Reinventing Microfinance through Solving the “Last-Mile Problem”

1. Reinventing Microfinance through Solving the “Last-Mile Problem” Bringing Clean Energy Solutions and Actionable Information to the Poor Alex Counts, President and CEOGrameen Foundation With assistance by Julia Arnold, Muhammad Nurul Alam, Heather Thorne, and Nicola Armacost

2. Overview • The microfinance industry is experiencing an identity crisis • Recent criticisms provide the opportunity for self-reflection by the industry • Microfinance has many unique strengths, including its human &physical infrastructure, that it can leverage to address larger societal problems • Energy poverty and information poverty are two areas with great potential

3. Microfinance: Key Issues as of 2011 A social innovation that scaled was criticized, often unfairly, but some issues were real: • Poorly designed, overpriced products not segmented • Undertrained staff responding to wrong incentives • Policies and practices encouraged over-indebtedness • Excessive profits due to oligopolistic market dynamics raising questions about intent/outcomes • Profits leading to excessive private benefit for non-poor Result: In key markets, m/f losing support of civil society

4. An Agenda for Change How can microfinance respond? • Embrace consumer protection efforts and apply to all • Define social purpose driven microfinance & adopt standards (“Seal of Excellence”) • Re-align incentives & reset investor expectations • Coordinate thru new and invigorated apex bodies • Microfinance CEOs Working Group, SEEP, SPTF, Smart, etc. • Focus on leveraging infrastructure to meet client needs • Examples: Energy Poverty and Information Poverty

5. Climate Change, Microfinance & Poverty • Scientific consensus: climate change largely from human activity is coming – really! • Poor will be major victims of climate change • Poor can also help slow/reduce it • MFIs can help poor slow climate change through clean energy lending to clients • MFIs can help poor prepare for climate change • See Asif Dowla paper, “Climate Change and Microfinance” • Free on www.grameenfoundation.org

6. Energy Poverty: A Huge Issue • Poor lack access to affordablelighting &cooking fuel • Indoor air pollution causes 1.4 million premature deaths every year, more than malaria and tuberculosis combined • By 2030 it is projected to exceeded the number of deaths from HIV/AIDS • About 1.7 billion poor peoplehave no access to electricity • Market gap of $195 billion • More than combined portfolios of all the world’s MFIs

7. Solutions Abound! • Poor households spend 20-25% of their household income on energy services • Cleaner and cheaper alternatives exist, though the last-mile problem has so far stymied widespread adoption • Existing solutions include:solar home systems,micro-utilities, biogas plants,improved cooking stoves, insulation, and solar lanterns • Pound for pound, improved cook stoves ($13) have greatest positive impact on climate change

8. Organizations at the Forefront (from paper) • MFIs w/ Energy Lending • Grameen Bank/Shakti • Emprenda • XacBank • SEWA Bank • Faulu Kenya • Fonkoze • BASIX • Energy Companies • SELCO • Solar Lantern Companies • Barefoot Power • Greenlight Planet • ToughStuff • d.light • GF Tech-Enabled Microfranchise Models • CKW Uganda • Village Phone Uganda • AppLab Uganda • Village Phone + AppLab Indonesia

9. Grameen Shakti • Fewer than 40% of Bangladesh’s 162 million people have access to grid electricity • GS offers three products • Improved cook stove: 214,125 installed (126,549 in 2010) • Biogas plant: 15,543 installed (5,127 in 2010 alone) • Solar home system (SHS): 539,504 installed (1000/day now!) • Reasons forsuccess: • Custom financing methodologyto meet the needs of therural communities • Excellent customer service • Training women and youthto build and support SHSs

10. XacBank (Mongolia) • Ulaanbaatar, Mongolia, is the world’s most polluted capital city • XacBank (“HaasBank”) provides two energy products to poor, migrant populations • Ger insulation blanket for yurts, which emit eight tons of carbon without a blanket and about three with it • Highly efficient wood burning stove • XacBank pays for its program through carbon credits • Critical Role of MicroEnergy Credits (Seattle, USA)

11. Information Poverty • The poor rarely have easy, effective access to available knowledge that could help them • Need information about: agriculture/weather, health, markets/prices, jobs, education • Information must be: actionable, timely, contextualized, locally relevant • MFIs can use mobile technology, specialized applications and their field staff to bring relevant & actionable information to the poor

12. Community Knowledge Worker (Uganda) • “Trusted intermediary” peers provides farmers with access to valuable information through mobile phone • Can also collect/aggregate information about farmers for govt. agencies, corporations, & NGOs for a fee • MFI clients and staff can play the role of Community Knowledge Worker (CKW) • 725 CKWs deployed in Uganda, reaching 45,000 farmers • >85% have adopted new practices based on CKW info • Uses GF’s Progress out of Poverty Index (PPI) scorecard to trackpoverty figures/ outcomes

13. Lessons Learned • Time to re-think the microfinance business model • Less greed & naiveté, more value creation for poor • MFIs can contribute to bridging the “last mile” for bringing clean energy solutions to the poor • Low-hanging fruit for MFIs: finance entrepreneurs who can sell clean energy solutions to the poor • Rapid growth of mobile phones offers a unique opportunity for MFIs & pro-poor orgs tocombat information poverty by bringing actionable and timely info on health, agriculture, markets, etc.