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USAID LEADERSHIP
HOME » NEWS & INFORMATION » FRONTLINES » ENERGY/INFRASTRUCTURE » LIGHTING THE LIVES OF THE RURAL POOR
Energy/InfrastructureJanuary/February 2014
Lighting the Lives of the Rural PoorBy Nicola Armacost and Pamela Baldinger
Jalal Molla with his solar lights and sewing machine
Souradeep Ghosh, Arc Finance
At the nexus of finance, distribution and technology, the Renewable Energy Microfinance and
Microenterprise Program is bringing clean energy to people who live their lives in the dark.
A ctivities average Americans may take for granted—flipping a switch to flood a room with light, boiling water by turning the dial
on a stove, or charging a cell phone overnight while they sleep—simply aren’t possible in many parts of Africa and Asia.
Worldwide, more than 1.4 billion people lack access to electricity, and 2.8 billion lack access to modern cooking fuels and devices.
This not only holds them back economically, it can be dangerous. According to the World Health Organization, more than 95
percent of deaths from fire and household burns occur in the developing world. In southern India, for example, burns are the number
two cause of childhood injuries or mortalities, with about half due to kerosene lamps. In Uganda, one study found 70 percent of
house fires were caused by kerosene lanterns.
Since many people relying on traditional sources of energy earn only a few dollars per day, obtaining the money needed to pay for
electricity or buy modern energy devices is a formidable barrier. USAID is working to address this challenge in Uganda, India and
Haiti via its four-year, $5.6 million Renewable Energy Microfinance and Microenterprise Program (REMMP).
REMMP expands the availability of consumer financing for clean energy products, helping low-income people buy devices that
improve their incomes and quality of life, and reduce carbon emissions at the same time. Companies that finance or sell small
renewable energy devices, such as solar lanterns and clean cookstoves, are supported through REMMP and its implementing
partner Arc Finance.
“Assuring that firms selling such products are financially sound is vital to ensure a sustainable supply of goods and enable the firms
Asma Molla with her husbandJalal, their five sons, and theirtwo solar lampsSouradeep Ghosh, Arc Finance
Sundar Mondal, the child of aDCBS client, uses the family’ssolar lamp to do his homework.Souradeep Ghosh, Arc Finance
to foster even more innovations,” says Kevin Brownawell, director of the Office of Energy
and Infrastructure at USAID.
Arc currently is working with 13 different organizations to develop and test business
models that will make it easier for tens of thousands of poor people to purchase clean
energy products. Among the models being explored are traditional financing methods such
as microfinance, as well as new applications such as crowd funding and remittances.
Pioneering Off-Grid Solar in Uganda
REMMP partner SolarNow is a private business that sells solar home systems in Uganda,
where less than 5 percent of the rural population have access to electricity. The solar
systems can light several rooms and power critical household items such as cell phones,
radios and TVs. However, at a cost of $475 to $1,400 per system, they can seem out of
reach to ordinary rural residents of Uganda, where the average per capita annual income is
$440.
To overcome this price barrier, SolarNow created its own in-house “pay plan.” Customers
pay over a 12-month period until they have covered the full price of the system, at which
point ownership is transferred to them and they receive a two-year service warranty.
Because most customers stop using other forms of lighting when they buy a solar system,
they can use funds they previously used to buy kerosene toward their monthly payment.
Francis Kilate, who lives in a small, dusty village
near Kamuli in Uganda, is a SolarNow customer. After purchasing his SolarNow system on
credit in October 2012, he began charging cell phones in his house at a cost of $.20 per
charge. Kilate recovered the cost of his system within six months, and now is generating
additional revenue for his family.
“Due to my phone-charging solar system, I have become one of the main business persons
in my area. I now want to expand my solar system to power a computer and offer access
to the Internet,” he says.
The head teacher of Bugabula Secondary School, Ngobi Joshwa, decided to invest in a
small solar system with six lights for the school, allocating scarce resources from
students’ school fees for the purchase.
“I am really happy that our pupils can now continue studying after sunset, which has
increased exam results by 8 percent compared to last year. Parents welcome the
development and have asked whether the kerosene lamps in the dormitories can be
replaced. We plan to upgrade our system next term to answer their demands.”
Arc Finance has been working with SolarNow to improve its operations and expand its pay
plan, which is used by the majority of its customers. Since it began operations two years
ago, SolarNow has grown rapidly, installing over 3,000 systems through 35 branches, and
creating 126 jobs.
Jerry Awori Bugiri, a SolarNow branch manager, says: “My clients are very happy with the solutions we offer. Without the credit,
most would not be able to afford good solar systems. My business is growing as more people hear about the good quality and the
24 months free maintenance.”
Thanks to a $2.5 million loan guarantee from USAID’s Development Credit Authority (DCA), SolarNow obtained financing from
Centenary Rural Development Bank, a Ugandan bank new to the energy sector. SolarNow Managing Director Willem Nolens thinks
the guarantee played a critical role in enabling the company to reduce costs while simultaneously expanding its business.
“The guarantee we received from USAID enabled us to get a local bank loan and attract new investors. It will help us create access
to energy for an estimated 120,000 people over the coming five years. We could not have done this without the support of USAID,”
says Nolens.
