In April 2014 the CleanStart Programme entered into grant partnerships with four Financial Services Providers (FSPs) in Nepal. CleanStart is a global programme of the United Nations Capital Development Fund (UNCDF) - supported by the Austrian Development Cooperation, Government of Liechtenstein, Norwegian Agency for Development Cooperation, and Swedish International Development Cooperation Agency - with a vision to dramatically expand consumer financing for low-income consumers who want to transition to modern energy. Nepal is CleanStart’s first country to start out this journey.
Energy situation in Nepal
Currently, 40 percent of Nepal’s population has access to electricity. Rural electrification is at 29 percent, and even urban areas face power outages of up to 16 hours per day during the dry season. Inefficient and polluting biomass such as fire wood and kerosene are still the predominant source of fuel for cooking, lighting and household needs. These patterns of energy generation and consumption – coupled with difficult geographical terrain in hilly and mountainous areas, socio-economic development challenges and a dispersed population – make the provision of modern energy solutions very difficult. This has significant livelihood and development implications for the quarter of the Nepali population (nearly 6.7 million) that lives below the poverty line.
How is UNCDF helping?
The goal in Nepal is to help 150,000 low-income consumers transition to cleaner and more efficient energy by 2017. FSPs are committed to providing energy loans to at least 102,000 clients. They are however upbeat about reaching even more clients as consumer awareness picks up and their expertise in this new area develops.
These partners foresee greatest demand for solar home systems, biogas and improved cook stoves among low-income clients. It is in fact an opportune time for financial institutions to seriously invest in this business. The Alternative Energy Promotion Centre through the National Rural and Renewable Energy Programme is actively promoting affordable renewable energy that can provide reliable power to rural areas. On the financing side, these are supported through product subsidies and concessional funds to financial institutions to on-lend to clients (Central Renewable Energy Fund).
What is exciting about Nepal is that several of these partners already have some level of experience with energy financing. One partner, Clean Energy Development Bank Ltd. (CEDB), was set up specifically to provide financing in the renewable energy sector and has experience managing wholesale funds for micro-hydro and improved water mills. One retail microfinance partner Jeevan Bikas Samaj (JBS) will use this partnership to reconfigure its existing energy loan products.
The expectation is that this mix of institutional profiles - two development banks, one wholesale microfinance institution for cooperatives and one retail microfinance institution – will lead to geographic spread, deeper client outreach, and a range of financing and partnership models.
Despite initial experience, energy lending is still new terrain for these institutions. On FSPs’ minds are how to link these loans to income generating activities to ensure cash flow, provide technologies that deliver what it promises and build strong monitoring systems on-the-ground.
In the coming months, partners with the support from the CleanStart Program, will carry out market research for loan product development and test these products in the market. The partnership will hopefully stimulate the growth of an ‘inclusive’ energy market in Nepal where the environmental, market and policy conditions provide unique opportunities to make meaningful progress.
Who are the four partners?
These are the four partners that were selected through a competitive selection process:
ACE Development Bank Limited (Ace)
Ace is a national level development bank. It will closely work with the 10 rural FSPs who will on-lend to their individual members for various technologies such as biogas, Solar Home System (SHS), mud Improved Cooking Stove (ICS) among others. Nationwide coverage will help Ace to hedge risks between high-risk remote hilly areas in the North with low-risk accessible areas in the Southern Terai. Ace has a track record of partnering with local financial institutions, financing solar lamps, solar home systems and biogas.
Clean Energy Development Bank Ltd (CEDB)
CEDB is the first national level development bank to focus solely on clean energy. Initially, CEDB will partner with nine microfinance partners to finance a range of solar PV products, improved cooking solutions and improved water mills. CEDB will also directly provide financing to micro/mini-hydro projects and large solar PV systems promoted by the NRREP. It will also continue offering vendor financing for household biogas plants.
Jeevan Bikas Samaj (JBS)
JBS is a financial NGO. It has 49 branch offices in seven working districts (4 hill and 3 terai districts). JBS is focused on poorest of the poor segments, hence their focus on the remote Terai and high hill areas. It will provide loans for mud improved cook stoves, solar lights, biogas, and micro-hydro.
Small Farmer Development Bank (SFDB)
SFDB is a wholesale microfinance institution providing refinancing to member-owned small farmer cooperatives. It has 231 partner financial institutions all of which are the bank’s shareholders. It is reaching 250 households in 49 districts. It will provide loans for solar home systems, mud improved cooking stoves, and biogas.