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MicroEnergy Credits Corporation: Greening the Base of the Pyramid
Robert Katz, 23 Apr 08

939206_living_conditions.jpgBy Grace Augustine

It is impossible to argue against the need for reliable energy at the base of the pyramid (BoP). Energy drives every facet of society, from nourishment to communication. According to the UNDP, at least 1.2 billion people suffer from energy poverty, which has profound impact on health, education, and livelihoods.

Increasingly, people are calling for the new energy models in developing nations to be "sustainable" and drawn from "clean" and renewable sources. The accepted belief is that if we can get developing nations on a path of adopting clean technologies, they can completely leapfrog the dirty, self-perpetuating system we have created in the west. However, there are barriers to establishing renewable energy projects at the BoP, on both the supply and demand side. One recently-launched for-profit social enterprise that hopes to revolutionize financing in this field is MicroEnergy Credits Corporation (MEC), and I had the wonderful pleasure of conversing with its founders, April Allderdice and James Dailey, last week.

Allderdice and Dailey both have impressive resumes, from Peace Corps to Columbia Business School to McKinsey and Grameen; they have the research and the on-the-ground experience to move this field forward.

MEC realizes that even though clean technology pays off in the long-run compared to conventional sources, very few BoP consumers can afford to pay high up-front costs when they are concerned with day-to-day survival. According to Allderdice and Dailey, BoP consumers "cannot afford to pay extra for environmental or even social benefits, and therefore adopt traditional energy." And let’s be honest, who are we to tell others that they should sacrifice their meager income to save a planet which we are primarily responsible for destroying? In addition to the high up-front cost, there has not traditionally been a local broker to provide financing to the poorest and the most remote clients who do want to adopt clean energy projects. That is where MEC hopes to create change.

MEC’s solution is to use existing Microfinance Institutions (MFIs) and the recent developments in the carbon credit markets on the supply side to facilitate the adoption of clean energy at the BoP. According to Allderdice and Dailey, "Putting a significant portion of the world’s population on a clean energy path could have a huge impact in the long term, and is an opportunity that should not be wasted." Their idea has been well-received, by both the Tomberg Family Philanthropies and the judges at the Global Social Venture Competition, where MEC recently was awarded first prize.

To provide financing on the ground, MEC will go through the MFI network, since MFIs are embedded in the community, especially rural off-the-grid communities that need decentralized solutions. This is a very timely post, as a recent post on NextBillion.net highlighted in CGAP Senior Advisor Katharine McKee’s article on microfinance and climate change, which said that "A number of respected MFIs and networks – including ACCION, BASIX in India and Equity Bank in Kenya – are exploring products to respond to climate change."

MFIs have expertise in structuring deals, establishing appropriate loan repayment schedules and interest rates. According to Dailey, "MFI field officers meet with millions of households every week; they are a channel to market for financial services, and financed energy services are a natural outgrowth."

MFIs such as ACCION and Grameen have also proven to be incredibly scalable, and they can spin off renewable-energy focused businesses; the most notable example of this has been Grameen Shakti, a member of the Grameen family that provides renewable energy technologies for rural households. Allderdice recently worked for Grameen Shakti, and says that it is "currently scaling faster than Grameen Bank was at year eight."

The other piece of the puzzle on the supply side is to provide incentives to the MFIs through the evolving world of credits for renewable energy projects. Carbon finance is a valuable source of capital, yet it is a complex and evolving field that is difficult for the traditional on-the-ground MFI to tap into. In order to reduce the transaction costs of carbon financing,

"MEC provides MFIs carbon revenues on a per unit basis for each system they finance. This gives them near term access to finance for the seed costs of starting an energy program. As their program scales up, they can pass on the subsidy to end users which enable them to achieve greater volume by reaching poorer clients."


Allderdice and Dailey have developed two credit instruments, Microfinance-originated Carbon Credits and Millennium Development Goal (MDG) credits. With the first, MFIs can receive revenue when they lend for energy systems that create verified carbon emissions reductions, such as solar PV systems, improved cookstoves and biogas digesters. With the second, MFIs can receive MDG Credits when they lend for an intervention that enables an MDG household to meet all or part of an MDG. According to Allderdice, "There is no established market in MDG credits yet, but MEC is building the infrastructure to enable it."

