Harnessing Humanitarian Finance Schemes for Energy Access
Role of Humanitarian Finance for Energy Access
A row of shining new improved cookstoves sit on the front porch of an energy kiosk in Rhino Camp Refugee Settlement in Northern Uganda. Above them an array of solar lanterns hang neatly lined up on a suspended rope. Customers trickle in and out of the kiosk to purchase a cold drink, print a document, or charge their phones. Yet the sale of the cookstoves and solar lanterns lags. When asked, customers respond that they find the price of 15.000 UGX (~ 4$) too high, as that is approximately the value of the monthly cash assistance they receive.
Around the corner from the energy kiosk, Amos, the owner of an entertainment hall, is gearing up for the evening’s showing of a Premier League game. The entertainment hall can seat around 200 customers and is a popular spot for people to hang out in the evenings, watching football games and films on the two TV screens. But business is slow to pick up after the Covid-19 related lockdown. In addition, the fuel costs spent on running the diesel generator are very high in relation to the revenue generated per evening. Amos used to operate his business using solar power, however the panels are no longer functioning and he hasn’t been able to save up enough to make the trip to the city of Arua to purchase a new, adequately sized solar PV system.
Refugees and host communities living in contexts of forced displacement have many different energy needs, e.g. for cooking, to charge mobile phones, to have light in their homes, and to run businesses. However, their access to energy is often limited due to a variety of logistical barriers, and most crucially, a lack of financial resources to buy energy technologies and services even when they are available.
Humanitarian actors have the mandate to support people living in humanitarian contexts so they can meet their basic needs. In line with this, they provide various forms of financial assistance to refugees. To better understand the potential of humanitarian actors to promote both access to finance as well as energy, ESDS commissioned a study which explores how humanitarian finance schemes can support the development of energy markets, thereby promoting access to higher quality energy products for displaced and host communities. In particular, the study examines how humanitarian actors can engage with financial service providers (FSPs) and energy service providers (ESPs) to encourage increased activity in displacement settings.
Types of Humanitarian Finance
The study identified five key forms of humanitarian finance that can play a crucial role in supporting access to energy:
Regulatory reform and easier access to financial services
To open a bank or mobile money account or register a SIM card, refugees need to have access to a valid ID which is recognized in their host country, which is frequently not the case. Stringent national Know-Your-Customer policies of financial institutions are usually not tailored to refugees and can further prevent them from accessing financial services. Another regulatory barrier is the right to move and work within and outside refugee camps or settlements, with restrictions on movement limiting the economic activity of refugees. A harmonized regulatory framework in which UNHCR and the national government reach an agreement to ensure that refugees have a valid ID which is accepted by FSPs, with comparable validity to resident IDs, represents a key first step to enable access to finance for refugees through formal channels. Enabling refugees to register SIM cards and to thereby access digital financial services has much potential to enhance their financial inclusion, allowing them to gain easier access to remittances and to pay for energy services using mobile payments.
Cash and voucher assistance
Humanitarian actors are increasingly shifting to providing cash and voucher assistance instead of in-kind assistance in contexts where there is a functioning market in the vicinity, the necessary level of security is guaranteed, and people are used to using cash. Cash assistance can come in the form of physical money through distributions or ATMs, or as digital or mobile money directly disbursed into bank accounts or mobile wallets. Whenever possible, digital financial services are implemented for security and effectiveness reasons. However, access to networks, power, SIM cards and mobile money accounts can be a barrier. Humanitarian actors partner directly with FSPs in some cases to provide cash assistance offering a variety of services, ranging from simple cash-in and cash-out transactions to savings and loans, among others. Providing aid through cash assistance and other financial services plays a key role in supporting refugees to rebuild their lives, and can thereby also support them in meeting their energy needs. It is important to ensure that refugees who have access to mobile wallets or bank accounts can perform a wide range of transactions, as opposed to merely cashing out the assistance they receive, to foster full financial inclusion. Vouchers are provided either in a physical or digital form and usually have a defined value to be used for a specific good or service. They can be particularly useful to increase demand for specific energy products and support the establishment of ESPs in displacement settings.
To encourage market development for energy and financial services in displacement settings, humanitarian actors can play an important role in de-risking the investment of Financial Service Providers (FSPs) and Energy Service Providers (ESPs) who seek to serve refugees. For FSPs, humanitarian organizations could support the initial investment of opening branches, creating sale points, and hiring (refugee) staff, as well as provide guarantee funds to share the risks for FSPs. In the case of ESPs, humanitarian actors can help reduce the cost of energy products for end-users through subsidies. They could also enable refugees to pay in instalments by purchasing products in bulk or by providing a guarantee to ESPs in case of client default. There are currently very few examples of tripartite partnerships between humanitarian actors working with ESPs to deliver the technologies or services and FSPs providing a tailored financial product, which is a model that should be encouraged.
Savings and loans groups represent an important source of access to finance in displacement settings. In these groups, community members contribute to a shared savings pot and provide loans to group members through rotation systems or based on specific needs. They can also take out a loan together as a group, which serves as a guarantee against default, which has proven to be an effective strategy in the microfinance sector to overcome the lack of physical collateral of borrowers. These small-scale loans are a key opportunity to make investments in new energy appliances and to grow businesses which make productive use of energy. Humanitarian actors can provide funding, technical assistance, mentoring and other forms of support to these community-based finance groups. Digitalization of these savings groups also has the potential to support building credit histories for group members and enabling them to access larger loans offered by formal FSPs.
Financial capacity building
As an important complementary mechanism to all the forms of financial schemes listed above, humanitarian actors can either fund or implement financial capacity building measures. Examples are financial literacy trainings, entrepreneurship trainings, business mentorship programs, and agriculture extension services. In addition, technology demonstrations and trainings on renewable energy and repair & maintenance services play an important role in raising demand for energy products and technologies. Combining the provision of financial and energy services with financial capacity building strengthens the longer-term impact of these interventions.
To find out more about how humanitarian actors can work together with FSPs and ESPs to promote access to finance for energy in displacement settings, read the full report here.