs)
e. Loan interest rate, country specic discount rate and annual ination rate
f. Energy use per family or business (in appropriate units, liters, kg, watts per unit of time).
g. Energy price/unit, which are to be veried in the market with dealers and relevant government.
110 Using Microfinance to Expand Access to Energy Services
APPEND!X฀2฀º฀DETA!L฀DF฀F!ELD฀V!5!T5฀
AND RESPONDENTS
Field visits were conducted for 5–6 days. e rst day was spent at the head oce with the senior management team
to understand the organizational structure, operations, loan products, systems, and policies of the MFI. e second
and third days were at branch oces, meeting with operational sta and clients. e fourth day had meetings with
dierent energy and micronance stakeholders to appraise the partnership between MFI and energy service provider
and gain a thorough understanding of the country’s energy sector. e h day was spent completing the data col-
lection, seeking clarications, and presenting the ndings of the eld research to the MFI management sta. In some
cases, the order of meetings was dierent due to the availability of dierent stakeholders.
Detail of Field Visits and Respondents
INDIA SRI LANKA NEPAL CAMBODIA
MFI SEWA CEO, general
manager, and staff over-
seeing energy lending
at the home office; op-
erational staff including
extension counter staff
and banksaathis*
SEEDS deputy banking
director and field man-
ager at home office, plus
operational staff includ-
ing deputy managers of
Ratnapura and Kegalle
branches
NUBL executive director,
general manager, internal
auditor, planning and hu-
man resource department;
operational staff at Bela-
tari and Tadi branches
General manager, heads
of marketing and commu-
nications, IT, MIS, opera-
tions, human resources,
inspection and finance
departments
Energy
Stakeholders
CEO of SELCO Shell Solar, Suryavahini,
Solar Industries Associa-
tion, HPI, DFCC/ Renew-
able Energy for Rural
Economic Development
(RERED), Energy Forum
Regional Biogas Co-ordi-
nation Committee, Alter-
native Energy Promotion
Centre (AEPC), Biogas
Sector Partnership (BSP),
and 4 biogas companies
World Bank, Énergies
Renouvelables Envi-
ronne-ment at Solidarités
(GERES), Ministry of
Industry, Mines, and En-
ergy (MIME), New Energy
Group, Biogas Digester
Program, battery and
diesel generator shops
Other MFIs Ceylinco Leasing Paschimanchal Grameen
Bikas Bank and Pragatish-
eel Women Co-operative
Maxima Microfinance
Clients Four end-user energy
clients and one energy
entrepreneur
4 clients with solar loans
in Ratnapura and 5
clients with grid con-
nection loans in Kegalle
District
5 clients in Belatari
branch and 10 clients in
Tadi branch
2 clients in Kampong
Tralach District: 1 rural
electricity enterprise
(REE) and another battery
charging station
* SEWA Bank has a team of banksaathis to serve its clients–a cadre of community financial assistants, who aid in collecting
cash, informing women about SEWA Bank and its products, and winning people’s confidence. They are paid a commission for
this work, based on the cash they collect. http://www.sewabank.org/activities/index.htm
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 111
APPEND!X฀3฀º฀PE5EAPCH฀METHDDDLDSY
OBJECTIVE OF THE STUDY
e study aims to document the opportunities, challenges, costs and eects of integrating energy products into an
MFI’s product mix, develop feed back for future expansions of MFIs energy lending products, and share the lessons
learned with the industry at large.
THE FRAMEWORK
e research study covers three stakeholders—MFI, clients and energy suppliers, and the research covers the follow-
ing aspects:
Microfinance Institution (MFI)
1. Ownership, governance and strategy, products oered, micronance policies and management systems,
funding sources
Ownership, governance and strategy includes ownership structure, quality, and appropriateness of the
board composition; its role and overall organizational strategy; adequacy of management oversight; orga-
nizational structure; and nancial depth.
Management systems include quality of human resources; the strength of critical systems, such as ac-
counting and management information; security and internal controls; portfolio tracking; and nancial
planning and control.
2. Financial performance requires the team to review existing nancial statements, based on internationally
accepted prudential norms, to present a fair picture of the energy operations. e team used this informa-
tion to assess the energy loan portfolio’s performance through various indicators, including productivity
and eciency ratios, nancial viability, portfolio quality, protability ratios, etc.
3. Impact assessment used past research and the MFI’s system to identify impacts
Impact included direct and indirect impacts on individuals’ livelihoods and quality of life (economic,
sociopolitical, psychological, physical health, etc.) at both household and individual levels; impact on
household income, assets, education, health, and housing, and community participation. e team also
examined existing performance indicators and procedures for monitoring and evaluating the develop-
ment impacts of energy loan products.
4. Details of collaborations covered were energy suppliers, terms and conditions of contract, experience of
working with energy suppliers, other energy suppliers and energy products available in the market. e
team also examined the rationale for the energy product’s design—how the collateral requirements, loan
pricing, repayment terms, and eective rates were determined.
5. Specics of energy loan product(s) were target group, energy client prole, lending methodology, prod-
uct design, technology used, energy delivery model, end uses of energy loans, portfolio tracking, funding
sources, risk mitigation strategy, external collaborations, trainings, marketing strategy, etc.
112 Using Microfinance to Expand Access to Energy Services
Clients
1. Identify impacts on household and individuals livelihoods/quality of life
2. Identify and understand the pattern of energy product usage in past and present
3. Identify past, current and future energy needs of the clients
4. Understand client cash ows, willingness to pay for energy services, knowledge and understanding of energy
technology/products, training provided in operation of energy technology, benet derived from energy
products
5. Identify any problems they faced in managing energy loans (if any)
6. Determine details of interactions between client and energy supplier
7. Understand how clients learned about the energy product (existing or repeat loan customer, marketing
and outreach, etc.)
Energy Suppliers
1. Examine details of contract with MFI, direct sales and aer sales service provided to clients, details of
interactions with MFI and client.
2. Examine details of the delivery model adopted to service the clients.
3. Look at the rationale for technology selections to be included into MFI energy lending products.
4. Determine what market infrastructure was available to the clients
5. Review marketing and outreaching strategy
6. Analyze constraints and opportunities in working with MFIs
e team also surveyed local markets to build understanding of all energy products oered and the general level of
competition in both the micronance and energy sectors.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 113
ENERGY
SUPPLIERS
CLIENTS
MFI
ll. Rlal 1ces lle Mll µrcºi1e
lc lle ererç¡ stµµlier°
lZ. Rlal 1ces lle Mll ree1
írcr lle ererç¡ stµµlier°
l. Rlal 1ces lle Mll µrcºi1e lc
lle ctslcrer°
Z. Rlal 1ces lle Mll ree1 írcr
lle ctslcrer°
J. Rlal 1ces lle ctslcrer ree1 lc
µrcºi1e lc lle Mll°
1. Rlal 1ces lle ctslcrer ree1
írcr lle Mll°
9. Rlal 1ces lle ererç¡ stµµlier
ree1 lc µrcºi1e lc lle Mll°
lJ. Rlal 1ces lle ererç¡ stµµlier
ree1 írcr lle Mll°
!. Rlal 1ces lle ererç¡ stµµlier
ree1 lc µrcºi1e lc lle ctslcrer°
&. Rlal 1ces lle ererç¡ stµµlier
ree1 írcr lle ctslcrer°
5. Rlal 1ces lle ctslcrer ree1 lc
µrcºi1e lc lle ererç¡ stµµlier°
C. Rlal 1ces lle ctslcrer ree1 írcr
lle ererç¡ stµµlier°
Before Country visit
Scheduling &
meeting arrangement
PROCESS
Collecting
Background Info
Introductory meeting with executive director and staff of MFI to review research methodology and
schedule, as well as MFI’s energy portfolio and future strategic plans
Discussion with operations in charge, data gathering at office level.
During Country visit
FIRST DAY
Field visit – Visiting branches, discussion with branch officers, meeting borrowers (group discussions
and individual interviews), meeting energy suppliers/partners.
SECOND DAY
Field visit – Visiting branches, discussion with branch officers, meeting borrowers (group discussions
and individual interviews), meeting energy suppliers/partners.
THIRD DAY
Field visit – Survey of local markets on available energy products, energy suppliers, and microfinance
suppliers, to understand general level of competition locally.
Discussion based on field Vsit and follow-up on data collection
FOURTH DAY
Initial Data Analysis
Wrap-up meeting with management (debriefing)
FIFTH DAY
Data analysis and report writing
After Country visits
Report sent for Feedback to SEEP and MFI
Report Finalized
Final Report to SEEP and MFI
Note: The days spent in MFI may extend from 4-5 days based on the scale of microfinance lending in energy sector.
Relationships Among the Three Stakeholders
114 Using Microfinance to Expand Access to Energy Services
APPEND!X฀4฀º฀PDLE฀AND฀PESULAT!DN฀DF฀
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The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 117
APPEND!X฀7฀º฀5UMMAPY฀DF฀PE5EAPCH฀
FINDINGS AND THE COMPARATIVE FEATURES OF
THE MFIS STUDIED
Establishment of Energy Lending Finance
SEWA BANK SEEDS NUBL AMRET*
Starting year 2006 1999 2005 Not specified
Energy lending
initiator
Self-initiated Solar loan initiated by parent
organization (Sarvodaya);
Grid loans by ADB, and vil-
lage hydro by RERED
Initially started by
government loan
fund for biogas
micro-lending
Not relevant: energy lend-
ing part of business loan
product
Energy program
characteristics
- One-stop energy shop
- Customized products
Doorstep energy solutions Doorstep energy
solutions
N/A
Energy Products
SEWA BANK SEEDS NUBL AMRET*
Energy products
offered
PV-SHS/battery charging, solar
lantern, improved cookstove, sarai
cooker*
SHS, grid connection,
village hydro scheme
Domestic biogas
plant
No bank interven-
tion on energy
product/ technology
selection by clients
Product
characteristic
Demand-driven, technologically
neutral
Designated options
for energy products
Designated energy
product (thus far only
single product)
Product
innovation
Proactively carried out internally in
collaboration with energy partner,
to explore better energy solutions
for clients
Subject to product
trends introduced by
government/donor
Subject to external
intervention (e.g.,
donor, government,
NGO)
* A sarai cooker is a non-pressurized stainless steel steam cooker that uses about 150 ml of water heated by 100 g of charcoal
briquettes. The cooker heats three cook pots (stacked one on top of the other) on all sides, not just the bottom. Boiling and evapora-
tion tests show about 70% efficiency. “ARTI develops a novel biogas plant,” update, Good News India, June 1, 2004, http://www.
goodnewsindia.com/index.php/Supplement/article/294/.
Services
SEWA BANK SEEDS NUBL AMRET
After-sale
service
Free maintenance and opera-
tion during warranty period by
the vendor
- SHS: After-sale service by solar com-
panies based on MOU with SEEDS
- Grid connection loans: N/A
- Micro hydro: Based on MOU between
ECS* and equipment supplier
Free within
warranty period
by the biogas
companies
Based on warranty
period of diesel
generator and bat-
tery purchased
Training Training by vendor at the time
of installation and to poten-
tial clients during business
and financial counseling
- SHS: Training at the time of installa-
tion by solar company
- Micro hydro: Developer’s responsibility
Formal one
day training by
company after
construction
Not applicable
* Electricity co-operative society
118 Using Microfinance to Expand Access to Energy Services
Risk Management for Energy Lending
SEWA BANK SEEDS NUBL AMRET
Technical risk
management
- Technical risk cov-
ered by SELCO
- Buy-back option by
SELCO within 5 years
- SHS: (1) Enforcement of World Bank RERED Proj-
ect Standards; (2) MOU with solar companies; (3)
5% of the loan used as savings deposit from small
companies to cover contingencies
- Grid: NA
- Village hydro: no initiative by SEEDS
Not available Not
applicable
Credit risk
management
Follow-up by commis-
sioned agents
- SHS: (1) MOU with solar companies to remove
solar panels from the house of the client in case
of default; SEEDS retains ownership until loan is
repaid; (2) internal insurance fund; (3) MOU with
company for buy-back option in case grid connection
becomes available
- Grid: Affidavit with Ceylon Electricity Board (CEB)
to disconnect grid connection in case of default
- Micro hydro: Peer pressure through ECS members
Not available Not
applicable
Other unique
features
- Energy need pre-as-
sessment by vendor
for client
- Initiated with a 15
day equipment trial
period, before the loan
sanction
- SHS: Client energy need pre-assessment by solar
company; preliminary loan appraisal by vendor
- Grid: Cost estimates by CEB for grid connection
- Micro hydro: Complete project management by
“developer”
Cost esti-
mates/price
quotation by
biogas com-
pany prior to
loan approval
Not
applicable
Loan Portfolio
SEWA BANK SEEDS NUBL AMRET*
No. of energy
clients (at time
of research)
SHS – 28
Solar lantern – 66
Sarai cooker – 630
SHS – 58,000
Grid connection – 3692
Village grid – 14 ECS
Biogas plants – 65 707 business owners: 101 of
these businesses are battery
charging services
Total no. of
loans disbursed
94 loans, with
total value of INR
641,992 as of
August 2006
Over 58,000 solar loans;
3,692 grid loans; and 14
village hydro scheme loans,
with total value of LKR 955.1
million as of August 2006
65 loans, with
total value of NRs
975,000 as of
October 2006
707 loans, with total value of
354 million Riel as of June
2006.
Energy portfolio
against bank’s
overall portfolio
Less than 1% of
total portfolio as of
August 2006
Constitutes 30.8% of total
microfinance portfolio as of
June 2006
Less than 1% of
total portfolio as of
September 2006
0.7% of total microfinance
portfolio as of June 2006
Portfolio quality Energy lending:
0% PAR > 0 days
Energy lending: 35% PAR
>60 days (as of June 2006)
Energy lending:
0% PAR > 0 days
Energy lending: 0% PAR > 0
days
Profitability and
sustainability
N/A since the
program is new
ROA of 1.5% as of 31 March
2006
N/A since the
program is new
N/A, since the energy portfolio
not accounted for separately
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 119
Relations with Energy Suppliers
SEWA BANK SEEDS NUBL AMRET*
Relations
Charac-
teristic
Exclusive collaboration
with SELCO to develop and
implement one stop energy
shop that pro-vides wide
selections of better energy
products together with cred-
it line. Both parties invest
their resources to establish
and promote URJA Project.
- SHS: Non-exclusive MOUs with SHS
suppliers to ensure quality deliverables
to its clients.
- Village grid: SEEDS does not main-
tain contact with equipment suppliers.
ECS enters into MOU directly with the
assistance of project developers.
- Grid connection: Collaboration with
CEB as the provider of grid electricity
Due to favorable policy
environment and high
quality control main-
tained by biogas sector
partnership (BSP),
MFIs such as NUBL do
not enter into special
MOUs with the biogas
companies.
Since energy
loans fall under
general business
loans, AMRET
thus far has not
maintained any
contact with en-
ergy suppliers.
Scope of
energy
partner’s
role
- Conducts energy needs
survey; explores improved
technology options; and
customizes products if
required.
- Provides training (product
knowledge) to SEWA Bank
staff and clients
- Jointly with bank, pro-
motes URJA Project.
- Installs and uninstalls
systems for 15-day product
trial at clients’ premises.
- Final installation, provides
warranty, and after-sale
services
- SHS: Promotes SEEDS’ SHS loan;
identifies and scouts potential custom-
ers; installs the system; provides users’
trainings; provides warranty and after-
sale services.
- Village grid: Project developer does
site selection, social mobilization,
feasibility study, secures approvals,
assists ECS in mobilizing funds and
selecting suppliers, assists ECS in
exploring productive use of electricity
generated.
- Grid connection: CEB markets
SEEDS loan product to potential
clients visiting its office, provides cost
estimate, and installs grid connection.
Biogas company is
expected to participate
in market awareness
building and biogas
loan promotion, scout
potential clients,
refer them to NUBL,
provide cost estimates,
construct and install
system, provide clients
with user manuals,
submit post-comple-
tion report to NUBL
for payment disburse-
ment, as well as
provide warranty and
after-sale service.
Energy suppliers
are expected to
interact directly
with clients, with
no intervention
whatsoever from
AMRET.
Market Development
SEWA BANK SEEDS NUBL AMRET*
Ap-
proach
by MFIs
Proactive role in promoting en-
ergy products and loans, beyond
its core business of microfi-
nance, using existing infrastruc-
ture and events of the bank
The SHS, village
hydro, and grid loan
products are promoted
mainly by companies,
project developers,
and CEB, respectively.
SEEDS loan officers
also promote the
products during field
visits.
NUBL does market awareness
and promotes its biogas loans
during center meetings. From
time to time, it also invites bio-
gas companies to attend these
center meetings.
However, efforts have not been
fully successful due to lack of
adequate coordination between
MFIs and biogas companies.
No specific marketing
and outreach activities
carried out by AMRET
for energy loans, as
they do not have any
special energy lending
product as of now.
Role of
external
parties
- Energy Partner: The active
participation of SELCO is key to
the success of URJA Project, not
only during the market awareness
trainings, but also during the
one-to-one consultancy provided
to prospective clients and willing-
ness to provide product trial.
- Donor institutions: The Lemel-
son Foundation (USA) has pro-
vided funding for market aware-
ness, capacity building, and
promotion of energy enterprises.
Energy lending in Sri
Lanka is mostly driven
by govern-ment and
donor interventions,
either under RERED
or other initiatives,
such as the ADB-sup-
ported grid-connec-
tion loan. In addition,
the role of SHS sup-
pliers, village hydro
project developers,
and CEB has been of
key importance.
- Biogas Support Program (BSP)
interventions on marketing, cre-
ating awareness, and maintaining
quality are instrumental for the
success of biogas loan in Nepal.
- Winrock International focuses
on building an enabling business
ecosystem by building up capac-
ity of various stakeholders.
- 60 registered biogas compan-
ies have strong decentralized
sales and service networks (>
200 branches).
Efforts are being made
by sector facilita-
tors, such as Ministry
of Industry, Mines,
and Energy; and the
Biodigester National
Program, to promote
alternative energy.
However, integration
between energy and
microfinance sectors
is still missing due to
their inadequate knowl-
edge of other sectors.
120 Using Microfinance to Expand Access to Energy Services
Management Capacity
SEWA BANK SEEDS NUBL AMRET*
Administra-
tion and
management
- Energy division at HO
- No separate energy staff
at field level
- 200 SEWA staff mem-
bers trained by SELCO
- Separate energy division
- Separate energy staff at field
level
- Staff trained by solar
companies, ADB, and Energy
Forum in Sri Lanka
- No separate energy
division/staff
- NUBL staff trained by
Winrock, Nepal.
No specific energy
product, is part of
general business loan
Accounts
and MIS
- Software: Windows-
based integrated modules
of accounts, MIS, and
client data
- Energy portfolio quality
analysis report (can be
generated daily)
- Repayment tracking
mechanism at all levels
except collection agents
- Software: Installation in
progress (specifically for
energy program)
- Energy portfolio quality
analysis in Microsoft Excel
(monthly)
- Financial performance of
energy program, not analyzed
separately (balance sheet not
prepared)
- Software: Oracle-based
integrated modules of
client data, accounts,
MIS, and HR (perform-
ing well)
- Portfolio quality analy-
sis (weekly)
- Profitability analysis
(monthly, branch-wide)
- Software: Accounts
with MIS (performing
well)
- Portfolio quality
analysis (monthly)
Microfinance
portfolio
management
- Loan product featured
35 months and monthly
repayment
- Flexible repayment
mechanism followed—
bound to reflect an overall
low portfolio quality. How-
ever, energy loan portfolio,
being new, had 100%
repayment rate.
- Portfolio quality tracked at
all levels
- Follow up and enforce-ment
of credit discipline weak
- Repayment problem due to
unexpected grid line exten-
sion in areas with SHS loans
- Portfolio quality suf-
fered due to political
disturbances and faulty
incentive policy in the
past.
- Energy loan portfolio
was small and had
100% repayment.
- Good client selec-
tion and loan ap-
praisal process
- Prompt follow up on
loans
- High credit disci-
pline
Business
planning
- Structured mechanism
for monitoring invest-men-
ts and compliance with
liquidity norms of RBI
- Has a low credit deposit
ratio of around 35%, re-
flecting low deployment of
funds in productive asset,
i.e., portfolio
- Weak financial and business
planning, not based on past
trends and realistic assump-
tions
- High idle cash (34%)
reflects inadequate financial
planning and management’s
conservative approach to
lending due to weak portfolio
quality.
- Well structured and
participative business
planning process
- Implements budgetary
control mechanism by
linking branch expenses
with branch profitability
- Well structured and
participative business
planning process
- Variance analysis on
a monthly basis
Internal
audit
- Inadequate frequency
and rigor
- Flexible repayments
require stricter controls.
There have been cases of
fraud in the past.
- Financial audit is inad-
equate while policy and
operational audit are absent.
- Weak monitoring by branch
senior staff.
- Internal audit depart-
ment is understaffed.
As a result, frequency of
audits is low.
- Have other control
mechanisms, such as
rotation of field staff
throughout centers,
compulsory 10-day
leave for branch man-
ager, etc.
- Internal audit
department is under-
staffed. As a result,
frequency of audits
is low.
- Have faced several
cases of minor fraud.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 121
Impact Profile
SEWA BANK SEEDS NUBL AMRET*
Economic - Solar lantern: Saves 15-30%
compared to baseline kerosene
light. In addition, due to better
quality lights, hawkers can attract
more customers.
- SHS: After loan term, clients en-
joy free light until the end of SHS
life cycle.
- Photovoltaic battery charging
unit: On each unit, clients and
business owners earn a net profit of
INR 3,105 in 1st year, INR 3,550
in 2nd year, and INR 6,260 after
loan term through life time of unit.
- Sarai cooker: Reduce cooking
cost to INR 1/day for a 4-member
family (compared to LPG that costs
INR 8–11/day)
- Annapurna smokeless stove*:
Reduces fuel consumption by
30–50%
On average, modern
lighting from SEEDS
energy lending enables
household clients to re-
duce kerosene consump-
tion by 15–30 liters per
month, costing LKR
720–1,440.
- No specific data on
income generating analy-
sis, except that 565 of
SEEDS photovoltaic (PV)
and SHS clients are pro-
ductive use customers.
On average, biogas
clients save between
NR 150–1,000 per
month compared to
their baseline expen-
diture. In addition,
slurry (high nutri-
ent fertilizer) from
biogas processing,
gives clients higher
yields while replacing
chemical fertilizers.
The AMRET credit
facility has enabled
rural energy enter-
prises to emerge and
provide energy ser-
vices to rural people
(who had no access
to grid) as well as
help them scale up
production. Spe-
cifically on energy
services, clients on
average enjoy month-
ly revenue of US$
100–500, depending
on their capacity.
Health Fumeless and accident-free light-
ing; cleaner indoor conditions;
meals retain more nutritional value;
and cooking drudgery is reduced
Modern lighting allows
clients to have cleaner
indoor conditions.
- Clients claimed to
have no eye or skin
irritation and cleaner
indoor conditions.
Improved indoor
conditions due to
shift from kerosene
to village electricity
Social - SHS clients claimed to have
better social standing after having
modern lighting in their home.
- The PV-battery-charging business
of one owner enabled him to send
his child to engineering school
from profits.
- Sarai cooker gives user to have
more free time.
Modern lighting enables
clients and family to
have TV, more access to
information, and chil-
dren have longer study
time at night.
- Clients claimed
that biogas helps to
reduce drudgery of
cooking especially for
those whose baseline
energy source for
cooking is fuel wood.
Helps end-consum-
ers have better and
reliable electricity
source, which helps
children to extend
their study time.
Environment Utilizations of new energy prod-
ucts will reduce carbon emission
through change to fuel oil as the
most common baseline lighting
source and more efficient use
(smaller amount) of fuel wood as
the most common baseline for
cooking.
Total installed PV of
2,360 kW and village hy-
dro of 77 kW, kerosene
consumption reduced by
16–19 million liters/year
and carbon emissions
reduced by 40-47 thou-
sands CO2e
Biogas plants offer
an alternative to fuel
wood, and avoids
methane gas result-
ing from fuel pellets
made from cattle
dung.
No environmental im-
pact so far because
all energy clients are
using fuel-oil power
generators.
*The Annapurna smokeless stove burns up to 50% less fuel wood (or biomass fuel) and vents smoke outside through a chim-
ney. It can be made from inexpensive, locally available materials (concrete/mud bricks, tin cans, metal rods). The metal version
has three burners and a water tank for continuous hot water. See Rural Integrated Development Services-Nepal, “Smokeless
Metal Stoves,” http://www.rids-nepal.org/index.php?option=com_content&task=view&id=82&Itemid=115.
122 Using Microfinance to Expand Access to Energy Services
฀APPEND!X฀8฀º฀!N!T!AL฀5TASE5฀AND฀
ESTABLISHMENT OF ENERGY LENDING OF SEWA
BANK, SEEDS, NUBL, AND AMRET
SEWA BANK
SEWA Bank began providing energy products and loans in 1997 with ENSIGNE project through which it disbursed
121 energy loans in and around Ahmedabad City. e loans were disbursed based on a study of the energy needs
of SEWA Bank members and ways to improve the energy solutions. Aer ENSIGNE, in collaboration with Mahila
Housing Trust, SEWA Bank continued to provide energy loans under its UJALA (“light”) scheme, which provided a
credit facility for connection to the electricity grid to households located in urban slums. Under this program, SEWA
Bank collaborated with Ahmedabad Electricity Company. e program was discontinued when AEC realized its
potential and started its own credit facility for electricity connection.
In 2001, with UNOPS support, SEWA studied the demand for micro-lending for energy products. In May 2004,
SEWA Bank sta heard a presentation by SELCO (an energy service company specializing in catering to poor energy
consumers), during a meeting held by the Global Village Energy Project (GVEP) in Manila. Aer the meeting,
SEWA and SELCO began communicating, leading to SEWA Bank sta and clients visiting Karnataka, where SEL-
CO has a very strong sales and service network. e visit was followed by eld research by SELCO in Ahmedabad to
assess the energy needs of SEWA Bank clients. Upon learning the similarity of mission and client prole, SEWA and
SELCO soon entered into a partnership arrangement for exploring, developing, and implementing energy products
and loans in Gujarat, and in April 2006, the URJA project was launched as a joint initiative.
SEEDS
SEEDS began its energy program with solar home systems in 1999. Sarvodaya opened a separate unit, Sarvodaya Ru-
ral Technical Service (SRTS), to promote SHS in rural areas. SRTS initiated its total service energy program in two
districts, but quickly realized that the model was inecient and unsustainable. At this point, SEEDS took over the
energy-lending portfolio of SRTS. It entered into an agreement with Shell Solar and dened roles whereby SEEDS
acted as nancer and Shell provided marketing and sales.
As SEEDS expanded energy lending to other branches, it was invited by the World Bank to become a Participatory
Credit Institution (PCI) under the RERED project. As a PCI of RERED, SEEDS received loan funds to provide
energy loans to its clients.
With village micro hydro schemes, SEEDS was not sure initially how to initiate micro hydro loans. However, the
successful implementation of micro hydro projects by Hatton National Bank and the eagerness of project managers
led to SEEDS’ oering village hydro lending in 2005. Grid-connection loans were started in 2006, based on ADB’s
research on the potential of grid loans and the availability of revolving loan fund support.
NUBL
NUBL’s initial initiative in introducing biogas loans in 2002 was encouraged by provision of loan funds from AEPC,
which gave NUBL NR 2.5 million for energy lending. However, in the next two years, NUBL was not able to utilize
the funds and managed to install only one biogas plant. NUBL realized that the product did not take o because
clients did not want loans with collateral (one of the prerequisites for energy loans). Later, with the help of Winrock,
NUBL began energy lending again in September 2004, using its own funds and modied loan terms.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 123
AMRET
AMRET does not oer a separate energy product to its clients. Presently, its energy lending is treated as an individual
business loan product. e business loans can be used for any income-generating activity. AMRET has made around
707 such business loans to purchase equipment to provide electricity, set up battery charger services, or to help re-
duce high energy consumption of productive activities.
124 Using Microfinance to Expand Access to Energy Services
APPEND!X฀9฀º฀AMPET'5฀DUT5TAND!NS฀LDAN฀
FUNDS AND GRANTS
LOAN FUNDS
OUTSTANDING DEBT
(KHR ‘000’ )
OUTSTANDING DEBT (US$) INTEREST RATE PER ANNUM
Microfinance Alliance Fund 1,773,700 426,575 11.6%
Dexia Bank 2,286,900 550,000 5.5% + Libor 6 months
Triodos Doen - Hivos 6,200,000 1,491,101 11.5%
Triodos Doen - Hivos 2,079,000 500,000 9.0%
National Bank of Cambodia 7,520,000 1,808,561 6.0%
NBC AFD 7,500,000 1,803,571 6.0%
Calvert Foundation 2,079,000 500,000 7.5%
Sicav-Nord-Sud Dev. 2,079,000 500,000 2% + Libor 3 months
I & P Development 3,136,240 754,266 13.37%
Rural Development Bank 2,000,000 481,000 6% + Libor 6 months
OPEC 6,237,000 1,500,000 3.5% + Libor 6 months
Oikocredit Foundation 5,200,000 1,250,601 12.8%
Total 48,090,840 11,565,675
GRANTS AMOUNT (KHR) AMOUNT (US$)
Microfinance Alliance Fund 166,320,000 40,000
AFD 282,299,000 67,893
CGAP 311,850,000 75,000
USAID 83,160,000 20,000
Total 843,629,000 202,893

Copyright © 2007

e SEEP Network

Sections of this publication may be copied or adapted to meet local needs without permission from e SEEP Network, provided the parts are copied and distributed for free or at cost—not for pro t. Please credit e SEEP Network, “Using Micronance to Expand Access to Energy Services: e Emerging Experiences in Asia of e Emerging Experiences in Asia of Self-Employed Women’s Association Bank (SEWA), Sarvodaya Economic Enterprise Development Services (SEEDS), Nirdhan Utthan Bank Limited (NUBL), and AMRET,” and e SEEP Network for those sections excerpted. For any commercial reproduction, please obtain permission from e SEEP Network, 1825 Connecticut Avenue, NW, Washington, DC 20009-5721 Tel.: 1-202-884-8581 Fax: 1-202-884-8479 Email: seep@seepnetwork.org Web: www.seepnetwork.org

is paper is made possible by the generous support of the Citi Foundation and by the American people through the United States Agency for International Development (USAID). e contents are the responsibility of e SEEP Network and Sustainable Energy Solutions and do not necessarily re ect the views of the Citi Foundation, USAID, or the United States Government.

TABLE OF CONTENTS
Acknowledgments Authors Abbreviations EXECUTIVE SUMMARY Background Obstacles Market Potential Possible Collaborations Replication Considerations for Successful Energy Lending Challenges for MFIs Strategic Conflict Oportunities for Donors Opportunities for MFIs and Other Market Players Recommendations Chapter 1. 1.1 1.2 INTRODUCTION BACKGROUND METHODOLOGY 1.2.1 MFI Selection Process 1.2.2 Work Plan Summary 1.2.3 Field Visit DATA ANALYSIS 1.3.1 MFIs 1.3.2 Energy and Microfinance Stakeholders SEWA BANK—INDIA INDIA COUNTRY CONTEXT 2.1.1 Socio-economic Environment 2.1.2 Banking Sector Overview 2.1.3 Financial Service Suppliers 2.1.4 Regulation of Financial and Microfinance Sectors 2.1.5 Energy Scenario Overview 2.1.6 Renewable Energy Facilitators and Promoters 2.1.7 Energy Suppliers and Service Companies ORGANIZATIONAL PROFILE OF SEWA BANK 2.2.1 Structure and Operation 2.2.2 Funding Sources ENERGY LOAN PORTFOLIO OF SEWA BANK 2.3.1 Model and Methodology 2.3.2 Relationship of SEWA Bank, SELCO, and Clients 2.3.3 Characteristics 8 9 11 15 15 15 16 16 17 17 17 18 18 19 19 21 21 22 23 23 24 24 24 26 27 27 27 27 28 28 28 29 30 30 30 31 32 32 32 34

1.3

Chapter 2. 2.1

2.2

2.3

The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET

3

2 Banking Sector Overview 4.7 Impact Analysis DISCUSSION—SEEDS 3.5 Financial Analysis 2.3.1 Socio-economic Environment 4.2.4 Opportunities for Country Scale-Up and Regional Replication NUBL—NEPAL NEPAL COUNTRY CONTEXT 4.4.3 Relationship of Energy Suppliers.1.6 Renewable Energy Facilitators 3.3.1.1.7 Energy Suppliers and Industry Players ORGANIZATIONAL PROFILE 3.3 3.3 4 Using Microfinance to Expand Access to Energy Services .6 Impact Analysis DISCUSSION—SEWA BANK 2.3.1.5 Renewable Energy Implementation and Facilitators ORGANIZATIONAL PROFILE 4. 4.3 Key Lessons Learned 3.3.1. and Consumers 3.1 Model and Methodology 4.1.4 Energy Scenario Overview 4.1 Structure and Operation 3.1.2 Relationship of NUBL.1 Structure and Operation 4.5 Administration and Management 35 36 36 37 37 38 39 41 41 41 41 42 42 43 44 45 45 45 47 47 47 48 48 50 51 52 52 53 53 55 56 56 59 59 59 59 59 60 61 62 62 63 63 63 65 65 67 67 Chapter 3.2.4.3.4.2 Financial Service Suppliers 3.4.2 Funding Sources ENERGY LOAN PORTFOLIO 4.3 Financial and Microfinance Sectors and Regulation 4.3 Characteristics 4. 3.1 Highlights and Challenges of SEWA Bank’s Energy Lending Model 2.4.1.2.3.3 Opportunities for Country Scale-Up and Regional Replication SEEDS—SRI LANKA SRI LANKA COUNTRY CONTEXT 3.2 Funding Sources ENERGY LOAN PORTFOLIO 3.3.2.4.3.6 Financial Analysis 3.4 Chapter 4.4. Biogas Companies.1.3.4 Energy Clients and New Markets 3.1 Highlights and Challenges of the SEEDS Energy Lending Model 3.3.1.1.4 Energy Service Companies 4.4 Administration and Management 2.5 Administration and Management 3.4 2.1 Model and Methodology 3.3.3.2.2 Characteristics 3.3.1.3 Regulation of Financial and Microfinance Sectors 3. and Clients 4. SEEDS.4 Energy Scenario Overview 3.1 4.5 Renewable Energy Implementation in Sri Lanka 3.2 3.3.1 Socio-economic Environment 3.1 3.2 4.2 Key Lessons Learned 2.3.2 Obstacles and Barriers 3.

1 5.6 Financial Analysis 4.2.4 Administration and Management 5.4.1 Socio-economic Environment 5.4.1. NUBL.4 6.3.4.4.5 6.1.1 Highlights and Challenges of the AMRET Bank Energy Lending Model 5.2 Obstacles and Barriers 5.1 6.5.4 4.1.2.4. and AMRET 5 .2.2 Funding Sources ENERGY LOAN PORTFOLIO 5.4.3 6.1 Model and Methodology 5.2 6.3 Key Lessons Learned 4.4.5.3 Key Lessons Learned 5.3 5.1.4 Relationships with Energy Suppliers 6. SEEDS.2 5.1.4 5.4.1.1 Highlights and Challenges of NUBL’s Energy Lending Model 4.3 Financial Sector Regulation 5.7 Impact Analysis DISCUSSION—NUBL 4.1 Establishment and Funding 6.2 Banking Sector Overview and Key Financial Indicators 5.4 Energy and Alternative Energy Suppliers ORGANIZATIONAL PROFILE 5.4 Opportunities for Country Scale-Up and Regional Replication CONCLUSIONS AND RECOMMENDATIONS SUMMARY OF FINDINGS ON ENERGY LENDING BY SEWA BANK.3.5.2 Characteristics 5.1. 6. NUBL.1. 5.5. SEEDS.3 Institutional Approach to Energy Lending 6.5 Impact Analysis DISCUSSION—AMRET 5.4 Microfinance Sector Regulation ENERGY SCENARIO OVERVIEW 5.5 Management and Financial Capacity LESSONS LEARNED OBSTACLES OPPORTUNITIES RECOMMENDATIONS FOR REGIONAL REPLICATION REPLICATING MFI MODELS OPPORTUNITIES FOR MFIS AND OTHER MARKET PLAYERS OPPORTUNITIES FOR CITI FOUNDATION AND OTHER DONORS 67 67 68 68 70 70 71 73 73 73 73 74 74 75 75 76 78 78 79 79 80 80 80 81 81 81 82 82 82 83 83 74 87 87 87 88 89 89 90 90 92 94 95 98 100 100 103 Chapter 5.2.3.2 Energy Loan Products 6.7 6.3.3 Service Company 5.5 Chapter 6.6 6.3 Renewable Energy Facilitators 5.2 Obstacles and Barriers 4. AND AMRET 6.4.4 Opportunities for Country Scale-Up and Regional Replication AMRET—CAMBODIA CAMBODIA COUNTRY CONTEXT 5.4.8 Bibliography The Emerging Experiences in Asia of SEWA.1 Energy Access and Consumption 5.1 Structure and Operation 5.1.2 Renewable Energy Implementation 5.

1 Intervention Model by Sector Facilitators Figure 4.6 Stakeholders’ Perceptions of AMRET Table 5. 1997–2004 Table 5.4 Sample Client Loan Profile.5 Differences Between Solidarity Group Loans and Individual Loans Table 5.5 Areas of Innovation to Leverage URJA’s Outreach and Impact Table 3.1 Stakeholder Relationships in a Solar Loan Figure 3.2 Typical Data Collected During Field Research 29 30 33 35 39 42 47 48 52 64 66 68 69 75 76 76 77 81 83 84 33 49 50 51 62 65 72 84 96 22 25 6 Using Microfinance to Expand Access to Energy Services .2 Cost. and AMRET AMRET’s Outstanding Loan Funds and Grants 105 110 111 114 115 116 117 122 124 List of Tables Table 2.4 Stakeholders’ Perceptions of NUBL Table 5.1 Process of a SEWA Bank Energy Loan Figure 3.3 Comparison of Biogas Loans by Various Financing Institutions Table 4.3 Stakeholder Relationships in Grid Loan Figure 4.3 Characteristics of SEEDS’ Energy Loan Products Table 3.2 Highlights of IREDA’s Financing Norms Table 2.3 Proposed Scale-Up Model for NUBL Energy Loans Figure 5.Appendices Appendix 1 Appendix 2 Appendix 3 Appendix 4 Appendix 5 Appendix 6 Appendix 7 Appendix 8 Appendix 9 Framework of Questions Developed for the Field Research Detail of Field Visits and Respondents Research Methodology Roles and Regulation of Financial Institutions in India Roles and Regulation of Financial Institutions in Sri Lanka Roles and Regulation of Financial Institutions in Nepal Summary of Research Findings and the Comparative Features of the MFIs Studied Initial Stages and Establishment of Energy Lending of SEWA Bank. and AMRET Box 1.4 Features of Energy Products Offered by the URJA Project Table 2.1 Roles and Regulatory Requirements of Financial Sector Players in Sri Lanka Table 3.7 Comparison of Electricity Prices in Cambodia List of Figures Figure 2. SEEDS.2 Current Lighting Sources and Consumption in Rural Areas in Cambodia Table 5.2 Differences Between SEEDS’ Non-Energy and Energy Loans Table 3.1 National Bank of Cambodia’s Mandatory Conditions for MFIs Table 5. SEEDS Table 4.1 Energy Lending Co-operation and Co-ordination Among Key Stakeholders List of Boxes Box 1.2 Process of a NUBL Biogas Loan Figure 4.1 Differences Between NUBL’s Non-Energy and Energy Loans Table 4. SEEDS. Subsidy.1 Present Lending Operation and Proposed Flow of REF Figure 6. NUBL. NUBL.3 Photovoltaic Installations in Cambodia.1 The Four MFIs Studied in the Asia Region: SEWA Bank.2 Stakeholder Relationships in a Village Hydro Loan Figure 3.1 Applicable Fiscal Incentives and Facilities Available to Manufacturers and Users of Renewable Energy Table 2. and Labor Cost for Biogas Plants and Credit Needed Table 4.3 Differences Between SEWA Bank’s Non-Energy and Energy Loans Table 2.4 Profiles of Hydropower and Biomass Projects in Cambodia Table 5.

SEEDS.Box 2.1 Box 3.2 Photovoltaic Battery Charging: A Profitable Business Renewable Energy in Sri Lanka’s Program Other Renewable Energy Promoters in Sri Lanka 36 43 44 The Emerging Experiences in Asia of SEWA.1 Box 3. and AMRET 7 . NUBL.

