Difference between revisions of "Microfinance"
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| − | = | + | = <span data-scaytid="108" data-scayt_word="Microfinance">Microfinance</span> = |
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| − | < | + | <span data-scaytid="110" data-scayt_word="Microfinance">Microfinance</span> Institutions (<span data-scaytid="117" data-scayt_word="MFIs">MFIs</span>) are being used to channel funds for small-scale renewable energy technology (RET) projects, particularly at a household and community-level for off-grid electrification. Such projects are generally developed by small suppliers and serve low-income communities with limited ability to pay up front. Thus small-scale projects can face even greater problems that other RET projects in raising capital for initial investments<ref name="The World Bank, 2013. Financing Renewable Energy - Options for Developing Financing Instruments Using Public Funds."> The World Bank, 2013. Financing Renewable Energy - Options for Developing Financing Instruments Using Public Funds.</ref><span style="line-height: 1.5em; font-size: 0.85em;">.</span> |
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| − | <span | + | <span data-scaytid="455" data-scayt_word="MFIs">MFIs</span> provide loans to house- holds, either directly or via the equipment supplier, who can then use this to pay for at least part of the capital costs of RET systems. The need to collect repayments also provides an incentive for the supplier to maintain and ensure the continuing operation of the systems post installation<ref name="The World Bank, 2013. Financing Renewable Energy - Options for Developing Financing Instruments Using Public Funds."> The World Bank, 2013. Financing Renewable Energy - Options for Developing Financing Instruments Using Public Funds.</ref><span style="line-height: 1.5em; font-size: 0.85em;">.</span> |
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| − | | colspan="3" style="text-align: center; background-color: rgb(79, 129, 189);" | <font color="#ffffff"><span style="line-height: 20.39583396911621px;">'''MICROFINANCE'''</span></font> | + | | colspan="3" style="text-align: center; background-color: rgb(79, 129, 189);" | <font color="#ffffff"><span style="line-height: 20.39583396911621px;">'''<span data-scaytid="356" data-scayt_word="MICROFINANCE">MICROFINANCE</span>'''</span></font> |
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| style="background-color: rgb(219, 229, 241); text-align: center;" | '''Uses''' | | style="background-color: rgb(219, 229, 241); text-align: center;" | '''Uses''' | ||
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| − | *<span | + | *Provides customers with credit to <span data-scaytid="12" data-scayt_word="pur">pur</span>chase RET hardware (typically Solar Home Systems). |
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| − | * | + | *A means of allowing RET developers to receive payment on installation of systems, reducing need for up-front financing. |
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| − | + | *<span data-scaytid="369" data-scayt_word="MFIs">MFIs</span> may not exist or may be unwilling to lend for purchases of RET hardware, as loan terms are longer than typical <span data-scaytid="371" data-scayt_word="MFI">MFI</span> loans and repayment is dependent on household incomes rather than revenue generation. | |
| − | * | + | *Transactions costs are high, although <span data-scaytid="370" data-scayt_word="MFIs">MFIs</span> are able to reduce these compared to alternative financing arrangements. |
| − | <span | + | *<span data-scaytid="376" data-scayt_word="Microfinancing">Microfinancing</span> still requires RET <span data-scaytid="377" data-scayt_word="devel">devel</span><span data-scaytid="378" data-scayt_word="opers">opers</span> to find significant working capital to fund initial purchases of RET systems ahead of first sales. |
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| − | | colspan="3" | <span style="font-size: | + | | colspan="3" | <span style="font-size: 80%; line-height: 20.39583396911621px;">Source: </span><span style="font-size: 12px; line-height: 18px;">Adapted from The World Bank, 2013. Financing Renewable Energy - Options for Developing Financing Instruments Using Public Funds</span><ref name="The World Bank, 2013. Financing Renewable Energy - Options for Developing Financing Instruments Using Public Funds.">The World Bank, 2013. Financing Renewable Energy - Options for Developing Financing Instruments Using Public Funds.</ref> |
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| + | <span data-scaytid="23" data-scayt_word="MFIs">MFIs</span> are characterized by their focus on lending to households and small businesses—generally for productive invest<span data-scaytid="27" data-scayt_word="ments">ments</span> or to support agricultural activities. Most <span data-scaytid="24" data-scayt_word="MFIs">MFIs</span> have a relatively narrow focus in <span data-scaytid="35" data-scayt_word="geographi">geographi</span><span data-scaytid="36" data-scayt_word="cal">cal</span>, product, and sector terms. Loans are typically made at relatively high interest rates and for short <span data-scaytid="38" data-scayt_word="peri">peri</span><span data-scaytid="39" data-scayt_word="ods">ods</span>, to be repaid from the additional revenues generated by the investment or from the future sale of crops. Longer-term lending for <span data-scaytid="40" data-scayt_word="appli">appli</span><span data-scaytid="41" data-scayt_word="ances">ances</span> where repayment depends on household incomes, as is the case for the purchase of [[Solar_Home_Systems|Solar Home Systems]], is therefore a change in business model for many <span data-scaytid="25" data-scayt_word="MFIs">MFIs</span>. In Bangladesh [[Results-based_Financing|Results Based Financing]] (<span data-scaytid="822" data-scayt_word="RBF">RBF</span>) has been used in combination with <span data-scaytid="44" data-scayt_word="microfinance">microfinance</span> to refinance <span data-scaytid="26" data-scayt_word="MFIs">MFIs</span> after they have been verified to have carried out appropriate installations, thus freeing <span data-scaytid="29" data-scayt_word="MFI">MFI</span> funds for further lending. | ||
