Report on Microfinance and Energy Poverty Charts Course for Leveraging Microfinance Infrastructure to Deliver Clean, Cheap Solar Lighting in Rural Africa
Three-year Energy Links pilot project highlights distribution challenges, finds traction through informal savings groups, NGOs and microfinance institutions
Washington, DC (Oct. 4, 2011) — The Center for Financial Inclusion at ACCION, USAID and FHI 360 have just released a Field Report on Microfinance and Energy Poverty, reporting the results of a three-year field project focused on leveraging microfinance institutions and savings groups in Africa to build a market and distribution channels for affordable solar lighting in rural villages on the continent.
The project, Energy Links, catalyzed and helped build distribution networks to get tens of thousands of low-cost solar-powered LED lanterns to rural populations in Mali, Uganda and Tanzania. In rural and remote areas of Africa, only 20 percent of the population is connected to electricity grids.
As the UN’s International Year of Sustainable Energy for All (2012) approaches, the building of a sustainable supply chain and marketing channel for solar home lanterns stands as an important marker on the challenging path to building an industry from the ground up. The Energy Links project demonstrated that while building a market for sustainable energy products that improve lives and increase productivity requires patient capital and painstaking work, it can be done. The report provides a business case and how-to for microfinance institutions (MFIs) to forge distribution channels and financing mechanisms for clean home energy solutions.
Bypassing a slow-growing electricity grid
According to the report, “Just as mobile phones spread rapidly across the [African] continent, leapfrogging the need for landlines, the need and opportunity exist for off-grid energy.”
Expansion of electric grids in underdeveloped countries is slow work: Projections are that the 1.4 billion off-grid worldwide today will decrease by just 15 percent by 2030, while the population without access in sub-Saharan Africa will increase by another 20%. Today they have no choice but to rely on kerosene lanterns for lighting – an expensive, inefficient, unhealthful and dangerous source.
In recent years, great strides have been made in production of simple, cheap, efficient, easily-repaired solar lanterns and solar home systems. Energy Links worked primarily with Australia-based Barefoot Power, a young company rapidly building its capability to deliver in Africa. Relationships between NGOs and savings groups, and microfinance institutions (MFIs) and distributors, were central to the program.
Potential benefits include improved health, productivity, and quality of life, e.g., less respiratory illness, time savings, and use of lighting in business operation and schooling. In Mali, Energy Links found that the primary beneficiaries were children who gathered in the homes of test users to study.
The health benefits derived from replacing kerosene as an indoor lighting source are substantial. According to the UN, nearly 2 million women and children die prematurely every year from illnesses caused by indoor air pollution.
Another crucial benefit – one that shows signs of emerging as a killer app – is cell phone charging, an expensive and time-consuming service for rural cell phone subscribers, and one that solar lantern owners can themselves provide to neighbors on a fee basis.
While these products require significant up-front expense, in the $10-$100 range, families in the focus countries typically spend $60 per year on kerosene and $120 per year on wood.
Globally, replacing kerosene lighting with solar would have a major environmental impact. Kerosene lamps release an estimated 190 million tons of C02 into the atmosphere annually.
Since the global off-grid lighting market is larger than $50 billion annually, a substantial market exists for alternative energy sources.
Building a supply chain in Africa
To begin to build a market, the Energy Links project grappled with the formidable problems of finding or building reliable distribution networks, developing demand through education, and finding means by which customers can finance this significant purchase. “There is an industry to be built,” the report notes, “but it isn’t going to build itself.”
In its three countries of operation, Energy Links functioned as a catalyst, bringing together NGOs, distributors, microfinance institutions (MFIs) and government ministries. The report stresses that the challenge is to develop an industry, with critical input from NGOs and donors, and points to the development of the microfinance industry from “a few scattered experiments in the 1980s” as a model.
To date, the most rapid distribution progress has been through partnerships between NGOs and informal savings groups (SGs) – which, like cell phones, are spreading rapidly in many African countries. An estimated 4 million of these groups, typically of 15-20 self-selected individuals (mostly women) who meet to save, borrow and pool resources for basic insurance, are operating in Africa today. Because of their prevalence in rural areas and their close working relationships with NGOs, SGs are receptive to new information and function as influential early adopters.
The project had its most marked success in Mali, where it built a self-sustaining market from scratch, bringing together an incubated network of local distributors and SGs that have at present financed the import of over 40,000 lighting kits, which should all be sold this year, with an additional 100,000 planned for 2012. The Energy Links team also provided technical assistance to develop business models and financial products that are being implemented in Tanzania and Uganda by MFIs today.
The Energy Links project was conceived and executed by the Center for Financial Inclusion at ACCION International, financed by USAID’s Microenterprise Development Office (through Academy for Education Development’s FIELD Project, now managed by FHI 360) and the Wallace Global Fund. The report was prepared by CFI’s David Levaï, Paul Rippey, and Elisabeth Rhyne, with substantial input from April Allderdice of MicroEnergy Credits.
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