We are grateful to the funders of this research. and Jan Lam (National Biodigester Programme) NUBL (Nepal): Prakash Sharma. We would like to thank Amy Feldman from Citi Foundation for supporting the planning of the August 2007 workshop where this paper was presented and Ida Dokk Smith from SEEP for assisting with the project. SIA). Sustainable Energy Solutions. and missteps in using micro nance to provide access to energy. insight. RERED Project. the Citi Foundation and the U. successes. we are particularly thankful to Leslie Meek of the Citi Foundation and Patricia Flanagan and Simone Lawaetz of USAID. Energy Forum SEWA Bank (India): Jayshree Vyas and Sharmila Davra Harish Hande (SELCO) ese organizations and individuals generously shared their time with us. 8 Using Microfinance to Expand Access to Energy Services . and the research teams that carried out this research would like to express their profound respect and appreciation for the micro nance institutions and energy companies and individuals that participated in the research in Asia: AMRET (Cambodia): Chea Pallarin and Hout Soukha Sat Samy (Ministry of Industry. and Prabin Dahal Saroj Rai (Biogas Sector Partnership of Nepal). Agency for International Development (USAID). demonstrating commitment. We are especially grateful to Harish Hande (SELCO). creativity. Phil LaRocco (E+Co). is research bene ted from an advisory group. Erik Wurster (E+Co). HPI Solar/ENCO. Alternative Energy Promotion Center of Nepal SEEDS (Sri Lanka): Indrani Hettiarchy Pradip Jayawardena (Solar Industries Association. and insight through the course of this work. ey also demonstrated a keen desire to further industry knowledge and practice by sharing their experiences. comprised of individuals from the energy and micro nance sectors. Nicola Armacost (Women’s World Banking). Jennifer Hansel (Research Triangle Institute). demonstrating commitment. Iwan Baskoro (GERES Cambodia).ACKNOWLEDGMENTS e SEEP Network. who generously shared their time with us. especially the eld research. DFCC. for their support for this research and their willingness to advocate for the potential of using micronance to expand access to energy services in the broader micro nance and energy services communities. Shell Solar Srilanka. and Evelyn Stark (Consultative Group to Assist the Poor). who provided voluntary technical advice and guidance at key junctures. creativity. In this regard.S. Mining and Energy). and patience through the entire process.

Sustainable Energy Solutions in 1996. which focused on direct welfare gains of the Special Investment Programme by bene ciary households and the associated costs of delivering the program to them. Ellen Morris started her consulting rm. Prem Sagar Subedi is a micro nance specialist with Winrock International Nepal and has 10 years of experience in micro nance for energy services and MFI capacity building. was a member of the National Biogas Program’s feasibility study team in Uganda and Tanzania. development agencies. Andhra Pradesh. which was recognized as a best-practice project for micro nance and energy services by the Wuppertal Institute for Climate. research. The Emerging Experiences in Asia of SEWA.AUTHORS Jyoti Gidwani is a management executive at Micro-Credit Ratings International Limited (M-CRIL) and specializes in micro nance assessments and ratings. foundations. presented here.khaula. Cambodia. She worked on a study of CARE Bangladesh’s Income Project and assessed the organizational and training needs of seven partner NGOs in Dhaka. East Timor. and Energy (WISIONS). Ms. GVEP’s assessment of its Asia Country Partners’ activities.” Ms. Most recently. Dr. She is also a specialist on rural energy enterprise development and was the Global Village Energy Partnership (GVEP) country coordinator for Indonesia.” PT PLN’s study of the opportunities for biomass co-generation in Indonesia. and the private sector. Orissa. and Sri Lanka. He has developed manuals on micro nance for RET and designed and conducted training programs for nancial institutions and energy companies. India. He has also worked as a technical expert for the Asia Development Bank’s “Promotion of Renewable Energy. social action. Bhopal. She has consulted widely on energy-related initiatives. and impact in di erent contexts in the Indian states of Rajasthan. UN Development Programme/Global Environment Facility’s “Programming Kit on Productive Uses of Renewable Energy. Chittagong and Khulna. Her work at UNDP has focused on technical and programmatic support for countries seeking to advance energy as a means for poverty reduction. and Karnataka. Morris has been a senior consultant for the United Nations Development Programme in the sustainable energy program for the last ten years. Energy E ciency and Greenhouse Gas Abatement” project. Environment. Cambodia and Afghanistan. policy analysis. World Bank initiatives to promote decentralized electri cation in Indonesia. She helped research and write a cost bene t analysis of BRAC’s CFPR program. and a batchelor’s degree in commerce and IT (honors) from Delhi University. and trainings. Helianti Hilman is the founder and chairperson of Khaula Karya Foundation (www. NUBL. and has conducted nancial and economic analyses of biogas intervention in sub-Saharan Africa. and is an Asian Development Bank Scholar.org). to examine the energy lending of four micro nance institutions in Asia. Afghanistan. which researched their group performance. She was also a team member in a study of 200 self-help groups (“ e ‘Lights’ and ‘Shades’ of Self-Help Groups in India”). an enterprise-development rm based in Indonesia that focuses on transforming micro and small businesses into value-and-marketdriven enterprises. including UN Environment Programme initiatives to promote end-consumer credit for solar energy technology in Indonesia. and AMRET 9 . and research on energy issues for national governments. Gidwani is a CGAP-certi ed trainer and has conducted training modules for MFIs in India. SEEDS. Hilman headed the Asia consultant team for the Citi-USAID study. He has a master’s degree in development management from the Asian Institute of Management. He successfully coordinated a three-year USAIDfunded project to build the capacity of MFIs nancing renewable energy technologies (RETs). as well as the Indonesian Ministry of Energy and Mineral Resources’ study on “Incentive Policy for the Utilization of Renewable Energy and Energy E ciency. Bangladesh. where she is engaged in international development. She has a master’s degree in forestry management from the Indian Institute of Forest Management. She has experience working in India.

S. She was a DFID scholar at the University of Bath. in the international and geothermal groups. from Indian Institute of Forest Management. she worked with BASIX. In the early part of her career. Morris has done pioneering work on consumer lending and micro nance to expand access to energy services by engaging with the private sector and micro nance institutions in developing countries. piloting technology initiatives. one of India’s leading micro nance and livelihood promotion organization. Ministry of Rural Development (India). Dr. Sonali Chowdhary is a micro nance consultant with the SEEP Network where she provides project management support and technical guidance to their action research projects on energy access.Dr. ODI. a consultancy specializing in development nance and capital advisory. Chowdhary has headed consulting projects for leading Indian banks. 10 Using Microfinance to Expand Access to Energy Services . U. specializing in environment and natural resource management. and UNDP. and holds a bachelor’s degree in agricultural sciences from Acharya NG Ranga Agricultural University. where she teaches energy and development courses. product development. She also led action research projects related to livelihood promotion. Prior to starting her own rm. and local economic development for CARE. She is also an adjunct professor at Columbia University’s School of International and Public A airs. and institution building. natural resource nancing.. such as Small Industries Development Bank and ICICI Bank. Prior to joining SEEP. She has completed a master’s in business administration.K. She has more than six years of experience in managing micro nance operations. Morris has a Bachelor of Science degree in Geophysical Engineering from the Colorado School of Mines and a doctoral degree in Marine Geophysics from the University of Rhode Island. which provided institutional building and technology support to start-up and transforming MFIs. Morris worked for the National Renewable Energy Laboratory. Dr. Congress and as an exploration geophysicist for Texaco. as well as Intellecap. in 2004–05 where she received a master’s degree in international development. social performance. and knowledge management. IWMI. she worked as a Science Advisor for the U.

and AMRET 11 .ABBREVIATIONS ACLEDA ADB ADBL AEC AEPC AFD AM AO APR BO BOD BPL BSP CBOs CBSL CEB CFSP DANIDA DFCC DMs ECS ESD FAO FCRA FD FINGO FONDEM Association of Cambodian Local Economic Development Agencies Asian Development Bank Agricultural Development Bank Limited Ahmedabad Electricity Company Alternative Energy Promotion Centre Agence française de développement area manager area o ce annual percentage rate branch o ce board of directors below poverty line Biogas Sector Partnership community-based organizations Central Bank of Sri Lanka Central Electricity Board Cambodian Fuelwood Saving Project Danish International Development Agency Development Finance Cooperation of Ceylon district managers electricity co-operative society energy services delivery Food and Agriculture Organization Foreign Contribution Registration Act xed deposit nancial intermediary non-government organization La Fondation Énergies pour le Monde The Emerging Experiences in Asia of SEWA. SEEDS. NUBL.

FY GCC GDP GEF GERES GHC GL GM GNI GSL GTZ HNB HPI HO HR IRDP IREDA JFPR Kf W KS KVA KWh LAN Libor LLR LPG MACS Act MAFF MBWin MCPW MFDB MFIs 12 Using Microfinance to Expand Access to Energy Services scal year general credit card gross domestic product Global Environment Facility Énergies Renouvelables Environnement et Solidarités grievance hearing cell general loan general manager gross national income government of Sri Lanka Gesellscha für Technische Zusammenarbeit Hatton National Bank hydro power head o ce human resources Integrated Rural Development Programme Indian Renewable Energy Development Agency Limited Japan Fund for Poverty Reduction Kreditanstalt für Wiederaufbau Khmer Solar kilovolt ampere kilowatt hour local area network London Inter-bank O ce Rate loan loss reserve liquid petroleum gas Mutual Aid Co-operative Acts Ministries of Agriculture and Fisheries MicroBanker Microcredit Project for Women micro nance development banks micro nance institutions .

and AMRET 13 . PCI PCRW PO PV RBB RBI REB REDP REE REF REFS REPSA RERED RFSDA Mahila Housing Trust Ministry of Industry. and Energy management information systems Multi-National Collaboration Environment memorandum of understanding Micro nance Supervision Department megawatts National Bank of Cambodia non-bank nance companies Nepal Bank Limited National Biodigester Program Nepal Electricity Authority New Energy Group non-government organizations non-performing loan Nepal Rastra Bank Nirdhan Utthan Bank Limited per annum participatory credit institution Production Credit for Rural Women program o cer photovoltaic Rashtriya Banijya Bank Reserve Bank of India Rural Electri cation Board Rural Energy Development Program rural electricity enterprises Rural Electri cation Fund Rural Electri cation Fund Secretariat Renewable Energy Private Sector Association Renewable Energy for Rural Economic Development Rural Finance Sector Development Agency The Emerging Experiences in Asia of SEWA. NUBL.a. SEEDS.MHT MIME MIS MNCE MOU MSD MW NBC NBFC NBL NBP NEA NEG NGOs NPL NRB NUBL p. Mines.

RGC ROA RSRF SACCOS SCARDB SEB SEEDS SEEP SELCO SES SEWA SFCL SG SHG SHS SIA SIDBI SPV SRTS SWH TA TCCS TOE UNDP UNEP UNF UNICEF USAID VA Wp Royal Government of Cambodia return on assets Rural Self-Reliance Fund saving and credit co-operatives state co-operative agriculture and rural development banks state electricity boards Sarvodaya Economic Enterprise Development Services Small Enterprise Education and Promotion Network Solar Electric Light Company sustainable energy solutions Self-Employed Women’s Association Small Farmer Co-operative Limited solidarity group self-help group solar home system Solar Industry Association Small Industries Development Bank of India solar photovoltaic Sarvodaya Rural Technical Service solar water heater technical assistance thri credit co-operative societies ton of oil equivalent United Nations Development Programme United Nations Environment Programme United Nations Foundation United Nations Children’s Fund United States Agency for International Development village association watt peak 14 Using Microfinance to Expand Access to Energy Services .

Using Micro nance to Expand Access to Energy Services. an overwhelming majority of nancial support for rural energy applications has been publicly funded. challenges. SEEDS (Sri Lanka).EXECUTIVE SUMMARY BACKGROUND ere is no question that micro nance and consumer lending can improve access to quality modern energy services for poor consumers. costs. is action research project. e approach is to learn from detailed pro les of the business models. SEEDS. energy suppliers. see Appendix 1. looks at energy lending on three continents—Asia. and AMRET 15 . NUBL. and the operations of selected MFIs that currently have energy lending programs.e. Although these programs are bene cial. Africa. or lique ed petroleum gas (LPG). barriers. completed successful loans). solar. wind. and e ects of integrating energy products into a MFI’s product mix. Such loans help o set the high upfront cost associated with cleaner technologies. as well as the most e ective way micro nance institutions (MFIs) can respond to these opportunities. OBSTACLES Both internal and external obstacles were faced by the MFIs in this study in implementing energy lending. A deeper understanding of the business opportunities for small-scale lending for energy services. a wide array of best practices and lessons learned that can bene t other MFIs. costs. which compares the features of the four MFIs. e researchers identi ed reservations about making a group-based lending model available to clients who were not already members (i. For a summary of the research ndings. Weaknesses seen in the management information systems and credit discipline by eld sta The Emerging Experiences in Asia of SEWA. No barriers were identi ed for individual lending models. the clients. such as biogas. as seen in the case of NUBL. e eld research included interviews with selected sta of the MFIs. e objective is to document the opportunities. micro hydro power. will facilitate access to appropriate nancial services. e MFIs studied are SEWA Bank (India). and share the lessons learned with the industry at large. clients. NUBL (Nepal). and other energy stakeholders. and Latin America. improve the investment climate for rural energy services. develop feedback for future expansions of these energy-lending products. and leverage the outreach and impact. the United States Agency for International Development (USAID) and the Citi Foundation are funding a comprehensive study on the opportunities. and schemes and mechanisms that are most appropriate to their respective contexts. and analysis of the MFIs’ lending programs and nancial and accounting reports. and impacts associated with MFI lending portfolios that have integrated energy into their products. e ndings reveal that each MFI has its own competitive edge that gives it a unique position. and AMRET (Cambodia). e country context of each country in the study has signi cant in uence on the implementation and the market potential of energy lending by MFIs. increased access to loans for consumers is essential to engage the private sector. To date. e potential for MFIs to o er pro table loans for the purchase of energy services has not yet been realized because both the energy and micro nance elds lack experience and there are few documented successes to learn from. In order to better understand the current experience with energy lending in this emerging arena. ose arising from factors within the organizations have been classi ed as internal. e study in the Asia region examined in depth four existing MFI energy-lending programs through eld work and a desk/literature review.. while the others are external factors.

the market potential for energy lending by MFIs can be in uenced by policies. Some of the typical obstacles arising from a country’s policy environment included potential market distortions from subsidized technology-driven programs—e. will de nitely hamper expansion of energy lending by MFIs. e absence. credit-enhancement schemes o ered by the government to select nancial institutions (o en favoring state-owned banks).000 units have been installed.have implications for nancial performance and may restrict growth of the energy portfolio. POSSIBLE COLLABORATIONS Based on the four MFIs in this study of the Asia region. Existing client base: SEWA Bank and NUBL are strategically using their existing. that can deliver better and more cost-e cient technology. About 50 percent of NUBL clients obtain cattle loans. relatively large client bases as the primary targets for energy lending. government subsidy for solar cookers in India. MARKET POTENTIAL e market potential for energy lending by MFIs in the countries studied is huge. Although none of the MFIs studied had fund constraints. Market demand: e gap between energy supply and demand re ects market potential. In general. AMRET faces this condition. e market for energy lending may become limited if the potential from poor consumers is not aggressively developed and does not grow. and national energy and electricity price subsidies which are not also available for renewable/cleaner energy technology. energy suppliers. Unfamiliarity with alternative energy options.(country) economic contexts. possible collaborations for expanding energy lending lie among MFIs. clients. geography: Policy en ironment: If electricity prices are not subsidized (India and Cambodia). and uncertain sustainability of the nancing models for energy options were found to be issues. and there are markets for more cost-e cient or revenue-generating technology. and energy sector facilitators. which is a ready-and-waiting market for biogas loans. markets.. and the policy environment supports and promotes energy lending and market development (Sri Lanka’s RERED project and intervention in Nepal by AEPC/BSP).9 million units. For example. too. Weak portfolio quality results in sub-optimal yields and may jeopardize the long-term sustainability of a program.(MFIs) and macro. the market potential for biogas plants has been estimated to be to 1. For AMRET. which is made worse by the general lack of awareness of energy options (much less lending products) by the Cambodians themselves.g. where each compliments the other to expand energy lending. Geographical co erage: MFIs with wide geographical presence are better placed to capture the latent demand for energy services. the need for initial market development before energy-product introduction. the market potential is gigantic. there are 2 million un-electri ed households in Sri Lanka (with 10 percent annual growth in electricity demand). which are primarily located rural and estate areas and constitute a large potential market for energy lending. e premise is that every MFI client has energy needs. ese collaborations include: 16 Using Microfinance to Expand Access to Energy Services . Absence of interactions between the energy and micro nance sectors—particularly if they do not understand the limitations and potentials of each other’s elds—can also be a signi cant obstacle to expanding energy lending both in micro. of su cient numbers of energy players with decentralized sales and service networks. this could be a limiting factor for other smaller MFIs operating in the region. energy technology options in Cambodia are not yet readily available. and NUBL’s only option thus far is biogas. and only about 160. particularly because the electri cation rate among poor and rural consumers is still low. In Nepal.

strong sector facilitators and energy suppliers. SEEDS: e SEEDS energy-lending program constitute is the oldest and has the widest geographical coverage and biggest portfolio. and good internal procedure for research and development. good credit discipline. Selecting from the best practices gleaned from the MFIs studied. and target clients as the MFI. approach. Its energy-lending shows a healthy potential to expand. NUBL. Along with other prerequisites. With other prerequisites. SEEDS. AMRET: AMRET’s energy-lending product is the only one that is a general business loan and not a special loan product. as done by SEEDS. CONSIDERATIONS FOR SUCCESSFUL ENERGY LENDING Challenges for MFIs Each MFI examined in this study needs to carefully assess its cost structure. NUBL’s energy loan has a unique feature: it allows energy loans to be paired and run concomitantly with other loans (e. replication of this model requires strong government policy. the sustainability of their energy- The Emerging Experiences in Asia of SEWA. Nevertheless. increase the e ciency of its operation. choosing those aspects that are most suitable to a given situation o er the best option for replication. us. for purchasing cattle and upgrading sanitation). rather than mimicking just one model. NUBL: NUBL is relatively new and has a small portfolio. activities. but replication must take into consideration prerequisite conditions and the speci c country context. and ment. replicating this model requires an energy partner which shares a similar mission. and decentralized marketing and service networks. replication requires strong government policy. and which is willing to balance social. and AMRET 17 . strong sector facilitators and energy suppliers. Its potential is limited because Cambodia’s energy sector is still immature. and environmental bottom lines.loans and business loans. standard and eld-proven products. can be scaled up to commercial levels through a credit facility.. which complements the expansion of biogas loan market among its client base. which are key for each model to function well. donors) to surmount challenges encountered in the initial introduction of energy lending. without which marketing costs would be signi cant.g. and decentralized sales and service networks. SEWA Bank’s extensive involvement in market development led it to tap into the existing marketing infrastructures and channels. commercial. and scale up its market to achieve a critical mass. REPLICATION e energy-lending models of the four MFIs have the potential to be replicated. Replication would require strong management commitment to an internal research and development (R&D) division in order to understand its clients’ energy needs and to identify energy suppliers to collaborate with them. In addition to other prerequisites. AMRET provides a good example of an MFI operation with a strong loan appraisal system. SEWA Bank: SEWA Bank’s energy-lending model has the most pro-consumer approach and poses the fewest barriers to the economically active poor. it is an ideal model to increase the access of poor consumers to modern energy sources. Without addressing these matters.

which for most MFIs means higher credit risk. or the unfeasibility or unsuitability of certain locations for certain energy products (such as hilly regions or regions with less sunlight). especially when there is a potential con ict of priority between promoting a general credit program and an energy program. Financial support could assist MFIs during the start-up phase of energy lending to ll in any mismatch between the MFIs’ loan policy and the borrowers’ nancial capacity and characteristics. However. It could enable the bank to lower its equity 18 Using Microfinance to Expand Access to Energy Services . and sta training. which demands fast portfolio growth. ese subsidies have proven e ective in promoting the implementation of clean energy in countries. construction of a biogas plant takes 20 days). packaged support before its citizens can join mainstream micro nance programs.lending products may become very challenging. etc. seasonality (no construction is possible during monsoons). which includes: e success of energy lending by MFIs also depends on management vice base. is segment of society requires comprehensive. such as in Nepal for domestic biogas plants. requires strategic decisions by the MFI. construct an e ective marketing strategy. Strategic Conflict Adopting and introducing special loan products. energy lending cannot be expected to be as fast-paced as generally sought. nance institutions can master the energy technology piece to bene t their clients. not just with credit but with a variety of other economic and social inputs. cra robust product and service standards for the energy suppliers. which most MFIs have still not been able to serve. and in Sri Lanka for solar home systems (SHS) and village micro hydro schemes. e supply-side subsidy for some energy products helps reduce the gap between the market price and a ordability by consumers. Subsidies and pro ciency in energy technology are two other factors that in uence the introduction and development energy lending by MFIs. With commercialization. A bank’s pro ciency in the nature and characteristics of the energy technology can enable it to design an appropriate technical-risk mitigation strategy. client education. e expansion of energy access to the poor requires designing special programs which provide the poorest of the poor handholding support for longer duration. such as energy lending. given the need for marketing. Other possible hiccoughs are longer product “gestation periods” (for example. and actively disseminate comprehensive information to prospective customers. capability. An energy program requires larger loans with longer terms. As demonstrated by SEWA Bank and SEEDS. monitor the product and service delivery by the energy suppliers. MFIs seek to attain pro tability in a short-to-medium time frame. e demand for better energy solutions can mostly be found among the very poor or hardcore poor populations. Opportunities for Donors Strategic intervention by donors to promote micro-lending for energy consumers should combine nancial support with strong technical assistance that has a pragmatic focus on building market infrastructure and market awareness.

In energy lending. and AMRET 19 . Inno ative market development. micro-lending facilities are key for energy players in building markets that justify investment in developing decentralized sales and service networks. decentralized. minimize market distortion. External funding for research. initiatives to foster development of micro-lending for energy consumers can come from any stakeholder as long as collaborations with other key stakeholders are established. creating a vibrant market system. and introductory pricing. RECOMMENDATIONS Strong coordination among relevant stakeholders. or reduce collateral requirements. and increase e ciency.nancing requirement. us. Furthermore. NUBL. Energy products need to be market driven and should contribute to cost e ciency and/or revenue generation. access to better technology. e RERED project in Sri Lanka and the AEPC/BSP partnership in Nepal are examples of government and donors combining to promote energy lending by MFIs. and optimizing the client base as the primary target market. energy-lending program design. provide a grace period. or individual energy products as strategic means of expanding access to modern energy services also provide opportunities for energy market players to tap into a critical customer mass. Opportunities for MFIs and Other Market Players Micro-lending for energy consumers opens up great potential for MFIs to expand business beyond their existing client base. technical standards for product and service quality to be imposed upon energy vendors by partner nance institutions. e Solar Industry Association of Sri Lanka is a perfect example of how solar companies can actively develop and foster an enabling environment by soliciting government policy and support to create a strong market for the photovoltaic industry. e URJA Project of SEWA Bank and SELCO demonstrate a successful collaborative energy-lending project between the MFI and its energy partner.e. or absence of service infrastructure. or risk mitigation schemes (i. and supply chain development. e cient energy. credit enhancement schemes (i. Areas for technical assistance that advance successful energy lending can be market studies to target the existing client base of the nance institution. and product promotion as well as subsidies for introductory pricing. Greater availability of micro-lending will help remove the barrier to poor consumers posed by their inability to a ord modern. micro hydro needs three years). Good coordination helps leverage the market scale. is includes diversifying the target consumer and the delivery model. extend the loan period (for example. e global initiatives to utilize micro-lending for small scale. SEEDS. funding must cover research and product innovation. pro ciency in energy technology and interactions with energy sector players are fundamental elements for designing e ective energy-lending programs with good loan portfolio quality. Speci c loan funds could be made available to local energy companies and enterprises and for energy delivery models that reach out to potential consumers who may not be bankable. as well as have positive health and social impacts. As there is a strong need for further exploratory research as well as promotional campaigning. change.. marketing. the spectrum of risks involved is much broader because it includes not only credit risk but also risk due to failure of technology. Technology selection. Inno ative technical and credit risk mitigation. e key is to ensure that these risks do not pose a barrier to poor consumers. etc. As shown by the four MFIs in this study. market promotion. However. It could also help with transaction cost sharing. ese risks can best be managed by joint collaboration of energy and micronance stakeholders where they take advantage of each other’s expertise. credit guarantee facility and loss reserve funds). performance-based interest rate subsidy or re nancing for longer tenure or grace period).e. nancing energy solutions calls for innovative risk mitigation strategies.. such The Emerging Experiences in Asia of SEWA.

o ering post-sale service. and environmental interests of the MFI (and energy supplier) so that it may tap into the full potential of the emerging growth of energy lending. Balancing triple bottom lines.as pre-de ning deliverables in an MOU on quality standards. A balance needs to be created among the commercial. detailing warranties. etc. social. educating clients. building market infrastructure. 20 Using Microfinance to Expand Access to Energy Services . Insurance for the energy product and credit guarantees may be other options for risk mitigation.

฀ ฀ ฀
1.1 BACKGROUND

Approximately 2 billion people, or about one-third of humanity, lack access to modern energy services, and some 1.1 billion people in the developing world live on less than US$ 1 per day.1 Access to modern fuels and electricity helps increase incomes by improving productivity, creating employment, and providing access to markets. Contrary to popular belief, expenditures by poor energy consumers on ine cient and low quality energy sources are surprisingly high. Most estimates suggest that families in rural areas of developing countries spend a large portion of their income on poor quality and unreliable energy services. For example, among the rural poor with incomes of $10–$20 per month, expenditures on ine cient energy can represent 20–25 percent of household incomes—which underscores the ability of energy consumers, even if poor, to pay for modern energy services.2 e micro nance movement in Asia has in uenced the growth of the sector globally. In the 1990s, microcredit was viewed by many as a niche market. It is now well accepted that commercial nancial institutions can tailor nancial services to t the needs of the poor. Further, there have been emerging trends to piggyback the role of micro nance onto new, commercial-based solutions and services for the poor that will help them to improve their quality of life. e latter includes introducing energy-lending products. If appropriately designed, loans o ered by micro nance institutions (MFIs) can provide clients with access to high quality modern energy services by closely matching loan payments to existing energy expenditures or income ows. Such loans can o set the high upfront cost associated with cleaner technologies, such as biogas, micro hydropower, wind, solar, or lique ed petroleum gas (LPG). To date, an overwhelming majority of nancial support for rural energy applications has been publicly funded. Although these programs are bene cial, increased access to loans for consumers will be essential to engage the private sector and improve the investment climate for rural energy services.3 Enhanced understanding of the business opportunities for small-scale lending for energy services, as well as how MFIs can most e ectively respond to these opportunities, is essential to facilitate access to appropriate nancial services. e potential for MFIs to o er pro table loans to purchase energy services, and thereby help alleviate poverty, has not yet been realized due to lack of experience by both the energy and micro nance elds and the lack of documented successes. In order to better understand the current experience with energy-lending products in this emerging arena, the United States Agency for International Development (USAID) and the Citi Foundation are funding a comprehensive study on the opportunities, barriers, costs, and impacts associated with MFI lending portfolios that have integrated energy lending into their products. is study, Using Micro nance to Expand Access to Energy Services— e Emerging Experiences in Asia of the Self-Employed Women’s Association Bank (SEWA), Sarvodaya Economic Enterprise Development Services (SEEDS), Nirdhan Utthan Bank Limited (NUBL), and AMRET, expects to learn from the detailed pro les of the business models, the clients, and the operation of four existing MFIs in Asia that currently have energy-lending programs. A brief summary of the four MFIs highlighted in this paper is given in Box 1.1.
1. Jose Goldemberg and Programme, 2004). omas B. Johannson, World Energy Assessment: 2004 Update (New York: United Nations Development

2. World LP Gas Association, LP Gas and Micro nance: A Study into the Applications and Use of Micro nance in LP Gas Access Projects (Paris: World LP Gas Association, 2004). 3. Global Village Energy Partnership, proceedings of the “Consumer Lending and Micro nance to Expand Access to Energy Services” workshop, Manila, the Philippines, May 2004. The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 21

Box 1.1 The Four MFIs Studied in the Asia Region: SEWA Bank, SEEDS, NUBL, and AMRET

Self-Employed Women’s Association (SEWA) Bank, India
SEWA introduced energy lending in 2005, issuing small loans for solar home lights, solar lanterns, and solar cookers. In addition, it is beginning to provide loans to purchase improved smokeless cookstoves, biogas plants, and biomass dryers. Energy partner: Under its URJA Project,* SEWA Bank offers energy lending exclusively through Solar Electricity Light Company, Ltd. (SELCO), a prominent energy supply company in India. SELCO was established in 1995, and has a network of 25 sales and service centers and over 70,000 clients.

Sarvodaya Economic Enterprise Development Services Guarantee Ltd. (SEEDS), Sri Lanka
SEEDS provides lending for clean energy technologies throughout Sri Lanka, including loans to purchase solar home systems (SHS), power grid connections, and village/community micro hydro power. SEEDS currently serves more than 58,000 individuals with loans for the purchase of SHS, over 3,600 individuals with loans for grid connection, and 14 villages and electricity co-operatives for micro hydropower loans. Energy partner: For its solar lending, SEEDS has memoranda of understanding (MOUs) with 12 solar companies in Sri Lanka under non-exclusive terms, which at present include: Shell Renewable Lanka Ltd., SELCO Solar Lanka Ltd., Alpha Thermal Systems Ltd., Access International Ltd., Alpha Solar Energy Systems (private) Ltd., E.B Creasy and Company Ltd., Energy Work (private) Ltd., High Tech Solar Systems (private) Ltd., HPI (private) Ltd., Soft Logic Solar Company (private) Ltd., and Suryavahini (private) Ltd. This list of energy partners is non-exhaustive, as SEEDS is open to establishing MOUs with other companies that meet SEEDS’ standards and requirements. For its grid-connection lending, SEEDS collaborates with Ceylon Electricity Board (CEB), the public electricity utility. For its village hydro scheme loan, SEEDS has not entered yet into any MOUs with project developers because such agreements are directly between developers and electricity co-operative societies (ECS) as owners of village hydro schemes.

Nirdhan Utthan Bank Ltd. (NUBL), Nepal
NUBL offers a loan product line for the construction of biogas digesters. NBUL has distributed this loan to 65 borrowers and has plans to expand its energy program to include loans for solar photovoltaic devices. Energy partner: NUBL thus far has not entered into any special agreement or working arrangement with any particular biogas companies. The arrangement is rather on a case-by-case basis.

AMRET, Cambodia
AMRET provides loans for energy services, mainly for investing in electricity and purchasing battery chargers, through its business loan product. As of May 2006, 2% of AMRET’s total loan portfolio was currently distributed to such energy uses. AMRET plans to provide loans to those clients (about 7% of its total clients) who have a high consumption of energy for production. Energy partner: This information was not available at the time of the study because AMRET does not have a special energy-lending program. The loans currently offered to energy clients were via its general business loans. * “Urja” in Hindi means “energy.”

1.2

METHODOLOGY

e research in the Asia region was carried out by two experts representing the energy and micro nance sectors. e task for the Asia Research Consultant was to pro le four existing MFI energy-lending programs in Asia, gathering in22 Using Microfinance to Expand Access to Energy Services

depth information on each MFI’s lending program, how it t within each organization’s overall lending portfolio, and how the MFI engaged its customers and energy enterprises in order to provide products and services to customers. e research carried out in Asia covers four MFIS in four countries, namely, India, Sri Lanka, Nepal, and Cambodia. ese countries not only have enormous growth in their micro nance sectors, but also lead the trend of integrating energy lending to nancial services. e MFIs studied for this action research include SEWA Bank (India), SEEDS (Sri Lanka), NUBL (Nepal), and AMRET (Cambodia). ey were selected to represent the wide array of MFIs offering credit to energy consumers. Each MFI also exhibits a di erent approach in dealing with energy partners, ranging from an exclusive scheme as demonstrated by SEWA Bank, to very well-de ned arrangements through MOUs that impose quality product and service standards on its energy partners by SEEDS, to government standard-setting for biogas units to a non-speci c approach by AMRET. e research encompassed a desk review; eld research; documentation; and analysis of business models, clients, and operations of the four MFIs.

1.2.1 MFI Selection Process
MFIs who wished to participate in the action research project, Using Micro nance to Expand Access to Energy Services, were asked to submit an expression of interest along with details of their institutional pro le, institutional performance, energy products, and documents of commitment by management and board of directors to participate in this action research. Based on the expressions of interest received (nine from Asia, six from Africa),4 the Small Enterprise Education and Promotion (SEEP) Network and Sustainable Energy Solutions (SES) selected six MFIs for the research project. Pre-requisites for MFI selection were: 1. Legally registered MFI; 2. Established nancial sustainability or a clear commitment to and progress toward achieving nancial sustainability (typically demonstrated by >75 percent operational sustainability and a business plan demonstrating how nancial sustainability will be achieved); 3. ree or more years of operations; and

4. Existing loan product(s) to meet clients’ energy-related needs (for households and/or businesses). e MFIs were paid an honorarium to partially defray any costs related to their participation, and in turn helped coordinate the Asia Research Consultant team’s visit. More importantly, the MFIs received in-kind bene ts from the extensive input by local and international experts on their energy loan product(s), exposure to new ideas and innovations, lateral learning and information sharing with other MFI participants in the research, and opportunities for greater international recognition and presence through the publication of this report, plus the dissemination activities of SEEP and the advisory group.

1.2.2 Work Plan Summary
e research was designed to explore the opportunities, barriers, costs, and impacts associated with MFIs that have integrated energy lending into their portfolio of products. A framework of questions5 was developed by SEEP and SES to guide the team’s eld research. Based on information from each MFI about its operation, outreach, and energy stakeholders, site visits of 5–6 working days were planned. Guided by the MFI, primary data was collected through direct interviews with key sta , clients, loan o cers, and equipment suppliers.
4. Action research on the energy environment in Latin America and energy lending by MFIs is underway. To date, the desk study is nished and will be published with this report. 5. See Appendix 1, “Framework uestions Developed for the Field Research.” The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 23

and to conduct a pro tability analysis in the case of SEEDS. Also. However. Other MFIs. the balance sheet for energy portfolio was constructed from the income and expense statements. and not with other energy sector stakeholders. and sources of funds (loan. and equity). vis-à-vis the overall micro nance program of the MFI. SEWA. 6. clients. clients.6 a desk review was done to understand the socio-economic situation. obtaining data needed for impact analysis was also a challenge. loan o cers).). were also visited to appraise their experiences with energy lending and whether they might introduce energy loan products in the future. A pro tability analysis for the other MFIs was not possible because their programs were too new and small. not part of this study. outstanding. in the case of SEEDS (Sri Lanka). (For details of the actual respondents met by the Asia Research Consultant. although the team ensured that clients lived in at least two geographical areas (except in Cambodia) and represented the full range of energy products o ered by the MFI. See the detailed elaboration of eld visit methodology in Appendix 2. micro nance and energy sectors. regulations governing the micro nance and energy sectors. etc. the participating MFIs had not made any impact studies of their energy lending. 24 Using Microfinance to Expand Access to Energy Services . the team was not able to visit any clients with micro hydro loans. but date of its availability is not known. vendor associations.3 Field Visit Before the eld visit. nance institutions. is was not su cient to generate accurate statistical data or direct analysis of MFI clients with energy loans. and branches). It also examined the institutional pro le of each MFI.1 MFIs Data was collected on each MFI’s outreach (number of groups. e dra of the nal report was distributed to an advisory board. size of the energy portfolio. although they met as many clients as possible during the two days designated for client interviews.2. and key micro nance and energy players in the country. and the other MFIs participating in the study (NUBL. Because NUBL had a speci c biogas loan and AMRET’s energy lending was treated as a business loan. Further. and AMRET in Asia. plus closing sub-ledger balances. grants. SES. India was an exception because the team only met with the sole energy service company partnering with SEWA. e eld visits included meetings with the three stakeholders: MFI (bank management.3. see Appendix 2. their impact studies did not relate to energy loans speci cally. 1. Due to the limited amount of readily-available information and short time in the eld. its energy service companies. the data on client characteristics and energy demands was mainly based on country statistics (secondary data) and limited direct interviews with clients. With the exception of SEEDS. again except in India. recoveries. SEWA Bank has commissioned the SEWA Institute to carry out an impact study of its energy lending. SEEP. SEEDS. Data primarily came from the accounts and MIS department at the head o ce of the respective MFIs and through discussions. donor institutions and development agencies. meetings were held with government o cials and ministries. 1.) e clients interviewed were selected by the MFI. banking/ nancial. portfolio (disbursement.e Asia Research Consultant synthesized the research results and developed and nalized the report. and any initiatives undertaken in energy lending. and NGOs to better appreciate the speci c contexts of the energy and nancial sectors that underlay energy-lending programs.3 DATA ANALYSIS 1. and energy service companies. is data was used to analyze the portfolio quality. For SEEDS. and Faulu Kenya and KUSCCO in Africa) and their respective energy service suppliers to get feedback prior to nalizing the report.

Past. risk mitigation strategy. Market infrastructure made available to clients 5. training provided to operate energy technology. current. other energy suppliers. Details of collaborations with energy suppliers. products offered. Details of the delivery model adopted to service clients 3.Box 1. terms and conditions of contract(s).2 Typical Data Collected During Field Research Microfinance Institutions 1. funding sources. Problems faced by clients in managing energy loans (if any) 6. benefit derived from energy products 5. Rationale for technology selected for MFI energy lending products 4. funding sources). level. knowledge and understanding of energy technology/products. energy client profile. trainings. Pattern of energy product usage in past and present 3. and energy products available in the market 5. such as target group. management systems. after-sale service to clients. details of interactions with MFI and client 2. Other MFIs: Model and loan characteristics of energy loans offered by other finance institutions to understand the general level of competition in the microfinance sector 3. and mechanism of interventions (technical assistance or financial incentives) provided by the sector facilitator that influence current and/or future energy lending program of participating MFIs 2. etc. energy delivery model. Genesis of the energy loans and rationale on how product designs were determined 6. lending methodology. Client cash flows. Specifics of energy loan product(s). Sector facilitator: Details of type. 2. Local market surveys: Energy products offered in the market and general level of competition locally in energy sectors The Emerging Experiences in Asia of SEWA. technology. willingness to pay for energy services. experience working with energy suppliers. Financial statements necessary for carrying out financial performance assessment 3. if any. Constraints and opportunities in working with MFIs Others (conditional) 1. NUBL. product design. governance and strategy. external collaborations. and system adopted to identify impacts) 4. portfolio tracking. Impact study (past research by MFI. and AMRET 25 . direct sales. Organizational information (ownership. individual livelihoods. SEEDS. end uses of energy loans. Details of interactions between clients and energy suppliers 7. Clients 1. Marketing and outreaching strategy 6. and quality of life 2. Client’s access to information on energy products Energy suppliers 1. Direct and indirect impacts on households. marketing strategy. microfinance policies. and future energy needs of the clients 4. Details of contract with MFI.

gross outstanding portfolio. taking into account the energy portfolio as a percentage of the total micro nance portfolio. e income and expenditure statements were adjusted for depreciation based on the apportionment of xed assets in the balance sheet. LLR has been increased from 3. due to weak portfolio quality. much of the required information was already well documented and data collection went quickly. the Asia Research Consultant collected gures for cash-in-hand. was gathered to understand MFI operations and programs. loan amount. cash at bank. from annual reports and other publications. SEEDS could not identify the reason for the di erence and concurred that all the other gures presented in the dra statements sent to them were correct. baseline energy expenditure. ere were cases where information provided by di erent stakeholders on similar subjects was di erent. 26 Using Microfinance to Expand Access to Energy Services .618]). and tangible and intangible bene ts from using alternative energy was also gathered. and outstanding debt from its ledgers to construct a balance sheet. the Asia Research Consultant re ected the di erence (LKR 87 million [US$ 836.6%. Fixed assets were apportioned based on the estimates provided by SEEDS. loan installments. Data primarily came from visits to individual client households. Research publications on the potential of energy sources and energy markets were also reviewed. Some of the biggest challenges in nding and collecting data was achieving a consistent level of information in every target country and MFI and ensuring data accuracy. representing 6 percent of total assets) as current assets on the balance sheet. current energy expenditure.2 Energy and Microfinance Stakeholders Secondary data.Because SEEDS does not prepare a separate balance sheet for its energy program. the vendors were not willing to share accurate information on battery prices. However. 1.8% to 12. capital cost of alternative energy (such as solar systems). Due to intense competition among battery shops.7 Data on client pro les. except in case of NUBL where the Asia Research Consultant held discussions with groups of clients. the balance sheet dra ed by the Asia Research Consultant did not balance. Consequently. and depreciation separately. e recoveries that SEEDS will potentially be able to make from removing solar home systems in case of default have been taken into account when creating the LLR. based on the gures provided by the MFI. loan loss reserve (LLR). With AMRET. However. is information was used to analyze the cost savings or increase in income from using better energy solutions and to understand other intangible bene ts that the clients may have received. 7. e adjustments made while constructing the balance sheet included appropriation of xed assets as it does not account for energy lending. Primary data was collected during visits to the respective stakeholders.3. translation of the local Cambodian language(s) proved to be a signi cant barrier to obtaining accurate data from the clients and battery shops. so only approximate data on prices could be obtained. LLR.