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| + | Public financing of such <span data-scaytid="46" data-scayt_word="MFI">MFI</span> initiatives can be provided through a variety of instruments. These can include the provision of credit lines to increase available funding and lower the costs of customer loans, the provision of grants or subsidies for a similar purpose (often on a <span data-scaytid="47" data-scayt_word="RBF">RBF</span> approach), or the provision of <span data-scaytid="51" data-scayt_word="guaran">guaran</span>tees to cover <span data-scaytid="48" data-scayt_word="MFIs">MFIs</span> against part of the losses they might sustain from loan defaults—either directly or through the failure of<br/>supplied equipment<ref name="The World Bank, 2013. Financing Renewable Energy - Options for Developing Financing Instruments Using Public Funds."> The World Bank, 2013. Financing Renewable Energy - Options for Developing Financing Instruments Using Public Funds.</ref>. | ||
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= Further Information = | = Further Information = | ||
| − | *[[ | + | *[[Microfinance Institutions - Financing Renewable Energy|Microfinance Institutions - Financing Renewable Energy]]<br/> |
| − | *[[ | + | *[[Use of Microfinance Institutions (MFI) for Renewable Energy Technolgies|Use of Microfinance Institutions (MFI) for Renewable Energy Technologies]]<br/> |
| − | *[[ | + | *[[Energizing Microfinance Workshop Documentation|Energizing Microfinance Workshop Documentation]]<br/> |
| + | *[[Financing_Models_for_Solar_Home_Systems|Financing Models for Solar Home Systems]]<br/> | ||
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[[Category:Financing_and_Funding]] | [[Category:Financing_and_Funding]] | ||
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Revision as of 13:04, 25 August 2013
► Back to Financing & Funding Portal
Overview
Microfinance
Microfinance Institutions (MFIs) are being used to channel funds for small-scale renewable energy technology (RET) projects, particularly at a household and community-level for off-grid electrification. Such projects are generally developed by small suppliers and serve low-income communities with limited ability to pay up front. Thus small-scale projects can face even greater problems that other RET projects in raising capital for initial investments[1].
MFIs provide loans to house- holds, either directly or via the equipment supplier, who can then use this to pay for at least part of the capital costs of RET systems. The need to collect repayments also provides an incentive for the supplier to maintain and ensure the continuing operation of the systems post installation[1].
| MICROFINANCE | ||
| Uses | Pros | Cons |
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| Source: Adapted from The World Bank, 2013. Financing Renewable Energy - Options for Developing Financing Instruments Using Public Funds[1] | ||
MFIs are characterized by their focus on lending to households and small businesses—generally for productive investments or to support agricultural activities. Most MFIs have a relatively narrow focus in geographical, product, and sector terms. Loans are typically made at relatively high interest rates and for short periods, to be repaid from the additional revenues generated by the investment or from the future sale of crops. Longer-term lending for appliances where repayment depends on household incomes, as is the case for the purchase of Solar Home Systems, is therefore a change in business model for many MFIs. In Bangladesh Results Based Financing (RBF) has been used in combination with microfinance to refinance MFIs after they have been verified to have carried out appropriate installations, thus freeing MFI funds for further lending.
Public financing of such MFI initiatives can be provided through a variety of instruments. These can include the provision of credit lines to increase available funding and lower the costs of customer loans, the provision of grants or subsidies for a similar purpose (often on a RBF approach), or the provision of guarantees to cover MFIs against part of the losses they might sustain from loan defaults—either directly or through the failure of
supplied equipment[1].
Further Information
- Microfinance Institutions - Financing Renewable Energy
- Use of Microfinance Institutions (MFI) for Renewable Energy Technologies
- Energizing Microfinance Workshop Documentation
- Financing Models for Solar Home Systems
References
- ↑ 1.0 1.1 1.2 1.3 The World Bank, 2013. Financing Renewable Energy - Options for Developing Financing Instruments Using Public Funds. Cite error: Invalid
<ref>tag; name "The World Bank, 2013. Financing Renewable Energy - Options for Developing Financing Instruments Using Public Funds." defined multiple times with different content Cite error: Invalid<ref>tag; name "The World Bank, 2013. Financing Renewable Energy - Options for Developing Financing Instruments Using Public Funds." defined multiple times with different content
