ADA supports microfinance institutions in developing financial services for environment- and climate-friendly uses and practices.
Providing access to green energy for agricultural production in Tunisia
In 2019, ADA carried out a project to support ENDA Tamweel in Tunisia, the country’s largest MFI, in applying their environmental strategy through the implementation of new “green” products and services. The project assessed the potential of the MFI’s green portfolio to build internal capacity for more efficient portfolio management; to improve an existing green product focussed on recycling, the “Eco-loan”; and to define a new green product, the “Eco-shems” loan, to finance the irrigation and solar pumping systems of date palm producers in southern Tunisia.
In 2020, ADA supported the introduction of the Eco-shems product in the pilot branch of the city of Tozeur, before distributing it in five more branches in the south of the country. At end-2020, despite the health crisis that slowed down the project, 22 loans for a total of €144,000 were disbursed. The goal for 2021 is to grant 240 Eco-shems loans and provide technical agricultural assistance to 50 producers to teach them good water management techniques. In time, the taught method can then be replicated by the MFI.
Furthermore, Enda Tamweel and ADA have started to think more broadly about implementing a financial product enabling customers to embark on their company’s energy transition using photovoltaic panel technology and its many possibilities. A survey will be launched in early 2021 to better understand the needs of certain promising business sectors in urban and suburban areas, and to be able to launch a new tailored green product in 2021.
Promoting the use of responsible financial services in Latin America
The microfinance sector in Central America and the Caribbean is represented by the REDCAMIF regional network (Red Centroamericana y del Caribe de Microfinanzas), which brings together the national networks of seven countries: Guatemala, Honduras, Dominican Republic, El Salvador, Nicaragua, Costa Rica and Panama. Together, these networks represent 138 MFIs, with a total coverage of 1.8 million customers, 60% of whom are women with 40% living in rural areas. The partnership with REDCAMIF allows a significant geographical reach and the integration of a wide variety of themes needed to strengthen the sector.
For 12 years, ADA and REDCAMIF have been providing financial and technical support to member MFIs to help them offer innovative solutions to the most disadvantaged people and to improve their living conditions. An initial ADA-REDCAMIF project carried out between 2012-2017 was the subject of an assessment, the conclusions of which informed the ADA-REDCAMIF II project for 2018-2021. This second project includes the development of financial products and non-financial services enabling access to energy and encouraging environmentally responsible agricultural practices aimed at adapting to climate change with MFIs affiliated to REDCAMIF.
In this context, 13 MFIs from REDCAMIF-affiliated networks received support in 2020 to develop a “green” loan not limited solely to energy or the adoption of agricultural and environmental practices. Green credit covers several themes:
- Energy: installation of solar panels;
- Water and sanitation: improvements to or construction of toilets and waste management;
- Green housing: energy renovation (e.g. transparent roofing to allow natural light to enter);
- Green rural finance: implementation of environmental practices in agricultural activities.
At end-December 2020, a total of 381 MFI customers based in Guatemala, Honduras, the Dominican Republic and El Salvador benefited from green credit:
- Energy: 2 MFIs (BANCO POPULAR and FFDL) and 106 beneficiaries;
- Water and sanitation: 4 MFIs (FAPE, MAYAVERSATIL, HPHES, PANAPANA) and 168 beneficiaries;
- Green housing: 1 MFI (ADOPEM) and 40 beneficiaries;
- Green rural finance: 6 MFIs (SUMA, PADECOMSM CREDITO, PILARH, CREDICAMPO and FUNDENUSE) and 67 beneficiaries. Another project aimed at financing the development of ecotourism with FDD is underway.
These projects are only in their early stages. The products were marketed at the end of 2020, and distribution has been slow due to the pandemic. Earnings are expected to be stronger in 2021.
In October 2020, ADA also received funding from the Luxembourg Ministry of Environment, Climate and Sustainable Development (MECDD) to carry out a green product development project entitled “Strengthening the capacity of low-income farmers and micro- entrepreneurs to adapt to and mitigate climate change”. Three MFIs have already been selected to receive this support.