5 percent of total household income/consumption.” (Washington. state and central co-operative banks.600 persons—a seemingly excellent banking infrastructure. e resultant vacuum was lled by various NGOs providing micro nance services. with poverty reduced by about 10 percentage points.000 nancial outlets in the rural sector. Financial institutions. provide bulk loans to NGOs and MFIs. In addition—in theory—there are also 140. and the lowest 10 percent for 3. the World Bank and others have reservations about India’s scal de cit (a combined state and federal budget de cit). In another model. mutually aided co-operative societies.1 Socio-economic Environment ฀ India is the world’s second most populous country (1. 2006). 9.8 2. DC: World Bank. the reality is that the rural poor still lack access to formal nance. estimated July 2007) and the seventh largest country in area. and self-help groups. Despite its strong growth. Co-operatives and credit unions consist of primary urban co-operative banks. Small Industries Development Bank of India (SIDBI). However. with the top 10 percent accounting for 33. is has resulted in MFIs becoming intermediaries between the largely public development nance institutions and rural and semi-urban retail borrowers. primary agriculture credit societies.000.866. Its economy has posted an average growth rate of more than 7 percent since 1994. such as the National Bank for Agricultural and Rural Development (NABARD). which implies that there is one outlet for every 5. accounting for half of India’s output with less than one-quarter of its labor force. Based on the UNDP 2002 Human Development Index.1.129. NABARD re nances commercial bank loans to self-help groups (SHGs) to facilitate relationships between the banks and poor borrowers. e most striking is its extensive outreach. In India’s diverse economy. SEEDS.฀ ฀ ฀ 2. and environmental problem. As a result—despite improvements—29 percent of the population was still living below the poverty line in 2005.1.34 percent in 2006) is the fundamental social. e entire network of primary co-operatives9 in the country and the regional rural banks (RRBs)—which were established to provide rural nance—has proved a colossal failure due to the prevailing sociopolitical architecture. NUBL. 8. and micro nance promotion organizations. India ranked 127 of 177 in the world. e huge and growing population (population growth rate was 1. Income distribution is strongly skewed. World Bank. and AMRET 27 .2 Banking Sector Overview For the past three decades. India’s banking system has several outstanding achievements to its credit. state and primary co-operative agriculture rural development banks. Banking has become easy for the urban population. The Emerging Experiences in Asia of SEWA.1 INDIA COUNTRY CONTEXT 2. “India Country Overview 2006. economic. India achieved 7.6 percent growth in gross domestic product (GDP) in 2005.5 percent. such as the Rashtriya Mahila Kosh. which has accumulated to approximately 9 percent of GDP. services are the major source of economic growth.

speci cally to bring prudential regulation and nancial infrastructure in line with international best practices. science. and the challenge is to reach these people with modern energy services. More than 80 percent of its 1. Other nancial institutions include non-bank nance companies (NBFCs). art. co-operative banks. the Reserve Bank has also emphasized nancial inclusion.000 retail credit outlets in the co-operative and banking sectors. ere are also a growing number of foreign banks operating in India. and RRBs. religion. and 12 foreign banks in India.org/countryinfo/india.3 Financial Service Suppliers In India. societies. respectively. through some 200 branches. India’s regulation of its nance sector includes regulations for banks. and non-governmental organizations.2. While informal nancial services have always been integral to the traditional economy of India.622]) at an interest rate of 7 percent per annum.’ provided that no pro ts (if any) or other income derived by promoting the company’s objects may be distributed in any form to its members. insurance companies. or any other useful object.000 [US$ 6. augmented by approximately 13. A target of 32 percent of net bank credit has been stipulated for lending to the priority sector by foreign banks. banks are classi ed into di erent groups. respectively. At present. A target of 40 percent of net bank credit was stipulated for lending to the priority sector by domestically scheduled commercial banks. even semi-formal and formal nancial services through agricultural co-operatives and banks are within physical reach (less than 5 km) of perhaps 99 percent of the population of the country. Appendix 5 compares the regulations applied to these four di erent nance institutions. An additional 300–400 MFIs operate as co-operatives under the conventional state-level co-operative acts. “Country Information: India. strengthen the capital base of banks. 20 private sector banks. in both public and private sectors. Each group has its own bene ts and limitations to operating in India. non-pro t institutions.10 provide micro nance services to the rural poor. is limited to the main cities.1 billion population is rural.asp. ensure greater transparency. 2. provident funds. While aiming for a globally competitive and robust banking sector.5 Energy Scenario Overview India’s energy scenario is complex due to the size and the diversity of the country. In addition. 2. sub-targets of 18 percent and 10 percent of net bank credit.700 NBFCs. especially participation in nancial sector. the national-level multi-state co-operative legislation. legal bases for regulating. Within this. co-operatives and credit unions.” website. non-bank nancial companies. or the new mutually aided co-operative act (MACS Act). provide such services. http://www. and the government agreed to provide budgetary resources to co-operative banks as appropriate. registered as trusts. as well as its own dedicated target market.4 Regulation of Financial and Microfinance Sectors e Reserve Bank has been focusing its regulatory and supervisory framework and initiatives on promoting a stable and e cient nancial sector.1. ere are more than 158. charity. the 2006–2007 Union Budget proposed o ering shortterm credit to farmers (up to INR 300. where banking services are easily accessible by the underprivileged sections of Indian society. regulator involved. have been stipulated for lending to agriculture and weaker sections. as well as capital and reserves. 10.1. Council on Foundations. and build the appropriate nancial architecture for risk management. 28 Using Microfinance to Expand Access to Energy Services . A vast network of commercial banks. but their reach. there are 20 public sector banks. as well as other nancial institutions.1. A section 25 company is a company with limited liability that may be formed for ‘promoting commerce. and mutual funds.usig. In order to help farmers obtain credit at a reasonable rate.” United States International Grantmaking (USIG). or Section 25 companies.

6 Renewable Energy Facilitators and Promoters India has favorable scal and policy conditions for developing renewable energy sources economically. India has a signi cant renewable energy potential. and energy e ciency. e various instruments employed by IREDA are debt nancing with so term loans.1 and 2. e energy intensity is energy consumption per unit of GDP of which it indicates the development stage of the country.55 times the United States’. and banking facilities Sales tax concession and benefits Electricity tax exemption Demand cut concession for industrial consumers who establish renewable based power-generating units Capital subsidy 11.31 tons of oil equivalent (TOE) compared to the world average of 1. NUBL. power wheeling.India’s per capita energy consumption is one of the lowest among developing countries. per the tari system in most electricity boards.5 times the world average. poor households may have di culty connecting because the upfront connection cost is una ordable.” (Gurgaon. India’s energy prices have been controlled by the government and subsidies provided to meet certain socio-economic needs of the public. “Indo-US Cooperation in Energy–Indian Perspective. In the electricity sector.2. The Emerging Experiences in Asia of SEWA. lease nancing. equipment nancing. the Indian government has taken serious steps to deregulate the energy price.1 Applicable Fiscal Incentives and Facilities Available to Manufacturers and Users of Renewable Energy BY THE CENTRAL GOVERNMENT Income tax holiday Accelerated depreciation Concessional custom duty and duty-free import Capital and interest subsidies Price subsidy BY STATE GOVERNMENTS Energy buy-back. and 1. In 1987 the government of India incorporated the Indian Renewable Energy Development Agency Limited (IREDA) to facilitate a wide spectrum of nancing to introduce renewable energy.74 TOE. 1. most of the State Electricity Boards have initiated reforms and regulatory commissions have been set up to determine tari s based on economic rationale.47 times Asia’s.7 times Japan’s.68 TOE. In the last 10 years. and 75 percent of rural households. Table 2. the overall impact of the renewable energy programs is still limited compared to the magnitude of the energy problems still faced by Indian villages. Even in urban areas. It consumes only 0. e price per kilowatt hour varies signi cantly across the states as well as across customer segments within the states.1. e increase in access to electri cation among the poor re ects the negative growth from 2000 to 2002.000 megawatts (MW). leading to distortion and ine cient use of di erent energy sources. 12.11 India’s energy intensity12 is 3. Brief overview of scal incentives and IREDA’s nancing norms are presented in Tables 2. Recently. In 2001. and AMRET 29 . India: Confederation of Indian Industry. 76 percent of urban-area households were connected. However. Although. the average per capita energy consumption for developing countries is 0. and on-lending through nancial intermediaries. 2. and low-tension consumers pay only for energy consumed (kWh). 1. most households that are not in the center of a village do not have access to the grid. or about 3 percent of total grid capacity. renewable energy technologies in India have been promoted through research and development and demonstration programs supported by government subsidies. Raghuraman and Sajal Ghosh. Electricity tari s in India are structured in a relatively simple manner: high-tension consumers are charged for both demand (kilovolt ampere—VA) and energy (kilo watt hour—kWh). In 2001 the contribution of renewable energy reached 3000 MW. V. SEEDS. 2003). estimated at more than 100. o cially 86 percent of the villages in India are supposed to be electri ed. energy conservation.

to help rural households nance the purchase of solar home systems (SHS). only two companies were identi ed that concentrated on building market-based retail sales.Up to 90% of equipment cost 0. Furthermore.4–14%) Up to 3 years (maximum) Up to 10 years (maximum) IREDA’s lending is mainly in six areas: (1) solar energy technologies—manufacture and utilization of solar thermal and solar photovoltaic systems. namely SELCO and Shell Solar.. 2. In April 2003. and (6) energy e ciency and conservation.2 ORGANIZATIONAL PROFILE OF SEWA BANK 2. etc. However. UNEP Indian Solar Home Programme Overview and Performance Report. Collaborations between SEWA Bank and SELCO are expected to develop a similar energy loansales-service venture in Gujarat State. (2) wind energy—setting up grid-connected wind farm projects.1 Structure and Operation SEWA Bank’s primary objective is to provide working capital and savings facilities for poor self-employed working women in Ahmedabad. most of these companies (BHEL.) are concentrating on either the government market (home lighting. and other activities to develop the institutional capacity for this type of nance. assistance with technical issues. the United Nations Environment Programme (UNEP)13 initiated a credit facility in southern India. (4) bio-energy technologies—support for biomass-based co-generation and power generation projects. March 2005. As of January 2005. Financial support from UNEP consisted of interest rate subsidies for borrowers.Table 2.Manufacturing loans Debt instruments Quantum of assistance Rate of interest Moratorium Repayment period . public lighting. Gujarat. which in part attracted increasing participation of the nine Grameen banks. (3) hydro—setting up small.Project financing schemes . e fastest growth in loans is currently in rural areas. Its mission is “to reach the maximum number of poor women workers engaged in 13. vendor quali cation. with the support of the United Nations Foundation (UNF) and the Shell Foundation. and energy from waste and briquette projects.000 loans through more than 2. biomass gasi cation. Karnataka State).1. biogas. and micro hydro projects. tra c lights) or the donor-driven market (mostly solar). driven by their clients’ needs and capitalizing on SELCO’s experience delivering energy options in Karnataka. (5) hybrid systems. Tata. especially for individual and small-scale energy solutions.0% per annum (at present 2.Up to 80% of project cost . e interest subsidy was preferred by the banks over guarantees or other support mechanisms. is program is playing a signi cant role in increasing the loans made available to solar energy consumers.7 Energy Suppliers and Service Companies e number of energy equipment suppliers and service companies in India has been growing rapidly in certain regions (e. because it enabled them to o er preferential banking terms to their customers e ciently and transparently. 2.0–15. BEL. such as photovoltaic. 30 Using Microfinance to Expand Access to Energy Services .2 Highlights of IREDA’s Financing Norms .Equipment financing schemes . etc. During the research for this report. although they would not bene t directly.000 participating bank branches.2. marketing support. mini.g. UNEP had nanced nearly 12. su cient rural infrastructure (sales and service networks) thus far has been developed only in Karnataka State.

Portfolio management: A repayment tracking mechanism is operational at all levels except for collection agents. Accounting and management information system (MIS): At the time of the eld research visit. http://www. Its potential clients are variously identi ed as “hawkers. and AMRET 31 . Should a client not repay a loan within its term.000) and cashin-transit insurance of INR 10 million (US$ 220. SEWA Bank’s repayment collection mechanism seemed lax. 2. is so ware has integrated modules for accounts. Its credit-deposit ratio was low. it had a total of 291. it also allows clients the exibility of repaying loans in variable installments within the loan term. ere is an investment committee (chairperson. Overall. construction workers. and small business women selling vegetable. Business planning and nancial management: SEWA Bank has a structured mechanism for monitoring its investments and compliance with liquidity norms. and customer pro les and has a better capacity to handle accounts than the previous so ware.5 percent of the loan amount for unsecured loans as share capital. SEWA Bank. registered under the Mumbai Societies Act). the bank had branches in 11 of Gujarat’s 13 districts. or recommendations. household goods and clothes. At the time of the eld research visit.2. and the bank also seeks counsel from an investment company. it can be rescheduled at the request of the collection agent. In rural areas.htm. MIS. had a 100 percent repayment rate. e members contribute 5 percent of the loan amount for secured loans and 2. Dividends 14.909 shareholders. Product development: SEWA Bank has a pronounced service orientation and thus has designed various loan and savings products around the life cycle needs of its clients. papad rollers. domestic workers. registered as an urban co-operative bank. through their own management and ownership. e eld-level audit is also limited. contract laborers. since overdue payments are calculated against monthly dues (RBI norm). being new and small.750) from the New India Insurance Company. SEWA Bank has cash-in-hand insurance of INR 40 million (US$ 883. vendors. ready-made garment workers. SEWA Bank operates under the direct regulation of Reserve Bank of India (RBI—India’s Central Bank) and has the permission to operate only in the city of Ahmedabad. general manager. Its extension counters are audited on a monthly basis. MFI accounting policies are governed by RBI norms and can generate a portfolio-quality analysis report on a daily basis. Although SEWA Bank o ers loans for 35 months with monthly repayments. details about cause of events. SEEDS. and two client-members from the board). and artisans. new Windowsbased so ware was being installed. the managing director. However.the unorganized sector and provide them with suitable nancial services for their socio-economic empowerment and self development. and laundry workers. sh. bidi and agarbatti workers.org/mission.2 Funding Sources SEWA Bank began with the contribution of share capital from 4. However. indicating a lower deployment of funds in portfolio. is audit report is submitted to the head o ce and the respective extension counter.535 active savings accounts and 44. the audit report is brief and does not include observations. manual laborers and service providers like agricultural laborers.” The Emerging Experiences in Asia of SEWA. ese products are driven by client need and demand and include school loans and other services aimed at supporting and preparing the client to meet various social and economic needs at di erent stages in the life cycle. eggs and other food items. home-based workers like weavers.000 women. the energy portfolio. is is a result of SEWA Bank’s conservative approach to disbursing loans. this re ects a weak portfolio quality. around 35 percent as of 31 March 2006.sewabank. handcart pullers. NUBL. An audit includes physical veri cation of cash and veri cation of loan and saving documents. fruit. operates both in urban and rural areas. As of 31 March 2006. Eighty percent of the SEWA Bank’s clientele is based in urban areas and the rest in rural areas. Internal audit: SEWA Bank has an internal audit department with four sta members. chartered accountant. However. the bank functions through its registered district associations (a federation of unregistered savings and credit groups. potters. head-loaders. women who process agricultural products.”14 SEWA Bank.

(15 percent) are paid into shareholders’ accounts annually. As of 31 March 2006, SEWA Bank had a total share capital of INR 25,783,000 (US$ 569,161). Total saving deposits as of 31 March 2006 were INR 665.7 million (US$ 14,695,364). In addition to this, the bank has borrowed US$ 680,000 from the Housing and Urban Development Company Limited in 1998, and $630,000 from HDFC Bank Limited in 1999 for long-term housing nance. Since SEWA Bank is not registered under the Foreign Contribution Registration Act, grant funds for its energy program of US$ 150,000 from the Lemelson Foundation and $20,000 from the United Nations O ce for Project Services (UNOPS) were routed through the Mahila Housing Trust, an associate organization of SEWA Bank. e grant from Lemelson Foundation in December 2005 was for loan funds to energy entrepreneurs and end users, along with capacity building support. e grant support from UNOPS was used before starting the energy program to assess the potential of energy needs.

2.3

ENERGY LOAN PORTFOLIO OF SEWA BANK

2.3.1 Model and Methodology
SEWA Bank o ers energy loans for SHS and battery chargers to its clients. It o ers other energy saving products, such as the sarai cooker and improved cookstoves, with SELCO, but these do not require credit due to their low cost and are paid for in cash by the customer. SEWA provides these energy services to its existing client base in Ahmedabad and follows an individual banking model. e main di erences between the non-energy and energy loan products of SEWA Bank are presented in Table 2.3. A key feature of SEWA’s loan provision is its exible repayment mechanism within the term of loan. ere is also an interest subsidy of 7 percent o ered on the energy loans (refunded on the timely completion of loan), but it is dependent on grant support from the Lemelson Foundation. e speci cally-designed features of energy loans include a compulsory 15-day trial period for solar photovoltaic (during which the bank makes sure that clients are buying the product only if they feel they need it), advice from SELCO sta on the type and capacity of the energy product (a needs assessment to help clients purchase the least costly and best suited option for their needs), user training for maintenance and operation at time of installation, and free a er-sale service during the warranty period. Another important di erence between the non-energy and energy loans is that the energy loan payment is made directly to SELCO, and the client is directly given the equipment. e loan appraisal and disbursement mechanism of energy loans are presented in Figure 2.1.

2.3.2 Relationship of SEWA Bank, SELCO, and Clients
One of the unique characteristics of SEWA Bank’s energy program is the strong partnership with SELCO to provide energy services to their clients. SELCO is a prominent comprehensive energy company in India that provides products, service, and consumer nancing for unserved populations. e similarity in mission, target clients, and organizational values form the foundation of their partnership, and clearly de ned roles and responsibilities under di erent possible circumstances are crucial. Both SELCO and SEWA Bank aim to provide one-stop energy solutions to clients under this joint initiative—the URJA Project—by identifying the energy needs of its clients and developing and introducing new products with the potential to reduce drudgery and improve productivity. Under the project, both SEWA Bank and SELCO rely on each other’s experience and expertise to provide energy services to the clients. While SEWA Bank provides nancial services and use of its existing infrastructure to market

32

Using Microfinance to Expand Access to Energy Services

Table 2.3

Differences Between SEWA Bank’s Non-Energy and Energy Loans

NON-ENERGY LOAN
Model Interest rate Loan period Installments Loan size (in INR) - Urban areas: Individual - Rural areas: Group 17% declining p.a. 35 months Flexible within loan term - Unsecured loans: Maximum INR 50,000 (US$ 1,103) - Secured loans: 100% of the value of security Loan criteria Loan appraisal Saving with the bank for at least 6 months Done by banksaathis, loan officers

ENERGY LOAN
Individual, offered only in Ahmedabad city 17% declining p.a., but 7% is refunded upon completion of loan on time 35 months Flexible within loan term - Unsecured loans: Maximum INR 50,000 (US$ 1,103) - Secured loans: 100% of the value of security Has to open savings account with SEWA Bank - Energy need pre-assessed by vendor and staff - Loan appraisal by banksaathis - 15-day product trial before loan sanction

Loan approval

- Bank/branch manager: Loans up to INR 50,000 (US$ 1,103) - Head office: Loans > INR 50,000 (US$ 1,103) 1–2 days Through extension counter Clients paid in cash

Centralized at head office

Loan processing time Disbursement Cash transfer Post-disbursement services Loan collection Other unique features

1 day Head office, but will be decentralized in future Disbursement to SELCO, client receives equipment Free maintenance and operation during the warranty

Collected by banksaathis or directly deposited at branch/head office Financial and business counseling training sessions

Collected by banksaathis Dedicated training: 1-hour session during financial and business counseling, special energy training by vendor and user training at the time of installation

Figure 2.1

Process of a SEWA Bank Energy Loan
Loan Disbursement (Payment directly to SELCO)

Loan Installment

BANK SAATHIS

Agree to Purchase (Post Trial Period)

2

Appraisal by Loan Officer
1

Loan Application
Need Assessment 15-days Trial

CLIENTS
Maintenance Service

The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET

33

the energy products, SELCO gives advisory support to the clients on energy products, installs the products, provides a er-sale service, o ers a buy-back option to clients, and trains clients and sta of SEWA Bank on the energy products. SELCO bene ts from SEWA Bank’s huge client base of 290,000 and existing infrastructure, which reduces its transaction costs. On the other hand, SEWA Bank can meet its clients’ energy needs through customized energy products without bearing any technical risk. Moreover, SELCO has a well-developed, decentralized service infrastructure and provides prompt a er-sale service. rough its robust international relations, SELCO has also brought its network of energy technologies and funding resources to the URJA Project. e Lemelson Foundation’ support of the URJA Project was one bene t of SELCO’s network capital. SELCO has opened an o ce in Ahmedabad with three sta members who frequently visit SEWA Bank and any clients requiring assistance. SEWA Bank makes the loan appraisal and markets the energy products. An amount equivalent to the value of energy product is paid directly by SEWA Bank to SELCO a er the installation. Clients repay energy loans to the SEWA Bank through banksaathis. SEWA Bank markets energy products through its existing promotional channels, which include:

members;

2.3.3 Characteristics
Client pro le: SEWA Bank serves poor self-employed women in urban and rural areas. Energy clients includes energy end-consumers (needing energy solutions for household consumption), hawkers (energy for productive use), as well as energy entrepreneurs (battery-charging services). Unlike other lending products, energy clients do not necessarily need to be existing savings members of SEWA Bank. However, before energy loan disbursement, clients must open a savings account with the bank. Energy products: e energy-lending program of SEWA Bank o ers technologically neutral energy solutions. rough intensive collaboration with its energy partner SELCO, SEWA Bank aims to explore, identify, and introduce energy products and loans, which they believe will help to reduce drudgery, increase income, reduce cost, and improve health conditions of its clients. Based on the market survey conducted by SEWA Bank before introducing the URJA Project, lighting and cooking were identi ed as the main areas where intervention was needed to provide access to better energy technology. However, because the clients of SEWA Bank are involved in varied activities, energy needs for lighting may be very di erent for hawkers than for midwives. For example, midwives need headlamps that allow them to adjust the direction of the light without using their hands. Similarly, client preferences for cooking may di er based on convenience in utilization, time involved, impact on health, and cost. It is important to understand that lighting and cooking extend beyond domestic and household use, and that products need to be customized to serve the di erent productive activities of the clients.

34

Using Microfinance to Expand Access to Energy Services

21) Household Capacity Price of the equipment User profile 40–180 watt peak (Wp) INR 12.At the time of this research study. 2.000 (US$ 110) Maximum INR 350 (US$ 7.3.4 Administration and Management Since SEWA Bank is not registered under the Foreign Contribution Registration Act. gas cookers. and cleaner lighting source for kerosene and creates a pro table business opportunity for entrepreneurs. Integrating SHS loans into other SEWA programs would bene t the energy-lending program by piggybacking on the existing client base.000 (US$ 274–2. Loan The Emerging Experiences in Asia of SEWA. SEWA Bank and SELCO conduct special trainings with funding support from the Lemelson Foundation. is has been pro table for these entrepreneurs. there is a good chance that they will introduce more energy products in the near future. is scheme allows the hawkers to substitute a better. demand-driven. the URJA Project also promotes energy for productive uses and income-generating activities. Hawkers who might not be able to purchase a solar lantern now have the option of renting a battery from the energy entrepreneurs. saves 15–30% ANNAPURNA STOVE Smokeless and energy efficient cookstove that saves time and reduces fuel consumption by 30%. SEWA Bank has a strong client base for its energy program. Since 2006. cooking. NUBL. SEWA Bank can collaborate with the Mahila Housing Trust to integrate SHS loans into its housing loans. SEEDS.80) and INR 825 (US$ 18. Having a technologically neutral. is includes introducing solar lanterns for hawkers. four energy entrepreneurs have received loans from SEWA Bank to establish their battery-charging and rental business.075) INR 5.4 Features of Energy Products Offered by the URJA Project PHOTOVOLTAIC SYSTEM SHS Salient features A stand-alone electrical power system that enables households with no access to grid to have electricity Battery Charging Expands access to photovoltaic system to those who cannot afford to buy it. In addition. as well as photovoltaic battery-charging stations for small energy enterprises.400–94.000 members. Every one of its members needs better energy solutions.72) plus INR 100 for mason’s fee (US$ 2. the delivery model is diversi ed to accommodate hawkers of di erent economic pro les. and solar driers.000 (US$ 110) per battery INR 5. As SEWA and SELCO commit to provide better energy solutions. has positive health impact SARAI COOKER Saves time and cost. and personalized energy program enables SEWA Bank to capture wider market potential among its existing client base. Further. as does SELCO. To scale up the energy entrepreneur scheme. one of whom has even taken out a second loan to expand her business.000 members of the full SEWA organization.20) Household Household Enterprises offering battery rental or battery charging to hawkers Hawkers Energy uses: To expand the outreach of its energy services. reduces cooking cost to INR 1/day (US$ 0. it cannot receive funds from outside India. by introducing battery-charging entrepreneurs. Market potential pro le: With over 290. SEWA’s associate. via rental system Solar Lanterns Replaces kerosene as a cleaner and cheaper lighting solution. including biogas. whether for lighting. Table 2. For example. which provide battery rentals or battery charging services to street hawkers. SELCO was in the process of identifying speci c needs to be able to develop and o er cheaper and better modern energy solutions to clients.02) for a 4member family and cooking time to 45 minutes 8 and 12 liters INR 625 (US$ 13. SEWA Bank is showing strong promise to further extend its energy program to the 700. cheaper. or productive and incomegenerating activities. the Mahila Housing Trust has an account with SEWA Bank. and AMRET 35 .

Average loan size for SHS was INR 11. SEWA Bank has over 40.260 (US$ 138) per year per unit system.000 members working as street hawkers alone.99]). When the loan is paid off.3. such vegetable vendors whose business su ered at night due to inadequate lighting and high cost of kerosene (INR 35–45 per day [US$ 0.105 of revenue in the first year and INR 3. e total loan amount disbursed during this period for SHS was INR 328. The annual revenue for renting a 6–8 hours battery is INR 20 x 340 days = INR 6. especially since the information on the operation cost was not available.530 in the second year. funds are transferred from Mahila to SELCO’s account at the time of loan disbursement.a. It is premature to state whether the energy lending will reap pro ts for SEWA Bank. Two accountants have also been permanently assigned to energy lending. SEWA Bank had installed 28 SHS units. the client should save INR 6. but they are maintained by SEWA and released to the clients only a er the loan is repaid. 2. the amount paid would be INR 3.) are prepared in the name of the client. some of the functions will be decentralized. Nearly 200 sta members of SEWA Bank have been trained by SELCO on energy products. SEWA Bank expects to reach the break-even point and operational e ciency by scaling up its portfolio and reducing transaction costs. midwives. However. Assuming that the loan period is 2 years at an interest rate of 17% p.) and then develop and provide energy solutions for them. SEWA Bank showed no energy loan defaults and a 100-percent repayment rate. or INR 540 per year.885. the client will pay INR 5.921). vegetable vendors etc) Revenue: The daily rental fee for battery with 6–8 hours running capacity is INR 20–25 (US$ 0.000 (US$ 110) per battery unit for each solar light that operates 6–8 hours/day.730 in the second year.44–0.22–0.55).172]) by the August 2006 eld visit. By August 2006.6 Impact Analysis With the creation of energy entrepreneurs.Box 2. etc.992 [US$ 14. the organization has been able to target hawkers with di erent economic pro les. and then INR 2. In the most productive activities. warranty card. etc.800 (US$ 150). and 630 sarai cookers.155. 2. assuming that the price of petrol and the rental fee remain the same. lack of basic infrastructure facilities poses limitations.730 (US$ 259) and INR 4. If the expense for transporting the battery to clients is INR 45 per month for petrol. SEWA Bank has set up a separate energy division to manage its energy program.500 (US$ 77) for one that operates 3–4 hours/day Clients: Hawkers (fruit vendors.3. In the first year. in the future. 66 single solar lanterns.550 (US$ 6. e total energy portfolio as of August 2006 was less than 1 percent of the total loan portfolio of SEWA Bank With only 94 loans disbursed (total of INR 641. and for single solar lanterns was INR 313. a savings of INR 10–15 (US$ 0. e introduction of solar light has improved the vendors’ business by increasing the number of working hours: better lighting attracts customers and the vendor saves money by renting a solar light (INR 20–25 for 6–8 36 Using Microfinance to Expand Access to Energy Services .750 (US$ 105) for single solar light.77–0. and INR 3. it is still being administered and monitored directly from the head o ce. Equipment purchase documents (receipt.471). It plans to divide its client base into segments based on their economic activity (street hawkers.1 Photovoltaic Battery Charging: A Profitable Business Capital Expenditure: Approximately INR 5. the business owner could see INR 3.33) over kerosene light. Because the program is very new. (declining) and the client pays on time.442 (US$ 7.5 Financial Analysis SEWA Bank’s energy lending under the URJA Project only began in April 2006.

฀ 2. (2) introducing customized energy options. responsive. and (5) incorporating a strong international network for accessing various technologies and funding. and coal can be used.1 describes the business pro le of the battery-charging business.4. The Emerging Experiences in Asia of SEWA. and sustainable service model. SEEDS. NUBL. ese stoves vent smoke outside the house. through a 15-day trial of the energy product. clients are empowered to select the energy solution that is right for them. and AMRET 37 . (4) applying a demand-driven.. particularly maintaining sound portfolio quality and tracking repayments to avoid fraud or misappropriation. by-products like ash are used to clean utensils. providing more e cient energy products and services combined with a credit facility in one location at the doorstep of the clients. including promoting new energy enterprises as business opportunities. SEWA Bank’s focus on technical capacity has produced loan o cers who have been trained in energy products. greater comfort. Challenges ment (which acts as a loan subsidy) has the potential of distorting the URJA Project. wood).g. existing market in astructure. this loan methodology also creates challenges. better hygiene. SEWA Bank and SELCO continue to explore and introduce new energy products and customize existing ones based on their clients’ needs.hours [US$ 0. and loan methodology. Box 2. For other products. loan characteristics. since it is subject to the availability and continuation of the Lemelson Foundation grant. SEWA Bank needs to carefully calculate its loan cost structure as a basis for analyzing whether such an interest rate structure is sustainable. and technical capacity for pre-assessing client energy needs. costing around INR 1 (US$ 0.55]). including various marketing channels and events as well as the role of banksaathis who can be optimized as marketing agents for energy products. technical knowledge of energy products. speci c. A sarai cooker saves time because a complete meal can be cooked in just 45 minutes using only 100 grams of charcoal.44–0. and income-generating activities. and better health.1 Highlights and Challenges of SEWA Bank’s Energy-Lending Model Highlights comprehensive and con enient one-stop service. the bene t includes more e cient use of fuel (e. e strengths of SELCO as the energy partner of the URJA Project include (1) addressing poverty through energy services. (3) building a strong decentralized sales and service infrastructure. based on interviews with a client of SEWA Bank. target group. such as improved cookstoves and sarai cookers.02). customeriendly energy loan products. di erent procedures for energy lending. Furthermore. e training materials include SEWA Bank’s rationale for o ering energy loans as well as impacts to be achieved.

having a strong energy partner that shares a similar mission and platform is vital. which includes the energy. it would be too costly for SELCO to set up a sales and service network. Learn to capitalize on reputation to attract outside funding. or the death. a commission can be charged to cover associated costs.5. 38 Using Microfinance to Expand Access to Energy Services . the UNEP-type of support ( nancial support and technical support) is more e ective for maximizing resources and o setting risks during the program kick-o . in cases where energy lending is completely new to a country. SEWA Bank and SELCO need to further mobilize external resources ( nancial and technical) to leverage the outreach and impact of the URJA Project. Nevertheless. but also for any other special lending program. In case services are provided to non-members. improving systems. Without su cient scale of market. fraud.even if they do not require a credit facility. Some areas of innovation to leverage Urja’s outreach and impact are presented in Table 2. SELCO is slowly building its sales and service networks in Gujarat and currently depends signi cantly on the existing infrastructure of SEWA Bank to reach rural areas. but without widespread presence. It was sometimes observed that non-members had been able to purchase the energy products from SELCO via the bank. 2. However. and geographic pro les. SEWA Bank should establish a database of client pro les. cash ow. It would also increase the visibility of the bank’s energy project among funders and donors. With NUBL and SEEDS. as well as other demographic information. employees of the SEWA Bank but agents commissioned to collect loan repayments. SELCO will nd it di cult to optimize market development for its products and services. or resignation of the banksaathis). it is important that adequate controls for the banksaathis’ role and performance be built in to safeguard against various potential credit risks (human error. such a model can only work if the respective MFIs are strongly committed to investing their resources beyond the micro nance component. Such external support is crucial. In addition. single energy partner SELCO is a pillar of the program. relatively new in Gujarat. especially for introducing new products. Without a more disciplined system. to co er all of its market expenses. building market awareness. extensive. However. However. A client database and pro les are necessary. and building capacity. which the URJA Project may not be able to nance. It will require intensive.4. e SEWA Bank model for energy lending showcases the point that the absence of a donor/government support program (such as the UNEP Solar Loan Program) does not necessarily sti e the creation of a credit market for energy lending. ough a eld level checking has begun recently to verify collection data against eld data. For SEWA Bank and SELCO to develop demand-driven and customized energy products e ectively and e ciently. clients do not have the choice to buy energy products from any other companies. and expensive market education to promote and develop a new market there. the bank does not charge any commission to SELCO or non-members for this service. SEWA Bank should work out a model. in consultation with SELCO. clients have the right to choose the company which serves them best. Also. ey should consider taking advantage of their reputations and use their existing record of accomplishment and credibility to scale up energy lending or other energy programs. is database would be useful not only for the energy program. SEWA Bank could experience di culties in sustaining the portfolio quality of energy loans when it scales up its energy lending.2 Key Lessons Learned Donor or go ernment support is not always crucial. illness. is could become a drawback if SELCO starts to enjoy its monopoly too much.

this model experiments with standard micro nance lending practice.4. However. Integrating energy lending with other lending products. etc. accidents. such as solar driers and customized photovoltaic systems. erefore. kerosene agents. replication of the SEWA Bank model need to take into account the context that makes the URJA Project workable. It also will need a cohort of commission-based credit agents (the SEWA Bank’s banksaathis). The role of SELCO is crucial in providing the technical knowledge and capabilities as is its access to national and international technology sources—which will enrich SEWA with better and more technology selections for its clients. e SEWA Bank energy-lending model is unique in the sense that it emphasizes better energy solutions for its clients over the pro tability of the product. on which the energy-lending program can piggyback. The Emerging Experiences in Asia of SEWA. Mainstream energy products and lending to conventional distribution and sales network. This offers contact with best practices and lessons learned for designing effective and sound internal energy risk funds. donors. Such an approach. the SEWA Bank energy-lending model would be di cult to replicate. who can expand energy lending without creating a burden on program overhead.Table 2. Well-planned strategy. SEEDS. if such a strategy can be developed well.3 Opportunities for Country Scale-Up and Regional Replication Unique energy lending model. this energy-lending model (with its strong collaboration between the MFI and energy partner to introduce consumer-friendly energy-lending products) stands as an answer to removing barriers to modern energy among poor communities. e introduction of customized nancial service and customized energy products requires a well-conceived energy-lending model.e. market shops. such as housing loans and business loans. Replication will depend on existing marketing and outreach channels. However. NUBL. etc. without a good strategy on cost structuring. i. Interaction with other organizations of SEWA is crucial for exploring new but captive markets for energy products. Replicating the SEWA Bank energy-lending model will require the availability of a strong energy partner which is willing to invest its resources to jointly develop the energy-lending program and able to undertake tasks and responsibilities that are beyond the core business of an MFI. funding. as demonstrated by the adoption of a exible nancing mechanism and customized products. and NGO support programs can be explored to piggyback on their marketing channels. and risk mitigation. which many business-as-usual MFIs may not nd acceptable.5 Energy product Areas of Innovation to Leverage URJA’s Outreach and Impact Exploring other energy solutions for productive use and income-generating activities. Collaboration with government. erefore. and AMRET 39 . Interactions with sector facilitators and players (microfinance and energy sector) nationally and internationally. Lending product Financing product Marketing approach 2. de nitely answers the need of the poor community for better access to more e cient and cheaper energy solutions. Collaborating with insurance companies to mitigate potential risks resulting from natural disaster.

.

e government of Sri Lanka plays a signi cant role in delivery of nancial services. Institutions that are neither licensed nor regulated by the Central Bank or the Ministry of Co-operatives are generally registered as societies. however. Of the more than 3. 3. around 250 provide nancial services. including six regional development banks owned by the government. 15. companies. DC: World Bank.1 SRI LANKA COUNTRY CONTEXT 3. NUBL. Some indicators are positive: economic growth increased and in ation fell from 14. Of the 22 licensed banks regulated and supervised by Central Bank of Sri Lanka.3 percent in 2003.” Report No 22-535-CE (Washington. ere are also sector growth disparities among industry (26 percent of GDP). show a trend of increasing in ation and budget de cits that could hamper macro-economic stability. The Emerging Experiences in Asia of SEWA.539 co-operative rural bank branches that are associated with multi-purpose cooperative societies. which has an average per capita income of US$ 1. Some commercial banks provide nancial services to poor people.1. and various local co-operatives o ering credit and savings services. or NGOs.” prepared as a background paper for “Sri Lanka Poverty Assessment. It provides credit and savings services directly through the Samurdhi banks15 and Gamiediriya. and services (55 percent of GDP). a public savings bank. Lanka ORIX FINANCE Company Ltd. provides some nancial services to the poor and low-income population. specialized nancial institutions. MFIs. SEEDS.1 Socio-economic Environment ฀ Approximately 20 million people live in the Democratic Socialist Republic of Sri Lanka. e majority of them are not specialized in nancial services. leasing companies. Yet.฀ ฀ ฀ 3. A wide range of institutions o er nancial services. ere are also 14 licensed specialized banks supervised by the Central Bank. but rather combine micro nance with other development or welfare programs. other state-owned specialized banks. ere are 28 registered nance companies in Sri Lanka (supervised by the Central Bank). with only a 3-percent reduction between 1991 and 2002. Elena Glinskaya. including public and private banks. of which at least one. and the country has made substantial achievements in education. mostly to reduce the government’s role as a direct provider. and AMRET 41 . agriculture (19 percent of GDP). e most recent gures. 2003).400 unregulated co-operatives.400 thri credit co-operative societies (TCCSs) set up by the SANASA group. gender equality. poverty reduction has been slow.2 percent in 2001 to 6. e government of Sri Lanka places a high premium on social development. “An Empirical Evaluation of the Samurdhi Program. e co-operative sector includes 1. and various private banks.2 Financial Service Suppliers Sri Lanka’s modern nancial sector has undergone signi cant reforms since the early 1990s..030 in 2004. fewer than six provide services to the low-income and poor populations. more than 7. and safe water and sanitation facilities. Per capita gross domestic product (GDP) is the highest in South Asia (excluding the Maldives). and insurance companies.1.

5 percent of the total energy use.Companies Act No. 32 (1983) and Act No. of which 90 percent is generated from biomass and 10 percent from kerosene and LPG.2 percent of total energy—68.82 million (LKR 500 million). NGOs) in the table. World Resources Institute. rural development. etc. 16. which includes institutions and organizations o ering micro nance services.) through the newly created development nance department. 39 (1990) and 33 (1995) Central Bank of Sri Lanka Engagement in full range of banking activities. 17 (1982) ..1. About 70 percent of the biomass is collected free and 30 percent is purchased (mostly in urban areas). various ministries are also involved in supervising micro nance. “Electricity: Electrical Consumption Using Microfinance to Expand Access to Energy Services .3. None NON-PROFIT INSTITUTIONS Created to eradicate poverty by empowering the poor through mass mobilization . Co-operative Societies Rules No. Samurdhi. Of the biomass used in the domestic sector. e role and regulatory requirements of various nancial sector players are presented in Table 3. banks.1. Table 3. 73 percent is for cooking.68 times Asia’s and 0. Energy for lighting is 7 percent of total energy—55 percent from electricity and 45 percent kerosene. even though it is not legally allowed. and 29 percent from oil. Minimum capital adequacy of 10% (minimum tier 1 ratio: 5%) CO-OPERATIVES Engage in mobilizing deposits and invest such deposits in community-based lending programs Co-operative Societies Law No. 93/5 (1996) Co-operative Development Department Institutions engage in banking activities with members only. 3.g. Approximately 75 percent of the population inhabits rural areas where biomass is the largest energy source (primarily for cooking). Sri Lanka. it allocates funds to various ministries (co-operatives.7 percent from LPG. sheries.” 574 42 e Environmental Information Portal (website). Electricity consumption per capita per year in Sri Lanka in 2003 was 325. Besides the Central Bank. 5 (1972) as amended by Act No.57 times the world average. Sri Lanka’s energy intensity is 0.3 Regulation of Financial and Microfinance Sector e Central Bank of Sri Lanka supervises the formal banking sector. agriculture.4 Energy Scenario Overview Energy for cooking accounts for 42. 2003. None * Microfinance activities can be undertaken by any of the financing institutions (e. 11 (1992). Rural and small-scale industries use 27 percent of biomass. Earth Trends: per Capita.1 Role and Regulatory Requirements of Financial Sector Players* in Sri Lanka BANKS Participation in rural financial sector Regulation State-owned banks through government programs target poor and rural entrepreneurs Banking Act No.16 which is lower than India or Pakistan. However the existing regulation and supervision guidelines are not very comprehensive and there are initiatives to introduce regulations for the rural nancial institutions. including deposittaking and payment services US$ 4.1. Although it does not provide funds itself.8 percent from biomass.1 kilowatt hours. Nearly 80 percent of biomass supply is obtained from non-forest resources—agricultural and plantation activities.Voluntary Social Service Organizations Act (1980) Regulator Activities undertaken Capital and reserves Many take deposits. e Ministry of Finance and Planning tracks donor money through the external resources/foreign aid and budget monitoring departments. co-operatives. Energy for industries accounts for 20. 2. 30 (1988) as amended by the Banking (Amendments) Acts No.

