Use of Microfinance Institutions (MFI) for Renewable Energy Technologies
The limited economic resources which families of the rural area have access to definitely represent an important barrier when trying to gain access to modern energy services.
The financial support provided by international cooperation agencies and the government may help overcome these barriers and thus allow families to finally satisfy their needs, however this may only represent a solution in the short run. Satisfying a basic need such as energy service, not only requires accessing the adequate technology, but also creating the conditions to sustain this new access. Modern technologies for energy service require the adequate usage and maintenance.
Therefore, the access to small-scale financing may represent a much more sustainable path to satisfying basic needs and alleviating poverty. Families will discover a new source of financing which will be at their disposal as many times as required, instead of creating a dependency on the financial aid offered by donors and the government.
In order for this market-based mechanism to function properly, incentives must be created for different actors to participate and certain aspects must be taken into consideration.
- Awareness campaigns are needed in order for families to fully understand the benefits of accessing new and cleaner technologies for energy supply. Evidence has shown that in many cases families are not accustomed to participate within financial schemes and thus fear taking on such risks and obligations with a formal micro-financing institution. Explaining how these schemes may be adjusted to their economic needs and capabilities is very important when helping families feel more confident in accepting a credit.
- Accessing other products such as savings accounts may also be necessary for families. As in the case of most modern technologies, these may require a periodic maintenance and occasional repair; therefore it is important for families to create funds destined to cover the costs associated with these activities. Experiences in Bolivia have shown that certain MFIs have combined these products (credits and savings accounts) within a small-scale financing scheme by increasing the monthly payment of the family enough to cover not only the credit, but also create a savings account. This not only ensures that the family will automatically have a small fund saved once their credit has been fully paid, but also ensures the MFI a customer with a new product.
- For small-scale financing institutions, these loans may represent an attractive new business once the scheme is sustainable. However, as the document well stated, most institutions are hesitant to bear the risk of giving out loans for new technologies and it may be necessary for the government (or other cooperating agencies) to help mitigate such risk by offering guarantees to these institutions (but only in the first phases). Once the functionality of the technology has been proven, the institutions will bear their own risk and the guarantees will not be needed.
- For larger scale financing institutions, the loans may possibly not represent an attractive new business. However, these institutions tend to develop a much more social sense than small-scale MFIs. In Bolivia, these larger scale institutions tend to incorporate funds for such projects within their annual budget. Therefore, these institutions have a social incentive to participate within these schemes and are also open to bear certain administrative costs within the process of promotion and dissemination of the technology and financial products.
- Capacity building and training will definitely play an important role within these schemes, families must be well trained on the correct use and maintenance of the technology.
- Transportation costs and time of delivery are crucial when credits are involved. Families feel the pressure of having a new economic obligation (monthly payments to the MFI) and will demand to have their technology delivered as soon as possible and in perfect working conditions at all times.
In Bolivia, these small-scale financing schemes have been strongly concentrated on the benefit awareness of the technology as well as training on the correct use and maintenance.
A strong social sense has been developed within the MFIs and energy technology distributors. In many cases, both actors have coordinated efforts in order to impulse promotion campaigns and workshops, as well as cover certain costs of transportation and time reduction in the delivery of the technology.
Guarantees have also been offered within pilot projects in order to impulse activities and gain the confidence of the MFI in the new technology. However, the most successful results have come from the more independent schemes where the GTZ has limited its support to coordination of activities, supervision of outcomes and financial support of promotional material.