Expanding access to sustainable energy in the Philippines
ADA supports the Philippines sector. In particular, it has carried out a project aimed to improve access to sustainable energy products for vulnerable populations. These have helped reduce the environmental impact in both countries.
Enhancing the inclusive green finance capacities of the Microfinance Council of the Philippines (MCPI) network and its member MFIs
The so-called GIF (Green Inclusive Finance) project, carried out between 2017 and 2019, followed on from an initial project to develop access to sustainable energy (DevSEA) implemented by MCPI with the support of ADA between 2013 and 2016. To enhance the inclusive green finance capacities of the network and its member MFIs, ADA and MCPI received EUR 200,000 in financial support from the Luxembourgish Ministry of the Environment, Climate and Sustainable Development (MECDD) over 24 months.
MFIs seeking to give vulnerable populations access to green energies
Access to energy represents a real turning point for micro-entrepreneurs. Over the last decade, many MFIs around the world have developed and offered "green energy financial products" to facilitate access to mini power grids (most of them solar-powered). From a microfinance perspective, green energy has the great advantage of being sustainable not only for the environment but also for clients who become independent from buying fuel for their homes or small businesses.
To cater to customers of its member MFIs in rural and urban areas with little or no access to the electricity grid, MCPI has launched a pilot project with five MFIs to improve access to affordable and renewable energy for these vulnerable populations in the Philippines. 20 of MCPI’s 51 MFIs had sufficient financial and human resources to develop green energy credits to meet the needs of their customers and took part in a training course on green finance products. Of these 20 MFIs, five received technical assistance to develop loans coupled with technical solutions to access renewable energies and improve energy efficiency.
Sun King Home 60 solar light kit.
The three lamps can run for eight hours with no additional power.
A proven methodology for assessing energy needs
The methodology developed by MCPI identifies technical and financial solutions tailored to the profile and needs of MFI customers. Of the 5 MFIs selected for technical assistance, and following an assessment of customers’ energy needs, the one located in an urban area (K-Coop) began to develop eco-energy loans for the construction or modification of housing with a view to minimising energy consumption. The other four MFIs —JMH, USPD Savings and Credit Cooperative, CEVI and SEDP-Simbag—, located in rural areas, introduced loans for the purchase of solar equipment, including solar lamps, chargers and fans.
Products tested and accepted
The MFI pilot projects were a notable success, particularly for the four MFIs that introduced solar equipment. In total, 2,500 products were sold to 2,425 customers over the duration of the GIF project. Most of them took out an initial loan for solar lamps and then a second loan for fans.
Bernard Georges, ADA project manager
“Thanks to a project carried out in collaboration with MCPI, an MFI network in the Philippines, ADA has developed financial products for families and micro-entrepreneurs that have had a positive impact on thousands of people. To give an example, many families living in rural areas and remote islands are increasingly affected by climate change. Violent tropical storms often cause severe damage to the electricity grid, and these communities and families remain isolated for weeks at a time. Now, thanks to the purchase of simple solar lamps through a microcredit, they can enjoy light, even if the grid is not restored immediately.
The same goes for small businesses. Among the clients of the MFIs with which ADA collaborates, there are many street vendors who are able to work even if it is dark and they do not have access to the normal network. They often buy the solar lamp which at the same time powers the radio on their mobile phone to put on music to attract more customers. These details may seem unimportant to us, but they can really determine the success of micro-entrepreneurs.
Subsequently, other MFIs proposed a financial product for the purchase of a solar oven to dry fish in a short period of time. This kind of action can have a huge impact on the life of the micro-enterprise owner and his family, but also on the whole community, which can have access to good quality food with high nutritional value throughout the year, at a fair price.
It wasn’t hard to convince the customers. They immediately embraced the product. On the one hand, to access electricity, which is also at a favourable price, and on the other, to save electricity.”