Pathumthani. and micro levels. the identified hydro potentials include 30 MW of small hydro potentials in about 60 underdeveloped sites.400 households were established under ESD project.600 million m3 per annum with the possibility of 3 million family-sized biogas plants.” Asian Institute of Technology (AIT).Of Sri Lanka’s population of 20.1 Renewable Energy in Sri Lanka’s Program Biogas plants: Sri Lanka has considerable experience in biogas technology. e average rural electri cation rate in rural areas and estate areas in Sri Lanka are 47 percent and 50 percent. To meet the rural electricity gap. It has been estimated that 20 percent of the households needs to be electri ed through o -grid systems. mostly constructed by the private sector. Box 3. NUBL. April 2005. Biomass thermal plants: At present a 35-kW model dendro plant has been commissioned in Sapugaskanda and operated by a private company. serving 5. Solar photovoltaic system: Solar photovoltaic implementation in Sri Lanka has been commended for systemic achievements made in a short period of time.500 kW.17 e rural electri cation rate varies from 20 percent of the households in the north to 92 percent in Colombo. 150 MW of small hydro potentials tapped from 390 sites that can either be rehabilitated or redeveloped. ITDG reported that more than 250 village hydro schemes have been implemented in 8 districts (225 were in operation in 2003).18 Implementation of renewable energy in Sri Lanka has been supported by the Ministry of Power and Energy and developed commercially through the World Bank and the Global Environment Facility (GEF)-funded Energy Services Delivery (ESD) project. “SWERA Country Report for Sri Lanka” (SWERA.1. respectively.000 units were in operation. SEEDS. e US$ 55-million ESD project has galvanized the private sector to develop the solar photovoltaic market with micro nance. is project has evolved into the Renewable Energy for Rural Economic Development (RERED) project. In 2004 it reported that nearly 3. only 65 percent had access to electricity.1 percent. and AMRET 43 . and electricity demand grows by 10 percent annually.150 beneficiaries.000 households bene ted from 300 o -grid micro (village) hydro projects initially developed by NGOs. e low population density and the high transmission costs have made supplying power to remote areas di cult and non-viable. micro (village) hydro projects.1 million in 2004. A grid-connected dendro power plant of 1 MW is presently in operation at Walapone. as well as grid-connected micro hydro projects. 28 village mini-grids ranging from 4–45 kW. Excluding the presently installed capacity. Some highlights of Sri Lanka’s renewable energy programs are presented in Box 3. 2005).5 Renewable Energy Implementation in Sri Lanka e share of renewable energy technologies in total electricity production is about 0. 17. ailand. 18. National Engineering Research and Development Center. small. prepared by Multi-National Collaboration Environment of India.000 solar photovoltaic systems were sold and installed by private companies. Lalith Gunaratne. Micro hydro: Over 400 micro hydro sites have been reported in the country.1. which includes 86 MW from livestock waste. About 5. Sri Lanka has a suitable environment for harnessing hydro power at large. 8 MW in about 290 irrigation tanks and reservoir sites. 3. serving about 1. “Grid Connected and Decentralized Power Generation Options: How to Level the Playing Field—A Focus on South Asia.000 solar photovoltaic systems are sold by the private sector to households with micro nancing. about 60. The Solar Industry Association reported that by the second quarter of 2005 over 100. In addition. with combined capacity of 2. All were developed by private developers. A study of the potential of biogas from biomass sources by Intermediate Technology Group (Sri Lanka) estimates a total power generation potential of 288 MW. estimates 3.” paper presented at the “Asian Regional Workshop on Electricity and Development. The total capacity of small/mini hydroelectric plants currently connected to the national grid system is around 37 MW. and 18 MW in about 444 technically viable sites in the village hydro category. It has been estimated that over 2 million households are not yet electri ed. A report on biogas potential in Sri Lanka. The Emerging Experiences in Asia of SEWA.

e project aims to expand the commercial provision and utilization of renewable energy. and biomass. co-operatives.6 Renewable Energy Facilitators e government of Sri Lanka. or individuals for grid-connected and o -grid.1. RERED provides medium. only 30–50 percent is nanced through loans. as part of its initiative in o -grid areas. It supports NGO networking and capacity building to promote use of more efficient wood stoves and upgrading kitchens.000 rural households. NGOs.2 Other Renewable Energy Promoters in Sri Lanka Energy Conservation Fund: A government organization which has the statutory power to promote renewable energy and provide policy support. The National Engineering Research and Development (NERD) Centre: Has developed and adapted several renewable energy technologies to local conditions associated with solar. 2 leasing companies. implemented the Renewable Energy for Rural Economic Development (RERED) project over a ve-year period (2002–2007). e nancing facility for o -grid renewable energy projects is channeled via designated “Participating Credit Institution” (PCI) re nancing schemes. provide additional capacity and diversity. grid-connected small hydro power plants.to long-term nance to private companies and enterprises. o -grid individual solutions. and operated by communities themselves through electricity co-operative societies (ECS) that are set up for this purpose. e executing agency of RERED is an administrative unit set up within DFCC Bank in Sri Lanka. empower the poor. Box 3. RERED provides re nance. Practical Actions: The regional branch of the international organization previously known as ITDG. IDEA: Serves as the national focal point of ARECOP (Asia Regional Cookstove Program) and is a member of INFORSE (an international network for sustainable energy). Besides the GEF grant through RERED. with the assistance of the World Bank and GEF. ( e grants were introduced island-wide in the nancial year 2006–2007). 4 commercial banks. RERED. grid connection (commercial loans).5 million from its Japan Fund for Poverty Reduction ( nanced by the government of Japan) to enable poor households in Sri Lanka to directly bene t from rural electri cation. They provide support for promoting village hydro schemes (off-grid). 44 Using Microfinance to Expand Access to Energy Services . such as biogas system and small wind systems. e RERED project is nanced by a US$ 75-million line of credit from the International Development Association of the World Bank and an $8-million grant from GEF. owned. Village hydro schemes are built. and other decentralized options. and achieve greater sector e ciency and transparency. improve the quality of life and economic development in rural areas by providing access to electricity to 100. It is in the process of formulating a biomass energy policy. and add 85 MW of gridconnected electricity generation capacity. Of the total cost of village hydro. and 1 MFI (SEEDS—Sarvodaya Economic Enterprise Development Services). e Asian Development Bank is also implementing a pilot project through a grant of US $1. community-based or household-based renewable energy projects. Energy Forum: A local NGO primarily involved in promoting renewable off-grid power generation. Energy Forum sets up networks to promote renewable energy technologies supported by Asia Pro Eco of the European Community. helps establish village hydro schemes. and energy e ciency projects. A list of other renewable energy promoters in Sri Lanka is also presented below. including the Anagi stove. wind. grant. and 2) setting up grid-connected investment projects to encourage competition in the power sector. and technical assistance for two primary development objectives: 1) providing o grid electricity services to invigorate the rural economy. e balance is mobilized as equity contribution through ECS (as cash and in-kind contributions) and grants from various other sources. RERED runs four types of projects: o -grid community projects. and improve their standard of living. the government has provided grants of US$ 100 per system per household since August 2003. which thus far include 3 development banks.3.

seeds. and training in business management and entrepreneurship.”19 To achieve its stated mission. SEEDS is registered as a limited liability company (not-for-pro t) under the Companies Act No. 8 of 14 registered solar companies are members of SIA. e industry has been supported by six rural credit providers that o er nancing for the purchase of photovoltaic SHS. market information and linkages. 20 branches o er energy loans. with a client base of 887. SEEDS has made considerable e ort to improve its systems and bring them to par with international standards. ese subsidies are channeled via the companies and passed on to the consumers as price reductions. SEEDS not only provides credit for enterprises and livelihood improvement but also a bundle of non. Shell Solar and Suryavahini are the most popular. and access to primary grid or village hydro projects. credit is extended to enterprising individuals to start or expand micro-business ventures or engage in self-employment activities. SEEDS provides credit to those who need capital support to access energy solutions. e banking director heads the nonenergy lending while the deputy banking director oversees energy lending. SEEDS. and negotiation assistance to set up a village hydro scheme. Of these 14 companies. called Alternative Energy. Per the Solar Industry Association (SIA) of Sri Lanka. which have around 100 members and are further sub-divided into smaller groups of 5–7 members.1 Structure and Operation SEEDS’ mission is to “eradicate poverty by promoting economic empowerment of rural people for a sustainable livelihood.000 systems with a total annual turnover of US$ 9. SEEDS has a separate sub-division for energy lending.461 active borrowers. for which they receive grant support under RERED. SEEDS’ senior management has considerable micro nance experience. Project developers provide village communities with technical services. See http://www. e growth of the solar industry in Sri Lanka has also bene ted from the price subsidies provided by RERED and local governments. transfer of technology and technical skills. Energy lending is generally o ered to individual clients (who mostly are not members of a Sarvodaya society) and electricity co-operative societies (ECS). However. 19. 17 (1982). and AMRET 45 . To qualify for such grants. such as business counseling. it has not enforced stricter performance and e ciency standards among its sta . NUBL. the parent NGO).lk/. employing more than 1. In its target market. SEEDS had branch o ces in 27 districts in Sri Lanka. Over the years. such as SHS. Of its 27 branch o ces. and 161.nancial services.1. leading to a slow decline in portfolio quality and nancial performance. The Emerging Experiences in Asia of SEWA. with SEEDS as the leader. especially for photovoltaic and hydro systems. independent project preparation consultants known as project developers are crucial to a successful process. For micro hydro projects. Non energy-lending is conducted through Sarvodaya societies (village societies).430. 3. In addition. and has been in operation since 1998.700 people (mostly rural).3. headed by a deputy manager who also reports to the district manager. Most of its district managerial sta has been with the organization for a decade (initially with Sarvodaya. the project developers must be registered with RERED and comply with its standards. At present.7 million.2 ORGANIZATIONAL PROFILE 3. capacity building. In 2006. ese branches have separate sta for energy lending.7 Energy Suppliers and Industry Players One of the key factors of renewable energy implementation in Sri Lanka is the availability of suppliers of renewable energy technology with strong sales and service networks.2. especially for village hydro schemes. in 2005 SIA members achieved aggregate average monthly sales of more than 2. Sri Lanka has 14 registered solar companies with more than 180 sales and service outlets in total.

the current challenge for SEEDS management is to maintain the ne balance between expansion and scaling up in order to make the energy portfolio pro table as early as possible versus consolidating the energy lending processes. Although the clients are mostly small farm and non-farm entrepreneurs who have reasonably stable cash ows. Unplanned grid extensions have also negatively a ected the quality of the energy portfolio. which is updated monthly. ere have also been a few instances where management crises at some energy companies have seriously a ected SEEDS’ business plans. Portfolio management: Portfolio management for SEEDS’ energy program needs to be strengthened by gearing up its internal checks and balances. vendor. Management is positive and feels that mobilizing new sources of funds may not be a major issue in the medium term. and SEEDS has had to take over managing the energy product stocks. 46 Using Microfinance to Expand Access to Energy Services . However. since a large proportion of its assets are either bank deposits or cash. As a result. Loan loss reserve is based on Central Bank norms. but RERED is currently contemplating a program extension for another three years and details are being worked out. this has not been always feasible when the removal rate is high. eld o cer. policy and eld audits are almost non-existent. However. and plans in the face of external shocks and market failures. Although SEEDS is working to improve operational e ciencies and provide better services to its clients. Cash management: SEEDS has adopted a conservative cash and liquidity management strategy.. any current audit lacks adequate scale. Future funding: SEEDS’ support from RERED ends in 2007. and expansion plans of suppliers and targets are allocated to each district accordingly. At present. however. an important factor that may a ect SEEDS’ decision to continue the energy lending program is the steady in uence of various external market forces and the extent to which they can be managed. and harvest problems. is approach was followed to maintain adequate cash reserves so as to o set current liabilities.g. however it has yet to decide whether it will expand its energy lending to newer areas or just consolidate the existing program. compared to international micro nance standards. e senior sta at the branch o ce is not well-skilled in operational risk management. it appears that the banking division’s central plans have not yet fully incorporated the energy plans and projections into their central business planning process. e so ware has the capacity to generate a number of detailed client. developed by Informatics Private Ltd. based on previous year’s gures. SEEDS has a buy-back arrangement with vendors in the event of grid extensions. MIS so ware is installed both at the head o ce and branch/district levels.) For accounting. SEEDS’ overall portfolio quality and management capabilities have been e ected by several extraneous factors—e. natural calamities ( oods and landslides in many districts and the 2004 tsunami). and area portfolio analyses plus overdue ageing analysis. As a result. ethnic clashes in certain regions. energy plus non-energy lending. Other factors that have a ected its energy lending program are a market crisis where sales dropped island-wide. Business planning and nancial management: e process of business planning within RERED is quite elaborate. market trends. and a decision to consolidate the energy lending program despite ambitious plans for it. ese gures form the basis for SEEDS’ corporate plan for its energy division and is ne-tuned by the local cohort and sent back for approval. which at the time of the eld research visit was being pilot-tested in two branches. speci cally for its energy program. Internal audit: SEEDS has an internal audit department which is responsible for conducting branch audits annually. is also explains why the energy portfolio has not grown over the last year despite an increase in the prices of SHS. (A consolidated balance sheet is prepared for the entire micro nance program.. SEEDS is also exploring other funding opportunities by engaging with Ashden Awards 2006 and others. including loan repayments to RERED (given its weak portfolio quality). e other branches maintain portfolio quality information on Microso Excel. and rigor. and to meet short-term business targets (re nance from ADB was delayed). which are liberal. which is not its core competency. frequency. the organization only prepares a separate pro t and loss statement for the energy program and no balance sheet. especially in the areas with solar loans.Accounting and management information system (MIS): SEEDS has installed new accounting/MIS so ware. systems.

000 (US$ 144–968) SHS: 10% flat p.a.1 Model and Methodology e energy lending model and methodology adopted by SEEDS is entirely di erent from their non-energy lending.000 (US$ 480): Field staff Up to LKR 100. SEEDS has obtained loans funds from various sources. However. mostly monthly installment 25% of the project cost in case of employment generation loan 2–6 years. Its general credit product is o ered through Sarvodaya societies. SEEDS. In addition to this.000–500.211) for grid-connection loans until June 2006.000–100. the organization received training grant support from Estimos and the World Bank. grant) SHS and grid loans: District office Micro hydro loans: Similar to society loans and appraised at district office SHS and grid: Individual clients (mostly nonSarvodaya members) Micro hydro: Members of ECS Loan appraisal Up to LKR 50.3 ENERGY LOAN PORTFOLIO 3. disbursements are made as checks The Emerging Experiences in Asia of SEWA. which is comprised of all bene ciary households who gain access to electricity through the micro hydro project.000 (US$ 960): District committee Loans > LKR 100. SEEDS is supported by donor funds and has access to society savings and savings of individual members through various deposit schemes (used only for non-energy lending). grid. it adopted individual lending methodology for SHS and gridconnection loans.808) 16–22% declining p. consumption.2 Differences Between SEEDS’ Non-Energy and Energy Loans NON-ENERGY Products Loan size Interest rate Income generation. micro hydro loans are o ered through an electricity co-operative society (ECS). monthly installment SHS: 15% Grid: 20% Village hydro: 50–70% (incl. and revolving loan funds from Asian Development Bank of around LKR 62 million (US$ 596. Grid: 8% flat p.000 (US$ 96–4. Table 3. Village hydro: 16% declining p. NUBL. Loan Term and Installment Equity contribution 1–5 years. Of the three energy loan products o ered by SEEDS.3. ENERGY SHS. while the energy program mostly lends to individuals and has little client overlap with the non-energy program. and micro hydro LKR 15. 3.a.2 Funding Sources For its operations. comprising of 60–100 households in a village. and AMRET 47 .000 – Head office Disbursement Members of Sarvodaya societies Collection of Repayments Cash handling Responsibility of Sarvodaya society manager Field staff not allowed to collect or disburse cash Responsibility of field staff Field staff collects repayment in cash.a.a.3. Besides these loan funds. Both ESD and RERED loans are to be repaid in ten years in half-yearly installments. employment and pawn loan LKR 10.2.

Once the loan is appraised and sanctioned by SEEDS.232) Electricity co-operative society Project developer Village technicians 3.8 percent of its total micro nance portfolio.000–100. preliminary loan appraisal. and a er-sale service.000 (US$ 385–962) Individual Company MOU that stipulates minimum product and service standards Buy-back scheme Approximately 58. SEEDS provides the nancing while the solar companies handle marketing. and the total loan outstanding. of units installed or customers Payment scheme LKR 25. LKR 700 (US$ 6. and submit it to the SEEDS district o ce. e SEEDS energy loan portfolio is 30.000–100. over 58. 3. as of June 2006.2 Characteristics e total number of borrowers for energy program was.000 (US$ 144) 20% 230 watt LKR 18.2 percent was village hydro projects.73) for nonSarvodaya society member 3–4 years GRID CONNECTION Availability of grid for last 2 years 8% flat p. o en le the loan application on behalf of the client.a. and 14 ECS for village hydro loans. SEEDS’ solar loans has shown strong growth.5 percent was grid loans.3. approximately 200 new systems installed in 1999 compared to 13.a. and 0.119 systems per month in 2005. work norms.000–40. averaging 10 systems per month in 1999 and 1.a.000 (US$ 173–385) Individual CEB Affidavit that allows CEB to disconnect if clients fail to repay 30–50% of total project cost 50–70% (include grants) 5–20 kW LKR 1–2 million (US$ 9.537). was LKR 955. SEEDS. as of June 2006. the sta members make a preliminary loan appraisal. user training. If the client is interested in a loan. 2 years 4–6 years During construction LKR 15. SEEDS disburses 85 percent of the equipment value as 48 Using Microfinance to Expand Access to Energy Services . 5.692 customers Monthly 14 units Monthly 3.1 million (US$ 9. and Consumers Solar loans: Solar loans constituted 94.184.000 units Monthly No expectation of grid connection for 4 years 10% flat p.000 (US$ 240–962) 15% 20–60 Wp LKR 40.000 for solar loans.2 percent of the portfolio was solar loans.Table 3. and procedures to be followed by each partner. Of this.3 Characteristics of SEEDS’ Energy Loan Products SHS Target area Interest rate Other fees Loan period Grace period Loan size (LKR) Equity requirement Capacity Capital expenditure User profile Marketing and Outreach Nature of Contract Other features No.616–19. 3. e sta members of the solar companies present information about the SEEDS loan products and have loan application forms in case a client cannot purchase the equipment in cash.3. 94.527 new systems in 2005—in other words. the company sta installs the equipment at the client’s house and collects 15 percent of the equipment value as a down payment.3 Relationships Between Energy Suppliers. SEEDS has collaborated with 11 solar companies in Sri Lanka and has signed MOUs with them that de ne roles.2 percent of the total energy portfolio as of 30 June 2006.692 for grid loans. installation. VILLAGE MICRO HYDRO Areas where grid is unlikely to reach 16% declining p.

and submission of business plans and other documentation for bank loan negotiations. which is only paid when a speci c project milestone de ned by RERED is reached. e companies are required to provide user training to the client at time of installation along with a properly documented user manual. NUBL. loans from SEEDS.a loan to the client. SEEDS—based on the individual loan applications from ECS members—approves the loan (30–50 percent of the total project cost). obtaining regulatory and local government approval for the project. e developer also assists the ECS in mobilizing equity and grants.000. and project grants. A micro hydro project is initiated and managed by a project developer (an independent project preparation consultant). but payment for the equipment is made directly to the solar company. Once all the ground work is nished by the developer. ey must also provide compulsory routine maintenance within ve months of installing the equipment and routinely every six months therea er for three years. e developer gets a project preparation grant of up to US$ 6. the grants made available to ECS by government or donor. Figure 3. SEEDS. Suppliers must be registered with RERED and comply with the standards to be eligible for re nance. To ensure that the project runs smoothly. and buy-back guarantee. e size of each individual loan is subject to the cost of the system. who plays a critical role in bringing together different stakeholders and managing multiple requirements for the successful implementation of the project. feasibility studies (including technical and socio-economic aspects). inspection. A project developer manages community mobilization. and The Emerging Experiences in Asia of SEWA. soliciting independent quotations from suppliers. New or small solar companies are paid only 80 percent of the equipment value because SEEDS retains 5 percent of the disbursed value as a savings deposit to be used in case the company fails to perform. A client can register complaints directly to the company or through SEEDS. ECS formation. Most of the loan is paid directly to equipment suppliers and the balance to the ECS. and operated by the community itself through electricity co-operative societies (ECS) set up for the purpose. including the warranties. e equipment quality standards are established by RERED. site selection. Village hydro loans: Village hydro units are built. To reduce technical risk. the developer is required to train ECS members in the operation and maintenance of the micro hydro and in record keeping. and advising it on selection of suppliers. maintenance. such as diversion channels and turbines). owned. and AMRET 49 . ey are nanced by a mix of sweat equity from the community (which provides labor and in-kind contribution toward construction of the essential infrastructure. e ECS is expected to enter into a direct agreement with the energy equipment supplier. hardware speci cation. standards are set for warranty requirements.1 Stakeholder Relationships in a Solar Loan RERED Refinance 80% of Equipment Value MOU Information & Data Exchange Credit Appraisal Repayment Collection System Removal & Refix SEEDS Cash Transfer SOLAR COMPANIES FIELD STAFF 85% Credit Non-Cash 15% Equity (Upfront) CLIENTS Marketing & Outreach Energy Need Assessment Installation & User Training After-Sales Service (System Removal) e solar companies must ensure that they comply with quality standards established by RERED to be eligible for its re nance facility.

it also ensures that the client owns the house.Figure 3. Others were self-employed in non-agricultural businesses. however. SEEDS has grid loan clients sign an a davit that authorizes CEB to disconnect power in case of default. Based on cost estimates.000 [US$ 144]) directly to CEB and only then is the grid connection initiated. As required by the loan scheme. ADB provides 100-percent re nance to SEEDS for grid-connection loans. SEEDS transfers the loan (loan ceiling is LKR 15. tailoring. 20 percent equity is collected by SEEDS from clients and utilized for payments to service suppliers. and some kitchen appliances. and average monthly income ranged from LKR 4. SEEDS energy lending is characterized by its client-friendly.4 Energy Clients and New Markets e energy clients visited during the eld research were mostly involved in rubber and tea plantation and farming. which are highly valued by its clients (more than 50 percent. which they collected from the surrounding area. An ECS representative collects monthly payments from the other members to cover the maintenance and operation costs of ECS as well as the loan repayment. TV. e typical electrical energy needs of these clients are for lighting. Grid loans: SEEDS collaborates with the Central Electricity Board (CEB) of Sri Lanka. Any additional costs must be covered by the client. Before installing SHS or a grid connection. etc. which is then remitted to SEEDS every month.000 (US$ 38–221). Many clients. also used an LPG cookstove. From providing 50 Using Microfinance to Expand Access to Energy Services . Besides evaluating livelihood and income. according to an internal SEEDS’ impact study of solar loans in 2002).46] per liter).2 Stakeholder Relationships in a Village Hydro Loan RERED Project Development Grant Refinance (80%) DONOR Financing Arrangement Co-financing Grant Arrangement SEEDS Loan to ECS (30%-50% of capital investment) AUTHORITY DEVELOPER Institutional Building Project Development VILLAGE HYDRO Labour & Materials Approval CONSUMER SOCIETY O/M Electricity Service Repayment through representative of ECS Repayment ENERGY CONSUMERS the number of ECS members. CEB also provides cost estimates for clients interested in a loan to install the grid connection—this is mandatory to con rm that the loan applicant is a prospective grid client. or monthly for the others. such as iron welding. fan. these clients mostly used kerosene for light (8–20 liters at LKR 48 [US$ 0. CEB markets SEEDS’ loan products to potential clients visiting its o ce and provides the grid connection. but LGP consumption was minimal—about one cylinder every four to eight months. e income pattern for most was seasonal. most clients burned fuelwood. For cooking. door-step services. SEEDS screens the creditworthiness of the client.3. when the loan is approved. video player. carpentry.000 to LKR 23. 3.

and AMRET 51 . agricultural product processing. NUBL. (So far.000 systems.Figure 3. Some of the initial awareness programs for CEB and nancial institutions were offered by Energy Forum on behalf of ADB. By August 2006. solar centers. Although it uses SEEDS’ infrastructure (head o ce as well as branches). an NGO promoting renewable energy in Sri Lanka. preparing an annual income and expenditure statement (but it does not prepare a separate balance sheet). SEEDS. 3. ranging from groceries/markets (402 clients. Almost all households used fuelwood for cooking. restaurants. Based on SEEDS statistic. and religious centers (temples.3 Stakeholder Relationships in a Grid Loan ADB Refinance 8 100% of Disbursed Value 3 Cost Estimation SEEDS Loan Repayment* 6 CEB Grid Connection Fee (paid from loan proceeds) 4 2 20% Equity (upfront) Credit Appraisal Field Staff 7 5 q Re ue st id Gr or f c ne on C tio n 1 CLIENTS Marketing & Outreach Connection *Repayment through field officer.000 schemes for village hydro.3. the energy division pays SEEDS a xed sum every month to use its resources.5 Administration and Management SEEDS has a separate energy division with separate sta to administer and manage the energy lending.1 kW (estimated) for grid connection. However.4 kW for village hydro. 250 schemes have been installed. animal husbandry. The Emerging Experiences in Asia of SEWA. Based on the SEEDS impact study. by far the most use). manufacturing/home industry (54 clients). and 118. Energy Forum. 849. e energy program is monitored by the energy division at the head o ce and deputy district manager at the branch o ce.) Another alternative technology that is still being developed and implemented is biogas. total installed capacity from SEEDS’ loans reached 2. society. and loan collection. service industry (hotels. mosques). biogas has huge potential. maintenance.360 kW for solar. SEEDS’ energy division along with its training division has organized several training sessions for its sta and hired professionals—who are either technical managers of solar companies or trainers from the Solar Industries Association (SIA)—to conduct them. has estimated that the market potential for solar systems is at least 200. With farmers constituting more than 56 percent of energy consumers in rural areas. or directly deposited by clients at district office product information to installation to user training. Clients visited during the eld research visit used kerosene for lighting prior to buying SHS or getting connected to the grid. and 1. e energy program maintains detailed accounts of its income and expenses. the energy use by the clients ranges from household to productive activities. eldlevel monitoring is inadequate for its present scale. salons). all services are provided at the house of the clients. 565 clients use solar photovoltaic for productive and social uses. farm security.

424 outstanding). e project in default had LKR 980. only one had received a bill from CEB. Of ve grid-loan clients visited.4% Overall.7 Impact Analysis Most clients visited by the Asia Research Consultant used the energy loan for consumption.4% Energy cost prior to grid connection Baseline expenditure on kerosene LKR 720 (US$ 6.000 (US$ 67) Grid connection LKR 15. However. the client pays only for electricity consumption. e yield on portfolio is low at 12. Solar loans constituting 94. SEEDS DESCRIPTION Income per month Loan purpose Loan amount Loan installment LKR 7.6 Financial Analysis SEEDS energy loan portfolio is less robust than its non-energy portfolio. e monthly loan payment for these clients ranged from LKR 1. the energy program was pro table as of 31 March 2006. in practice. e cost of the loan installment was almost equivalent to the baseline expense of client for kerosene. depending on the loan amount and loan term. An increase in salaries along with new sta recruits has resulted in higher personnel costs. leading to a decline in pro ts.60).2 percent due to weak portfolio quality.440 (US$ 6.250 to LKR 1. Clients with grid-connection loans also had used 15–30 liters of kerosene per month for lighting. solar loans had an 85-percent recovery rate by due date. 3. However. but the client still had to pay the electricity bill.5 (US$ 4) 6. Any problem within the ECS has the potential to threaten the long-term sustenance of village hydro.000 (US$ 9. and one project has defaulted despite operating successfully.92) per month 10. Of the three energy loan products o ered. e initial target was to promote 25 village hydro projects. their loan installment ranged from LKR 730–LKR 940 (US$ 7–9). the client then saves the expense of kerosene.92–9. SEEDS had portfolioat-risk greater than 60 days as high as 35 percent. who largely live in remote villages. on the other hand.830 (US$ 12– 17. Before purchasing solar photovoltaic equipment. about 2–7 percent of monthly income. with a Return on Asset (ROA) of 1. If this continues at the same usage. Some of the obvious bene ts observed during the eld visit were overall better 52 Using Microfinance to Expand Access to Energy Services . costing approximately LKR 720–960 (US$ 6. once the loan is fully repaid. 12 projects had a 100-percent repayment rate.5 percent. As of 30 June 2006. the success of the project rests on the cohesiveness of the ECS and its leadership. Of the 13 village hydro projects. and constituted 4–12 percent of their monthly income. While ideally the ECS-based village hydro scheme is a good concept. and a cumulative repayment rate of only 86 percent.3.4 Sample Client Loan Profile. Once the loan is paid. costing LKR 720–1.23). these clients used 15–20 liters of kerosene per month. partly due to the di culty in following up with these clients. however. it will be lower than the baseline expense for kerosene.000 (US$ 144) LKR 730 (US$ 7) per month % OF TOTAL INCOME 10. Grid loans. e portfolio has remained stagnant.3.3 percent of total energy portfolio have high defaults.1 percent against a weighted annual percentage rate of 18.3. had a 100-percent repayment rate. as has the income from portfolio (only 9 percent growth). the margins are thin and have declined from 2005 due to increased cost.2% Energy cost after loan repayment Grid billing cost for the month LKR 449. but currently SEEDS wants to slow down because it is not sure of the long-term sustainability. Table 3.85) per month.92–13.

It has been able to mobilize funds from a wide range of lenders for its micro nance program and obtain favorable long-term credit from RERED. especially in light of increasing SHS prices. de ne work norms and procedures to ensure quality packages for clients. access to better light for children for studying. and access to better and more diverse TV and radio entertainment. an important factor enabling SEEDS to scale up its energy-lending portfolio. although small. and AMRET 53 . CEB o ers expanding access to grid connection and helps market and promote SEEDS loans to its clients. conduct preliminary credit appraisals for SEEDS loan.iendly. and provide sales and a er-sale service via decentralized networks.4. optimizing their particular expertise to develop and strengthen the energy market. SEEDS also initiated an internal insurance program for solar loans to help borrowers and to cover itself from damages caused by natural disasters or other external conditions. NUBL. Solar companies market energy and loan products. SEEDS’ energy partners work well in tandem. e risk fund was started because low-income borrowers were unable to invest 2. SEEDS’ insistence on RERED-required quality standards for both SHS and micro hydro keeps it eligible for re nancing funds.1 Highlights and Challenges of the SEEDS Energy Lending Model Highlights Client. to demonstrate and introduce them (through Sarvodaya. ability to work longer in existing productive activities. SEEDS energy-lending program has a separate department for management and administration. Project developers are instrumental in conceiving and managing entire village micro hydro projects. is innovative product of SEEDS has also been replicated by other experienced. in keeping with its mandate to provide comprehensive service to its clients. well-developed energy stakeholders have made SEEDS’ credit facility for energy products possible. and was able to attract subsidized funds from RERED and ADB. The Emerging Experiences in Asia of SEWA. e SHS subsidy has enabled energy and micro nance stakeholders to scale up SHS outreach in rural areas. international energy lenders as well. and provisions to repossess solar panels or disconnect electricity in case of loan default. ve percent of the loan held as a hedge for small and new solar companies. excellent market credibility and reputation as a pioneer in micro nance and energy lending in Sri Lanka. Over a period of time. pro le client energy needs. SEEDS was self-motivated to introduce energy lending. such as temples and churches.quality of life. SEEDS. were funded by internal funding sources. micro nance outreach is almost island-wide. and its energy program is operational in 20 districts. ฀ 3. di erent risk mitigation strategies adopted by SEEDS are key to minimizing technical and credit risk: these were buy-back options. door-step services that SEEDS o ers are highly valued by clients. SEEDS provides the credit facility to bridge the nancial gap. ese initiatives. Its early e orts focused on creating awareness of solar photovoltaic technology and installing solar systems in communal locations. since MFIs were not quali ed to become PCIs at that time). Strong. and its MOUs with solar companies de ne operational standards. Current infrastructure provides a wide geographical base from which to expand energy access. SEEDS was able to show a measure of success and was made a PCI (especially noteworthy.5 percent of the asset value annually as an insurance premium. its parent company).

especially those opting for solar loans. no speci c e ort to create a market for energy entrepreneurs or promote energy for productive purposes has been made. Since the weak portfolio is also a ected by uncontrollable external conditions. Past experience has shown that the solar consumers in Sri Lanka are sensitive to price. it may be di cult for SEEDS to break even by borrowing at existing market rates of 10–12 percent per annum. e primary reason for this is the pro le of clients for energy loans is very di erent from the non-energy clients in terms of their .729). However. e weak portfolio quality is primarily the result of SHS loan defaults: SHS loans constitute more than 90 percent of the energy loan portfolio. as of 31 March 2006. SEEDS has weak portfolio quality with PAR>30 days as high as 42 percent and PAR>60 days at 35 percent. and are modi ed periodically based on experience. its insurance fund is small.8 million (US$ 382. and claims have usually been around 10 percent of the fund. which just allows the program to break even and make small pro ts. e availability of a price subsidy and subsidized interest rates contributed signi cantly to the high growth of solar market in Sri Lanka. despite having a separate department for energy lending. without these. Also. SEEDS management is not yet fully geared to handle the challenges of energy lending which has led to a relatively weak portfolio of energy loans compared to their general portfolio. However.6 percent per annum. SEEDS’ nancial analysis of its energy program is not adequate. SEEDS’ pricing policy needs back-up solutions should interest rates signi cantly increase—which would also a ect the market for energy lending. whereas non-energy clients reside in villages which have better access. RERED and donor trends remain a major driving force in the continuation of the current government energy program. is has kept the operating cost of servicing energy clients on the high side. SEEDS’ internal insurance fund. Still. was LKR 39. generally reside in remote villages. SEEDS also has a risk assurance fund on a contributory basis. but failed given the market segmentation and client pro le of its energy and non-energy clients. and a work plan has been drawn up and targets set for such purpose. SEEDS has wanted to do a full market study to identify the varied energy needs of its clients and explore additional energy products to introduce. the market could drop considerably. SEEDS originally tried. SEEDS does not prepare a separate balance sheet for the energy program. Presently the weighted average cost of funds from RERED is 6. which currently form the bulk of SEEDS funding sources. Energy clients in non-grid areas. which helps borrowers and covers SEEDS from natural disasters and external conditions. if the government programs were to end. although a detailed branch-o ce pro tability analysis on energy analysis is underway. few manufacturers are willing to invest in new products as well. considering such factors as amount of client’s income spent on lighting. For the same reason. but nds it a heavy investment. and a ordability of cash security. the energy program has not been able to take advantage of this existing client network.Challenges SEEDS is dependent on the RERED-subsidized loan fund. it is important that MFIs have the capacity to absorb volatile conditions. e designs of its existing loan products were based on a market survey. seasonality of cash ows. Weak portfolio quality has resulted in thin margins despite low operational costs. e terms for honoring claims are explained to the clients and are properly documented. SEEDS has limited initiatives or opportunities for product development or inno ation—as do most other MFIs. SEEDS’ priority is to improve the quality to acceptable levels. Considering SEEDS’ portfolio size.

such as the Ashden Awards 2006 and others. Although management feels positive that mobilizing new sources of funds may not be a major issue in the medium term. but SEEDS has emphatically communicated to the companies that it would not nance such sales.location and accessibility. the production costs for some of this equipment is prohibitive and does not encourage new suppliers to enter the supply chain or nancers to nance these untested ventures. becoming expensive for the rural poor. SEEDS funds only 30–50 percent of the project cost while the rest of the funds originate from grants and ECS-member contributions. SEEDS. and a di erent approach may need to be taken by RERED or sector facilitators to mitigate such risks. such as promoting use of solar lights to protect crops by chasing away elephants. Such a challenge has dampened SEEDS’ interest in expanding its portfolio for the village hydro scheme loan. competition between solar companies at times has prompted them to sell equipment to clients without a loan appraisal by SEEDS sta . SEEDS has a substantial amount of internally generated funds for energy lending as well. e long-term sustainability of the project also depends on the socio-economic and political dynamics among ECS members. Moreover. SEEDS’ support om RERED ends in 2007. with a substantial fund reserved for o -grid solar. NUBL. and repeat funds should also be available for grid loans. erefore SEEDS needs to build in systems to incentivize the eld o cers as well as other sta for the additional e ort that needs to be put in place to build and successfully monitor an energy loan portfolio. Prices of solar home systems have increased by almost 25–30 percent over the past few years. One reason for the high default rate in solar loans is the unplanned expansion of grid lines to new areas by CEB. it is contemplating whether to expand its energy lending to newer areas or just consolidate the existing program. SEEDS fears that further increases in prices will make SHS unattractive and una ordable for the poor.2 Obstacles and Barriers continues to face problems in implementing its solar loan product. 3. Most stakeholders feel that inno ation and introduction of new products is too costly. is created problems for SEEDS in the past. but an important factor that may direct SEEDS’ decision to continue the energy lending program is the e ect of various external market forces and the extent to which they can be managed. It has also completed a pilot project for nancing solar driers for pepper drying. and solar water pumping and drip irrigation. However. SEEDS vulnerable to the leadership quality and consistency of the respective ECS—which is much more di cult to control than loans to individuals. questioning sustainability. SEEDS is working to increase operational e ciency and provide better services to its clients. Unless grant support is available to infuse seed capital and bear the initial high cost. SEEDS itself has several interesting ideas for deploying solar technologies. SEEDS is also exploring other funding opportunities. SEEDS’ energy stakeholders feel that micro hydro projects are expensive and cannot be implemented without grant support. RERED is currently renegotiating a program extension for another three years (details are being worked out). and AMRET 55 .4. The Emerging Experiences in Asia of SEWA. Grants also support project developers who are crucial to micro hydro projects. it is not possible for stakeholders to design and market new products.

3. However. for example. an MFI should build some marketing and promotional costs into its interest rate structure. External funding and support: Donor funding can be sought to support market studies that identify the potential of existing as well as new alternative energy solutions in Sri Lanka (based on the energy client database).4. the energy program should not limit itself to that and should widen its outreach by promoting energy entrepreneurs. So far. SEEDS does not conduct the required analyses of its energy program separately. Product and market inno ations: Innovations are required on three fronts to expand and scale up energy access. as of now. such as solar dryers. It also can infuse initial seed capital and help with early operational costs to build a service infrastructure to introduce new innovative technology and replicate it on a wider scale. has a huge contingent liability since the insurance fund it can mobilize is small in comparison to its overall energy portfolio. especially if the average loan amount is high. 56 Using Microfinance to Expand Access to Energy Services .4. SEEDS has done well in reaching out with its energy products to end users. Creating a separate division with its own resources and sta for energy lending helped SEEDS scale up its energy portfolio. it is also important that the clear operational and nancial performance indicators be established to analyze the progress and performance of energy program upon which prudent nancial decisions can be made. the marketing and promotional role in the SEEDS model has been the exclusive purview of energy service companies.3 Key Lessons Learned Adequate risk protection is necessary.3. Creating energy entrepreneurs will reduce the transaction and delivery costs for the MFI on one hand. Extend outreach to energy entrepreneurs. However. Energy stakeholders need to identify and introduce income-generating energy products for end users. in addition to energy products only for household purposes. which is not advisable. it is important to build in adequate controls to safeguard various technical and credit risks. SEEDS. such as SEEDS’. and on the other. Pro ide insurance. However. It is also imperative that both energy and micro nance stakeholders understand each other’s operations and co-ordinate and co-operate with each other in expanding energy access. In designing an energy-lending program. Scalable energy products that do not need to be heavily subsidized by grants and can be easily sold or installed are obvious targets to focus on.4 Opportunities for Country Scale-Up and Regional Replication Client database and pro les: MFIs need to build a speci c database of client information that pro les the energy needs of potential clients among other characteristics. enable it to reach out to a wider client-base with di erent economic pro les. Establish clear performance indicators for energy program. Insurance is an important and valuable service that the client requires. e database can be essential for introducing innovative alternative energy solutions that have the potential to save on costs or generate more income for the clients. Marketing by energy players helps maintain low cost. MOUs and clauses to de ne clear roles and responsibilities of micro nance and energy stakeholders under di erent possible circumstances are an important starting point. but at the same time participation by MFIs can help scale up the energy portfolio much faster. Franchises can be employed to nurture the decentralized growth of energy service companies. e MFI’s separate energy division could also employ a team to design new marketing strategies to expand energy access. e client can su er substantial loss if the equipment is damaged. e energy pro le of the client should look into their energy requirements for household consumption as well as income-generating activities. New energy service enterprises that sell or rent energy services and expand outreach to end users should also be introduced and encouraged. For its energy program. this service should be o ered either in collaboration with a formal insurance company or as an internal policy where the liability is restricted to the amount of the insurance fund.

