Private sector financing for clean energy is a mutually beneficial solution for all stakeholders involved, including Microfinance Institutes (MFIs), local communities, offset providers such as MEC, and the environment. However, MFIs typically encounter five key obstacles that prevent them from lending for clean energy. These include client education and awareness, last-mile distribution, aftersales service, internal capacity building, and the cost of interest or principal.
MEC has extensive experience operating in India, Africa, and Mongolia with a diverse range of microfinance institutions (MFIs), non-banking financial corporations (NBFCs), and banks on clean energy lending programs. MEC's projects are founded on this experience and a deep understanding of market conditions. MEC employs innovative and efficient solutions to tackle the top five barriers to make it easy for MFIs to participate in clean energy lending.
Client Education and Awareness
Numerous microfinance institutions (MFIs) face difficulties in offering clean energy loans due to inadequate customer awareness of the availability and benefits of clean energy products. Often, customers are not aware that they can save money in their very first month by adopting a clean energy microloan.
To address this challenge, MicroEnergy Credits (MEC) collaborates with MFIs to organize awareness-building events in local areas or during microfinance group meetings. During these events, clean energy technologies are introduced, and the health and economic benefits associated with the technologies are discussed in detail. Additionally, MEC leverages the established social networks of the MFI programs to increase community awareness.
One of our longstanding MFI partners, utilizes carbon revenues to enhance technical training for customers and energy officers, and to facilitate field trainings and demonstrations. These efforts are instrumental in convincing local communities to adopt clean energy programs, a significant challenge due to the prevalence of conventional products and technologies.
Last Mile Distribution
Frequently, households do not adopt clean energy solutions due to the unavailability of products in their local villages. Typically, product suppliers deliver goods at the branch level, resulting in either a prolonged turnaround time or incomplete last mile distribution. Last mile connectivity can be problematic as stacking products at remote MFI branch locations is often not feasible due to space limitations, and there are risks associated with the breakage and theft of valuable products. Furthermore, large OEMs with expertise in quality product manufacturing are often reluctant to undertake last mile delivery to typical MFI customers who are in remote hinterlands across the country.
MEC collaborates with MFIs to establish supply chain networks that ensure clean energy technologies are accessible to MFI customers, even in the most remote areas. Carbon funds facilitate last mile connectivity. For instance, MEC enabled one of its MFI partners, to establish last mile connectivity by connecting them with a large-scale national aggregator. Carbon funds cover any additional costs incurred, and customers receive products delivered to their doorstep.
MEC not only enables the development of retail agent networks but also provides supply chain management IT systems. Another one of MEC's partners, used carbon funds to establish an IT-enabled clean energy MIS. This system helps generate and consolidate clean energy business details on various aspects, such as product-wise, state-wise, regional-wise, area-wise, branch-wise, loan officer-wise, specific interval-wise, and financial year-wise. Additionally, they hired a consultant to develop the MIS. The MFI partner also adopted an MIS that has become their strongest tool for performing monitoring, verification, and reporting tasks. It also aids MEC and the MFI partner in maintaining quality data.
Aftersales Service
Microfinance institutions (MFIs) may hesitate to provide loans for clean energy products if they are uncertain about the longevity of the products until the end of the loan period. To address this, MEC collaborates with MFIs to implement systems that support customers and enables them to utilize their energy products for their full expected lifetime.
MEC works with MFI partners who provide water-purifiers and have faced challenges with customers who do not replace germ-kill kits periodically, resulting in discontinued product usage. The carbon funds support the provision of these kits to customers at nominal fees or even free of charge. With access to carbon funds, MFIs find it easier to make product service, maintenance and repairs accessible.
One of our MFI partners that serviced 60,000 households in FY2021-22, resolved all customer complaints and product replacement requests. Another MFI partner, with a customer base of 152K households, improved living standards and achieved a 100% resolution rate for customer complaints and product replacements by developing a complaint tracker system in their software to register complaints and track the status in real time. One of our MFI partners also conducts impact assessment studies to determine the effectiveness of its clean energy products and leverages the findings to enhance the products and improve their after-sales service.
Institutional Capacity Building
Many financial institutions recognize the financial benefits of adopting clean energy technologies but often lack the capacity to vet products and manage a product portfolio. MEC collaborates with these institutions to provide technical assistance and aid in building a clean energy lending business plan. Additionally, MEC helps institutions develop portfolios of high-quality, vetted clean energy products.
MEC also provides support for training and motivational programs designed for local loan officers who are the primary point of contact for customers. For instance, in June and July 2022, one of our MFI partners trained 14,000 service representatives and 236 energy officers, who will, in turn, disseminate awareness among local communities. Another one of our MFI partners, conducted nine training workshops in a year, equipping 975 women, including those at managerial levels and their field staff, with the necessary skills and knowledge.
The MFI partner has also organized numerous internal capacity-building programs, including sensitization programs, awareness generation camps, and live demonstrations of their products at the field level. Additionally, they conducted regular focus group meetings at their head office, branches, and field offices, ultimately training over 138,008 women between 2018 and 2022.
Cost of Interest or Principal
Several MFIs may have reservations about offering loans for clean energy projects as the loan sizes and target markets may not be lucrative enough for them. In this regard, MEC provides funding to support interest reductions or principal adjustments, which allows the MFI to penetrate new markets.
As customers of the MFIs adopt clean energy, the program tracks the resulting carbon emission reductions, and then deploys catalytic funding to the MFI. This funding is then reinvested in the MFI's clean energy lending program, leading to the program's further expansion in a virtuous cycle. The program operates as a finely tuned financial instrument, providing ratings to each MFI partner based on the quality of their data and the sustainability of their program. MFI program managers can use these ratings as a guide to compete for excellence and to reward and acknowledge effective program managers. Furthermore, program managers incorporate the program funding projections into their business plans, gaining approval from their executive boards to launch clean energy lending programs in new regions with new energy products.
Carbon funding also enables MFIs to introduce customer-friendly programs. For instance, one of our MFI partners launched special schemes during and immediately after the pandemic to facilitate the adoption of clean energy products by locals. They provided a moratorium against all loans extended to their clients without charging any interest. The loans were not only interest-free, but the instalments were charged according to the convenience of the clients. The operational cost for deferring the loan instalments was recovered with the revenue earned on account of carbon credits.
MEC has partnered effectively with its MFIs to ensure that the five key obstacles, namely, client education and awareness, last-mile distribution, aftersales service, internal capacity building, and the cost of interest or principal, do not become roadblocks to successful carbon programs that have immense potential to fight both climate change and poverty.
