Energy Loan

March 24, 2020

Till 2017, the irregular and uncertain supply of electricity was a major problem for households and enterprises in Nepal. According to a 2013 report published by the IFC, 68.8 % of Small and Medium Enterprise (SMEs) identified the insufficient electricity supply as a major constraint on their productivity as it caused difficulty in operating full hours. Other options available to enterprises were expensive fossil fuel which isn’t viable for the sustainability of small enterprises and slower manual labour which meant less productivity.

In such a scenario, the suitable alternative would be environment-friendly technologies, however, small enterprises faced two major challenges in adopting green technologies — 1) limited options of viable alternative energy sources; 2) lack of financing for alternative energy. Awareness of green alternative energy was not widespread among enterprises and limited effort was made for demand creation.

Realising the need and potential of Climate Resilient Technologies (CRTs) in SME sector, Janautthan Samudayic Laghubitta Bittiya Sanstha Limited aimed to explore the feasibility of their energy loan product to cater to the sector. Their existing financial product — Alternative Energy Loan – was designed for biogas and solar products catering to household purposes only. Janautthan proposed a project to re-engineer their Alternative Energy Loan targeting SMEs and other Income Generating Activities (IGAs).

A partnership project was launched by UKaid Sakchyam Access to Finance programme and Janautthan, with Winrock as the technological partner, to address financial needs of SMEs and households in adopting a wider range of renewable energy. Sakchyam provided technical support to re-engineer the Energy Loan product to fit specifically for SMEs and households for IGAs. The product redesign process included a review of the existing products of Janautthan, analysis of the demand and supply side through meetings and Focus Group Discussions (FGDs) and data analysis among others. The team even reviewed energy loan products of other financial institutions and, willingness and ability of technology vendors to collaborate on promoting such product; this helped in understanding the market scenarios of energy financing.

After understanding the strength and inadequacy of the existing product the study team outlined a prototype of an energy loan product. It was further discussed and validated with the senior management of Janautthan, technological partner, branch office staffs as well as clients before finalizing the product. The redesigned Energy Loan Product included provisions to finance all types of CRTs that can be used to start/expand SMEs.

The product was pilot-tested for three months in two branches — Ramapur Colony in Rupandehi and Lalmatiya in Dang. The action plan for the pilot-test included promotional activities like staff training and client awareness on the technology options available for SMEs and the features of the re-engineered product, technology demonstration, product performance monitoring and evaluation before full-scale roll-out. As per the product mechanism developed, Janautthan signed agreements with technology vendors with conditions for quality installation and after-sales services and also engaged them in client awareness and demonstration of the technologies. After the pilot-test, Janautthan launched the Energy loan product in 21 branches.

As the availability of grid power improved, over time, it had a certain impact on the demand for CRTs. Janautthan conducted an SME energy demand survey to explore the number of SMEs in the work area, their current energy use pattern, and the potentials for replacing it with CRTs. The survey with over 1,300 samples suggested potential clusters where Janautthan started intensive marketing through information dissemination at training and centre meetings and organizing demonstrations of CRTs among other activities. This exercise brought a notable increment in the number of applications for energy loan to install innovative CRTs like solar water pump, solar dryer, E-rickshaw etc. SMEs involved in areas such as furniture, irrigation, fishery, poultry, hotels and vegetable/ fruit drying micro-enterprises have been using CRTs through Energy loans from Janautthan. With the increase in demand, Janautthan has started offering  Energy Loan at all its 39 branches.

 

Text by Priya Tamang with inputs from Jagdish Tiwari