More e cient operations: If SEEDS intends to scale up its energy lending program without external support from programs like RERED. e institutional capacity needs to be increased to include various elements. and energy-speci c nancial planning and budgeting. The Emerging Experiences in Asia of SEWA. NUBL. and AMRET 57 . such as delinquency management. It is also working to instill measures for better sta accountability. it needs to improve the pro tability of its energy lending portfolio and generate larger pro t margins to make the program self sustainable. SEEDS still needs to expand its target market to achieve economies of scale for energy lending by collaborating with energy sector facilitators and players and vigorously exploring better energy products and new provision strategies.MFIs also require capacity-building support to meet international nancial accountability standards for energy lending. better internal controls. SEEDS is moving in that direction. However. SEEDS is making e orts to enhance its portfolio quality by building systems for improving its cost e ciency and credit discipline for better loan repayment. credit and technical risk management. Guided by its future vision. SEEDS.

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Over time. A major proportion of the loan portfolio of the banking system was distributed as productive loans (35 percent) and to the wholesale and retail business sectors (almost 20 percent). ese banks include both regional rural development banks in the government sector and micronance development banks established by the private sector.1.1. the nancial sector made substantial progress in increasing the number of both nancial institutions and bene ciaries of nancial services. 2000). A large number of societies and co-operatives occupy 20. The Emerging Experiences in Asia of SEWA.3 Finance and Microfinance Sectors and Regulation e formal nancial sector consists of commercial banks. vol 2. in 1956. much less be con rmable) in Nepal. a weak social infrastructure—evident by its 2002 UNDP Human Development Index rank of 140 out of 177—re ects gender inequality. It can o en be extremely di cult to nd su cient. However. other institutions. and poor health facilities. Various nancial sector reform programs. Development banks formed under the Development Bank Act (1996) are extending micro nance activities into rural areas.6 percent. SEEDS. A er liberalization. accurate economic and nancial data (which may not even be available at all. Ruth Goodwin-Groen. foreign banks were only allowed to operate in Nepal in 1985. e gross domestic product of 2. and micro nance banks.20 4. the nancial sector is still at risk. nance companies. have contributed some improvement to the nancial health of problem banks. It is challenging to maintain nancial sector stability in the face of the current level of non-performing loans (NPL) at 18 percent. and 84 percent of the population lives in rural areas. Income distribution is also strongly skewed: the highest quintile accounts for 44.7 percent (2005 estimate) is low. However.฀ ฀ ฀ 4. a large proportion of the market (more than 86 percent) remains in the hands of commercial banks. implemented over the past few years. and AMRET 59 .1. Robyn Cornford. banks as well as non-banks. were set up and integrated to form a substantive nancial system. the population growth rate of around 2. However. Sanjay Sinha.2 percent per annum is high. Total assets of the nancial system grew continually over the last ve years. NUBL. “Nepal. by John Conroy.1 NEPAL COUNTRY CONTEXT 4.1 Socio-economic Environment Nepal has a population of about 28 million and a land area of 14 million hectares and is one of the least developed countries in the world. Estimates suggest that 40 percent of the population lives below the poverty line. hence the use of the aged gures here. ” in e Role of Central Banks in Micro nance in Asia and the Paci c: Country Studies.8 percent of total income or consumption between 1995 and 1996 and the lowest quintile for 7. rural-urban regional disparities. Further. the Philippines: ADB.2 Banking Sector Overview Nepal’s formal nancial system began with the establishment of the Nepal Bank Limited (NBL) in 1937. followed by Nepal Rastra Bank (NRB. and Sanjay Sinha (Metro Manila. development banks. Paul McGuire. 4. Gilberto Llanto. Nepal’s Central Bank). at an average rate of 16 percent per annum.

1. various nancial sector reforms.an important position in the rural nance sector. Government of Nepal. http://www. which provides wholesale lending to NGOs. but the reality is just the opposite. establishing the Debt Recovery Tribunal.088 NR 60 Using Microfinance to Expand Access to Energy Services .35 percent to 8.92 times the world average. Financial Intermediary Act (1998). the electricity tari in Nepal (for 20–250 units used) is 5. e vast majority of these grew out of assorted development initiatives. e role and regulation of the di erent nancial institutions in Nepal are detailed in Appendix 6. and nancial intermediaries. As a result. commercial banks are required to invest 3 percent of their total loan portfolio in the unserved sector. Co-operative Act (1972). which targeted low-income women and were supported by donor agencies (such as IFAD and ADB). NRB has directed such micro nance-oriented programs as the Intensive Banking Program. each of which may have legislated micro nance activities when enacted. consolidating the nancial sector and maintaining its stability have been important objectives of NRB’s monetary policy.4 Energy Scenario Overview Energy consumption in scal year (FY) 2004–2005 increased by 1. and consumption by semi-urban/urban households (metered from 5 to 60 amperes) is 680 kWh.htm 22. Energy in Nepal is divided into three categories according to its sources—traditional (86. Company Act (1947). co-operatives.21 Over the last few years. commercial (12.0 percent in the commercial sector. 17 commercial banks now extend credit to the poor.56 percent)—as of FY 2004–2005. Fiscal Year 2005/2006. “Economic Survey. Bhatbhateni. To achieve these objectives.28 times Asia’s and 0. ere are also many unregistered savings and credit groups in Nepal. have been implemented. established in 1991. and increased by 3. -controlled.. NRB has also played an unusual development role. and it is estimated that two-thirds of these loans are made by two public commercial banks. each operating in a separate development region. It is di cult to regulate MFIs because they have been established under di erent acts. Electricity prices in Nepal are determined based on the number of units used (1 unit = 1 kWh).cmfnepal. Finance Company Act (1985). which introduced group guarantee mechanisms in place of formal collateral. ere are more than 2. Agriculture Development Act (1967). and -capitalized organizations that provide nancial services to members. such as strengthening the inspection and supervisory capacity of the Central Bank. NRB introduced the Grameen Bank model in Nepal by establishing ve regional rural development banks.71 percent).400 SACCOS registered with the Co-operative Department in Nepal. justi ed by lack of commercial bank interest in lending in rural areas and the weakness of the formal micro nance sector. NBL and Rashtriya Banijya Bank. Savings and credit co-operatives (SACCOS) are member-owned.” 23. Kathmandu.3 percent in the domestic sector.904 TOE in FY 2004–2005. and the Production Credit for Rural Women and Microcredit for Women. 37. etc. Nepal. 6. which indicate the ine ciency of Nepal’s energy consumption and impact on economic growth. On average. In 1992.000 of GNP. Development Bank Act (1996). and 7. and renewable (0.34 percent to 8. Social Welfare Act (1991).72 percent). both per capita and per unit of gross national product (GNP): 186 kWh of electricity was consumed per US $1. strengthening the Credit Information Centre. compared to FY 2003–2004.org/mf-nepalp. Annual consumption by poor people in rural settings (metered below 5 amperes) is 20 kWh per capita. Exchange rate = 1 USD = 71. Ministry of Finance. NRB also manages the Rural Self-Reliance Fund.22 Electricity consumption in Nepal is among the lowest in Asia.1 percent in the industrial sector. Centre for Micro nance (CMF). 4. and the Insurance Act. Financial intermediary non-government organizations (FINGOs) are NGOs that o er nancial services and are licensed by NRB. Nepal’s energy intensity is 1. Sector consumption of electricity in Nepal is 38.616 TOE. Based on current gures.65 per kWh. e micro nance sector appears to be over-regulated. Various laws regulate MFIs in Nepal: the Nepal Rastra Bank Act (2002). e tari per kWh for up to 20 units is NR23 4 (US$ 21.8 percent for export.

Nepal Electricity Authority. Winrock International. BSP is an executing agency for AEPC and provides technical support and quality control for biogas implementation.org. the Nepal Electricity Authority (NEA) frequently uses diesel power stations.500 (US$ 69–159) per plant depending on the size and location. 4. Current prospects for extending rural electri cation using existing overburdened power sources are not encouraging.5 per kWh. which is channeled through biogas companies approved by BSP. provides instrumental support for mainstreaming energy nancing by MFIs. and conduct research. NUBL. biogas plants are becoming more popular. research. the Netherlands). and accounts for around 1 percent of rural energy consumption. NRB has recently classi ed renewable energy technology for lending to the unserved sector.24 Currently about 40 percent of Nepal’s total population has access to electricity: 33 percent from the national grid and 7 percent from o -grid systems. Further. AEPC supports for biogas include (1) a price subsidy of NR 5. for 21–250 units is NR 7.10). and AMRET 61 .0.nea. 24. At present. administer subsidies.14). capacity building. Lighting generally comes from kerosene lamps. SEEDS. thanks to the extensive national program administered by the Alternative Energy Promotion Centre (AEPC) and implemented by the Biogas Sector Partnership Nepal (BSP). technology certi cation.5 million) for MFIs at 6 percent per annum for two years (without collateral) or three years (with collateral). e electricity grid is not expected to reach many of the remote areas in the next 30 years because of the di cult terrain in the Himalayas.06). With no signi cant deposits of fossil fuel. and (3) an additional subsidy for poor consumers. availability of price subsidies from the government channeled via AEPC. marketing and promotion. e government of Nepal established the AEPC in 1996 to promote renewable energy technologies. quality control. Winrock helps build the capacity of MFIs and facilitates linkages between energy companies and nancial institutions.5 Renewable Energy Implementation and Facilitators Renewable energy electricity systems—solar photovoltaic or micro hydro—have provided modest but useful amounts of electricity to rural villagers. and availability of credit for biogas plants from more than 118 MFIs. e relationship between the facilitating agencies is presented in the form of a ow chart in Figure 4. For the remote areas.1. 60 biogas companies have been strengthened and 15 biogas manufacturing companies have been established. For cooking.1. costing 10–20 percent of a typical family’s earnings. Nepal’s energy suppliers are growing stronger and improving technical and service standards. Germany. Less than 3 percent of Nepal’s rural population has access to electricity. and DGIS/SNV. e primary elements fostering the growth of biogas sector players are the technical support and quality control by BSP. the government applied bulk rate for rural electri cation is NR 3. The Emerging Experiences in Asia of SEWA. e government’s promotion of biogas plants is funded in the state budget and by various grants (Kreditanstalt für Wiederaufbau. (2) biogas loan funds (EUR 2. long distances. Currently NEA has an estimated 55. support policy. and low population densities. supported by USAID and other donors.000– 11. NRB has also increased the microcredit limit per household from US $425 to $715. is will enable commercial banks to channel their funds into expanding energy access as their 3-percent lending commitment. BSP activities include vendor quali cation.30 (US$ 0.000 kW from diesel power stations in regular use. Kerosene is a signi cant expense for rural households.90 (US$ 0. http://www. Nepal relies heavily on traditional energy sources. and endorsement of requests for subsidies from biogas companies. and over 250 units is NR 9. As a result of the enabling environment ( nancial incentives and technical assistance) instituted by the government (with support of foreign aid).np.

in unserved areas of Nepal.2. It has authority to operate in 10 of 75 districts.874 serviced by 2. NUBL’s overall management capacity is a strong predictor of the future performance of its energy lending program.169) and a paid-up share capital of NR 27. NUBL focuses on the bottom 40 percent of the population in Nepal. NUBL de nes its target market as poor entrepreneurs. NUBL is registered under the Development Bank Act (1996) and has been in operation since November 1998. and a client base of 75. Nirdhan. had 4 area o ces. Area o ces are responsible for monitoring branch o ces. NUBL has an authorized share capital of NR 50 million (US$ 690. particularly women. 43 branch o ces.4 million (US$ 378. and as of 30 September 2006. All members of its board of directors are prominent o cials from banking or development elds. NUBL had a total of 276 sta . Field operations are conducted through branch o ces.212) as of 30 June 2006. self-reliant rural society through self-employment and social awareness. and helping reduce poverty in Nepal.1 Structure and Operation Nirdhan Utthan Bank Limited (NUBL) envisions itself as a bank with a social mission of enabling the poor to contribute equally in a prosperous.1 Intervention Model by Sector Facilitators AEPC Plants Completion Report WINROCK Technical Assistance Second Disbursement BSP Subsidy Request + Completion Report MFIs Loan Application Loan Appraisal Disbursement BIOGAS COMPANY st Co Es tim s ate CLIENTS Source: Field visits during research Installation. After Sales Service 4. although its parent NGO. Although the institutional aspects discussed below are not speci c to energy lending.Figure 4. User Training. NUBL follows a Grameen Bank methodology and is directly regulated by NRB. As of September 2006. represents private investors.2 ORGANIZATIONAL PROFILE 4. NUBL has reasonably sound management and adequate nancial systems for its program. began micro nance operations in March 1993. e functional responsibilities at the head o ce have been decentralized into separate departments. 62 Using Microfinance to Expand Access to Energy Services Subsidy Release (three phases) .527 centers. e chairman of the board. a former vice chairman of the National Planning Commission.

whereas individual loans. NUBL has had several cases of fraud in the past. Business planning and nancial management: NUBL’s nancial planning capacity is reasonable and quite participative. and enforcing compulsory home leave of 10 days per year for branch sta . micro nance apex institution (RMDC). borrowings. ageing analysis. Internal audit: e internal audit department has a team of four sta members. as an MFI.—although these are only available to existing clients who have demonstrated several cycles of good credit discipline and repayment capacity. It is still somewhat unsure of the potential of biogas loans and has decided to go slow with biogas disbursements. NUBL. As of 30 June 2006. e loans disbursed through centers do not require physical collateral. SEEDS. e MIS can generate reports on sta performance and e ciency. NUBL had a faulty incentive policy in the past that weakened the focus on client selection and loan appraisal. e incentive policy was revised in July 2006 to include quality indicators. center. NUBL’s energy program only o ers loans for biogas plant installations. client savings. In addition to surprise audits. emergencies. NUBL prefers to provide loans for income generation. As of now. branches. e audit department is understa ed for the current scale of operation. All branches are computerized. 4. Its new but small energy portfolio had a 100-percent repayment rate. NUBL’s PAR greater than 60 days was 10 percent. and a client data monitoring system).3 ENERGY LOAN PORTFOLIO 4. such as microenterprise loans. Portfolio management: e management has faced problems in maintaining portfolio quality. In principle. leading to deterioration of portfolio quality. e energy loans disbursed so far have been through the centers with two-year terms and no collateral requirement. e so ware at the branches generates nancial statements. and product portfolio analyses. and data is transferred from the branches to the head o ce every week. NUBL set a conservative target of 204 biogas loans by 15 July 2007.3. and NRB at a commercial interest rate as the primary sources for funding operations. However. The Emerging Experiences in Asia of SEWA. partially due to the uncertain external environment (Maoist con ict) and partially due to NUBL’s own internal weaknesses. and grants. and member. human resource. Financial transactions are conducted through “centers” comprised of 6–8 groups with ve members each. it introduced control measures. and area o ces nalize the nancial plan in line with the bank’s overall vision. e head o ce also runs detailed branch pro tability and sustainability analyses. etc. At the suggestion of Winrock Nepal. 4. NUBL has also introduced a system of budgetary control whereby the expenses of the branches are linked to their respective incomes.2. e head o ce. and AMRET 63 . payroll. To minimize such instances. sta . It borrows from commercial banks. so audit frequency is inadequate at present. are provided only if the client can produce physical collateral. etc. overdue payments.1 Model and Methodology NUBL mostly follows Grameen methodology. Each branch is treated as a pro t center. it o ers several loan products for other purposes—housing. the team audits older branches twice a year and new branches once a year. such as rotating eld o cers through its eld centers every year.2 Funding Sources NUBL’s funding sources are shareholder’s equity. Cash planning is done at both the head o ce and the area o ces.Accounting and Management Information System (MIS): NUBL’s Oracle MIS so ware has ve modules ( nance. education. inventory control.

Up to 3 months NR 15. 64 Using Microfinance to Expand Access to Energy Services . but only a er the client signs a plant completion report at the branch o ce. materials. which is not an income-generating activity.000 (US$ 207–552) by area manager Above NR 40. implementation of NUBL’s biogas loan is channeled through the national biogas program.5–6 years NON-ENERGY LOAN Income and non-income generating loans ENERGY LOAN Biogas loan Up to 2 years (without collateral) and 2–5 years (with collateral) 16% declining p. It is worth noting that although clients cannot take out a third non-energy loan. as long as the total outstanding loan does not exceed NR 40.a. Although there is no di erence in the amount of an initial general loan and a biogas loan (NR 15.000 [US$ 207])—implying no additional credit risk—this policy was adopted to ensure that energy loans (consumption loans) are only available to clients with good credit histories.000–100. A er successful completion of construction.000 (without collateral. etc. US$ 552) NR 40. loan appraisal by field officer. e other main di erence lies in the disbursement mechanism. Two.a. NUBL allows parallel loans. e other prerequisites for energy loans include presence of adequate land and cattle and construction of the plant. kerosene. sample verification by branch manager Minimum 20% (cash or in-kind) Biogas loan is the only exception that can be taken as a third parallel loan Cost estimates/price quotation by biogas company. the program aims to substitute the biogas plant for rewood. e rst installment of around NR 10. labor.1 Differences between NUBL’s Non-Energy and Energy Loans PARAMETERS Loan period Interest rate Grace period Loan size 0. NUBL provides energy access only to clients who have successfully repaid at least two general loans.000 (US$ 207) 18–20% declining p.000 (US$ 69) is disbursed to the company. One month First loan (general loan): Maximum NR 15.000 to 40.000 (US$ 759). Di erences observed in the energy loan appraisal mechanism demonstrate the need for standardizing loan procedures.000 (US$ 552).000 (US$ 552) by head office Disbursement To client First phase: Client Second phase: Biogas company Collection By field officer in center meeting By field officer in center meeting e interest on an energy loan is lower than any other NUBL loan product. US$ 552–1. and LPG as the baseline energy source for cooking. which promotes domestic-scale biogas plants. which means that clients can have two di erent loans at the same time. e biogas loan at NUBL is considered a non-income generating loan for two reasons. they can obtain an energy loan as a third parallel loan.000 (US$ 138) is paid to the client to purchase equipment.000 (US$ 207) Up to NR 40. A biogas loan is released in two installments. One. the balance of NR 5. in which case the maximum outstanding loan amount rises to NR 55.000 (US$ 207) by branch manager NR 15. complete verification by branch manager Branch manager Approval Up to NR 15.Table 4.380) Equity requirement Other features Appraisal Not required Can have two parallel non-energy loan products Field officer.000 (with collateral.

NUBL. e 4. train the client on the operation and maintenance of the plant (a day of formal training with brief descriptions of biogas plant. 8 m3. In general. NUBL was working with 12 of them. depending on the size and location. the pro le of biogas plants nanced by NUBL follows the standards established by BSP. assess the feasibility of installing the biogas plant at the client’s house. It has made an e ort to establish and improve co-ordination with the biogas companies. the government (through AEPC) provides a price subsidy of NR 5. operation. NUBL has not signed any MOUs with the biogas companies to de ne the roles and responsibilities of each party. and provide a er-sale service. maintenance.). SEEDS. construct the biogas plant. Even with this additional subsidy. on the other hand.000 NR* (Post Appraisal) Disbursement of Loan Amount Balance (if any) Loan Appraisal CENTERS 2 COMPANY Loan Application CLIENTS Installation. e typical size or capacity of biogas plants implemented in Nepal for domestic use is 4 m3.2 Relationship of NUBL. client repays the loan to NUBL in center meetings either on a weekly or fortnightly basis.000–11. both in terms of product quality as well as service quality (user training and a er-sale service). the balance is paid to the client. and AMRET 65 .Figure 4. provides credit to clients. 4. User Training Cost Estimates 1 Should actual expenses by the biogas company be less than NR 5. Biogas Companies. the government recently introduced an additional subsidy for poor households (also targeted by MFIs). regardless of income level.3 Characteristics us far. a er that the vendor charges for the cost of equipment/appliance replaced.3. As of now. 6 m3. appraises the loan request. etc. NUBL provides energy loans only for biogas plants. provide cost estimates.2 Process of a NUBL Biogas Loan Disbursement of Company's Payment (Post Completion Report) First Loan Disbursement 10.000 (US$ 69). to o set their general inability to a ord biogas plants. and disseminates information to clients in center meetings. In addition. and 10 m3. and Clients Nepal has more than 60 registered biogas companies handling biogas plant installation. NUBL provides price quotations from the di erent companies to the client. Subsidy: To promote nationwide utilization of biogas in Nepal. e subsidy constitutes 25–45 percent of the total biogas plant cost and is available to all households installing biogas plants. repairs. poor households The Emerging Experiences in Asia of SEWA. e companies also provide a detailed user manual to the client with their contact details. a proven technology with easy installation.500 (US$ 69–159) per plant. ere is a three-year warranty with free service. and maintenance.3. Neither NUBL nor the companies understand each other’s operation and overlook the potential of collaborating to provide energy access to the rural poor. ey. and at the time of eld research. Currently.

etc. NR 600 (US$ 8). e subsidy amounts in the table apply to all households. In general. no defects. typical clients for biogas loans are farmers with cattle. Only accredited biogas companies can channel the biogas subsidy. e by-product of biogas plants is called “slurry” and is valued as a superior fertilizer. 66 Using Microfinance to Expand Access to Energy Services . is held back to ensure that mandatory a er-sale service visits are carried out for two years (at least one visit per year). fuelwood. whose certi cation and grading by BSP set high standards for quality of products and services. Pricing and cost structure: As shown in Table 4. eir income patterns varied from daily to monthly to seasonal. but thus far only about 160. in NR) 6 m3 Remote hill 347 162 21 164 8 m3 Remote Terai hill 390 162 28 200 378 70 32 275 10 m3 Remote Terai Hill hill 479 155 32 292 417 70 35 311 457 113 35 309 Terai 272 77 21 174 Hill 301 120 21 161 Terai 308 77 28 203 Hill 340 120 28 192 Hill 416 113 32 270 Remote hill 528 155 35 337 Source: Nepal Biogas Promotion Group. etc. For the most poor. who make up the majority of NUBL energy clients. and Labor Cost for Biogas Plants and Credit Needed 4 m3 PLANT LOCATION Total cost Subsidy Labor contribution Loan amount needed (Total cost minus subsidy and labor. few-to-no penalizations. Table 4.g. Maturity of the supply side: Any MFI in Nepal o ering biogas loans bene ts from the strong government control of biogas companies. it was obvious that energy for cooking and lighting is the highest priority for NUBL clients. NUBL has a large client base for expanding biogas lending. terai (low land). and LPG. Other uses of biogas in Nepal include refrigeration.. mostly living in lowland areas of Nepal (where most of the population farms).000 (US$ 34–166) per month. hill.). In Nepal. and their average income range was NR 2.000 units have been installed.25 so its adoption mostly relates to women. and remote hill. amount. Company certi cation and grading is based on a er-sale service. and electricity generation. with some small businesses (groceries. Market potential: BSP estimates that the potential market for domestic biogas plants can be 1. Some of the subsidy. and patterns of their biogas loan clients. NUBL had no statistics from which to analyze the income pro le. engine operation. clients seemed satis ed with the performance of their biogas plants. e. price quotations are based on plant capacity and geographical location in Nepal. Biogas companies certi ed with “good grades” are entitled to a 25-percent advance of the subsidy. 50 percent of whom have taken cattle loans. e price subsidies are channeled by AEPC through biogas companies approved by BSP. e 15 clients interviewed during the eld visit were mostly dairy or vegetable farmers.still pay 25–40 percent of the cost of a biogas plant.500–12. Baseline energy expenditure is NR 150–1. with the remainder paid upon completion of installation and user training.2.2 Cost. the additional subsidy drops the price to 25–40 percent of market price. Client pro le: At the time of the eld visit. e fertilizer is safe for crop and vegetable production as well as feed for sh. biogas is used mainly for cooking (80 percent) and lighting (20 percent). Subsidy. 25. Further. number of plants installed. Indeed. with more than 75. Currently the 60 biogas companies approved under BSP have more than 200 sales and services points across Nepal. salons. During the eld visit.000 clients.9 million-plus.000 (US$ 2–14) per month for kerosene.

. install. Use of biogas plants helps reduce drudgery. All NUBL branch sta members. the current so ware is able to analyze the portfolio quality and loan details of just the energy loans. it does not have separate accounting and MIS. SEEDS.. and Biogas and Energy Development Company Ltd.4. The Emerging Experiences in Asia of SEWA. comprising only 65 biogas loans with a total disbursed value of NR 975. and is treated like any other loan product it o ers. e slurry that emerges at the end of the biogas process is a high-nutrient organic fertilizer which surpasses farmyard fertilizer and replaces need for chemical fertilizers (saving money). 4.7 Impact Analysis e energy clients of MFIs have demonstrated that poor households can a ord biogas plants at the subsidized prices and bene t from them. Using biogas helps create a smoke-free indoor environment. 4.458) and 100-percent repayment. However. Rastriya Biogas and Construction Service Ltd. including 125 loan o cers. child caring.. However.6 Financial Analysis e energy portfolio of NUBL was very small at the time of the eld visit. respiratory. and clean utensils and kitchen. and skin problems (from indoor res). Since most of the biogas plants have also been connected to the toilet. and resting. bene ting them directly. and AMRET 67 .3. market. NUBL does not have a separate energy division or separate sta to manage its energy lending. ese companies include Triveni Biogas Company Ltd.5 Administration and Management As of now. and provide guarantees for the biodigesters.3. socializing. Although the women could not provide any monetary estimates. e time saved is being utilized for income-generating activities.3. and LPG). fuelwood. Clients felt that use of biogas reduced the time required to collect fuelwood. NUBL’s policy of giving energy loans only to clients with two successful general loans (non-energy) has ensured a good repayment record. and soap for cleaning utensils. Moreover. thereby augmenting income. have attended training on biogas technology and biogas loans jointly organized by NUBL and Winrock. it has helped improve sanitation. only 65 clients).4 Energy Service Companies To date. NUBL. 4.. Since the number of energy loans is still small (i. because of the strong BSP-quality control compliance by these companies. they claimed that the production had improved with the use of slurry in the eld. especially for those whose baseline energy source for cooking is fuelwood. NUBL has collaborated with 12 of the 60 BSP-approved biogas companies which construct.000 (US$ 2–14) per month on energy costs (kerosene. e slurry gives higher yields and can increase crop production. All clients interviewed during the eld research expressed their satisfaction and have bene ted in a number of ways. Energy lending is administered by the planning and monitoring department of NUBL.000 (US$ 13. which traditionally has in icted most rural women and children with eye. Neelkamal Biogas Company Ltd. medicines (eye-drops and hand lotions). Some of the measures introduced speci cally for the energy program include obtaining cost estimates from each company for plant construction and having the client certify that plant installation is made (without which payment is not released to the company). Biogas users claimed they save between NR 150–1. cook.e. NUBL has not signed speci c MOUs to manage the performance of these companies.3.

due to political con ict (Maoist movement). ease of access. NUBL has a favorable loan policy that permits a biogas loan as a parallel loan to two other loans. ey perform their vital roles well.000 11% 5 years not limited quarterly yes. is facility enables potential clients without su cient biogas feedstock to obtain cattle loans or sanitation loans to complement the biogas loan. have a two-year term. biogas technology adopted in Nepal is simple. interviews with clients and overall discussions revealed that clients were more sensitive to other loan features (amount of loan. Unlike in other countries.000 15% 18 months member quarterly (with monthly option) not applicable no collateral data not available Nepal. is brings down the e ective cost of installation for the client and has been instrumental in establishing biogas plants across the country on a wide scale.000 clients in 2.5 years member & non monthly parallel loan to HH under diff name collateral (accounted 40%) data not available MAXIMUM 22. NUBL can easily bridge the credit gap to meet the energy needs of its clients with its nancing scheme for biogas plants. its highly-regarded reputation in Nepal for sourcing wholesale funds and its large client base of over 75. because its biogas loans are non-collateralized. serve as the main pillars for expanding energy access through biogas.000 15% + 1% upfront charge 2–2.000 plants MAXIMUM 20.฀ 4. NUBL has a strong competitive edge.4.3 Comparison of Biogas Loans by Various Financing Institutions LOAN SIZE Interest Rate Loan Period Target Clients Repayment Period Parallel Loans Policy Collateral Requirement # Installed Plants Challenges MAXIMUM 15. Winrock. Although ADBL charges a lower interest rate than NUBL. Since 50 percent of its loan portfolio is for livestock purchases. pro en. AEPC.500 centers across 10 districts. and are processed quickly. Table 4. and locally manufactured. NUBL has a broad existing base for its energy lending. it was forced to pull its operations out of 68 Using Microfinance to Expand Access to Energy Services . AEPC subsidizes the installation of biogas plants. and collateral requirement) than to the interest rate.000 16% 2–5 years 2-yrs old member weekly & fortnightly biogas loan + addt’l loan of 40K apply for over 2 yrs loan term (accounted 50%) 65 MAXIMUM 20. this makes the job of MFIs in Nepal easier because the technical risk involved in nancing biogas is very low. and with the support from the Nepal government.1 Highlights and Challenges of NUBL’s Energy Lending Model Highlights e biggest strength of NUBL’s energy lending model is the presence of all key energy players—BSP. upon availability of sufficient collateral collateral over 110. However. and biogas companies. compared to Agricultural Development Bank Limited (ADBL) and regional Grameen Banks.

biogas provides to clients. neither NUBL nor biogas companies has dedicated budget or sta resources to promote biogas loans or market education. SEEDS.000 (US$ 276) Not an issue Only a few clients interviewed preferred a 3-year term (non-collateralized). NUBL’s lending processes were not standardized in the two branches visited. Discussions with various stakeholders during the eld research indicated various gaps and weaknesses in the current energy landscape that have resulted in this slow growth.4 Stakeholders’ Perceptions of NUBL Energy Loan PARAMETERS MFI (NUBL) Client eligibility Loan size Interest rate Loan period 2-year membership Adequate Lower than other products Acceptable PERCEPTIONS Clients New clients should be eligible based on repayment capacity Should be raised to NR 20. which have resulted in weak co-ordination and co-operation. and should be raised. on the other hand. compared to other nance institutions. feel that it is a service that they ought to o er to NUBL clients. clients felt that the minimum two-year membership criteria should be removed. However. MFIs such as NUBL are lling the gap by nancing biogas plants to expand access to energy. As marketing channels. clients thought the loan ceiling for NUBL biogas loans was too low (NR 15. overall disbursement by NUBL for biogas energy loans has been very slow. despite their repayment capacity. the energy market players need to in est in marketing and client education. Table 4. and place—but the biogas companies have not made use of NUBL’s network of centers. and MFIs are equally uninformed about the demands of energy services. Biogas companies poorly understand micro nance operations. A general lack of skills. targeting individual clients.000 [US$ 207]). the centers could reduce time and cost of marketing and generate more business. In addition. NUBL. and resistance to change seems to be a hindrance. there still exists a huge gap between the demand and supply of biogas installations in Nepal. NUBL feels this is the responsibility of biogas companies and that it deviates from its core business of nancing. con dence. However.000 (US$ 276) Too high Want longer term of up to 5 years without collateral Repayment period Acceptable Should be monthly instead of weekly The Emerging Experiences in Asia of SEWA. new clients must wait for a long time before they can access biogas loans. and AMRET 69 . most were satisfied with 2-year term Acceptable Company MFI should finance members and non-members Should be raised to NR 20. NUBL has centers—where on average 30 members meet every week at a prede ned date. Although it still o ers nancing in rural areas.rural areas and restrict itself to districts. ADBL’s ow of credit in rural areas has been reduced. Standardization of processes will help NUBL scale up. time. e biogas companies. Since NUBL provides credit only to clients with proven creditworthiness. and that they should invest in market education. based on the estimates provided by BSP.

For clients. However. which discourages MFIs from borrowing from AEPC. because the risk was lower. Almost two-thirds of AEPC’s funds are lying idle because its procedures for selecting. Other beliefs held by the biogas companies. On the other hand. Biogas subsidies are linked to quality that ensures that the bene t trickles down to the client and that funds are used e ciently.).4. two contrasting views on energy loans were heard from the two NUBL branches visited. With support from Winrock. an energy-lending model may not take o if there is little co-ordination between di erent stakeholders.) available to them are usually much more expensive.). and wonder why MFIs like NUBL do not lend to non-members. Clients did not nd interest rate charged by NUBL to be too high because the alternative sources of credit (informal sources. Biogas technology is also simple. which helps make expansion easy. and then funds are o en delayed. proven. risk of cattle dying. Biogas companies in Nepal have weak market in astructure. Despite a favorable policy environment.. making the overall policy environment favorable. etc. most biogas companies at their present scale of operation seemed to be getting business either through cash payments or a nance facility (such as ADBL). Sta of one branch felt that biogas loans were an additional burden because they required technical knowledge and needed promotion and marketing. e presence of BSP reduces the technical risks and transaction costs for institutions nancing biogas in Nepal. 70 Using Microfinance to Expand Access to Energy Services . Biogas companies need to understand micro nance operations and the legal limitations under which MFIs operate.4. e companies sell door-to-door and at times hire agents to attract new clients. such as the case with NUBL and Nepal’s biogas companies. MFIs have high operational costs and cannot o er loans at the interest rates expected by the biogas companies. although its existing energy product has been growing well.26 and it lacks technical understanding of the energy sector. Interestingly. and they feel more comfortable with traditional marketing practices. NUBL has approached biogas companies several times (invited them to center meetings. feel micro nance is too expensive and not well designed well for rural clients. 26. is clearly re ects the need to build both capacity and awareness among energy and micro nance actors about each other’s operations and the potential bene ts of partnership. such as moneylenders. such as a need for a ve-year loan term and monthly loan repayment. none of these companies has any budget detailed for promotion and marketing. lack vision to expand into the untapped market. 4. which prevent them om co-ordinating and co-operating with each other.2 Obstacles and Barriers NUBL and the biogas companies have di erent perceptions of client needs.g. Nepal has huge biogas potential that is still untapped and the government is clearly inclined to promote biogas in rural areas. e second branch felt that biogas loans had good potential and were much easier to make than animal husbandry loans. Necessity of co-ordination between stakeholders.3 Key Lessons Learned Favorable go ernment policy en ironment. etc. organized workshops with senior management. should be noted that many MFIs nancing biogas in Nepal cannot rely on timely availability of wholesale funds. and mostly manufactured locally. adequate and timely availability of credit and convenience is more important than the interest rate. e perception by biogas companies that micro nance is not suitable for rural clients poses a signi cant barrier for NUBL. were also found to be baseless. (e. NUBL is not completely certain of the potential of energy lending or the sustainability of its biogas loan product. thanks to the strong quality control enforced by BSP. etc. approving. but their e orts have not been successful so far.4. and disbursing funds to MFIs are lengthy.

Market and client education. etc.4 Opportunities for Country Scale-Up and Regional Replication Enhance stakeholder co-ordination through trainings. It is clear that biogas loan clients require loans with terms of at least two to three years. and NUBL can disseminate information about their energy loan product and biogas companies at center meetings. It is important to have wholesale funds in place and an e cient system to channel those funds to MFIs to expand energy access. Inviting new clients to visit existing biogas clients can be an e ective promotional tool. biogas companies can reach more clients in less time. Similarly. such as pre. energy companies can reach lower economic segments that are still untapped. thus reducing the scope of nancing alternative energy solutions on a wide scale. NUBL should consider charging an interest rate at par with the other credit products to build in the initial expansion. Develop a mechanism for client education through joint initiatives between MFIs and biogas companies. Donor support for capacity building would be very useful to various stakeholders. E cient delivery of wholesale funds. and meetings between MFIs and biogas companies in ol ing di erent levels of sta : e past workshops and meetings held between NUBL and biogas companies were not enough to build e ective awareness and coordination because the meetings were limited to senior management and did not involve operational and eld sta . and marketing costs. Although AEPC funds have been designed with the biogas loan product in mind and have a two-to-three-year repayment period. ere needs to be mutual understanding and clear demarcation of roles and responsibilities between the companies and MFIs. The Emerging Experiences in Asia of SEWA. e agent’s commission can either be paid by the company or jointly by NUBL and company. Moreover. to reduce their transaction costs and expand business.4. NUBL needs to revisit its product design and even conduct an in-house survey to make its product more scalable.4). 4. instead of eld o cers assuming full responsibility for promoting and marketing biogas loans. When client feedback revealed that the amount and timely availability of credit was more important than a lower interest rate. e agent would get the commission only when the loan is approved and disbursed by the MFI. NUBL should also reconsider its two-year eligibility condition that has restricted new members from accessing the loan. since all stakeholders felt that the loan limit of NR 15. e cost of commission can be built in the interest rate structure of biogas loan. Market education requires a huge investment and cannot be accomplished without participation by all stakeholders.000 (US$ 276). to make the energy lending more attractive and feasible for MFIs. By using NUBL centers. promotion. such as NUBL. and employing loan loss reserve funds. Designate a separate department or sta in the head o ce to oversee the expansion of biogas loans. they are not being disbursed due to bureaucratic procedures that cause sub-optimal utilization. is mismatch of asset liability is a problem unless the MFI can mobilize funds for longer terms. Not educating the target market can thwart attempts to scale up energy lending. Design a scalable product or add it to an existing product. provision of wholesale funds must be in line with the energy loan product design. the funds usually available to MFIs from commercial sources are on a one-year basis.nancing longer-term loans (Figure 4. Educating clients is a win-win situation for all: MFIs can provide a value-added service to their clients as part of their core business. and AMRET 71 .000 (US$ 207) was to low and should be increased to NR 20. erefore. NUBL.. Develop an inno ative nancing mechanism. or some other innovative nancing mechanisms should be put in place. ine cient disbursement procedures have kept MFIs from taking advantage of these funds. Even funds for unserved sector lending are not available to all MFIs because the commercial banks are not comfortable lending to most MFIs. Biogas companies should piggyback on the existing infrastructure of MFIs. is should be considered by NUBL and other MFIs. However. providing credit guarantees. Although AEPC has funds. agents can be hired (as is sometimes done by biogas companies) on commission to promote the product. SEEDS. interactive workshops. Technical support provided by BSP and Winrock can be used for this purpose. and the government can deliver alternative energy solutions to rural households to ful ll its mandate.

User Training. BSP has played a remarkable role in accelerating the utilization of biogas systems for domestic purposes in Nepal. and the nancing institutions lack technical knowledge to develop strategies to mitigate technical risks. Financing energy options for productive use and income-generating activities (solar driers. BSP-like support is needed for replication in other countries if the energy industry is not mature. 72 Using Microfinance to Expand Access to Energy Services . and NGOs (i.e. Due to the lack of technical knowledge about renewable energy.000-plus client base.Figure 4. It should also consider di erent market segments based on the existing businesses and enterprises of its loan clients—beyond households and consumption—to further scale up its energy lending program. donor institutions.. Importance of national-scale support. external support from the government (AEPC). NUBL need to explore other renewable energy technologies for the urban and peri-urban clients in its 75. biomass generation to operate machinery) and other energy enterprises (battery-charging stations. After Sales Service NUBL MEMBERS Information Channeling Information Dissemination CENTERS Loan Repayment Loan Appraisal First Disbursement Transfer Pursue product and market inno ation. Since biogas plants are appropriate only for farming populations.3 Proposed Scale-Up Model of a NUBL Energy Loan Transfer of promotion fee MARKETING AGENTS Solicit new Biogas clients Second Disbursement COMPANIES NUBL Promotion Fee per Installation Information Exchange Installation. BSP has helped the country create strong market players and helped nancing institution minimize the potential technical risks associated with the performance of the biogas company. Winrock) is crucial. electricity service enterprises) is an obvious next step. the number and quality of reliable energy suppliers are limited.

