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Key Opportunities & Challenges for renewable energy deployment through

Microfinance

15-May-2014Atul Mittal, d.light Energy

Index

1. Off-grid Scenario in India – Who is suffering?

2. Opportunities for renewable product distribution

3. Challenges to renewable product distribution

4. Conclusion

400 million are in India

1.6 billion people in the world live without electricity

Vast majority rely on fuels that are inefficient, hazardous and generate pollution

Reserve Bank of India 2012 states that, 21.92% of India’s population is below the poverty line.

1. Bihar- 33.7% 2. Jharkhand- 36.8%3. MP – 31.6%4. Odisha – 32.5%5. UP – 29%

 "Number and Percentage of Population Below Poverty Line". Reserver Bank of India. 2012. Retrieved 4 April 2014.

145 million

Impact: Health, Food, Education, Energy Access, living standard etc

How many are Poor?

Kerosene is dangerous • Burn risk• Explosions from adulterated kerosene• Inhalation • Ingestion causing poisoning

How do they light their houses?

Kerosene is the most commonly used fuel source for lighting by the off-grid population in India; In UP and Bihar, over 70% of households use kerosene for lighting

Kerosene is expensive USD 4 billion spend In India, households spend USD1.8 billion on kerosene and

the government an additional 2.2 billionKerosene is polluting

• 6.7 billion of liters of kerosene are used on lighting in India producing 18.1 m tons of carbon dioxide emissions

Women

Who Suffers the most?

What is a possible solution ?

Credible and Reliable Energy Appliance Supplier

MicrofinanceInstitutions

representing poor women

What’s the Opportunity?

• 400m off-grid (Census 2011)• 465 m people underserved

(project. 2013)• 38% of the population

Can they buy?• 205m can afford a basic Solar

Lantern • 50m people can afford a multi-

functional Solar Lantern• 10m can afford a basic Solar

Home System

Distribution of underserved households, 2013

So what’s the penetration rate of appliances then?

Less than 5%Source – Lighting Asia

Opportunity a Microfinance Institution offers-

Financial and Social intermediation • Provision of financial services to low-income clients,

including the self-employed especially women• 95% MFI clients in India are women• Not merely banking but a development tool

Proven Model• Poor are credit worthy • Given the chance, people are capable of bringing

themselves out of poverty• Economic independence is the crux of a larger social

empowerment process

Opportunity a Microfinance Institution offers-

Unprecedented Reach• Total Client base of MFIs is > 25 million people

• MFIs continue to focus on women empowerment

• Focus on rural and backward districts of India

Opportunity a Microfinance Institution offers-

Cross Sell Capability• Successful Models of distributing – mobile phones, sewing

machines, bi-cycles, refrigerators, solar lanterns

• Training and capacity building internal teams

• Linking the complete value chain – sales & after sales

Opportunity a Microfinance Institution offers-

What is a possible solution ?

Credible and Reliable Energy Appliance Supplier

MicrofinanceInstitutions

representing poor women

Credibility of Working through Partnerships• Experience in working through large and small

partnerships in government and private institutions• Understanding the ground field force i.e. Loan

Officers equivalent manpower • Training, Demand generation, Local Logistics in

both directions, Q&As

Opportunity a Energy appliance manufacturer offers-

Reliability of Product and its features• User friendly products that have proven their track-record

of more than 5-7 years in India as well as globally.• Near to ZERO fault rate achieved even in stress conditions• Customer friendly after sales policies to cover the risk of

purchase

Opportunity a Energy appliance manufacturer offers-

Years of

Life

On-Ground Support to hand-hold MFI field force• Understanding that product selling is not the core of

microfinance institutions.• Require directions and hand-holding in the initial stages• Understanding that an MFI does not own the product and

it will always remain the property of manufacturer.

Opportunity a Energy appliance manufacturer offers-

Uniform Pricing of products • In a multi channel environment keeping the product

consumer price similar to that in the market • Strict control on price under-cutting by other distribution

models so as to protect the trust between poor clients and MFIs

Opportunity a Energy appliance manufacturer offers-

There is a possible solution !

Credible and Reliable Energy Appliance Supplier

MicrofinanceInstitutions

representing poor women

There exist ways to effectively combine microfinance with renewable energies, especially in rural areas where access

to energy remains limited

Out of about 10,000 Microfinance Institutions (MFIs) serving worldwide more than 155 million clients, only 30 to 40 MFIs today offer energy loans.*

* www.planetfinancegroup.org

• MFIs Initial Resistance : Fear of getting into product selling

Stick to core Problems in bundling the energy product Insecurity as the focus of loan officer might change

• MFIs long drawn process of product selection: This could take weeks and months to arrive on 1-2 products

Product screening process through own guidelines Price offered to MFIs given the most priority, than value

proposition offered to end consumers.

Initial approach and Product Selection by MFIs

Challenges from Manufacturer’s side

• Business Modelling: MFIs testing new ways of product knowledge transfer and distribution Keeping away the Loan Officers from this arrangement Product knowledge to clients given outside of group

meetings Involving multiple entities in the value chain – eg:

distribution points, energy officers, marketing agencies etc.

• Awareness and Field Motivation: Lack of joint working between companies and MFIs for Product Training and Sales training Lack of reward and recognition On-ground demand generation activities

Business Execution through MFIs

Challenges from Manufacturer’s side

One MFI in BiharTotal Client Base: 3 Lac

Target in first 6 month: 20% penetration

i.e 60,000 lightsStep 1: Agreement on product quality and after sales mechanismStep 2: Agreement on Training & capacity building support.Step 3 : Agreement on Product Logistics and billing supportStep 4: Make an attractive product, Plan a pilot in select branchesStep 5: Establish targets and incentives for Loan OfficersStep 6: Correction on Step 1-3Step 7: Full Scale Launch

LIVE Example

Out of 2 crore HH in Bihar

1.6 Cr houses depend on Kerosene for lighting- Census 2011

What is on which side?

MFIBranch

Clients

d.light1. Product & Warranty2. Logistic Cost3. Customer Invoicing4. VAT 5. Training Materials6. Capacity Building7. Product Return Logistics8. Free Replacement within 2 years9. Toll-Free Help Line Center10. Village Demonstrations

1. Customer Contact2. Loan Processing3. Loan Re-payment

What should we do?

Manufacturers should provide the following:

Awareness – Affordability - Availability

Awareness – Availability - Accountability

To MFI and Other Stake Holders

To Customers through MFIs

Few Steps from MFI Sector:• Need to link energy & access to affordable finance since the poor have a significant

impact on environment protection• Engage their Loan officers equivalent to have more discussions around energy

initiatives

Few Steps from Energy Appliance Manufacturers:• Joint ownership of product distribution and demand generation• Focus of providing best technology at most customer friendly prices• Support MFIs in establishing pre & post sales value chain

Conclusion & Way Forward

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