Crowd-Funding a Clean Tech Revolution in Rural India
In 2000, Animesh Naiya, the managing director of Dhosa Chandaneswar Bratyajana Samity (DCBS), was unemployed. He tried
various things to get work, from poultry farming to goat farming, but because he didn’t have any collateral, he was unable to get a
bank loan to start a business.
After reading about an organization that gave credit to people for income generation, he decided to start his own organization that
would do the same thing. He persuaded his father to let him use an empty family apartment as an office, and raised money from his
immediate family, relatives and other shopkeepers to start the business. The organization officially opened its offices in December
2003 with 300 members.
Today, DCBS is a small community-based microfinance institution (MFI) that operates in roughly 200 village communities in West
Bengal’s South 24 Parganas district. Ten years after its founding, the organization maintains a client base of more than 10,000
women, most of whom are saree embroiderers or engaged in small-scale agriculture. The focus on women reflects Naiya’s belief
DCBS client Mamtaj Mondal works in her shoplit by two solar lamps that can also charge hercell phone.Souradeep Ghosh, Arc Finance
that women are more reliable customers, almost always repaying their
loans.
Microfinance institutions serve large numbers of poor clients who
otherwise are excluded from financial services in India and elsewhere.
Commercial banks in many parts of the world are reluctant to lend to
small borrowers who possess little collateral because they do not have
the human or physical infrastructure in place to serve remote, low-
income rural markets the banks perceive as risky and costly to serve.
The Indian microfinance sector alone reached over 26 million active
borrowers in 2012, and thousands of self-help group networks and
federations claim over 60 million members. Access to credit allows poor
households to make investments that generate additional income and/or
improve their quality of life. Access to affordable credit can also increase
economic security by smoothing inconsistencies in income in the short
term.
Naiya’s organization grew rapidly until 2010, when India faced a
microfinance crisis and funding for small organizations like DCBS dried
up.
“After the crisis, no banks or NGOs were willing to give us any funds.
We really thought we would have to close down. Then we met Milaap and Arc Finance,” says Naiya.
Arc is partnering with Milaap, an investment platform for MFIs, to establish a low-cost revolving credit facility for MFIs engaged in
energy lending. Milaap raises funds by “crowd sourcing” online, primarily from the Indian diaspora, and USAID matches the funds in
the form of a grant from Arc. Milaap then lends the money to qualifying MFIs at rates lower than those offered by commercial
banks.
The goal behind the revolving fund is to stimulate MFI interest in the sector and reduce borrowing costs of MFI customers. Arc is
also providing technical assistance to Milaap’s MFI sub-partners to help them finance a range of energy services including solar,
clean cookstoves and microgrids.
In December 2012, with a line of credit from Milaap and technical assistance from Arc, DCBS began promoting a solar lantern loan
product to existing borrowers, based on its own analysis of its clients’ needs. A significant percentage of active borrowers are grid-
connected, but service is very limited and highly irregular, with frequent, extended outages lasting several hours a day. Kerosene
and candles are widely used as backup sources, but poor light quality and indoor air pollution make these alternatives unattractive.
DCBS staff began demonstrating a small portable solar charging device that produces a clear, smoke-free light 10 times brighter
than the common kerosene wick lamp used by virtually all DCBS clients. Moreover, the lantern can also charge mobile phones and
is much safer than the traditional glass lamps that can tip or break easily and cause fires. Borrowers may purchase the product on
credit directly from the bank with a low-cost, 12-month loan.
Asma Molla, who is an embroiderer, a DCBS client and a solar lantern owner, explains: “After my husband Jalal and I bought the
solar light, we began to make more money. We used to make Rs 5,000 per month [around $82]. Now, sometimes we earn as
much as Rs 2,500 a month more, which is 50 percent more than our previous income. It has made a big difference to us as we
have five boys to feed. The boys are full of life and energy, and it used to make me so worried if I left them alone together to study
or to play with only the kerosene lamp for light. Now I can relax … the solar light won’t cause a fire and it is very strong. Even if it
falls on the floor, it won’t break.”
Growing word-of-mouth communication between members has begun to yield dramatic results. In the month of July alone, DCBS
approved 369 new loan applications—nearly the same amount for the entire previous six months combined. Sales skyrocketed after
the Diwali “festival of lights” holiday in October, bringing the total to more than 1,600 lights sold by the end of 2013. DCBS hopes to
increase total sales to 3,000 by the end of 2014.
Going to Scale
Most renewable energy firms in the developing world remain small due to lack of end-user finance and challenges with distribution.
REMMP is built on the premise that businesses that grow successfully share important attributes: an understanding of the
interrelationship between finance, distribution and technology; an approach tailored to local markets; and the leveraging of existing
financing and distribution channels for easier and quicker growth. All REMMP activities incorporate these elements to ensure the
program achieves its objectives, and lessons learned are shared with others in the sector to multiply impact.
In the coming year, REMMP plans to work with some of the world’s largest global money transfer organizations and MFIs to further
test different forms of consumer finance and bring the benefits of renewable energy to more consumers. The goal is to reach
500,000 people by the end of the project.
Eric Postel, assistant administrator of USAID’s Bureau for Economic Growth, Education and Environment, adds, “Programs that
focus on bringing cleaner energy to impoverished communities not only transform lives, but can accelerate development progress in
regions with great challenges. They are a critical element in our effort to end extreme poverty by 2030.”
Nicola Armacost is with Arc Finance.
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Last updated: April 16, 2014