8 percent in 2005. and manufacturing (10 percent). Cambodia is one of the poorest countries in the region: 36 percent of its 13. Return-on-equity (ROE) has grown rapidly from 1. Today. In the 1990s. yet the contribution of agriculture to GDP is only 35 percent. 3 foreign bank branches. The Emerging Experiences in Asia of SEWA. wholesale and retail (21. US$ 723) to 2005 (KHR 5. pro t27.370).1. and capped bank positions in foreign currency as a percent of the bank’s net worth.5 percent to 1. Most loans are in the service sector (33 percent). e ratio of non-performing loans to total assets peaked in 2002 at 5 percent and declined to 3 percent in 2005.2 Banking Sector Overview and Key Financial Indicators e nancial and banking sector was destroyed by the Khmer Rouge. and AMRET 73 . 17 banks remain in operation: 1 state-owned bank. but relatively peaceful elections were not possible until July 2003. and only 30–45 percent is with non-bank customers as loans and advances.1. NUBL. e liquidity ratio of banks was much higher. About 74 percent of the population remains fully engaged in subsistence farming. particularly in the poverty-ridden countryside. capped the total exposure allowed to any one individual or client. e population lacks education and productive skills. which liquidated a number of non-viable banks. Despite such improvements.5 percent). However. a weak social infrastructure—as evident by Cambodia’s rank of 130 of 175 in the UNDP 2003 Human Development Index—means that gender inequality. and 3 specialized banks (one of which is state-owned). which abolished money for a number of years. and from 2001 to 2004.7 percent in 2001 to 7.9 million. and poor health facilities continue to be signi cant hindrances to development. Furthermore. despite the fact that 74 percent of the population is engaged in farming.27 e banking sector has shown a strong capital adequacy in compliance with the regulation requiring a solvency ratio of 15 percent. A regulation issued by a minister or by the governor of the National Bank of Cambodia concerning banking or nancial issues.8 million citizens live below the national poverty line.5 million. which su ers from an almost total lack of basic infrastructure. 10 local banks.1 CAMBODIA COUNTRY CONTEXT 5. US$ 1. driven largely by an expansion in the garment sector and tourism. e government has liberalized interest rates. e process of restoring peace began in 1991. Today. established reserve requirements. long-term development of the economy remains a daunting challenge. than the required minimum of 50 percent by prakas.3 percent in 2005.1 Socio-economic Environment Cambodia’s social and economic infrastructure has su ered severely through long years of invasions and war. more than 52 percent of these assets are in the form of cash. loans.7 percent during the same period. SEEDS. 5.4 percent. re ecting a weak exposure in rural areas. Economic reforms in Cambodia started in 1999. e total assets of banking sector almost doubled from 2001 (KHR 2.฀ ฀ ฀ 5. Return-on-assets (ROA) also increased from 0. the economy grew at an average rate of 6. e banks had a solvency ratio of 27 percent and equity-to-total-assets ratio of 22. e proportion of loan exposure in agriculture has remained stagnant at 2–3 percent from 2002 to 2005. at 120 percent in 2005. e Royal Government of Cambodia introduced banking regulations in 1999 and a bank-restructuring program in 2000. Cambodia’s banking sector went from a single public bank to a two-tiered public banking system that separated the functions of the Central Bank from the commercial banks. and deposits with the National Bank of Cambodia (NBC) and other banks. However. rural-urban regional disparities.

and Phase II of nancial sector plan calls for: the establishment of venture capital funds and equity funds). Canadia Bank (commercial bank). and has initiated the Rural Credit and Savings Project and Technical Assistance for Capacity Building for Rural Financial Services. of licensed MFIs and a specialized team to monitor the nancial activities of NGOs. NBC promotes rural nance by monitoring the soundness and sustainability of micro nance institutions. With the exception of ACLEDA Bank (commercial bank). Currently there are at least 100 registered and unregistered lending bodies serving rural Cambodia. and to some extent. In this context. promotes appropriate credit policies 74 Using Microfinance to Expand Access to Energy Services . consolidate. and that the spread between loan and deposit rates will narrow as intermediation becomes more e cient. and thus establish a framework for supervision and upgraded prudential regulation. NBC conducts o site and on-site inspections. the Rural Development Bank (one of four specialized banks). and endorsing good governance. including 16 licensed micro nance institutions and 24 registered rural credit operators. Cambodia’s nancial sector is still at a rudimentary stage: the number of commercial banks (15) is limited and they are e ectively non-existent outside the capital. One is a commercial bank and eight are MFIs licensed by NBC. formal banks do not yet serve the poor. Its policy measures include: providers to become regulated licensed MFIs. albeit concentrating mainly on rural credit. and further strengthen all the measures undertaken to that point. 5. monitors MFIs and the programs they implement. It anticipates that the nancial sector’s ratio of nancial assets to gross domestic product will at least double in 10 years. the government has adopted the Rural Credit Policy to develop an e ective rural nancial system.3 Financial Sector Regulation e Royal Government of Cambodia adopted a nancial sector plan for 2001–2010 in August 2001. building up public con dence. protecting small depositors.ability of the banks is globally weak. e plan aims to develop a sound market-based nancial system by promoting competition and encouraging private players to support resource mobilization and broad-based sustainable economic growth. As part of the rst phase of the nancial sector plan. In terms of supervision.1. and commercial banks and to extend technical support and training to MFIs. as ROA and ROE remain low. Phase III will review. e nine major players in the micro nance market in Cambodia serve over 95 percent of the formal sector market.1.4 Microfinance Sector Regulation e National Bank of Cambodia is responsible for regulating and supervising micro nance in Cambodia. 5. micro nance institutions and the informal nancial sector have been the de facto providers of nancial services in rural areas.

it was only 14 kilogram (kg) of oil equivalent per capita (compared to the world average of 1. “Reports and Papers. for implementation (enacted in early 2000) recognizes three categories of banking institutions: banking activities.2.) Fossil fuels.1 Energy Access and Consumption Per capita energy consumption in Cambodia (55kWh per capita. are imported for electricity production and transportation. license. “Renewable Energy and Electri cation study. mostly in Phnom Penh.1 National Bank of Cambodia’s Mandatory Conditions for MFIs IF ENGAGED IN Credit Savings REGISTRATION BY NBC Loan portfolio outstanding: > KHR 100 million (US$ 25.org/rpree. supervise. e NBC has also been delegated the authority to regulate. For the rural population—83 percent of Cambodia’s total population—less than 13 percent have access to “grid-quality” power.06 perd cent of the total national energy consumption. (Fuelwood and charcoal together represent about 96.htm. is can be partly attributed to the high price of electricity and a low per capita gross national income of US$ 300.449 TJ and urban households.recambodia.000 depositors 5. as speci ed in the terms of their license.906 TJ (terajoules). and makes recommendations.000 households.500).28 28. and AMRET 75 . which consumes about 79. 5. In other words.3 percent of all cooking fuel consumed in Cambodia. and revoke licenses of MFIs. minimum registered capital of KHR 250 million (approximately US$ 62.457 TJ. have been severely depleted due to widespread logging and forestland conversion.692 kg of oil equivalent per capita). Only 17 percent of the population has continuous access to electricity via a reliable public grid. the main source of fuel wood.000) or > 1. 14 percent of GDP) is one of the lowest among the developing countries and even the world. Registration or licensing of MFIs by NBC is compulsory when operators meet one or more of the conditions in Table 5. NUBL. although an increasing number have access to either private part-time mini-grids or batterycharging services. and strengthen supervisory capacity. e Law on Banking and Financial Institutions (enacted November 1999).1. Rural households consume 74. SEEDS. NBC licenses medium-sized MFIs and registers small MFIs. carry out a limited number of banking activities. issue prudential regulations. Wood-based energy consumption is mainly in the household sector.000 borrowers Voluntary savings mobilized: > KHR 100 million (US$ 25. or prakas. Cambodia has few exploitable energy sources other than biomass. and the government decree. Table 5.000) or > 1. SME Cambodia. Its natural forests. mainly diesel and heavy oil. The Emerging Experiences in Asia of SEWA.” www.and procedures by MFIs.” found on the Cambodia Renewable Energy and Rural Electri cation website. In 2001.2 ENERGY SECTOR OVERVIEW 5. It has been estimated that there are 600–1000 rural electricity enterprises (REEs) that supply various power services in rural areas to approximately 60. 2003. Wood and other biomass account for 85.000) Voluntary savings mobilized: > KHR 1 million (US$ 250) or > 100 depositors LICENSING BY NBC Loan portfolio outstanding: > KHR 1 billion (US$ 250.

html. 1997–2004 APPLICATIONS Lighting Pumping Refrigerator Computers Radio repeater Telecommunication equipment (for mobile phones) Total CAPACITY (Wp) 55. due partly to the heavy use of old small generators. and Nepal). reliance on imported diesel fuel. Electricity cost is US$ 0. NEDO. Table 5. and Energy (MIME) has made a rm commitment to promote renewable energy to meet the country’s energy need.8 29. Electricité du Cambodge was attached to the Ministry of Energy.0 1.com.14/kWh in EDC’s grid (Electricité du Cambodge29) and US$ 0.edc.9 1.3 Photovoltaic Installations in Cambodia.050.2 Renewable Energy Implementation Renewable energy implementations in Cambodia are still dominated by government and donor-driven projects. hydropower plants. A er the elections in 1993. management.9 1. biomass co-generation. ese renewable energy projects include solar photovoltaic systems. and some of the highest in the world.92 per kWh in rural areas served by REEs. the Red Cross. and operation of the power system in Phnom Penh and 6 large commercial towns.3. La Fondation Énergies pour le Monde (FONDEM).30–0. Sri Lanka. and other NGOs.kh/about. http://www.2 Current Lighting Sources and Consumption in Rural Areas in Cambodia 55% 24% 12% 4% 3% 2% Lead acid batteries Dry cell batteries Other (candles) REE grid Small generator EDC grid e electricity prices in Cambodia are the highest in Asia. biogasi er plants. and signi cant losses from low-quality mediumvoltage distribution systems.3 7. EBARA. 76 Using Microfinance to Expand Access to Energy Services . biodigester plants.8 6.Table 5.135. Mines.2. In 1992. 5. e use of photovoltaic systems in Cambodia began with a few installations donated by United Nations Children’s Fund (UNICEF). e Ministry of Industry. and wind power plants. e retail market for renewable energy is at a premature stage compared to other countries in this report (India. and Energy (MIME) and was responsible for the development.9 13. Mines. EDC was restructured under the Ministry of Industry. Speci c installation gures of photovoltaic are listed in Table 5.

1999).00 2. given “the topography and high rainfall. Batambang.” (Phnom Penh. is facility is run by a community co-operative. the National Biodigester Program (NBP) was established in early 2006 to promote and deploy commercial biodigester technology. 1998).” many areas of Cambodia are suitable for the development of mini-hydro schemes of 100 kW–5 MW (World Bank and HECEC.56 0.htm. NEDO (New Energy and Industrial Technology Development Organization). e biomass gasi cation system operates 100-percent on locally farmed trees.org.30 23. World Bank and HECEC.00 0. 30.50 1. 31. e o en-quoted gure for Cambodia’s hydro power potential was provided by an ADB report.68 2 8.30 An NEDO study31 indicated that Cambodia has the potential to generate an estimated 18.00 1.recambodia.52 Identified projects Biomass gasifiers (wood. recambodia.50 0. and provides electricity to 70 co-operative member households.04 53. Cambodia’s master plan.07 Not applicable 0.788. since biomass production is so widely dispersed and is limited by the availability of su cient quantities of residues and their collection and transport to energy production facilities. rice husk) Biomass-fired cogeneration (rice husk.Table 5. However.285 2 * 2 1 14 * 17 e master plan for electri cation argues that. “Assistance Project for the Establishment of an Energy Master Plan for the Kingdom of Cambodia.05 0. under the support of SME Cambodia. SEEDS. cashew nut shell) Landfill gas capture or flaring Totals 3 2 1 119 0. and ADB are cited from the Cambodia Renewable Energy and Rural Electri cation website. 2002).852 GWh/year from biomass.6 GW of electricity (ADB.14 Identified projects Large (5 MW to 465 MW) Mini hydro (500 kW to 5 MW) Micro hydro (10 kW to 500 kW) Totals 20 9 10 119 1.97 108. NUBL.839. and AMRET 77 . Banan District. Final Report. Cambodia: NEDO. The Emerging Experiences in Asia of SEWA. which argued that the Mekong River and its tributaries have potential to generate 8. A pilot project for 9-kWh biomass gasi cation has been implemented in Anlong Tamey village. www.78 17 Installed projects by 2003 Hybrid bioreactor and photovoltaic Domestic biodigesters 1 112 0.org/rpnedo. To meet the domestic energy need for cooking and lighting (optional). See http://www.4 Profiles of Hydropower and Biomass Projects in Cambodia HYDROPOWER PROJECT TYPE Installed projects Large (5 MW to 465 MW) Mini-hydro (500 kW to 5 MW) Micro-hydro (10 kW to 500 kW) NUMBER OF PROJECTS 1 1 1 TOTAL INSTALLED ANNUAL GENERATING CAPACITY (MW) POTENTIAL (GWH/YEAR) 12.

REPSA was formed as a private association in 2003 to represent the interests of private businesses supplying renewable energy products and services in Cambodia. SME-RE promotes renewable energy technologies and market biomass gasi cation power generation systems in Cambodia and throughout the greater Mekong region. but are limited to consumers with the capacity to pay cash. National Biodigester Program. ey have installed 300 SHS on a retail basis.4 Energy and Alternative Energy Suppliers Since the conventional electricity source in Cambodia is battery generated (charged by diesel and light oil generators).3 Renewable Energy Facilitators Rural Electri cation Fund (REF). 5. NBP aims to construct 17. In January 2006. REPSA meets regularly and has over 10 members who are recognised by the government and World Bank as important stakeholders in REF. and biomass gasi er technology.2. funded by a loan from the World Bank and a grant from GEF and ADB. Retail markets exist. micro hydro. and supports the operation of the Rural Electricity Enterprises Association. Khmer Solar (KS): KS is one of the leading solar photovoltaic suppliers in Cambodia. energy suppliers in Cambodia are predominantly diesel generator and battery suppliers. However.5. ese are some of the leading alternative energy suppliers: SME Renewable Energy Ltd. REF is an important component of the six-year-old Rural Electri cation and Transmission (RE&T) Project. sustainable energy source in Cambodia and utilize the potential of biogas. Suppliers for alternative energy equipment in Cambodia are still very few and companies are immature compared to those in the other countries in this report. the Ministries of Agriculture and Fisheries and SNV Netherlands Development Organisation jointly developed the National Biodigester Program as a way to create an indigenous. with a branch ofce in Batambang Province. including those in the energy sector. It has installed solar home systems.2. REF is administered by an independent state agency with a mandate to accelerate rural electri cation and reduce the cost of supplying energy and thus help reduce poverty in rural areas. is NGO provides business development services for small and medium rural enterprises. a lack of understanding of how MFIs operate and an assumption that MFIs charge high interest rates that are not viable for REEs has kept MIME from approaching MFIs. (SME-RE): SME Cambodia and E+Co (a US non-pro t renewable energy investment organization) jointly established this renewable energy company in Cambodia. e Ministry of Industry Mines and Energy (MIME) understands that in order to meet the targets de ned for REF. Alternative energy suppliers mainly provide solar photovoltaic. 78 Using Microfinance to Expand Access to Energy Services . It is also aware that Cambodia’s commercial banks (except ACLEDA) cannot help expand access to energy because they have no presence in rural areas. SME Cambodia. and gasi ers as a pilot project.500 biogas plants in six provinces over a period of four years. SME Cambodia also helped establish. most of the energy suppliers are still dependent on the government and donor-driven market. Progress toward this target has been slow because it needs the support of MFIs and has failed to attract them so far. New Energy Group (NEG): NEG is one of the suppliers working in Phnom Penh for the last three years. biodigester. it needs a supply of credit since it is not possible for the rural population to contribute 75 percent of cost as equity. Renewable Energy Private Sector Association (REPSA). However.

It had a total of 2. In addition to this.3. MIS is fully decentralized. Clients must also provide physical collateral to be eligible for loans. Its micro nance program is one of the country’s largest. MicroBanker. operating mostly in rural and semi-urban areas. NUBL. SEEDS. Although preparation of nancial statements is centralized in the head o ce. and AMRET 79 . and good credit discipline both at the sta and client levels has enabled AMRET to maintain excellent portfolio quality.1 Structure and Operation AMRET’s organizational structure. As of 30 June 2006. strong repayment follow-up mechanism. the district o ce prepares its plan for the year. for MIS. hold the present equity base of AMRET. called MBWin. Target clients for individual loans reside in the regions. SIDI. Based on these plans. Its organizational structure has clearly de ned roles and responsibilities at each level. e district o ces do cash planning on a monthly basis. The Emerging Experiences in Asia of SEWA. AMRET has a sturdy and well-designed process for client selection and loan appraisal. and I & P. good tracking of loan repayments and overdue payments.4 percent. AMRET has a total client base of 113. Overall. Four institutional investors. small. Accounting and Management Information System (MIS): AMRET has good accounting and MIS. e so ware has been installed in district o ces and enables AMRET to track client loan details which it could not do before. policies. e annual plan is further broken down into monthly details with speci c targets to be achieved during each period. Each of the departments in the head o ce undertakes a similar exercise and then the plans are consolidated. and strategy are designed in line with its mission statement and aim to provide need-based nancial products to its clients while ensuring its own long-term sustainability. AMRET customers must have a permanent residence in one of its operational districts without plans to leave the district before repaying all debt owned to AMRET. or SG) plus creditworthy individuals who may or may not be members of an SG. have low or middle incomes.3 ORGANIZATIONAL PROFILE 5.622 solidarity groups clubbed together in almost 1. e organization has PAR >30 days of only 0. Detailed analysis of client cash ows. e planning exercise is done annually and it originates from the plans of the credit agents. Portfolio management: e operations department is responsible for seeing that the health of the portfolio is maintained and any delinquency is immediately taken care of. e functional responsibilities have been decentralized in various departments at the head o ce. namely GRET.702. districts. AMRET uses AccPac accounting so ware and has shi ed to a Windows-based so ware.5. with 30 district branch o ces. AMRET’s primary objective is to contribute to rural development in Cambodia by providing micro nance services and help improve the living standards of the rural population. One of the prerequisites for membership in AMRET is that the client be married and older than 18 years of age. or medium enterprises. villages.450 village associations (VAs). It caters to groups of ve clients (called a solidarity group. Business planning and nancial management: AMRET’s entire process of nancial planning is quite participative. Field operations have been decentralized to district o ces and provincial o ces. the organization has also prepared a detailed ve-year operational and nancial budget. Of the total paid-up equity.1 percent and a repayment rate greater than 99 percent. which deposits the same in the bank. La Fayette. products. AMRET is registered as a licensed MFI in Cambodia. GRET holds 47. AMRET has solid management and administrative capacity. or provincial towns. and speci cally desire to upgrade their household’s economy via individual or family loans or loans for micro. AMRET had operations in 59 districts in 13 southern and central provinces. Excess cash from the district o ces is deposited at the provincial o ce.

Internal audit: AMRET has an inspection department with eight sta members.3. can be used for business. A er the product costing. and collecting loans.4 ENERGY LOAN PORTFOLIO 5. However. AMRET does not have any speci c vendor or energy company. 80 Using Microfinance to Expand Access to Energy Services . 5. AMRET has borrowed loan funds in local currency (KHR) as well as US dollars from a diverse set of lenders (both national and international nancial institutions). and reserves. Energy loans fall under the individual business loan product category. which re ect its two main loan products. Solidarity loans are o ered to the members of an SG and can be used for any purpose. or consumption. If everything goes well. plus the grants for micro nance operations. liabilities. is resulted from the transfer of the project’s credit fund. education. but it is clearly too understa ed to conduct an adequate number of internal audits. and nancial compliance checks. However. Appendix 9 shows the di erent sources of AMRET’s outstanding loan funds. Individual loans can be approved at the district o ce or at the house of the client. It meets once every six months and recommends internal audit and internal control activity. operational and nancial compliance checks at the client level are done on a very small sample of 7–10 percent.2 Funding Sources AMRET has obtained a subordinated loan of about US$ 1 million from the Ministry of Economy and Finance. Speci c surveys are also conducted based on indicators from MIS reports. which operate on the concept of social collateral. house repair. e marketing and communications department is responsible for conducting client satisfaction and demand surveys. and making recommendations. on the other hand. operational.4. Individual loans. as is standard for micro nance loans.1 Model and Methodology AMRET has adopted a mix of group and individual models. the general manager. In addition to the subordinated loan. Product development: AMRET has employed a MicroSave product development model since 2000. unlike solidarity loans. and the audit manager. e organization has dealt with several minor cases of fraud in the past. as of September 2006. such as a rising client drop-out rate. AMRET has an audit committee at the head o ce comprised of a representative from the board. 5. given the size of AMRET’s operations. disbursing. which were granted by Agence française de Développement (AfD). In addition to the audit department. assessing potential needs. AMRET sta is only responsible for conducting the loan appraisal (including the feasibility analysis of the enterprise and a detailed study of client cash ows) and sanctioning. since energy loans are only o ered for the purchase of battery or diesel generators. It created a product development task force team made up of representatives from all the head o ce departments. e consumer repays the energy loan to AMRET based on the repayment schedule decided at the time of disbursement. a product prototype is developed and necessary systems and documentation created to pilot test the product. e audit includes policy. to AMRET in June 2000. the product is nally launched. Individual loans require physical collateral. a “Solidarity” loan and an individual loan. It lends through solidarity groups (SG) and to individuals. the interest rate is higher if the loan is provided at the client’s doorstep.

such as purchase of battery charger. e total energy portfolio as of 30 June 2006 was KHR 354 million (US$ 88. and AMRET 81 . with most of them concentrated in the districts of Ba Phnum. However.000) 36–42% p. without any involvement of AMRET. although they were managed as individual business loans. 5. Kien Svay. Me Sang.000 (US$ 150) 42% p. NUBL. ere is no separate accounting system for energy or business loans. etc. home improvement. on declining basis 6–12 months Flexible principal with an option of bullet payment.4.a. it is not possible to do a pro tability analysis of the energy loan portfolio. Repayments have been on time and re ect a strong credit culture built up by the MFI. Kampong Trach. Per the nancial analysis performed during the eld visit. declining for loan at client’s house 24–36% p.4.4. AMRET had made energy loans to over 707 clients..) or to purchase batteries for their own use or to rent to others. others only monthly Up to 2 times the loan value (1.000: Provincial office Credit committee at district/province level Field (at client’s house) or district office Field by credit agent (at client’s house) or district office 5. e majority of clients use it for their households or to enhance existing productive enterprises (e. making ice.000: District office > US$ 2. 5. and Preah Sdach.3 Service Company AMRET has not collaborated with any energy service company so far.g. AMRET energy clients are spread across 50 districts.a.. e clients interact directly with their service company. as those are the common electricity source for most households unserved by the electricity grid. the loan portfolio can be analyzed by extracting data on loan utilization.5 Differences Between Solidarity Group Loans and Individual Loans SOLIDARITY GROUP LOAN (Any purpose) Target client Loan amount Interest rate Term Installment Collateral Grace period Appraisal Approval Disbursement Individuals organized under JLG in a group of five Maximum KHR 600.2 Characteristics At the time of the eld research. ring tiles and bricks. monthly interest Group guarantee (social collateral) Not applicable District office Credit committee at district level Field VDC (incentive 8–10%) INDIVIDUAL LOANS (Business. SG/non-SG clients Maximum KHR 20.5 times with land and building) Maximum 6 months < US$ 2. Over 79 percent of AMRET energy clients are female. powering a tobacco kiln.000 (US$ 5. including energy loans. etc.a. e energy loans can be used to purchase diesel generators to provide energy service through rural electricity enterprises.000. Svay Chrum. consumption) Creditworthy individual.000.4 Administration and Management AMRET does not have a separate sta or mechanism in place to administer or monitor energy loans.213). Service companies in Cambodia are dominated by generator and battery suppliers.000. making wine. Since energy loans are not accounted for separately.Table 5. SEEDS. and 36 percent are 30–39 years old. The Emerging Experiences in Asia of SEWA. which makes it possible for AMRET to monitor or track its energy loan portfolio separately. declining for loan at AMRET office Up to 24 months Flexible/monthly for business loans up to KHR 1. Kampong Trabaek. from the MIS. AMRET so far has no defaults in its energy loan portfolio. education. Prey Nob.

5.4.5 Impact Analysis
Because Cambodia’s rural areas have very little electri cation, the demand for batteries and grid connection from rural energy enterprises is high. AMRET’s credit facility has enabled rural energy enterprises to emerge and provide energy service to the rural population who have no access to the EDC grid. It has also provided small scale producers (winemakers, icemakers) with access to an energy source that enables them to scale up production

5.5.1 Highlights and Challenges of the AMRET Bank Energy Lending Model
Highlights

AMRET has a huge client base and wide geographical presence with a good rural branch network. As of 30 June 2006, the organization had 113,702 clients in 59 districts and 30 branch and district o ces. Although AMRET had only 707 clients with energy loans, the overall client base is a potential market for the energy product. has demonstrated a good balance between o ering exible nancing and maintaining portfolio quality. e exible repayment mechanism provides greater exibility to the clients and allows them to repay loans per their own cash in ows within a de ned loan term. AMRET has maintained a healthy portfolio quality due to professional systems and good credit culture. was the rst micro nance institution to be licensed in Cambodia. It has mobilized funds and equity om diverse sources and enjoys a good market reputation. Its excellent credit record and highly transparent operations make AMRET an attractive institution for donors or lenders willing to fund it. has a sturdy MIS system in place. It installed new so ware (to overcome the weaknesses of its previous so ware), which enabled AMRET to improve its loan tracking system. In addition, the in-house IT department has enabled AMRET to generate reports with aggregation per administrative hierarchy (village>commune>district>province) as well as AMRET’s own hierarchy (group>village association>credit agent>district). AMRET has a separate department for marketing and communications, which is responsible for conducting in-house research, including impact assessment. It also develops new products using internationally acknowledged best practices and promotes existing products. AMRET has a well-de ned process for research and development. e organization also has a separate budget for promotional activities.
Challenges

AMRET has limited knowledge of energy sector. AMRET has not initiated interactions with energy stakeholders and energy sector facilitators. Consequently, it is not well informed about the opportunities for nancing renewable or alternative energy options or about incentives that can be tapped from the government and donors to o er lending products to energy consumers.

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Using Microfinance to Expand Access to Energy Services

5.5.2 Obstacles and Barriers
tors, kerosene, fuelwood, and LPG. Without a strong and intensive market awareness program to promote cheaper and better energy technology options, the potential for such options remain untapped. market players with good decentralized sales and service network severely constricts the growth of Cambodia’s energy sector. in Table 5.6) only underscore the lack of coordination and knowledge of each other’s operations among the stakeholders in the businesses of energy and lending.
Table 5.6 Stakeholders’ Perceptions of AMRET

STAKEHOLDER
Government Donor or development agency Energy company or supplier Energy facilitator MFIs

PERCEPTION
MFIs are needed to expand the energy access in rural areas, but do not know how to go about it. Willing to provide financial incentives, but MFIs should pass along these incentives to the clients by reducing interest rates. The interest rates of MFIs are too high for the energy company or enterprise to be profitable. Willing to provide technical risks guarantee, but sees a need for a flexible financing mechanism that meets the needs and income patterns of clients. They think charging a lower interest rate on one product will create distortion (ACLEDA); they are willing to create special energy lending if there is a guaranteed fund (AMRET); and incentives (i.e., reduced interest rate) are needed to allow energy enterprises to gain good profit margin (Maxima).

5.5.3 Key Lessons Learned
Co-ordination between di erent stakeholders. Despite the Cambodian government’s inclination to expand energy access, an energy-lending model may not be successful if there is no co-ordination between di erent stakeholders, like that witnessed between AMRET, energy companies, and sector facilitators. is clearly re ects the need for both energy and micro nance stakeholders to build capacity, speci cally to learn about each other’s elds and the potential bene ts of partnership. Market education. Market education must be tackled and made a priority in order to scale up energy lending. It requires huge investment and cannot be accomplished by any one stakeholder alone. It is important that both energy and micro nance stakeholders as well as sector facilitators (government, donors, NGOs) work together to overcome this barrier. Balance between exible nancing and a strong nancial portfolio. It is important that MFIs create a balance between exible nancing mechanisms (removing any barrier to capital access) and maintaining nancial health (to sustain the energy-lending program). AMRET has successfully demonstrated such a balance. Necessity for a separate energy-lending product. As long as AMRET’s energy lending is only for battery chargers or diesel generators, then it can continue as part of its business loan product: this kind of lending does not demand any special features or collaborations with other agencies. However, if AMRET wants to o er a speci c energy product, such as solar photovoltaic or biodigesters, then it would do well to establish a separate energy-lending product line. In such case, it would need to enter into MOUs and design special loan appraisal, disbursement, and collection components.
The Emerging Experiences in Asia of SEWA, SEEDS, NUBL, and AMRET 83

5.5.4 Opportunities for Country Scale-Up and Regional Replication
High cost of traditional energy sources. e baseline (conventional) energy solutions in Cambodia (e.g., dependency on fuelwood and imported oil fuels) o er great opportunities to introduce better and least-cost energy solutions. e role of MFIs is considered crucial to scale up these alternative energy solutions. Table 5.7 compares electricity prices generated from di erent energy sources in Cambodia.
Table 5.7 Comparison of Electricity Prices in Cambodia

Types
Solar home system Micro/mini hydro power Biomass electricity generation REE diesel generator

Price per kWh (US$)
$ 0.07–0.15 $ 0.04–0.07 $ 0.30 $ 0.50–0.90

Go ernment support and dedicated go ernment programs: e Rural Electri cation Fund (REF) was introduced to provide credit and grant support to private sector and nancial institutions to expand energy access in all districts of Cambodia. AMRET can tap this opportunity by expressing interest in collaborating with the government and accessing low-cost loan funds and grant support. e ow chart in Figure 5.1 shows the present lending process of a Cambodian MFI and the proposed ow of REF. MFIs can serve as a vital channel for REF and route its funds to rural areas through their existing rural bases to expand energy access.
Figure 5.1 Present Lending Operation and Proposed Flow of REF

GEF

World Bank

ADB

CLIENTS
Loan Appraisal & Disbursement Loan Application

CAMBODIA RURAL ELECTRIFICATION FUND

25% Grant 25% Soft Loan

Funding Proposal +50% Equity

CLIENTS
Rural Electricity Enterprise Battery Charging Service Cookstove Producers

PRIVATE SECTOR
Energy Company Financing Institutions

Deployment at Subsidized Terms*

CLIENTS

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Using Microfinance to Expand Access to Energy Services

Sector facilitators. sector facilitators. it ensures that suppliers can deliver quality products and services. and SME Cambodia has already obtained nancing support from E+Co to deliver energy via leasing. AMRET needs to collaborate with existing energy sector facilitators like NBP to create a win-win situation for everyone—MFI. NBP is interested in collaborating with AMRET as they share similar target clients. and client. AMRET needs to be more actively involved in selecting the energy products. e existing infrastructure of MFIs in rural areas provides a ready-made foundation for promoting and marketing energy services and products. the combination of NBP’s nancial responsibility of any technical risks and AMRET’s robust loan appraisal would create a good risk mitigation strategy for delivering e ective biodigester credit program. and on the demand side. Since the awareness by the target market of the alternative energy solutions is poor. energy service company. and very low income per capita. It is important that MFIs join hands with MIME while it is still in the process of de ning the mechanism for nancing support through REF. Donors need to provide technical assistance to energy stakeholders to help them design e ective intervention mechanisms that promote a strong business environment for alternative energy and that take advantage of experiences in other countries. the red lines indicate possible collaboration. it o sets the inability of the target market (farmers) to acquire a biogas system for domestic use. (In Figure 5. and SME Cambodia. Cambodia has few energy sector facilitators—National Biodigester Programme (NBP).Nepal’s Biogas Support Program (BSP) o ers a valuable example for Cambodia in how to run e ective support for biodigester implementation. SEEDS. NUBL. and AMRET 85 . and MFIs need to educate themselves about the energy sector and the opportunities therein for energy lending. exible MFIs. nor will any of the stakeholders succeed without doing some basic groundwork. By combining a wider range of appropriate energy products and a credit facility to defray upfront capital requirements. Without serious collaboration with these stakeholders. e government and its agencies need to educate themselves about the MFI sector. the role of MFIs like AMRET are key to providing comprehensive energy solutions. AMRET has great potential to expand its nancing business by catering to the energy market. NBP is ready to assume complete nancial responsibility of any technical risk. scaling up AMRET’s energy loans is greatly dependant on external factors—policy makers. and the market players are still immature. Also. Donors can play an important role by providing funds and expertise for capacity-building to both energy stakeholders and MFIs. AMRET’s exible nancing mechanism provides a great opportunity for AMRET to meet the need of NBP target clients. Opportunities to expand lending to the energy market. What AMRET contributes to successful regional replication is its exible nancing mechanism and portfolio management rather than its limited and nascent energy-lending model. It should be noted that because Cambodia’s energy business landscape is so immature.) One of the best practices that Cambodia can draw from Nepal’s BSP is the holistic support that it provides to all stakeholders within the supply and demand chain of biogas systems. and market players. With the low electri cation rate in Cambodia. Since AMRET has demonstrated a robust loan appraisal system resulting in a good loan portfolio. NBP and GERES are willing to collaborate with MFIs to expand energy access. All energy stakeholders emphasized the need for credit to improve energy access. The Emerging Experiences in Asia of SEWA. high energy and electricity costs. GERES. Energy sector facilitators need to promote the growth of strong energy suppliers in the market and build strong market infrastructure. AMRET will not stand a chance expanding its energy loans. and promoting its energy-lending products to its client base/target clients.2. Healthy. On the supply side. managing relations with the energy suppliers (to mitigate technical risks that potentially arise from poor product and service performance of the suppliers).

.

SEWA Bank and SEEDS have promoted productive use of energy among their clients. as a response to the emerging demand for photovoltaic solar home systems. Focusing on loans for energy for income-generating activities may in fact hold the greatest market potential for an energy-lending program because the incremental revenue or cost e ciency generated by energy lending will increase the feasibility of the loan itself. NUBL. However. and market education activities. so loans for energy lending funds. plus partnership with the energy company. RERED. In the case of SEWA Bank. At present. and NUBL is primarily focused on household needs. NUBL. may also need external interventions from the government or donors in the start-up phase. modern energy technology for the poor and rural consumers. this rst attempt The Emerging Experiences in Asia of SEWA. and a ordability of.฀ ฀ ฀ ฀ RECOMMENDATIONS ฀ 6. Some measurable positive impact of energy lending has been demonstrated by the MFIs in this study. and provision of loan funds. donor societies. and then transferred the service to SEEDS. is engagement included a market study.1 SUMMARY OF FINDINGS ON ENERGY LENDING BY SEWA BANK. and other sector players. although its early exposure to the need for energy lending came from donor society meetings. donors. SEEDS.1 Establishment and Funding e establishment of energy-lending programs among the four MFIs studied was mainly driven by emerging trends within their respective countries. NGOs. or in response to repeated client requests. SELCO. an apex agency established by the Nepalese government to promote alternative energy). National Development Trust Fund.1. the maturity of energy companies and the availability of decentralized sales and service networks are critical conditions for energy lending. SEWA Bank also received various funds for its energy lending. but their records show this is still a very small percentage of the total energy loan portfolio. National Entrepreneurship Development Board. including ESD. directed to either technical assistance or market development. the extent to which energy loans can be optimized as a means to alleviate poverty and promoting business activities is not yet visible. its parent organization (Sarvodaya) ran a pilot project that provided photovoltaic SHS with a credit facility. It receives loan funds and support from various institutions and projects. and Etimos. price subsidy. Replication of energy lending by other MFIs or by other countries in Asia. Establishment of the energy lending programs studied is largely in uenced by governments. In the case of SEEDS. and AMRET 87 . its energy lending was driven by internal initiatives and funding. or NGOs. SEEDS. SDLF. capacity building. is strong government and donor society engagement in promoting renewable energy in Sri Lanka is one of the instrumental factors in scaling up and diversifying SEEDS’ energy lending. Such trends were either introduced by government institutions. policy. SEEDS. AND AMRET is research has shown that micro nance for small-scale energy consumers has contributed signi cantly to greater access to. DFCC Bank. However. technical assistance. market studies. with the exception of AMRET. energy lending by SEWA Bank. 6. NUBL’s rst foray into energy lending was fully driven by a government loan fund for biogas micro-lending (AEPC. eir support may be seen in pilot projects. On the energy supply side. Strategic partnerships between MFIs and energy service companies are instrumental to e ectively deliver modern energy solutions.

