Energy for personal and productive use is vital for all people and is an important pre-requisite for the achievement of the Millennium Development Goals. 1.6 Billion people are thought to live without access to modern energy services; relying instead on traditional biomass which presents considerable respiratory health risks. Perhaps surprisingly, poor people also often end up paying more than the rich on their energy needs, both in terms of the proportion of their income and the time they spend collecting fuel.
Renewables offer an important solution for the energy needs of poor communities. Not only are they cleaner burning (reducing respiratory health diseases associated with cooking) and more environmentally friendly, but many sources such as solar hot water heaters or small solar photovoltaic installations are actually cheaper over the lifecycle of the product than their fuel-fired alternatives. What’s more, the costs are not vulnerable to variable fuel prices and disruptions to supply.
The most significant barrier to the wide-spread adoption of these technologies is their upfront costs. While they save money in the long-term, people find it difficult to raise enough funds to cover the initial pay-out for the installation.
This is why microfinance makes such an ideal partner for renewables – providing loans for the upfront costs that can be paid back over-time. In November at the European Microfinance Week, the European Microfinance Platform show-cased several projects from members that demonstrate the compatibility of microfinance and rural energy.
Micro-lenders Micro-energy International (MEI) and ADA support micro-entrepreneurs in Peru by providing loans of between €100 and €800 for the purchase of clean energy appliances. The programme encourages the productive use of energy, for example; a small guest house owner in the small town of Callalli was able to take out a loan to buy a solar hot water heater, providing warm water for baths for their clients. This service enabled the guesthouse owners to increase their prices by 20%, helping them to pay back their loan and increase profitability in the long run.
MEI and ADA have also implemented projects that assist micro-entrepreneurs to purchase solar dryers for coffee production and improved cooking stoves and ovens.
Another project, UNCDF’s Clean Start Programme started out as a carbon emission mitigation strategy, but having realised the economic benefits of renewables, the programme was reoriented towards supporting access to energy through pro-poor financial instruments.
In additional to renewable energy, MFIs have also found other avenues for servicing environmentally beneficial products. For example, Madina, an MFI active in a mountainous area of Tajikistan, partnered with GIZ to initiate a credit programme for poor households to invest in house insulation. Villages in this area suffer winter temperatures of around -20 °C, requiring huge heating expenditures. Despite initial scepticism, villagers witnessed the long-term saving potential of the programme and are now queuing up for insulation loans.
Such success stories are notable in their achievement of the ‘triple bottom line’ – i.e. providing economic, social as well as environmental benefits. With the Green Climate Fund (currently being discussed at the Durban climate change negotiations) coming into play, Microfinance institutions should be looking for opportunities to attract funding and scale-up their activities in this area.
Founded formally in 2006, The European Microfinance Platform [e-MFP] is a growing network of over 130 organisations and individuals active in the area of microfinance.
Its principal objective is to promote co-operation amongst European microfinance bodies working in developing countries, by facilitating communication and the exchange of information. e-MFP members include banks, financial institutions, government agencies, NGOs, consultancy firms, researchers and universities.
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