1. Unlocking access to end-user finance for modern energy Ellen Morris, Ph.D. Managing Director Arc Finance, Ltd.

2. © Arc Finance The World At Night Source: C Mayhew and R Simmon (NASA/GSFC)

3. Global Population Without Electricity (millions of people) Source: World Energy Outlook 2006

4. What Options Do People Have?

5. Lighting & Cooking Rural India Could you read by this lamp?

6. Energy Poverty: Annual Deaths from Indoor Smoke 2.8 1.6 1.2 1.3 0 1 2 3 MalariaSmoke from biomass TuberculosisHIV/AIDS millions Source : World Energy Outlook 2006

7. Importance of Energy in Development Increasing Access to Energy Services Leads to... R Reduced pressure on forests and environment Replace kerosene G Greater participation in development and trade I Increased productivity and income SMEs L Lighting for schools & increased attendance Time to study E Empowering women and gender equality I Improved child and maternal health-vaccines information L Lighting and refrigeration for health clinics

8. Financial institutions serving the poor

9. EAP: East Asia & Pacific, SS Africa: Sub-Saharan Africa, LAC: Latin America & Caribbean, EECA: Eastern Europe & Central Asia, MENA; Middle East & North Africa 11 5 6 21 67 0 20 40 60 80 Percentage of Borrowers by Region MENAEECALACSS AfricaEAPS Asia Source: World Bank, Consultative Group to Assist the Poor % of Total Borrowers by Region in 2004 Total: 94 Million Borrowers Borrowers are concentrated in Asia

10. Many of the world’s poor do not have access to basic financial services Most of the world’s poor do not have access to modern energy Estimates vary, but about 500m poor entrepreneurs need access to finance; while only just over 100m have access Less than 500k clients of MFIs have access to energy loans 1.7 billion people have no access to electricity and 2.4 billion people rely on traditional biomass for cooking and heating - this untapped market for clean energy is estimated to be valued at US$194 billion. 1.3 million people die of indoor air pollution each year (smoke from biomass). Context for energy lending

11. Tailoring Financial Services to the Needs of Poor Customers What Poor Customers Want Asset Building, Risk Mitigating Products Voluntary savings Health and life insurance Variety of Products Housing loans Education loans Life cycle products Business development services Quality of life enhancing products (e.g. energy and H 2 O) Group Individual Loans Flexible Loans Small initial loan sizes Larger loans over time Longer terms No Traditional Collateral Service Rapid, convenient access Respect, connection

12. 12 ServiceEnergy System Benefits Electricity Solar lanterns Solar lighting systems for businesses and homes Battery charging Cleaner, brighter light for work, study and recreation Safer - fewer burns, less breathing/vision problems Reduced dependency on unreliable grid Increased income opportunities Mechanical power Multifunctional platform Water pump Women’s drudgery reduced Higher quality product and higher prices Job creation for operation and maintenance Creates options for non-electrified villages Heat for cooking Biogas systems Liquefied Petroleum Gas stoves Efficient wood/ charcoal cook stoves Cleaner and more efficient Safer - fewer burns, less breathing/vision problems Job creation in manufacture, sales, and distribution Tailoring Energy Products to the Needs of Poor Customers

13. RESEARCH  6 MFIs in Asia and Africa: SEWA Bank; SEEDS, Nirdhan, Amret, Faulu Kenya, Kuscco  Desk study in Latin America/Caribbean  On-the-ground research by 5 microfinance and energy experts LEARNING EXCHANGE WORKSHOP  Hosted by SEWA Bank  August 2007 LED TO:  Launch of Arc Finance  Expanded interest in energy/MF December 2007

14. Microfinance = financial services for the poor to afford energy services The Vision for the Research Investigate opportunities, barriers, costs, and impacts of energy lending Look in depth at business models, clients, and operations Offer initial recommendations and highlight lessons learned from experience on the ground

15. Snapshot of the results Product Solar more common in Asia and LAC (except biogas in Nepal) LPG more common in Africa Interest rates (p.a.) Generally higher and greater range in Asia and LAC (10-36%) Generally lower in Africa (10-20%) Loan size ceiling Solar systems: $225-$1430 Biogas: $250 Diesel/battery charging business in Cambodia: $5,000 LPG: none to $150 Clients served Very small number of solar and biogas loans in Africa ( 40,000) Solar loans in Asia have the best penetration (>100,000) Biogas at NUBL (Nepal) small but growing (375) Management and information systems Better tracking and information systems in Asia than in Africa and LAC Energy typically embedded in business loans

16. Clients Demanding loan products/energy services for business and to improve quality of life Microfinance Institutions Experimenting with broader set of product offerings for clients Energy companies Beginning to develop lower cost products and services Donors and investors Showing interest and seeing opportunities in this emerging niche Climate change debate Growing awareness of carbon monetization from clean energy Trends

17. Success factors  Partnerships are single most important factor  Coordination and communication between the MFIs and energy companies  Flexibility is key to deeper market development  Build capacity to sell product and educate market  Look to existing infrastructure and distribution network  Manage credit and technical risk sufficiently

18. Financial institutions Flexibility in lending methodologies Low-cost capital to lend for energy Business and loan officer motivated to promote energy Energy Enterprises Expand presence in peri-urban and rural areas Provide service and reliability Flexibility in product designs End-user -Energy Partnerships Communication and coordination Common vision Strong system buy-back provisions External Need-based, not donor or technology driven Policy and regulatory environment – subsidies, VAT, collateral requirements Scale-up of energy lending

19. Arc Finance Our mission “To promote and expand access to financing for energy, water and other basic needs to build the income and assets of poor people around the world”

20. Meet growing demand of existing clients for energy loans Attract new customers New marketing channels Diversification of loan portfolio - cross-selling opportunities Carbon offset Access to new market segments Increased sales Increased market penetration Decreased overhead by linking with MFI Carbon offset Financial Institution Energy Enterprise Energy needs met in an affordable and equitable way Via energy company - access to after-sales service Via MFI - access to other financial services - savings, insurance … Improved quality of life – health, environmental and economic benefits Client

21. 21 Arc Finance Services Partnerships and Transactions Linking and supporting energy companies working with microfinance institutions Promoting appropriate technologies and financing innovation Technical Assistance Conducting market studies, product development Monitoring and evaluation and due diligence Carbon finance Tools and Knowledge Resources Learning platform Research/mapping exercises Toolkits for practitioners PARTNERSHIPS AND TRANSACTIONS TECHNICAL ASSISTANCE TOOLS/KNOWLEDGE