000 for micro hydro. and business approach as the MFI. external study by government. the loan amount for the energy lending is normally pre-determined by the respective MFIs. the loan amount is set at around $215. and NUBL. since it only provides a single product. SEEDS.) Comprehensive studies (in-house study. clientele pro les. AMRET does not have a special lending product for energy loans. As recorded by SEEDS. Exclusive arrangements. the biogas loan. and NUBL were driven by the market trends within their respective countries. $150 for grid connection. SEEDS products include SHS. work well only if the energy partner shares the similar passion. Both SEWA Bank and SEEDS have designated the energy suppliers from which their clients purchase energy equipment. NUBL restructured the design of its biogas lending product and re-introduced it on a smaller scale using its own funds. although SEWA has gone further by customizing energy products to meet the generic needs of its client base. 88 Using Microfinance to Expand Access to Energy Services . as SEWA Bank and SELCO have. sarai cookers. Sri Lanka. Because AMRET does not have a special energy-lending program.was unsuccessful in attracting clients. AMRET also requires collateral up to two times the loan amount. it has been providing loans for the purchase of energy equipment. and up to $20. donor. especially in interest rates and collateral requirements. Except for AMRET. SEWA Bank has a taken a more progressive approach by o ering a wider selection of energy products. so with the assistance of Winrock Nepal. photovoltaic battery charging. their clients have the liberty to choose the desired energy products from any suppliers. Grant support from the Lemelson Foundation enables SEWA Bank to give a 7-percent interest refund to clients with successful loan completion and good credit discipline. and improved cookstoves. eir clients are able to take advantage of micro nance options to purchase energy equipment that is pre-designated by each MFI. given the type of energy product. there is a huge di erence between the MFIs in South Asia (here India. while other MFIs do not ask for collateral (except for SEWA Bank.000 [US$ 1. It is actively exploring other energy products such as biogas. and village micro hydro. In general. solar lanterns. SEWA Bank engages exclusively with a single energy company. as long as their cash ows indicate good repayment capacity. on loans of more than INR 50.2 Energy Loan Products e energy products o ered by SEWA Bank. Speci c to NUBL. NUBL is currently comfortable with providing a single energy product. AMRET’s interest rate is more than double the other MFIs in the study. e characteristic of energy lending programs by these three MFIs are convenient “door-step” energy solutions. the number of its new solar loan clients increased signi cantly. ranging from photovoltaic solar home systems. SEEDS energy lending represents a wide range of loan amounts—up to US$ 1. grid connection. SEEDS’ interest rates for energy lending are relatively lower than the other MFIs due to subsidized loan funds received from a Sri Lankan energy-sector program. MFIs need to e ectively communicate with donors to avoid distortion of their usual lending terms and use the grant or subsidy support only for initial development of an energy-lending program. or collaboration with other external parties) of needs assessment and energy market potential preceded the introduction of energy lending by SEWA. SEEDS. Such price subsidies make the energy products more a ordable to larger market groups.103]). (For more details on the early stages of energy lending for each MFI. see Appendix 8. mission. yet under its business loan scheme. and Nepal) and those in South East Asia (Cambodia). e new structure has proven to be successful as indicated by the growing numbers of clients requesting such a loan. while SEEDS has nonexclusive agreements with numerous energy companies.000 for photovoltaic SHS. e clients of SEEDS and NUBL are able to obtain energy products at lower-than-market prices due to price subsidies provided by government and donor programs. soon a er the introduction of the price subsidy by the government. Since such support is not sustainable in the long run. or NGO. 6.1.

and a er-sale services. installing and removing energy systems for 15-day trials at clients’ premises. SEEDS. is exclusivity is underpinned by similarity of mission. conducting market awareness and promotions hand-in-hand with SEWA Bank. and AMRET are available to both old and new clients. and target clients.3 Institutional Approach to Energy Lending AMRET’s energy-lending strategy is limited to o ering credit for purchase of energy equipmentlike any other product and thus has a limited scope. SEWA Bank’s energy lending program adopted customized energy solutions as a unique feature. the lending programs of SEWA Bank. SEWA Bank and SEEDS take a more hands-on approach to the provision of energy services with close associations with energy suppliers and establishment of a special bank unit for energy. In terms of eligibility. However. due to strong technical support and quality control of biogas companies in Nepal by the Biogas Sector Partnership (BSP). by allowing the biogas loan be a parallel loan to one or two other loans. although the eld o cers receive technical training. The Emerging Experiences in Asia of SEWA. e side e ect of such a situation is that there are obvious gaps in the expectations of the NUBL and the biogas companies. Although the NUBL and AMRET schemes do not have the same level of exibility as SEWA Bank. is stands in contrast to NUBL. providing trainings/capacity building (product knowledge) to SEWA Bank’s loan o cers and commissioned agents. By providing their prospective energy clients with a 15-day trial of the energy product. SEEDS entered into MOUs with SHS suppliers. SEEDS. they do however provide customized loan schemes to match the cash ows of their clients. NUBL’s biogas lending program extends accessibility. SEWA Bank clients enjoy the most exible loan installment scheme in terms of frequency and amount. At NUBL. In contrast. Special relations with energy suppliers is not applicable in the case of AMRET since they do not have special lending program for energy and limit themselves only in providing the credit facility to their business loan clients. In the case of NUBL. particularly to clients who want loans for cattle (or sanitation improvement) to supply the organic component needed by biogas systems. and AMRET 89 . SEWA Bank cra ed an exclusive arrangement with SELCO to develop and implement a one-stop energy shop that o ers a wider selection of better energy products together with a credit line. To ensure quality deliverables to its clients. By contrast. erefore. Both parties invest resources and funds to promote the URJA Project: SELCO’s contribution ranges from assessing energy needs and advising SEWA Bank clients on the best technology for them. NUBL. NUBL thus far is not compelled to set up special MOUs with any of the biogas companies. NUBL o cers expect the biogas company to take a more active role. MFIs like NUBL do not have to control the quality of biogas company deliverables. 6. Each expects the other party to take an active role on promoting the biogas system and the biogas loans. which requires that clients complete two loan cycles before being eligible for a biogas loan.Compared to other three MFIs. the clients have the opportunity to experience whether the selected energy product is the right energy solution for them. they tend to be too passive in advancing the loan due to their workload promoting all products. installing equipment permanently. and providing user training.1. equipment warranties. For the URJA Project.4 Relations with Energy Suppliers e MFIs studied demonstrated a wide range of approaches to their relations with energy suppliers. approach.1. 6. SEEDS pro-actively engaged a range of energy partners in the provision of energy supply for its energy loan clients in non-exclusive arrangements.

and have a well-de ned methodology for product development. a sound loan appraisal process.1. their energy operations were relatively new and loan repayments were 100 percent. Designing and establishing an energy-lending program should carefully take into account the country context that may in uence the selection of technology. Di erent situations exist for SEEDS and NUBL. For SEWA Bank and NUBL.2 LESSONS LEARNED e experiences of SEWA Bank. and impressive number of disbursed energy loans highlights its strong management capacity for energy lending. is is apparent from their portfolio management which includes good client selection. wide geographical presence. it is too soon to evaluate the portfolio quality of their energy lending because during the time of this study. prompt follow-up on loans. the introduction of better and cheaper energy solutions that are integrated with a credit facility is becoming a lucrative market opportunity. SEEDS’ separate energy division at the head o ce and separate sta to provide energy services at eld level have contributed to the scaling up of its energy lending. e nancial performance of AMRET’s energy loans is not accounted separately from its overall business loans. Understand the country context. although they have no pro ciency in energy technology. NUBL. However. AMRET. repayments have su ered to some extent due to unexpected expansion of the electricity grid in areas where SEEDS has provided SHS loans. e availability of a low-interest loan fund and price subsidy for SHS clients in Sri Lanka contributed to the scaling up of SEEDS’ energy lending portfolio. making it attractive to potential consumers. energy service company. risk management strategy. and it has o ered highly exible terms for the frequency and amount its energy loans. However. Understanding existing energy supply chains and the energy-technology nancing environment before introducing an energy loan product is crucial. SEEDS. imposed good credit discipline among its clients. as a relatively new MFI. 6. NUBL’s decisions to limit eligible biogas client only to old clients with good credit records and to allow biogas loans as parallel loans also are good risk mitigation strategies. strong control of energy suppliers’ deliverables. SEEDS energy lending accounted for over 30 percent of its total micro nance operation.rst” philosophy has shaped its loan product. SEWA Bank’s “service. although still in their infancy. In the case of AMRET. SEEDS’ portfolio quality can be tracked at the head o ce and branches. both of which bene ted greatly from renewable energy support pro-grams in their respective countries. In the case of SEWA Bank. the price di erential between existing energy prices emerging out of a subsidized energy market and alternative energy sources like solar can be o set by SEWA’s customized service and exible nancing scheme.5 Management and Financial Capacity ese four MFIs are recognized as leaders in their own rights. SEEDS’ pro ciency with the energy technology. because India’s energy and electricity prices are moving towards true market prices. Consequently. NUBL’s portfolio management su ered because of external political disturbances and a faulty incentive structure that it implemented in the past. e strong monitoring of biogas companies in Nepal and provision of price subsidy provided by the Nepalese government enabled nancing institutions 90 Using Microfinance to Expand Access to Energy Services . and consistent credit discipline. loan product. implementation. and AMRET. they have excellent portfolio quality. as well as the country contexts that underlie their operation. one needs to understand the mission and objective of the respective MFIs. Rather. SEWA Bank’s use of commissioned agents to extend the reach of its nancial service operations and energy lending leverages its human resources without creating a xed nancial load on its overhead. Using the nancial parameters alone to evaluate the performance of their management and nancial capacity may not give full justice to them. using the standard MFI rating methodology to evaluate SEWA Bank’s portfolio quality may not be suitable.6. and loan methodology. has the bene t of being a “follower” and bene ting from the best practices of other MFIs. can o er several lessons in the design. making signi cant contributions to improving access to nancial service among poor consumers. and scaling up of energy lending activities in Asia.

as are the energy technologies to clients. AMRET. installment scheme. Some additional instruments. Because energy-lending is a relatively new eld in Asia. characteristics. Designing an e ective energy-lending program requires a comprehensive understanding of the energy solutions the market needs. Possible revisions could be adjusting eligibility criteria. the nancing institutions and energy service companies need to work creatively to overcome the challenges. NUBL had to majorly restructure its biogas loan before it paid o and seriously attracted clients. for countries where such supports do not exist. and AMRET 91 . existing infrastructure or resources is important to minimize the initial investment. However. SEWA Bank and SELCO demonstrated an excellent example of strong partnership: both take responsibilities beyond their normal roles. the absence of MOUs with them. especially if the technologies o ered are new to the target clients. Piggyback on existing in astructure whenever possible. From the MFI’s perspective. SEEDS. Prior market research is necessary to understand market need. ey also promote energy product information via their mobile banking. To succeed in the long-run. given Cambodia’s very low electri cation ratio and the very high baseline price of electricity and energy. e provision of micro nance for renewable energy technologies requires serious commitment from both the MFI and energy service companies. however. Loan delivery mechanisms should be reviewed periodically and revised when necessary. it is important for MFIs to partner with energy companies that also want to provide a ordable energy services to lower-income populations and are willing to take on additional responsibilities in order to do so. market awareness of both the technology and the loan product. and a er-sale service. us. Introducing a new loan product for an emerging eld may not always begin with a “perfect” scheme. NUBL. user training. leads to less clear de nitions of roles and responsibilities. Although NUBL interacts well with energy companies.like NUBL to bene t from mitigation of technical risk and extensions of the biogas loan to more. payment and equipment disbursement. and nance institutions. Feedback from target clients and other stakeholders may provide the best input to guide necessary revisions. Both the MFI and energy service company must be committed to energy lending. loan repayment terms. the characteristics of the market (especially the baseline energy consumption pro le). the quality of product and service. and pitch the energy products during meetings with SEWA’s business and nancial clients (as well as during other programs and events of their sister organizations). loan tenure. hence taking advantage of. poorer clients. Such information allows MFIs and their energy partners to choose the type of energy technology and design the loan schemes and the delivery mechanisms to o er. and size. and geographic spread of clients. and participate in SEWA’s monthly trade fair by sta ng an energy stall. Introducing a new loan product requires substantial resources during the start-up phase. Energy lending needs to be institutionalized. should be able to take advantage of the opportunity to provide better and cheaper energy solutions to its clients. In such cases. and using. management support at The Emerging Experiences in Asia of SEWA. interest rates. energy suppliers. introducing energy lending requires full support from management due to the enormous resources needed at initiation and development phases. and a er-sale services need to be instituted. at includes employing commissioned agents to deploy information or carry out product trials. e consistency and persistence in marketing energy products require joint e orts from both the MFI and the energy companies. such as credit insurance. e reliability of energy companies as well as the quality of the technology and services very much in uences the reputation of the emerging eld. and common understandings o en are not e ectively passed down to the eld o cers of the MFI and the energy companies. A er implementation. All stakeholders should play a proactive role in minimizing potential problems. client income pro le. MFIs need to understand the huge market potential and opportunity o ered by energy products to expand their operation. may also be added. SEWA Bank is the perfect example because it utilized every existing infrastructure and marketing channel to create awareness of their energy lending products. periodic review is needed to evaluate the e ectiveness of each energy product model so that service delivery and outreach to more clients continuously improves. e best practice is to start with the MFI’s existing client base.

though in line with micro nance best practices. For example. restrict rst-time clients from taking energy loans. to avoid dependency on one sta person for promoting and coordinating energy operations. Systems and capacities. because it is not very sure if it will be able to meet the multiple challenges of energy lending on a continuous basis. market awareness. portfolio quality. while the market potential in Cambodia is huge. By contrast. beginning with repayments to lenders. NUBL needs to strengthen its appraisal techniques for the biogas plant loans so that new clients can be also eligible. availability of technology and selection. Model.the strategic level is needed to institutionalize energy lending within the MFI. there is a prevailing perception among clients that the current loan size (NR 15. In addition. Keeping in view the potential of biogas lending in the area. NUBL feels more comfortable with group-based lending. SEEDS will nance any clients selected by the energy company as long as they are creditworthy. As with SEEDS. Internal obstacles have arisen from factors within the organization related to model.000 NR. for example. the overall experience has not been good because of a high number of defaults. it is important that the MFI maintain good portfolio quality. systems and capacities. As observed during the eld research in the case of SEEDS. Portfolio quality has a direct bearing on nancial performance and institutional sustainability. SEEDS’ success—its energy lending is more than 30 percent of its micro nance portfolio—is very much due to the fact that it has specialized energy lending units at both the head and branch o ces. ose external to the organization relate more to policy environment market infrastructure. its internal weaknesses have restricted it in achieving optimal scale of operations. As a result. 92 Using Microfinance to Expand Access to Energy Services . management capacities and systems of many MFIs restrict servicing and monitoring remotely located clients. methodology. the risk mitigation strategies of MFIs like NUBL. NUBL uses a group-based lending methodology and. presence of energy players.3 OBSTACLES Implementing energy lending by the MFIs studied has two categories of obstacles: internal and external. e institutionalization of energy lending needs to be decentralized at the branch level as well because that is where the MFI primarily interacts with clients. As a result. is has been a big turn-o for many biogas companies. Although SEEDS is the pioneer in energy lending. as a result. is dependency exposes the sustainability of the energy lending to great risk. Branch managers and loan o cers must be appropriately motivated to promote energy products when also they also o er competing products that require less time and are not as technology intensive. In the case of AMRET. SEEDS management has slowed down its disbursements. For a micro nance program to become sustainable. and interactions between the energy and micro nance sectors. e micro nance model adopted by an MFI can limit outreach of an energy product to some extent. is likely to come.000) is too low and should be raised to 20. Although NUBL has individual clients for one of its loan product (a micro-enterprise loan). the energy program is only marginally pro table. Portfolio quality. internal perceptions and funding availability. Due to the technical risk involved and consumptive nature of the loan only repeat clients with successful credit history are eligible to take energy loans. despite having good infrastructure and long-term fund support at favorable terms. For example. because they do not have a special energy-lending program. Some features or conditions in the methodology may restrict the growth of energy lending. 6. it does not o er nancing to clients who are not part of its loan groups. its portfolio of loans for energy products most likely will remain small and insigni cant. from where a major chunk of demand for energy services. should the sta member leave for any reason or must dedicate time to other products. much less a dedicated unit to promote it. Such internal capacities of an MFI may restrict the growth of its energy portfolio. us raising the loan cap in the medium term supplemented by a more robust appraisal methodology may be helpful to encourage more clients to take biogas loans. Methodology. weak portfolio quality has resulted in sub-optimal yield and has been one of the main limitations in expanding energy access. despite its low costs. market competition.

however. In the case of NUBL. Strong energy players and market in astructure. to a certain extent. where energy suppliers of alternative energy technology are limited. lack of certainty about the sustainability of nancing.g. a focus on building market infrastructure with decentralized sales and service networks. For energy markets to grow and produce potential market opportunities for energy lending by MFIs. being subsidized). For example in Nepal. although rural energy consumers require more energy solutions to meet all of their needs (lighting. As an institution AMRET has not yet explored the full potential of energy lending which limits its current scope. Available technology options. and cheaper technology options in the Cambodian market hampers the potential of expanding an energy-lending portfolio. the management has set overly conservative targets for nancing biogas loans because it is not sure of the product o take. Although none of the organizations studied has fund constraints. e energy-lending market of MFIs shrinks considerably if the energy market for poor consumers is not growing. e starting point is a pragmatic focus on those networks that will disseminate. Many are still in pilot projects and have small and/or geographically limited sales and service networks. Compared to the other MFIs in the study. Funding. have been much in uenced by the policy environment. install. have better performance. Some of the typical obstacles rooted in the policy environment may include: government subsidy for solar cookers in India). where the eld-proven and more cost-e cient option thus far is limited to biogas. Expansion of energy lending requires understanding whether better energy technology options are available in the market. e absence of strong and su cient energy players de nitely hampers the expansion of energy lending by MFIs. mostly driven by government and donor projects.Lack of awareness and institutionalization of systems for promoting energy. it is crucial to have strong energy players and market infrastructure. In AMRET’s case.. it is important to note that this could be a limiting factor for smaller MFIs operating in same regions. is must involve commercial energy suppliers of better technology with reliable a er-sale warranties and service. as well as the potential for energy lending. e market can thus grow because the burden is spread among them.). etc. e ideal scenario for building good market awareness is strong coordination and collaboration between all relevant energy market players and stakeholders. there are many co-operatives and MFIs that depend upon AEPC for funds for energy on-lending. AMRET The Emerging Experiences in Asia of SEWA. Market awareness. SEEDS. NUBL. service. Also cost of initial market development and technical orientation of the MFI sta for introducing energy products could be high and thus there is a need for e ective donor coordination and deployment of resources to meet this requirement. and support rural energy systems—in other words. and AMRET 93 . Credit facilities for energy lending require that available energy technology options be eld proven and be more cost e cient. and not represent true market value (e. the absence of readily available. and misperceptions about micro nance were observed to be limiting factors. its extraordinarily lengthy and slow disbursement process has been a major constraint in expanding energy access by MFIs. Policy en ironment. energy for productive use. schemes provided to select nance institutions (o en focused on state-owned banks). better. and thus creates an asymmetric playing eld for renewable or cleaner energy technology that is the object of an MFI’s lending program—unless there are also subsidies for the renewable energy technology. and be more user friendly than baseline technology. Lack of knowledge of energy sector and alternative energy options. Similar but slightly better conditions exist in NUBL’s case. AMRET faces such a condition. e practices of energy lending by these four MFIs. Some of the sta in the branch ofces feel that energy loans are additional burden to them as currently there are no institutional systems to incentivise frontline sta for promoting energy loans.

loan term. SEWA Bank could tap the 700.. SEWA Bank surveyed the energy demand of its 290. e advent of new business opportunities for 94 Using Microfinance to Expand Access to Energy Services . 6. ough MFIs have a very special product to o er in terms of customized products and services for energy. the energy market will be saturated by traditional energy sources and the market potential of energy lending will also decline.000 clients have loans to purchase cattle. Energy for Cambodians in areas not served by EDC is limited to diesel generators and batteries.9 million units. not only from a micro-context (MFIs) but also from a macro-context (the whole country). Market competition and business entry risk. and 13 percent in rural areas) and prices are among the highest (between US$ 0. It also in uenced the design of the lending product (e.000 client base of the full SEWA organization. In Nepal. such as the low electri cation rate in the case of all the countries studied. erefore there is a strong need for coordination with the banking sector in order to complement roles and bring in synergies. the 2 million households in Sri Lanka without electricity are mostly located in rural and estate areas and are the potential market for energy lending. health program. usability.4 OPPORTUNITIES e market potential for energy lending by the MFIs studied is huge. since more than 50 percent of NUBL’s 75. interest rate. However. where the MFI and energy companies have not yet explored any partnerships either for product enhancement or improving client and geographical outreach. energy demand among these consumers mostly includes cooking and energy for productive use or revenue generation activities. given the premise that most clients have energy needs and will be responsive to the o er of cost-e cient or revenue-generating energy option. users manuals and e ective training. Interactions between energy and micro nance sectors. as well as quality. If there is no market education to introduce better technology options. user-friendliness. For example. e absence or lack of interactions between the energy and micro nance sectors is a signi cant obstacle to expanding energy lending. which opens a huge market within which it could integrate energy lending with a housing program.92 per kWh). Further. Sri Lanka. Lack of general awareness about energy products as well as absence of felt need for coordination seems to be an important bottleneck.g. In addition to lighting. and loan repayment scheme) and the design of the lending methodology (e. and Nepal.faces the greatest challenge in expanding its energy lending because there is little market awareness of energy options and lending products among Cambodians in general.3–0. the need for high initial investment in market development and capacity building may pose serious business entry risk for new MFI entrants as there is a chance that banks may take over the MFI’s client base in the medium term and MFIs may not be able to recover this initial investment for market development. where the lack of clarity of the roles to be played by NUBL and energy suppliers has curbed market awareness of NUBL biogas loans. NUBL and many other new MFI entrants may come from mainstream commercial banks that are very actively entering into the micro nance arena especially in countries like India. eligibility requirement. is is exempli ed by the case of AMRET in Cambodia. Strategically using existing client bases as primary market targets for energy lending opens a relatively big market. especially because the electri cation rate among poor and rural consumers is still very low. and durability. such as the design of the energy product—e.g. product pricing. NUBL has a strong client base for biogas loans. While it is a welcome idea. this market potential is illusory unless better and cheaper technology options become available and strong energy market suppliers emerge. compared to India. e limitation caused by poor market awareness can also be seen in NUBL’s experience. and developed energy products and energy lending based on these pro les.000 clients to understand their demand for energy and characteristics. maintenance and operation. BSP estimates that there is a market for 1. loan application process and collection mechanism) Market potential can be assessed from the gap between supply and demand of energy. competition for SEWA. and other SEWA parent businesses.g. In addition. education program. e market potential in Cambodia is even higher because. its electri cation rate is among the lowest (17 percent nationally. loan amount.. Feedback from clients also helped the MFIs shape their energy product. so far 160..000 units have been installed.

energy suppliers (technology companies). Based on the experience of the four MFIs here. and create a vibrant market system. energy service companies. sector facilitators. donors. and AMRET 95 . an electricity The Emerging Experiences in Asia of SEWA. SEEDS. appropriate to the market. Inno ative product development. change in technology or access to better technology. Good co-ordination among all stakeholders—MFIs. multiplies the impact of an increasing new revenue stream and employment opportunities. both technology as well as credit. establishing links to formal insurance companies (if possible) or creating an internal insurance fund (with a limited liability clause) to cover various risks to consumers and MFIs. nancing energy solutions involves credit risk as well as risk from failure of the energy technology. namely energy service entrepreneurs. synchronize the various and complementary roles of the stakeholders. t the income and cash ow pro le of clients.5. 3. 6. warranties. contribute to cost e ciency or the revenue-generation activities of clients. and misuse or underutilization of the energy equipment (if there is poor or no client education). e various risks can best be managed through joint collaboration of energy and micro nance stakeholders. e design of an energy lending product must meet the needs of energy consumers. Financing energy solutions calls for innovative risk mitigation strategies. In the case of NUBL. Risks should be shared among stakeholders based on their expertise and should not create incremental barriers for poor consumers. and optimize the client base as the main target market. such as pre-de ning deliverables in MOUs signed with energy suppliers (high standards of quality on suppliers. requiring and monitoring a er-sale service. technology owners. MFIs have greater exibility to work in more remote and volatile areas. buy-back options. RECOMMENDATIONS FOR REGIONAL REPLICATION 1. MFIs have geographical presence in potential market areas for small-scale energy. o er a exible delivery model. building market infrastructure. As with any lending business. NGOs. and other market players—helps leverage the scale of the market.the clients of MFIs.g. e ideal map for various stakeholders that builds an enabling business environment for expanding the energy lending is illustrated in Figure 6.1. leaving MFIs as the sole nancial service institutions there. us it might be a good idea for the MFI to rst explore all available technology options and identify the best t for the community and then build suitable nancial products to improve its o take. ey already have better geographical presence in the rural areas that constitute a huge market for small-scale energy products. it can be concluded that collaboration between MFIs. Strong co-ordination among relevant stakeholders. While the current trend in Asia is for the formal banking sector to begin to o er micro nance services to small-scale energy clients. and energy sector facilitators (policymakers. Inno ative technical and credit risk mitigation. and client education). co-ordinating with other energy companies or facilitators (e. NUBL. political con icts have forced banks to move away from rural areas. industry associations) o er a number of options: loans tive use or income-generating activities to commercial levels via a credit facility likely government and donors) to help o set challenges during the initial introduction of energy lending 2. etc. At the same time the energy product technology o ered should: be demand driven. lack of service infrastructure. minimize potential market distortion. increase e ciency.. investors. and have positive health and social impacts.

“Energy Business Development.khaula. Indonesia: Yayasan Khaula Karya. etc. feasibility analyses. board to avoid areas where it plans to extend the grid). http://www. and involving partner energy stakeholders in credit appraisals. innovative approaches.” working document (Jakarta. In the initial stages there is a need for a good marketing campaign for the energy technology and supply-side subsidies for making the lending products a ordable and attractive. and cost estimates. 2006). and product promotion in the initial stages as there is less felt need among clients for sustainable and eco-friendly energy products. market promotion and introductory pricing. 4.org.1 Energy Lending Co-operation and Co-ordination Among Key Stakeholders Technology Service Providers Product Testing & Certification Manufacturers Technology Providers Donors/ Government Credit fund Credit guarantee Distributors Regulated Financial Institutions Credit Channeling Start-up Capital Credit Guarantee KEY ACTORS BDSPs Capacity Building Retailers/ ESCOs Fis' Local Branches/MFIs Funding for Institutional/ public users End Users Capacity Building (productive uses) Market Awareness. It is crucial to provide nancing to both the MFI and energy service company that might cover product innovation (research and development). Capacity building for microentreprenuers Technical Assistance NGO's (economic livelihood programs) Microfinance Facilitators Supply-Chain Actors Supporting Institutions Market-based transaction Supportive Intervention Source: Khaula Karya Foundation. market development. such as product trials by the prospective consumers.Figure 6. In addition. or tie ups with other broad based non-pro t organi96 Using Microfinance to Expand Access to Energy Services . External funding for research.

SEWA Bank’s approach is friendlier to the poorest of the poor. the price of solar photovoltaic increased by almost 30 percent over the last 1. NUBL cannot target the poorest of the poor energy consumer because its biogas loan is classi ed as a consumption loan and eligible borrowers must have a proven credit history with NUBL and also should own some form of farm/backyard enterprise like dairy as a prerequisite for qualifying for biogas loans.5 years to the point where SEEDS believed that any further increase would put it beyond the reach of most of its clients. is could also help absorb the initial risk of product development without a ecting the overall portfolio quality of the MFI. is is a signi cant challenge. experiment. Supply-side subsidies are important if the price of equipment increases beyond the reach of poor. and SHS and village micro hydro schemes in Sri Lanka. e cases of SEWA Bank and SEEDS demonstrate that MFIs can in fact master the energy technology piece. SEEDS. to adopt professional management systems to enhance transparency and accountability. while a prudent nancial practice. monitor and control the product and service delivery by the energy suppliers to its clients. institute robust product and service standards for the energy suppliers via MOUs. especially for MFIs because the scale of nancing involved in energy lending may require a larger quantum of loan as compared to traditional micro-credit and needs to be secured through some mode of collateral. e price subsidy helps to bring down the e ective cost of equipment and/or installation for the clients. the segment of population which most MFIs still fail to serve. e direct or indirect incremental cash generated from such an approach enables the energy clients to repay their loans. SEWA Bank also emphasizes energy technology selection that contributes to better cash ow for its clients (by reducing the cost of energy or increasing productivity and yield as a direct result of using a product). Aligning energy program with MFIs’ capability to manage technology-related solutions. nds its management capability inadequate to handle the challenges of reaching out to the poorest of the poor. and adapt to change. minimize risks. is balance would help sustainable business growth. ese subsidies have proven to be e ective in promoting domestic biogas plants in Nepal. it is seen that MFIs involved have gone through a learning cycle wherein they have initially retained some functionalities in house—for example. 5. and widen the service base. A supply-side subsidy may be needed in the beginning for some energy products to bridge the gap between market price and consumers’ a ordability. Since Energy lending is not the core business of most MFIs. e success of energy lending by MFIs depends on management capability to design. and the ability to take advantage of mission-based funding opportunities. Understanding the MFIs’ larger challenge to cater to the “poorest of the poor” markets. and AMRET 97 . MFIs that have a nonpro t arm may be well suited to initiate energy lending in order to absorb some of the initial costs of product promotion as well as capacity building. 6. design and customize energy products that meet the needs of its members. stock management as in case of SEEDS—but have outsourced it at a later point as the organization’s learning process evolved. may create barriers for rst time borrowers.zations in the area may be e ective means of market education and spreading the costs across multiple organizations as it might be di cult for most MFIs to absorb the cost of market development by themselves. and actively disseminate comprehensive information to prospective customers on both the energy product and the loan product. Under its current biogas loan policy. erefore it may be important for MFIs to consider these multiple dimensions in order to create a sustainable and robust energy lending model. e need for better energy solutions can mostly be found among the most poor. social and environmental interests of the MFI so that it can tap the emerging growth of energy lending. NUBL. even those with good cash ows. and service the various needs of clients. due to its customized energy product and exible loan repayment scheme. design e ective marketing strategies. to take on risk. is type of policies. and to balance commercial and social objectives. to successfully collaborate with external agencies to enhance strategic strengths. which requires clearly identifying those clients who qualify for the subsidy and applying the concessions based on sound criteria. SEEDS while highly proactive in reaching out to a diverse set of clients. (In Sri Lanka. customize.) e challenge with a price subsidy is to target and reach the right clients. The Emerging Experiences in Asia of SEWA. Of the MFIs involved in the study. SEWA Bank’s pro ciency in understanding the nature and characteristic of available energy technology enabled it to design an appropriate technical risk mitigation strategy. strong customer loyalty. And nally a balance needs to be created among the commercial.

two or more agencies may be involved (with cost and/or feasibility analyses by each energy player). 6. With commercialization. seasonality is a consideration (no construction or dysfunction of certain technologies during monsoons). su ciently cover the geographical areas where the MFI operates. Marketing and client education e orts may require a longer gestation period. growth of energy lending cannot be expected to be as fast-paced. especially when there is potential con ict of priorities between promoting a general nancing program and an energy program. is could prevent strategic collaborations between energy companies and MFIs. certain geographical locations are challenging (hilly regions or regions with less sunlight). However. MFI collaboration with energy stakeholders for energy lending. Adopting and introducing special loan products such as energy lending requires strategic decisions. MFI operations are driven to attain pro tability in a short-to-medium time span. SEWA Bank’s energy lending has the most pro-consumer approach and the fewest barriers to the economically active poor. there are a number of pre-requisites and a country context that speci cally contribute to the viability of its model. and environmental goals. and thus is the most ideal model to increase the access of poor consumers to modern energy. SEWA Bank model: Among these four MFIs.6 REPLICATING MFI MODELS e rule of the thumb is that there is no one-size. installation of energy equipment takes time (construction of a biogas plant takes 20 days). and essentially be a social entrepreneur that is willing to balance the social. which demands fast portfolio growth. and eld o cers need special technical training. unannounced grid expansion can make investment in energy lending uninviting.7. At the same time interest rates charged by MFIs are perceived as high by energy stakeholders.ts-all model for replication. most MFIs prefer to lend for productive purposes and energy loans are o en perceived to be for consumption. which must be taken into consideration: cause this condition enables renewable and cleaner technology to compete with conventional energy and electricity solutions. 98 Using Microfinance to Expand Access to Energy Services . can be perceived as interference since MFIs may need to build exclusive systems to suit the requirements of energy stakeholders. external challenges over which MFIs have no control—such as the sudden. In addition o ering energy products may be sometimes a dis-incentive for the frontline loan o cers given the relatively higher investment of time in client development. if not done under an appropriate institutional framework. who may not understand the realities of micro nance upfront. Energy programs require large loans with longer loan terms—which for most MFIs mean higher credit risk and are limited to those clients who have proven creditworthiness. Addressing the strategic con ict. All this could make o ering energy loans somewhat less attractive to MFIs. Any MFI interested in introducing energy lending program needs rst to understand their country context and market pro le and then choose those elements from best practices that best t its situation. and target clients with the MFI. However. Moreover. the ways to achieve the MFI’s mission. commercial. Moreover.

. training and employment of su cient numbers of installation and maintenance technicians. and AMRET 99 .. and to customize the loan product to meet speci c demands. AMRET shows that an MFI can provide exible nancing to its clients while maintaining its portfolio quality. this included providing technical assistance (e. fostering the growth of strong energy suppliers and other market players. Areas for intervention include product documentation. supported by su cient sta that are speci cally trained for energy lending.g. it had signi cant help in developing its program and the favorable conditions it operates under. NUBL. imposing minimum standards for product and services. resources. and networks jointly to build the energy lending program. and helping build the capacity of nance institutions) as well as a nancing facility (e. renewable energy/electri cation program. NUBL Model: Compared to the other MFIs. awareness. SEEDS. establishment of standards. loan fund. its energy-lending model has strong potential to expand. tions should be taken advantage of. The Emerging Experiences in Asia of SEWA. NUBL is a relatively new MFI and has a small portfolio. Although its potential thus far is limited by Cambodia’s immature energy sector. the SEEDS energy lending program is the oldest and has the widest geographical coverage and biggest portfolio. However. which in turn provided them with necessary organic elements for their biogas system. it is preferable if the client base has similar. AMRET Model: AMRET’s lending model is the only one of the four MFIs whose energy lending falls under a general business loan and is not a special product. division. creating public awareness. graphical presence of MFIs. thus reduce the marketing and promotion costs. In Sri Lanka. to increase the cost e ciency of introducing customized energy products. rather than varying. credit enhancement schemes). given certain considerations. ese market players must comply with good standards of products and services to minimize potential arrears resulting from technical risks. interest refund as an incentive for clients to pay regularly. geographical presence in order to provide quality products and services as mandated by the government.such as a one-stop energy shop with customized and demand-driven energy and lending products) and be willing to invest their funds. However. and creation of market/ client awareness. tion. knowledge management. NUBL o ered its biogas loan as a parallel loan to its clients’ loans for cattle and sanitation improvements.g. SEEDS Model: Among these four MFIs. energy needs. MFIs should commit to developing energy lending and even be willing to use their own funds.

install. and energy supply chain players). being knowledgeable about energy technology and actively interacting with energy sector players are key when designing an energy-lending program that produces a robust loan portfolio. Financial support needs to be combined with strong technical assistance that has a pragmatic focus on building market infrastructure (networks that disseminate. Taking into account the challenges and baseline conditions that exist in many of the developing countries 100 Using Microfinance to Expand Access to Energy Services . e RERED Project of Sri Lanka and AEPC/BSP of Nepal showed how governments and donors can promote energy lending by MFIs. is could be support that enables the bank to lower an equity nancing requirement. credit enhancement schemes. Further. and reduce collateral requirements. the market for such energy solutions was frustrated by the fact that its potential consumers could not a ord the technology. and improves social and economic livelihood of the poor. For many years. as well as country-speci c contexts (e. and speci c loan funds for nancing local energy companies that adopt energy delivery models to reach potential consumers who are not bankable.g. as long as they collaborate with other key players. fosters use of renewable or cleaner energy in developing countries. or individual energy solutions. e best practices and lessons learned from this research. is understanding is important to avoid potential market distortion by donors that can jeopardize the sustainability of an MFI’s energy-lending program. Options for donor nancial support to MFIs in this case may include transaction cost sharing. initiatives for fostering the development of micro-lending for energy consumers in each of the four countries can come from any of the stakeholders. Financial support for energy lending is primarily needed to kick o a lending program and to bridge any mismatch between an MFI’s loan policy and borrowers’ nancial capacity. NGOs such as Winrock International (Nepal). However. particularly with small-scale. represent the active role NGOs can play in promoting energy lending for poor consumers. Energy Forum (Sri Lanka). it should be understood that such nancial support ought to be available only until an MFI reaches enough momentum where business-as-usual terms and conditions can be applied. provide a good starting point for other MFIs in developing countries for cra ing their own e ective energy-lending programs. e most e ective strategic interventions by donors are nancial and technical support. energy scenario. decentralized. policy environment. and reach customers’ locations) and market awareness. Financial support can be crucial when an MFI enters a business sector—such as decentralized and small scale energy solutions—that not only is new to the MFI but also to its target market and the market players. risk mitigation schemes. e availability of micro-lending to help defray the upfront costs of cleaner. As demonstrated by this study. However. more e cient energy technology has removed that barrier. Further. market infrastructure. e Solar Industry Association in Sri Lanka urged solar companies to contribute to an enabling environment by soliciting government policy and support for a strong market for the photovoltaic industry.. e URJA Project of SEWA Bank and SELCO demonstrated a highly successful collaborative energy-lending project. may nd microlending for energy consumers to be an e ective tool that increases poor people’s access to modern energy. such as Citi Foundation. and service. e global initiatives that call for utilizing MFIs and micro nance as a strategic means to expand access to modern energy services among poor consumers also provide opportunities to reach economies of scale. and GERES (Cambodia).8 OPPORTUNITIES FOR CITI FOUNDATION AND OTHER DONORS Donors and other organizations with a sustainable development mission.7 OPPORTUNITIES FOR MFIS AND OTHER MARKET PLAYERS Micro-lending for energy consumers o ers great potential for MFIs to expand their business beyond existing client bases. extend the loan period beyond three years (such as for micro hydro).6. provide a grace period. 6. such micro-lending facilities for poor energy consumers should be instrumental to energy suppliers in building up a market that justi es the investment in developing decentralized sales and service networks.

and AMRET 101 . (4) assisting with market development activities. In many developing countries. and (5) fostering development of the supply-chain. technical assistance to help energy lending succeed include (1) developing market studies that speci cally target the existing client bases of the MFIs. Any MFI’s energy-lending program needs to be supported with means to gure out and conquer such a challenge. the weakest point for scaling up energy lending program is the lack of su cient numbers of stable energy vendors that have decentralized sales and service networks. SEEDS. (3) advising the MFI on the design of an energy-lending program.where MFIs operate. (2) formulating technical standards for quality products and services and requiring compliance by the energy vendors. NUBL. The Emerging Experiences in Asia of SEWA.

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Goldemberg. Proceedings of “Consumer Lending and Micro nance to Expand Access to Energy Services” workshop. Final Report. “Grid Connected and Decentralized Power Generation Options: How to Level the Playing Field—A Focus on South Asia.” Gurgaon.goodnewsindia. Good News India. org/research/inequality/June18Papers/Samurdhi%20%20( June%2004.” Asian Institute of Technology (AIT). Fiscal Year 2005/2006. Washington. UN-DESA. Accessed July 1.BIBLIOGRAPHY Cambodia Renewable Energy and Rural Electrici cation. the Philippines. “Electricity: Electricity consumption per capita.com. Lalith.org.%202003). 2004.net/index.” Report No 22-535-CE. 2007. Website. Elena.php?id=35&idx=314. http://www. Accessed July 1.cfm?mo dule=Library&page=Document&DocumentID=5027. April 2005. June 1. Pathumthani. 2007.” Phnom Penh.kh/about. The Emerging Experiences in Asia of SEWA. 2005.” Paper presented at the “Asian Regional Workshop on Electricity and Development. 2007. and Economic Indicators and Energy Balances of Non-OECD Countries: Economic Indicators. ailand.undp. “Indo-US Cooperation in Energy–Indian Perspective.pdf. 2002.acus. Centre for Micro nance (CMF).recambodia. http://www. http://www. 2007. NEDO (New Energy and Industrial Technology Development Organization). Global Village Energy Partnership. eds.energyandenvironment. 2004.” Background paper prepared for “Sri Lanka Poverty Assessment. Accessed July 1.mof. 2007. Kathmandu. and the World Energy Council. Found on World Resources Institute website.html. 2006 ed. DC: World Bank.nea. www.. Glinskaya. Cambodia: NEDO.” SWERA. Jose. “ARTI develops a novel biogas plant.org/docs/0303-Indo-U. “Economic Survey. Accessed July 1. NUBL. 2004. 2003. and Sajal Ghosh. http://www.” http://earthtrends.php/Supplement/article/294/. 2003. 2007.org/mf-nepalp. com/index.S. World Energy Assessment: 2004 Update. Accessed July 1.. http://www. Website. Nepal.pdf. 2007. “Assistance Project for the Establishment of an Energy Master Plan for the Kingdom of Cambodia. http://www. 2005. held in Manila. NEA (Nepal Electricity Authority).iea.worldbank.php?action=select_countries&t heme=6&variable_ID=574.” Update. 2006 ed. 2007.org. 2005.gov. SEEDS.org/undp/index. Website.org/searchable_db/index. and AMRET 103 . Accessed July 1. “An Empirical Evaluation of the Samurdhi Program. Energy Balances of OECD Countries. Accessed July 1. “SWERA Country Report for Sri Lanka.org/ieastore/default. Government of Nepal.htm Electricité du Cambodge.cmfnepal. National Engineering Research and Development Center. India: Confederation of Indian Industry. New York: UNDP.recambodia. Accessed July 1.edc. V. 2007. 2006.unep. http://www. Raghuraman.org/rpnedo. Accessed July 1. International Energy Agency (IEA) Statistics Division.htm. Paris: IEA. Bhatbhateni. 2007. 2007. http://data. May 2004. Johannson. http://www. Ministry of Finance._Cooperation_Energy_Indian_ Perspectives. and omas B. Accessed July 1.asp. 2004. 2003.php. Gunaratne. Accessed July 1.np/.wri. http://swera.” http://www. np/publication/budget/2006/surveyeng.

SEEDS (Sarvodaya Economic Enterprise Development Services). Website. n. Earth Trends: e Environmental Information Portal. Accessed July 1. www. 2003. but not all reports accessible.Rural Integrated Development Services-Nepal.worldbank. “India Country Overview 2006. “Country Information: India.htm.org/countryinfo/india. LP Gas and Micro nance: A Study into the Applications and Use of Micro nance in LP Gas Access Projects. Robyn Corrnford. “Electricity: Electrical Consumption per Capita. Accessed July 1.org/mission.pdf. php?option=com_content&task=view&id=82&Itemid=115. Ruth Goodwin-Groen. 2007. Accessed July 1. World Resources Institute.sewabank. the Philippines: ADB. Paris: World LP Gas Association. 2007. Sri Lanka. SEWA Bank. “Nepal. Accessed July 1.rids-nepal. 2005.asp. Found on the Cambodia Renewable Energy and Rural Electrici cation website.d.” http://www. DC: World Bank. Accessed July 1. UNEP (United Nations Environment Programme). 2000.” Website.” Washington. Renewable Energy and Electri cation study. by John Conroy. vol 2. Accessed July 1.recambodia. http://www.org/searchable_db/index. 2007. “Smokeless Metal Stoves. United States International Grantmaking (USIG).” http://earthtrends. “Indian Solar Home Programme Overview and Performance Report. Reports and Papers.” In e Role of Central Banks in Micro nance in Asia and the Paci c: Country Studies. Sinha. http://www. 2007. 2007.lk/. World Bank. World LP Gas Association. Accessed July 1.org/index. http://www. Gilberto Llanto. Paul McGuire. Council on Foundations. Sanjay. http://www.pdf.htm. 2007. March 2005. http://devdata. and Sanjay Sinha. 2007.php?action=select_ countries&theme=6&variable_ID=574. Metro Manila. org/AAG/ind_aag. SME Cambodia. 2004.org/rpree.uneptie. 2007. Accessed July 1.org/energy/act/ n/india/docs/IndSolLoanReview. 2006.wri.seeds. 104 Using Microfinance to Expand Access to Energy Services .usig.” Geneva: UNEP. 2003. 2007.

growth of GDP. NUBL. encourage business development. corruption. transition economies. capital.฀ ฀ ฀ ฀ ฀ ฀ DEVELOPED FOR THE FIELD RESEARCH is template shows the basis questions used in collecting data from each MFI and.) and social services1* (health.)? What role does government play in microenterprise development and how do these activities in uence the environment for private micro nance—distort the market or positively contribute to the supply of services? d. What are the overall economic and political characteristics of the country and region that impact volatility of markets (rate of in ation. credit unions. and AMRET 105 .)? b. from energy enterprises and clients. central bank. What are the MFI’s expressed objectives (reduce poverty. What forms of nancial sector regulation exist. What is the MFIs institutional structure—non-governmental organization (NGO). create employment. etc. Microfinance Institution Profile—Portfolio Risk. What are the characteristics of the MFI’s ownership and governance—oversight of management. communication. the availability of education and health services greatly in uences the capacity of microentrepeneurs to increase their enterprise activities. education. etc. etc. con ict or political unrest. etc. SEEDS. management e ciency and information. empower women. religion. and are MFIs subject to these regulations? Are there minimum capital requirements to enter the nancial sector? What are the standards for debt versus equity (degree of leverage). caste.? c. etc. Management. and liquidity? 2. organizational governance and ownership structures. technical support. Ownership and Governance.? b. decentralized operational system. legal enforcement of contractual obligations. etc. * For example. Who are the major suppliers of nancial services in country—development bank. Country Context—Macro-Level Policy and Regulation a. etc. etc. BACKGROUND RESEARCH 1. village banks. savings and credit cooperative. etc. ethnicity. How do existing nancial sector policies a ect the provision of micro nance in country—interest rate policies.) and who is the target market (rural/urban. and discussions with stakeholders.—and what role does each play? c. where appropriate. commercial bank. asset quality.? f. gender. capacity building. etc. The Emerging Experiences in Asia of SEWA. a. government-mandated credit allocations. Based on individual country and MFI situations. What role do government agencies and donors play in providing support to the MFI (funding. What is the availability of and access to infrastructure (roads. the questions were modi ed slightly by the Asia Research Consultant where appropriate. water and sewer systems. and nutrition) for the MFI’s client base? e.)? 1. ability to seize pledged assets. language.

