Microfinance can energize local economies

Microfinance can energize local economies

Candles provide a light in the dark for those without access to electricity. <a href="http://www.flickr.com/photos/sara_y_tzunki/759902743/sizes/m/in/photostream/">Photo: Sara Y Tzunky</a>
Candles provide a light in the dark for those without access to electricity. Photo: Sara Y Tzunky

Is microfinance the solution to energy poverty? If partnered with renewable energy, it could prove to be true.

Energy poverty—a lack of access to electricity, fuel and more efficient cooking technologies—affects over two billion people, according to the United Nations' Rebeca Grynspan, making it a huge development priority.

Living without electricity simply makes you poorer. Kerosene lamps are expensive, ineffective and fill a home with hazardous fumes. But without a lamp, it's impossible to work or study after sunset. Cooking over an open flame pollutes the lungs and requires hours of wood-gathering, a huge loss of productive time. This is where simple solutions (like more efficient cookstoves) can yield huge impacts.

As a weak economy shrinks international funding pools, countries need to be increasingly wiser and more creative in their resource management. It’s worth noting that a lack of infrastructure presents the rare opportunity to build right the first time. By funding sustainable energy initiatives through microfinance, two things can happen: (1) Programs aiming to reduce energy poverty can work closely with locals and make more informed decisions by relying on indigenous knowledge; and (2) Money stays in the local economy, creating avenues for future investment and wealth generation.

Mercy Corps is combining these two endeavors to address energy poverty. The organization's Energy for All (E4A) program, funded by the European Commission, began in May 2011 in the country of Timor-Leste. It's primarily focused on lighting, cooking fuel needs and natural resource management. Because the population of Timor-Leste heavily relies on crops for fuel, food and income, they are especially vulnerable to shocks. Without access to energy, their problems are exacerbated, true for most poor people in developing countries.

Mercy Corps utilizes a market-driven approach to address energy poverty issues: By remaining external to the market, they strengthen the local economy and seek to create linkages where gaps in service exist. Simply donating materials or stoves undermines local businesses and acts as a disservice to the community. But upfront costs of adopting new technologies is often a major barrier, so Mercy Corps is partnering with microfinance institutions in Timor-Leste to initiate loans.

Mercy Corps' comprehensive survey compiled and assessed the needs of local households, to paint a clear picture of the specific needs and challenges of the community. The outcome is a program design that will implement solar power, improved cook stoves, seed storage and sustainable forestry initiatives.

And a performance tool developed by the Grameen Foundation, the Progress out of Poverty Index (PPI), will help local microfinance institutions determine whether the services they provide are effective or not.

Additionally, the E4A program is establishing alternative energy centers that will demonstrate their sustainable business models to the local market, with a special focus on rural off-grid areas.

I had the opportunity to visit Soft Power Health in Kyabirwa, Uganda, an organization testing an improved community cook stove. Access to a seemingly simple cook stove not only improves the health of the user but requires less fuel and reduces cooking time. By easing access to tools like this, the group is educating the surrounding community with hands-on instruction and use, the first step in technology adoption.

The concept of energy poverty received international attention last year when the UN announced that 2012 is the International Year of Sustainable Energy for All. They are seeking opportunities to scale up efforts that will achieve universal access to modern energy services. As part of the Millennium Development Goals, the UN has set a target date of 2030.

That's an ambitious timeline for getting electricity to everyone, and it's unlikely to happen without the for-profit sector. This makes it imperative that governments, lenders and non-governmental organizations implement market-based solutions that allow communities to lift themselves out of poverty through developing a robust local economy. Microfinance-backed renewable energy can be the first tool in this process.

Many organizations are taking the lead in implementing energy innovations where the need is great. What other programs and innovations d you know of that address the needs of people without energy access?

Curated news and insights about innovative, market-driven solutions to poverty explored through news, commentary and discussion.

Learn more »

Global Envision newsletter