Does the MFI o er competitive interest rates in relation to the market? What are the energy loan interest rate options? Are interest rates and fees transparent and well documented? d. What are the speci c loan characteristics unique to lending for energy and which are more generic and found in other loans? b. What is the energy loan methodology—i. What kind of market research was done in preparation for establishing the energy lending program? What was determined to be the size of market demand for energy lending? i. What are the ways in which the MFI’s activities are funded—government or donor funding. What is the MFI’s institutional capacity in terms of business planning. When and how are lending portfolio analyzed? What criteria are used in the analyses. product development. Does the MFI use di erent lending methodology within the energy portfolio than other portfolios? If so. education. Do loan o cers require additional training to be able to administer energy loans? If so. etc. equity. Loan Product Design and Lending Methodology a. how? Are the energy loans subsidized in any way. How robust is the accounting and administration of the lending portfolio? Is it computer or manually administered? f. what kind of training? e. Is the MFI partnering with an energy entrepreneur to provide the needed technology and operation and maintenance? m. does the MFI provide credit for the purchase of energy technologies or does the MFI provide the capital directly to the client? How is the energy loan provided—individual lending. Does the MFI provide social services in addition to nancial mediation.? f. such as health. and literacy training? e. Do donated funds constitute equity under current practices? Do concessional funds provided by donors constitute debt and therefore a ect the leverage of the MFI? ฀ ฀ ฀ ฀ ฀ 3. and nancial management? g. what was changed to accommodate energy-speci c needs? c.? 106 Using Microfinance to Expand Access to Energy Services . nutrition. Are there other specialized end-use loans in their overall lending portfolio? What are the general criteria for adding a new type of loan? h. and if so. guarantee funds.d. investment funds. management information systems. and are new programs subject to di erent analyses than established programs? Is the energy lending program analyzed separately from other programs? g. group solidarity lending. How was the energy loan interest rate determined? l. j. by whom? k. Was the energy lending program initiated based on a demand for such a loan? Were other loans serving energy consumers insu ciently? If so.e. etc.

How much of the total lending portfolio does the energy lending program constitute? What is the nancial performance of the energy lending program? h. Is there a correlation between clients seeking energy loans and other types of loans? For example. age. What are the end-uses of energy loans? Is energy product used a consumer product or productive uses (i. not wanting others to know about the loan.4. psychological. What are the direct and indirect impacts of the program on individuals’ livelihoods and quality of life (economic. savings. and community participation? f. What is the average cash pattern and debt capacity for energy-loan clients? Is there a minimal equity requirement for the energy loan? c.. does the MFI track how the loans are spent? If so. and a er the initiation of nancial services? e. Does the energy lending program include reliable and capable operations and maintenance support for clients? If so. household income. What is the energy loan cost structure— nancing costs. Does the MFI’s accounting system record depreciation on energy-related capital? If so. how is it determined? e. operating costs. during.e. What methodologies were used to quantify these impacts? What is the socio-economic target market of the energy lending program? Who is being served? Is this the intended market for the energy loan? The Emerging Experiences in Asia of SEWA. etc. What is the pro tability. do clients who begin with energy loans progress to other types of loans such as small business loans? g. who provides this service? 5. SEEDS. How does the MFI currently determine who is being reached by micro nance services and track how these services are a ecting their lives? b. b. Are there identi able reasons why borrowers may not accurately report how they are using the loan—embarrassment.) on both the household and individual levels? Have these impacts been measured before. Client demographic data: sex.? d. education. family size. housing. assets. Characteristics of Energy Loans a. fear of taxation. etc. income generation) or both? What types of technologies are used and how? How large are the installations? (in watts) f.? Are there any other fees or services charges? d. Impact Assessment of the Energy Program or Product a. residential population density. physical health. and AMRET 107 . sociopolitical. how does the MFI sta track this? c. etc. health. are energy loans o en preceded by other types of loans such as housing or small business loans? Conversely. What impacts have been observed on household income. cost of capital. total outstanding balance. If the energy loan is provided in the form of cash rather than capital. NUBL. repayment rate of the energy program? i.

used both old and new)? e.e. how have you bene ted from the training? If not trained. Interactions among MFI..6. is it exactly what you wanted? Does it match your needs? If given a choice. lighting. Is this the 1st. and Customers a. When did you buy the improved energy product? At what cost? c. heating. 2nd. what is the basis of this relationship? What is the status and type of program being o ered by the MFI? What are the terms and experience base? What is the history of these relationships? f. in particular? ฀ ฀ ฀ a. did you buy from same or di erent MFI (s). What other non-energy products have you bought in the last 2-3 yrs and at what cost? Which ones did you buy cash and which ones via MF credit? Before your MFI created the energy product. If so. etc. were you aware such improved energy technologies were available in the market? Were you planning to buy such energy products? Why didn’t you buy the energy product without credit? g. 3rd. Sales and Marketing—does the MFI have a sales and marketing or business development services (BDS) department? If so. What is the process and information through which a customer and an energy enterprise become introduced? What information does the enterprise exchange with the customer? What information is exchanged concerning the programs of the energy enterprise? d. etc improved energy product you’ve bought? If a repeat buyer. What were you using before you acquired the improved energy product? Why did you choose to switch? Since you acquired the new product. Did the MFI give you cash to buy the energy product or did the MFI supply the actual product? If MFI or its partner supplied the product. why? d. What information does a customer need and receive from an MFI and what information and actions occur before and during a lending relationship? c. do you only use the new/improved product or both (i. Where MFIs nance energy enterprises directly (rather than just for consumer / customer loans). How does the energy enterprise interact with the MFI? What information does it provide? e. what are they? 108 Using Microfinance to Expand Access to Energy Services . how does the BDS sta go about marketing the energy product? How do they mentor and support clients and businesses in general and those that are energy-related. what problems have you experienced and how did you solve them? Would you be interested in receiving training? What is your willingness to pay for such training? f. How did you learn about the types of energy technologies available in the market? Who trained you on the operation and maintenance of the product you bought? If trained.) per day? How many people live in the household? b. What are the energy needs of the household (cooking. would you rather receive cash and buy the product yourself or receive the product from the MFI? What are the advantages/disadvantages of each approach? h. What information does the MFI provide to potential customers and what is the content and process by which a lending relationship proceeds? b. Are there other energy products you would want but are not currently o ered by your MFI? If so. Energy Enterprises.

The Emerging Experiences in Asia of SEWA. capital now with credit iv. and AMRET 109 . capital then without credit* iii. at which it was bought with credit ii.g. Loan interest rate. country speci c discount rate and annual in ation rate f. SEEDS. improved wood/charcoal stove. LPG. Life time of the technology (yrs) e. g. Capital cost: i. watts per unit of time). capital now without credit (local market price if paid in cash)* d. Technology type (e. biogas. etc) b.. Energy use per family or business (in appropriate units. which are to be veri ed in the market with dealers and relevant government. Energy price/unit. the following data is needed: a. When was it bought? c. NUBL.OTHER IMPORTANT INFORMATION To enable us calculate the Cost-Recovery Factor (CRF) for improved/modern energy products. kg. solar PV. liters.

e h day was spent completing the data collection. Energy Forum NEPAL NUBL executive director. operations. loan products. Alternative Energy Promotion Centre (AEPC). general manager. and presenting the ndings of the eld research to the MFI management sta . DFCC/ Renewable Energy for Rural Economic Development (RERED). meeting with operational sta and clients. the order of meetings was di erent due to the availability of di erent stakeholders.htm 110 Using Microfinance to Expand Access to Energy Services . human resources. e rst day was spent at the head o ce with the senior management team to understand the organizational structure. Énergies Renouvelables Environne-ment at Solidarités (GERES).org/activities/index. Detail of Field Visits and Respondents INDIA MFI SEWA CEO. and policies of the MFI. Ministry of Industry. operational staff at Belatari and Tadi branches Regional Biogas Co-ordination Committee. who aid in collecting cash. battery and diesel generator shops Energy Stakeholders Other MFIs Ceylinco Leasing Paschimanchal Grameen Maxima Microfinance Bikas Bank and Pragatisheel Women Co-operative 5 clients in Belatari branch and 10 clients in Tadi branch 2 clients in Kampong Tralach District: 1 rural electricity enterprise (REE) and another battery charging station Clients Four end-user energy clients and one energy entrepreneur 4 clients with solar loans in Ratnapura and 5 clients with grid connection loans in Kegalle District * SEWA Bank has a team of banksaathis to serve its clients–a cadre of community financial assistants. and staff overseeing energy lending at the home office. planning and human resource department. and winning people’s confidence. HPI. general manager. e second and third days were at branch o ces. Suryavahini. and 4 biogas companies CAMBODIA General manager. New Energy Group. e fourth day had meetings with di erent energy and micro nance stakeholders to appraise the partnership between MFI and energy service provider and gain a thorough understanding of the country’s energy sector. plus operational staff including deputy managers of Ratnapura and Kegalle branches Shell Solar. operations. and Energy (MIME). In some cases. inspection and finance departments World Bank.฀ ฀ ฀ ฀ ฀ ฀ AND RESPONDENTS ฀ Field visits were conducted for 5–6 days. based on the cash they collect. internal auditor. They are paid a commission for this work. seeking clari cations. operational staff including extension counter staff and banksaathis* CEO of SELCO SRI LANKA SEEDS deputy banking director and field manager at home office. Solar Industries Association. heads of marketing and communications. Biogas Sector Partnership (BSP). systems. IT. informing women about SEWA Bank and its products. Mines. MIS. http://www. Biogas Digester Program.sewabank.

pro tability ratios. SEEDS. including productivity and e ciency ratios. clients and energy suppliers. sociopolitical. products o ered. governance and strategy includes ownership structure. terms and conditions of contract.฀ ฀ ฀ OBJECTIVE OF THE STUDY ฀ e study aims to document the opportunities. and nancial depth. marketing strategy. portfolio tracking. etc. Impact assessment used past research and the MFI’s system to identify impacts Impact included direct and indirect impacts on individuals’ livelihoods and quality of life (economic. organizational structure. security and internal controls. and share the lessons learned with the industry at large. develop feed back for future expansions of MFIs energy lending products. external collaborations. education. such as accounting and management information. and the research covers the following aspects: Microfinance Institution (MFI) 1. adequacy of management oversight. lending methodology. e team also examined the rationale for the energy product’s design—how the collateral requirements. risk mitigation strategy. portfolio quality. quality. and AMRET 111 . physical health. experience of working with energy suppliers. and community participation. 3. and e ective rates were determined. portfolio tracking. Details of collaborations covered were energy suppliers. based on internationally accepted prudential norms. 5. funding sources Ownership. etc. nancial viability. loan pricing. e team used this information to assess the energy loan portfolio’s performance through various indicators. challenges. NUBL. 2. Financial performance requires the team to review existing nancial statements. micro nance policies and management systems. end uses of energy loans. The Emerging Experiences in Asia of SEWA. THE FRAMEWORK e research study covers three stakeholders—MFI. trainings. e team also examined existing performance indicators and procedures for monitoring and evaluating the development impacts of energy loan products. Speci cs of energy loan product(s) were target group. the strength of critical systems. technology used.) at both household and individual levels. other energy suppliers and energy products available in the market. energy delivery model. governance and strategy. psychological. product design. etc. and appropriateness of the board composition. and housing. to present a fair picture of the energy operations. its role and overall organizational strategy. and nancial planning and control. health. funding sources. Management systems include quality of human resources. impact on household income. 4. costs and e ects of integrating energy products into an MFI’s product mix. energy client pro le. assets. Ownership. repayment terms.

training provided in operation of energy technology. Identify impacts on household and individuals livelihoods/quality of life 2. Understand how clients learned about the energy product (existing or repeat loan customer. Identify and understand the pattern of energy product usage in past and present 3. Identify past. current and future energy needs of the clients 4. direct sales and a er sales service provided to clients.) Energy Suppliers 1. 2. willingness to pay for energy services. marketing and outreach. Understand client cash ows. Determine what market infrastructure was available to the clients 5. Look at the rationale for technology selections to be included into MFI energy lending products. Identify any problems they faced in managing energy loans (if any) 6. etc. Determine details of interactions between client and energy supplier 7. knowledge and understanding of energy technology/products. 4. Examine details of the delivery model adopted to service the clients. 112 Using Microfinance to Expand Access to Energy Services . details of interactions with MFI and client. Review marketing and outreaching strategy 6. Analyze constraints and opportunities in working with MFIs e team also surveyed local markets to build understanding of all energy products o ered and the general level of competition in both the micro nance and energy sectors. bene t derived from energy products 5. Examine details of contract with MFI. 3.Clients 1.

FOURTH DAY Field visit – Survey of local markets on available energy products. Discussion based on field Vsit and follow-up on data collection FIFTH DAY Initial Data Analysis Wrap-up meeting with management (debriefing) After Country visits Data analysis and report writing Report sent for Feedback to SEEP and MFI Report Finalized Final Report to SEEP and MFI Note: The days spent in MFI may extend from 4-5 days based on the scale of microfinance lending in energy sector. energy suppliers. and microfinance suppliers. discussion with branch officers. meeting energy suppliers/partners. to understand general level of competition locally. The Emerging Experiences in Asia of SEWA. SEEDS. THIRD DAY Field visit – Visiting branches. and AMRET 113 .Relationships Among the Three Stakeholders MFI ENERGY SUPPLIERS CLIENTS PROCESS Scheduling & meeting arrangement Collecting Background Info Before Country visit During Country visit FIRST DAY Introductory meeting with executive director and staff of MFI to review research methodology and schedule. meeting borrowers (group discussions and individual interviews). meeting energy suppliers/partners. SECOND DAY Field visit – Visiting branches. data gathering at office level. NUBL. meeting borrowers (group discussions and individual interviews). discussion with branch officers. as well as MFI’s energy portfolio and future strategic plans Discussion with operations in charge.

500) otherwise Minimum INR 100. Regional Rural Bank Act. 1860/ Indian Trust Act Co-ops: Companies Act 1956 RBI NABARD State Cooperative Agriculture and Rural Development Banks (SCARDBs). 1949 Constitution of India. 1934. hire purchase. which must increase to INR 3 billion (US$ 67. 1949 RBI Act. but has limited powers Banking Regulation Act.800) ฀ Initially INR 2 billion (US$ 45.2 million). 1949. 1934 Banking Regulation Act. 40% of net bank credit to priority sector Unsecured lending limited to 15% of total advances RBI Act. INR 2. 1949 Banking Regulation Act. Banking Regulation Act. 1976 Regulator RBI RBI NABARD ฀ ฀ ฀ ฀ ฀ ฀ FINANCIAL INSTITUTIONS IN INDIA Capital and reserves Authorized capital of INR 10 million (US$ 225. loan and investment co-ops At least 60% credit in priority lending Shortterm lending to rural areas Long-term lending to rural areas Rural credit delivery and technical assistance Rural credit delivery Groups of poor people organized by government and NGOs to access credit NGOs: MF lending and other charitable services Co-ops: MF lending for business and housing NGOs: Society Registration Act. 1949 Small value borrowers Using Microfinance to Expand Access to Energy Services INR 20 million (US$ 451. Banking Regulation Act. consisting of paid-up capital and reserves Legal basis for regulating Reserve Bank of India (RBI) Act.260). 1949 Banking Regulation Act. voluntary supervision by NABARD RBI. 1949 BANKS Commercial Banks Local Area Banks Regional Rural Banks State and Central Co-operative Banks State and Primary Co-operative Agriculture Rural Development Banks Primary Mutually Agriculture Aided CoCredit operative Societies Societies Participation in financial sector Commercial lending. Schedule VII Andhra Pradesh MACS Act Banking Regulation Act.114 NON-BANK FINANCIAL COMPANIES CO-OPERATIVES and CREDIT UNIONS NON-PROFIT INSTITUTIONS Primary Urban Cooperative Banks Self-Help Groups Equipment leasing. 1934.000 (US$ 2. Interstate cooperatives NGOs: Not regulated Co-ops: Registrar of companies State registrar. Urban Banks Dept.600) for NBFCs that commenced business after 21 April 1999.5 million (US$ 56.7 million) within 3 years of operation .

7 million). of Co-operatives.400).7 million). can provide financial services to both non-members and members SACCOs: low-income individuals NGOs: Poor members of society DEVELOPMENT BANKS (DBs) FINANCING COMPANIES FINGOS UNLICENSED MFIS LICENSED CO-OPERATIVES Participation in financial market Commercial lending.5 million (US$ 35. national FIs (leasing companies): NR 150 million (US$ 2. Financial Intermediaries Societies Act 1998 Nepal Rastra Bank Act 2002.15 million) Class C financial institutions (FIs)—national FIs (general): NR 50 million (US$ 0. Not stated FIs operating in 1 district only (general): NR 20 million (US$ 0. DBs operating in 1–3 districts (excluding Katmandu Valley): NR 20 million (US$ 0. and priority sector lending requirement Nepal Rastra Bank Act.. Sec 79 Regulator NRB NRB NRB NRB Ministry of Agriculture. Co-operative Act 1992.3 million) Microfinance development banks (Class D FIs)—national MFDBs: NR 100 million (US$ 1. and NRB ฀ ฀ ฀ ฀ ฀ ฀ ฀ FINANCIAL INSTITUTIONS IN SRI LANKA The Emerging Experiences in Asia of SEWA. Sec 79. Operations in other districts: NR 1 million (US$ 15.85 million). MFDBs operating outside of Katmandu Valley: NR 60 million (US$ 0. SEEDS. Finance Company Act Nepal Rastra Bank Act 2002 Sec 79.5 million) 115 . DBs operating in 4–10 districts (excluding Katmandu Valley): NR 50 million (US$ 0.5 million). Sec 79 Nepal Rastra Bank Act 2002.3 million).4 million). Financial Intermediary Societies Act.000). 1998 SACCOs: Societies Registration Act. 1991 Ministry of Agriculture. 2002. Social Welfare Act.15 million). operations in sub-metropolitan district NR: 5 million (US$ 71. FIs operating in 1 district only (for districts in mid-western or far western regions): NR 10 million (US$ 0. Coop-eratives Act.COMMERCIAL BANKS Agricultural sector. Dept. 2002. 1992 NGOs: Societies Registration Act. banks outside Katmandu Valley: NR 250 million (US$ 3. and AMRET DBs (Class B FI)—national DBs: NR 320 million (US$ 4. national priority industries.1 million). MFDBs operating in 1–3 districts (excluding Katmandu Valley): NR 10 million (US$ 0. operations in municipal district: NR 2.000) Legal basis for Regulation Nepal Rastra Bank Act.15 million) Capital and reserves Class A financial institutions (FIs)—national banks with head office in Katmandu Valley: NR 1 billion (US$ 14 million). and poorer households (mainly women) Individual consumers and small businesses Poor members of society who lack access to credit services Low-income individuals. lending to MFIs to satisfy the 3% required lending to the underserved sector. Sec 79. Department of Coop-eratives N/A Operations in Metropolitan District: NR 10 million (US$ 0.3 million). MFDBs operating in 4–10 districts (excluding Katmandu Valley): NR 20 million (US$ 0. NUBL.

and NRB .MFDBs operating in 1–3 districts (excluding Katmandu Valley): NR 10 million (US $0. Social Welfare Act (1991) Ministry of Agriculture. Co-operatives Act (1992) .NGOs: Societies Registration Act.DBs operating in 4–10 districts (excluding Katmandu Valley): NR 50 million (US$ 0.1 million) FIs Operating in 1 district only (general): NR 20 million (US$ 0.NGOs: Poor members of society .7 million) . Finance Company Act . Sec 79 Regulator NRB NRB NRB Using Microfinance to Expand Access to Energy Services Class C financial institutions (FIs) .Small businesses COMMERCIAL BANKS FINANCING COMPANIES LICENSED CO-OPERATIVES .National banks with head offices in Katmandu Valley: NR 1 billion (US$ 14 million) .7 million) .Poorer households (mainly women) Legal basis for Regulation Nepal Rastra Bank Act (2002). Class B FI . Department of Co-operatives N/A .National DBs: NR 320 million (US$ 4.National priority industries Commercial lending.Banks outside Katmandu Valley: NR 250 million (US$ 3.National MFDBs: NR 100 million (US$ 1.85 million) .Operations in Submetropolitan district: NR 5 million (US$ 71.15 million) Capital and reserves Class A financial institutions Development banks (DBs). ฀ ฀ ฀ ฀ ฀ ฀ FINANCIAL INSTITUTIONS IN NEPAL .DBs operating in 1–3 districts (excluding Katmandu Valley): NR 20 million (US$ 0. Participation in financial market Poor members of society who lack access to credit services Low-income individuals (can provide financial services to both members and non-members) Nepal Rastra Bank Act (2002). Sec 79 Nepal Rastra Bank Act (2002).Agricultural sector.5 million) .SACCOs: Low-income individuals . lending to MFIs (to satisfy the 3% lending to the unserved sector and priority sector lending requirement) Nepal Rastra Bank Act (2002).SACCOs: Societies Registration Act.4 million).15 million) . Sec 79.Operations in Metropolitan district: NR 10 million (US$ 0. Financial Intermediaries Societies Act (1998) Nepal Rastra Bank Act (2002). Sec 79.116 DEVELOPMENT BANKS (DBs) FINGOS UNLICENSED MFIS . Financial Intermediary Societies Act (1998) NRB Ministry of Agriculture.National FIs (general): NR 50 million (US$ 0.400) .Individual consumers .000) .5 million) .3 million) Not stated FIs Operating in 1 district only (for districts in mid-western or far-western regions): NR 10 million (US$ 0.000) .15 million) . Cooperatives Act (1992). Department of Co-operatives.Operations in other districts: NR 1 million (US$ 15.3 million) Microfinance development banks (MFDBs).5 million (US$ 35. Sec 79.MFDBs operating in 4–10 districts (excluding Katmandu Valley): NR 20 million (US$ 0.MFDBs operating Outside of Katmandu Valley: NR 60 million (US$ 0.National FIs (leasing companies): NR 150 million (US$ 2.3 million) ฀ . Class D FIs .Operations in Municipal district: NR 2.

village hydro scheme Designated options for energy products Subject to product trends introduced by government/donor NUBL Domestic biogas plant Designated energy product (thus far only single product) Subject to external intervention (e. to explore better energy solutions for clients SEEDS SHS. Grid loans by ADB. SEEDS. NGO) AMRET* No bank intervention on energy product/ technology selection by clients * A sarai cooker is a non-pressurized stainless steel steam cooker that uses about 150 ml of water heated by 100 g of charcoal briquettes. not just the bottom. NUBL.Grid connection loans: N/A . solar lantern.com/index.One-stop energy shop . and AMRET 117 . donor.SHS: After-sale service by solar companies based on MOU with SEEDS . grid connection.฀ ฀ ฀ ฀ ฀ ฀ FINDINGS AND THE COMPARATIVE FEATURES OF THE MFIS STUDIED Establishment of Energy Lending Finance SEWA BANK Starting year Energy lending initiator 2006 Self-initiated 1999 SEEDS 2005 Solar loan initiated by parent organization (Sarvodaya). Good News India. The cooker heats three cook pots (stacked one on top of the other) on all sides.. Boiling and evaporation tests show about 70% efficiency. government. technologically neutral Proactively carried out internally in collaboration with energy partner.g. http://www. improved cookstove. “ARTI develops a novel biogas plant. and village hydro by RERED Doorstep energy solutions NUBL Initially started by government loan fund for biogas micro-lending Doorstep energy solutions AMRET* Not specified Not relevant: energy lending part of business loan product N/A Energy program characteristics . goodnewsindia.Micro hydro: Based on MOU between ECS* and equipment supplier NUBL Free within warranty period by the biogas companies AMRET Based on warranty period of diesel generator and battery purchased Training Training by vendor at the time of installation and to potential clients during business and financial counseling . June 1. Services SEWA BANK After-sale service Free maintenance and operation during warranty period by the vendor SEEDS .Micro hydro: Developer’s responsibility Formal one day training by company after construction Not applicable * Electricity co-operative society The Emerging Experiences in Asia of SEWA.” update. sarai cooker* Demand-driven.Customized products Energy Products SEWA BANK Energy products offered Product characteristic Product innovation PV-SHS/battery charging.SHS: Training at the time of installation by solar company .php/Supplement/article/294/. 2004.

5% as of 31 March 2006 NUBL Biogas plants – 65 AMRET* 707 business owners: 101 of these businesses are battery charging services 707 loans.000 Grid connection – 3692 Village grid – 14 ECS Over 58. (3) 5% of the loan used as savings deposit from small companies to cover contingencies . of loans disbursed SHS – 28 Solar lantern – 66 Sarai cooker – 630 94 loans.Grid: NA .992 as of August 2006 Less than 1% of total portfolio as of August 2006 Energy lending: 0% PAR > 0 days N/A since the program is new SEEDS SHS – 58. before the loan sanction Cost estimates/price quotation by biogas company prior to loan approval Not applicable Loan Portfolio SEWA BANK No. SEEDS retains ownership until loan is repaid. since the energy portfolio not accounted for separately 118 Using Microfinance to Expand Access to Energy Services . (2) internal insurance fund.Energy need pre-assessment by vendor for client .7% of total microfinance portfolio as of June 2006 Energy lending: 0% PAR > 0 days N/A.Initiated with a 15 .Technical risk covered by SELCO .Micro hydro: Peer pressure through ECS members Not available Not applicable Other unique features .Buy-back option by SELCO within 5 years SEEDS . with total value of LKR 955. with total value of 354 million Riel as of June 2006.SHS: Client energy need pre-assessment by solar company. 3.Grid: Affidavit with Ceylon Electricity Board (CEB) to disconnect grid connection in case of default . and 14 village hydro scheme loans. with total value of INR 641.Risk Management for Energy Lending SEWA BANK Technical risk management .692 grid loans.000 solar loans.8% of total microfinance portfolio as of June 2006 Energy lending: 35% PAR >60 days (as of June 2006) ROA of 1.Village hydro: no initiative by SEEDS NUBL Not available AMRET Not applicable Credit risk management Follow-up by commissioned agents . 65 loans. with total value of NRs 975.1 million as of August 2006 Constitutes 30.000 as of October 2006 Less than 1% of total portfolio as of September 2006 Energy lending: 0% PAR > 0 days N/A since the program is new Energy portfolio against bank’s overall portfolio Portfolio quality Profitability and sustainability 0.SHS: (1) MOU with solar companies to remove solar panels from the house of the client in case of default. (3) MOU with company for buy-back option in case grid connection becomes available . of energy clients (at time of research) Total no.SHS: (1) Enforcement of World Bank RERED Project Standards. preliminary loan appraisal by vendor .Micro hydro: Complete project management by day equipment trial “developer” period.Grid: Cost estimates by CEB for grid connection . (2) MOU with solar companies.

assists ECS in exploring productive use of electricity generated. capacity building. respectively. creating awareness. using existing infrastructure and events of the bank SEEDS The SHS. provides warranty and aftersale services. the role of SHS suppliers. AMRET* Since energy loans fall under general business loans. AMRET thus far has not maintained any contact with energy suppliers. . it also invites biogas companies to attend these center meetings.Installs and uninstalls systems for 15-day product trial at clients’ premises. Role of external parties . .Winrock International focuses on building an enabling business ecosystem by building up capacity of various stakeholders. and grid loan products are promoted mainly by companies. scout potential clients. Mines. provide clients with user manuals. Market Development SEWA BANK Approach by MFIs Proactive role in promoting energy products and loans. and CEB has been of key importance. identifies and scouts potential customers. and Energy. AMRET* No specific marketing and outreach activities carried out by AMRET for energy loans. construct and install system. village hydro. and AMRET 119 . and customizes products if required. .Biogas Support Program (BSP) interventions on marketing. such as Ministry of Industry. ECS enters into MOU directly with the assistance of project developers. Energy lending in Sri Lanka is mostly driven by govern-ment and donor interventions. . In addition. installs the system. provides users’ trainings.Relations with Energy Suppliers SEWA BANK Relations Characteristic Exclusive collaboration with SELCO to develop and implement one stop energy shop that pro-vides wide selections of better energy products together with credit line. and promotion of energy enterprises. Scope of energy partner’s role Energy suppliers are expected to interact directly with clients. secures approvals. However.Provides training (product knowledge) to SEWA Bank staff and clients . However. . and the Biodigester National Program. such as the ADB-supported grid-connection loan. project developers.Village grid: Project developer does site selection.SHS: Promotes SEEDS’ SHS loan. and CEB. NUBL NUBL does market awareness and promotes its biogas loans during center meetings. NUBL. .Final installation. Biogas company is expected to participate in market awareness building and biogas loan promotion. . SEEDS loan officers also promote the products during field visits. assists ECS in mobilizing funds and selecting suppliers. The Emerging Experiences in Asia of SEWA. not only during the market awareness trainings. . village hydro project developers. with no intervention whatsoever from AMRET. .Conducts energy needs survey. NUBL Due to favorable policy environment and high quality control maintained by biogas sector partnership (BSP). beyond its core business of microfinance. .Village grid: SEEDS does not maintain contact with equipment suppliers. and after-sale services SEEDS . refer them to NUBL. as they do not have any special energy lending product as of now. social mobilization. provide cost estimates.Energy Partner: The active participation of SELCO is key to the success of URJA Project. to promote alternative energy. submit post-completion report to NUBL for payment disbursement.SHS: Non-exclusive MOUs with SHS suppliers to ensure quality deliverables to its clients. feasibility study. Both parties invest their resources to establish and promote URJA Project. From time to time. . either under RERED or other initiatives. provides cost estimate. explores improved technology options. promotes URJA Project. and maintaining quality are instrumental for the success of biogas loan in Nepal. SEEDS. provides warranty. Efforts are being made by sector facilitators. and installs grid connection. . efforts have not been fully successful due to lack of adequate coordination between MFIs and biogas companies. but also during the one-to-one consultancy provided to prospective clients and willingness to provide product trial. integration between energy and microfinance sectors is still missing due to their inadequate knowledge of other sectors.Jointly with bank. as well as provide warranty and after-sale service. MFIs such as NUBL do not enter into special MOUs with the biogas companies.Grid connection: CEB markets SEEDS loan product to potential clients visiting its office.60 registered biogas companies have strong decentralized sales and service networks (> 200 branches).Donor institutions: The Lemelson Foundation (USA) has provided funding for market awareness.Grid connection: Collaboration with CEB as the provider of grid electricity .

such as rotation of field staff throughout centers.Repayment problem due to unexpected grid line extension in areas with SHS loans NUBL .Repayment tracking mechanism at all levels except collection agents Microfinance portfolio management . MIS. frequency of audits is low. As a result. not analyzed separately (balance sheet not prepared) .Financial performance of energy program.Software: Installation in progress (specifically for energy program) .Internal audit department is understaffed. . .e.Weak monitoring by branch senior staff. and HR (performing well) .Profitability analysis (monthly.Portfolio quality tracked at all levels . MIS. There have been cases of fraud in the past.Portfolio quality suffered due to political disturbances and faulty incentive policy in the past. Business planning .Have faced several cases of minor fraud. frequency of audits is low.Variance analysis on a monthly basis . .Financial audit is inadequate while policy and operational audit are absent.Software: Windowsbased integrated modules of accounts. As a result. is part of general business loan .No separate energy staff at field level .Implements budgetary control mechanism by linking branch expenses with branch profitability . had 100% repayment rate..Well structured and participative business planning process . AMRET* No specific energy product.Flexible repayment mechanism followed— bound to reflect an overall low portfolio quality. . . SEEDS .High idle cash (34%) reflects inadequate financial planning and management’s conservative approach to lending due to weak portfolio quality.Software: Oracle-based integrated modules of client data.Follow up and enforce-ment of credit discipline weak . etc.Staff trained by solar companies.Portfolio quality analysis (weekly) . energy loan portfolio.Management Capacity SEWA BANK Administration and management . i.Structured mechanism for monitoring invest-ments and compliance with liquidity norms of RBI . . compulsory 10-day leave for branch manager.Prompt follow up on loans .Software: Accounts with MIS (performing well) . 120 Using Microfinance to Expand Access to Energy Services .Energy loan portfolio was small and had 100% repayment. being new.Energy portfolio quality analysis report (can be generated daily) .NUBL staff trained by Winrock.Portfolio quality analysis (monthly) . Nepal. . and client data . accounts.Inadequate frequency and rigor . reflecting low deployment of funds in productive asset. branch-wide) .Good client selection and loan appraisal process .Well structured and participative business planning process .Weak financial and business planning. However.Have other control mechanisms.High credit discipline .Loan product featured 35 months and monthly repayment .No separate energy division/staff .Separate energy staff at field level . and Energy Forum in Sri Lanka .Has a low credit deposit ratio of around 35%.200 SEWA staff members trained by SELCO Accounts and MIS .Flexible repayments require stricter controls. portfolio Internal audit .Energy portfolio quality analysis in Microsoft Excel (monthly) .Internal audit department is understaffed. ADB.Energy division at HO . not based on past trends and realistic assumptions .Separate energy division . .

SHS clients claimed to have better social standing after having modern lighting in their home. clients enjoy free light until the end of SHS life cycle. “Smokeless Metal Stoves. . metal rods). See Rural Integrated Development Services-Nepal. . hawkers can attract more customers. .org/index. In addition. Modern lighting enables clients and family to have TV.” http://www.550 in 2nd year. .Impact Profile SEWA BANK Economic . tin cans. SEEDS.Photovoltaic battery charging unit: On each unit.000 per month compared to their baseline expenditure. more access to information.Solar lantern: Saves 15-30% compared to baseline kerosene light.260 after loan term through life time of unit. costing LKR 720–1. *The Annapurna smokeless stove burns up to 50% less fuel wood (or biomass fuel) and vents smoke outside through a chimney. except that 565 of SEEDS photovoltaic (PV) and SHS clients are productive use customers. and cooking drudgery is reduced . AMRET* The AMRET credit facility has enabled rural energy enterprises to emerge and provide energy services to rural people (who had no access to grid) as well as help them scale up production.rids-nepal. slurry (high nutrient fertilizer) from biogas processing. Social Environment Utilizations of new energy products will reduce carbon emission through change to fuel oil as the most common baseline lighting source and more efficient use (smaller amount) of fuel wood as the most common baseline for cooking.No specific data on income generating analysis.The PV-battery-charging business of one owner enabled him to send his child to engineering school from profits. In addition.Clients claimed that biogas helps to reduce drudgery of cooking especially for those whose baseline energy source for cooking is fuel wood.Sarai cooker gives user to have more free time. The metal version has three burners and a water tank for continuous hot water. indoor conditions. Improved indoor conditions due to shift from kerosene to village electricity Helps end-consumers have better and reliable electricity source. locally available materials (concrete/mud bricks. which helps children to extend their study time. Fumeless and accident-free lightModern lighting allows ing.Clients claimed to have no eye or skin irritation and cleaner indoor conditions.Sarai cooker: Reduce cooking cost to INR 1/day for a 4-member family (compared to LPG that costs INR 8–11/day) . and children have longer study time at night. and INR 6.360 kW and village hydro of 77 kW. clients on average enjoy monthly revenue of US$ 100–500. The Emerging Experiences in Asia of SEWA. kerosene consumption reduced by 16–19 million liters/year and carbon emissions reduced by 40-47 thousands CO2e Biogas plants offer an alternative to fuel wood.105 in 1st year. biogas clients save between NR 150–1. . NUBL On average.SHS: After loan term. . and avoids methane gas resulting from fuel pellets made from cattle dung. clients to have cleaner meals retain more nutritional value. Total installed PV of 2. due to better quality lights.440. cleaner indoor conditions. NUBL. It can be made from inexpensive. gives clients higher yields while replacing chemical fertilizers. depending on their capacity. .php?option=com_content&task=view&id=82&Itemid=115. INR 3. .Annapurna smokeless stove*: Reduces fuel consumption by 30–50% Health SEEDS On average. and AMRET 121 . No environmental impact so far because all energy clients are using fuel-oil power generators. clients and business owners earn a net profit of INR 3. Specifically on energy services. modern lighting from SEEDS energy lending enables household clients to reduce kerosene consumption by 15–30 liters per month.

Sarvodaya opened a separate unit. 122 Using Microfinance to Expand Access to Energy Services . As SEEDS expanded energy lending to other branches. At this point. As a PCI of RERED. In 2001. SEWA and SELCO soon entered into a partnership arrangement for exploring. A er the meeting. the successful implementation of micro hydro projects by Hatton National Bank and the eagerness of project managers led to SEEDS’ o ering village hydro lending in 2005. Grid-connection loans were started in 2006. and in April 2006. and implementing energy products and loans in Gujarat. where SELCO has a very strong sales and service network. NUBL. it was invited by the World Bank to become a Participatory Credit Institution (PCI) under the RERED project. leading to SEWA Bank sta and clients visiting Karnataka. It entered into an agreement with Shell Solar and de ned roles whereby SEEDS acted as nancer and Shell provided marketing and sales. SEEDS was not sure initially how to initiate micro hydro loans. With village micro hydro schemes. SEEDS took over the energy-lending portfolio of SRTS. e visit was followed by eld research by SELCO in Ahmedabad to assess the energy needs of SEWA Bank clients. e loans were disbursed based on a study of the energy needs of SEWA Bank members and ways to improve the energy solutions. Later. in the next two years.฀ ฀ ฀ ฀ ฀ ฀ ฀ ESTABLISHMENT OF ENERGY LENDING OF SEWA BANK. using its own funds and modi ed loan terms. during a meeting held by the Global Village Energy Project (GVEP) in Manila. However. NUBL began energy lending again in September 2004. developing. Upon learning the similarity of mission and client pro le. AND AMRET SEWA BANK SEWA Bank began providing energy products and loans in 1997 with ENSIGNE project through which it disbursed 121 energy loans in and around Ahmedabad City. SEWA Bank sta heard a presentation by SELCO (an energy service company specializing in catering to poor energy consumers). which gave NUBL NR 2. with the help of Winrock. SEWA Bank continued to provide energy loans under its UJALA (“light”) scheme. the URJA project was launched as a joint initiative. SEEDS. In May 2004. NUBL realized that the product did not take o because clients did not want loans with collateral (one of the prerequisites for energy loans). SRTS initiated its total service energy program in two districts. but quickly realized that the model was ine cient and unsustainable. SEWA and SELCO began communicating. NUBL was not able to utilize the funds and managed to install only one biogas plant. Sarvodaya Rural Technical Service (SRTS). with UNOPS support. which provided a credit facility for connection to the electricity grid to households located in urban slums. SEEDS SEEDS began its energy program with solar home systems in 1999. SEWA studied the demand for micro-lending for energy products. NUBL NUBL’s initial initiative in introducing biogas loans in 2002 was encouraged by provision of loan funds from AEPC. SEWA Bank collaborated with Ahmedabad Electricity Company. to promote SHS in rural areas. SEEDS received loan funds to provide energy loans to its clients. based on ADB’s research on the potential of grid loans and the availability of revolving loan fund support. in collaboration with Mahila Housing Trust. Under this program. However.5 million for energy lending. e program was discontinued when AEC realized its potential and started its own credit facility for electricity connection. A er ENSIGNE.

NUBL. e business loans can be used for any income-generating activity. Presently. its energy lending is treated as an individual business loan product. The Emerging Experiences in Asia of SEWA. and AMRET 123 . or to help reduce high energy consumption of productive activities.AMRET AMRET does not o er a separate energy product to its clients. AMRET has made around 707 such business loans to purchase equipment to provide electricity. SEEDS. set up battery charger services.

000 48.629.266 481.000 1.773.079.250.200.160.000 311.079.Hivos Triodos Doen .700 2.0% 6.500.200.000 5.900 6.000 3.491.000 754.803.000 282.37% 6% + Libor 6 months 3.320.5% + Libor 6 months 12.893 124 Using Microfinance to Expand Access to Energy Services .000 1.575 550.000 843.000 20.000 202.675 INTEREST RATE PER ANNUM 11.561 1.0% 7.000 2.000 500.6% 5.5% 2% + Libor 3 months 13.237.299.000 1.000 83.136. I & P Development Rural Development Bank OPEC Oikocredit Foundation Total ฀ ฀ OUTSTANDING DEBT (KHR ‘000’ ) 1.090.601 11.Hivos National Bank of Cambodia NBC AFD Calvert Foundation Sicav-Nord-Sud Dev.000 2.079.5% + Libor 6 months 11.5% 9.286.000 2.000 7.500.8% GRANTS Microfinance Alliance Fund AFD CGAP USAID Total AMOUNT (KHR) 166.840 OUTSTANDING DEBT (US$) 426.240 2.893 75.808.000 7.000 AMOUNT (US$) 40.101 500.520.0% 6.000 6.000.571 500.฀ ฀ ฀ ฀ FUNDS AND GRANTS LOAN FUNDS Microfinance Alliance Fund Dexia Bank Triodos Doen .565.000 67.850.000 1.

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