When I asked the founders about the possibility of using Kyoto-established Clean Development Mechanism credits, which I wrote about last month, they said that "MEC’s unique approach will create extremely high quality transparent, and verifiable carbon credits that will first be sold on the voluntary markets and as CDM policies evolve, MEC will be among the first to tap the CDM markets." Well, I guess that there is my answer for the possibility for CDM credits in the short-term.

The hope for the future is clear – to put households and communities on a clean energy path that allows them to be owners of their own reliable and renewable systems. This is what Allderdice was able to see first-hand during her work with Grameen Shatki in Bangladesh:

"some villagers now use solar for electricity, light, tv and radio and biogas for cooking and heating. They are full owners of their own energy generation, without being susceptible to the price of oil, or the fallibility of the electric grid. And they enjoy the environmental benefits of clean, silent, reliable, continuously renewing energy. As their income increases they are demonstrating a preference to buy another solar panel for a fan or a color tv — rather than switch to a diesel genset, or pay a high connection fee for unreliable grid connected service. Once they are on the clean energy path, there is less incentive to get off it."

Editor's note: WorldChanging Guest Poster Grace Augustine is a Research Associate with the William Davidson Institute (WDI) at the University of Michigan. At WDI, Grace writes cases in international business, and has a particular interest in exploring market-based solutions to poverty alleviation, social entrepreneurship, and clean technology at the base of the pyramid (BoP). She holds a B.A. in Organizational Studies from the University of Michigan and has worked as a Business Analyst with Deloitte Consulting.

This post first appeared on NextBillion.net, where Augustine is a Staff Writer.

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Comments

So let's privatise the poor's access to basic goods and services.

What's up with all this capitalistic, trendy "Bottom of the Pyramid" ideology? It's one of the most obscene, perverse concepts ever to emerge.

People have an inalienable right to food, energy, water, social services, security, education, health care.

It is the State's responsibility to make sure these rights are fulfilled. Not the capitalists and the private sector.

This neoliberal BOP-ideology simply wants to privatise the socius. How cruel.

Please, readers, never give a dime to those organisations. Better spend your money on organisations that support capacity building of the State, and to organisations that watch after transparency, good governance, and so on.


Privatising the poor's life-world is obscene. The State has to provide access to energy. Not private firms and ideologues like this "MicroEnergy Credits Corporation".

Poor people don't have to go into debt to buy biomass or biogas plants or solar panels, making corporations like the one discussed here, profit. The State has to build energy infrastructures. And that's it.


This applies to all fields this BOP-ideology is trying to privatise: education, health, social services, public goods, infrastructures, energy, you name it.

Stop indebting the poor; stop eroding the State's obligations.


The BOP-ideology should be made illegal. It is truly evil.


Posted by: Jonas on 29 Apr 08

By the way, many will not want to hear this, but the Grameen Bank is a perverse organisation that makes the poor poorer.

New evidence, recently uncovered by the AFP, clearly shows this. Indirecting indebting and displacement of indebtment effects are having catastrophic consequences.

Micro-credit does more harm than good. Grameen has been exposed as a fraud.

Please read the article and see the video, over at France24:

The crushing burden of microcredit

Friday 04 April 2008
In Bangladesh, FRANCE 24 reporters find that far from alleviating poverty, microcredit has been plunging people deeper into debt.

Grameen exposed: link to the article and the video.

This wave of privatisation (the "BOP" ideology) and of indebting the poor through fashionable micro-credit that doesn't work, must really stop.

The State has the obligation to solve these problems. Not capitalists, charities or neoliberal profiteers.


Posted by: Jonas on 29 Apr 08

If your readers are interested in learning more about the linkages between energy and microfinance, please take a look at a report recently published by Citi Foundation that analyses the energy-lending portfolios of microfinance institutions in Africa, Asia, and Latin America:
http://www.seepnetwork.org/content/library/detail/5875

p.s. April Allderdice was the lead researcher for the Latin America section of this report!


Posted by: Jacob on 1 May 08

I thank you for your comment because I think your heart is in the right place. We are both trying to help a percentage of the population that is without basic services under the current system that is in place.

I can tell you that I have never met a BoP scholar or supporter who believed that market-based solutions provide a panacea to societal ills and government failures. In fact, most have strongly asserted that BoP and other market-based approaches are only a part of the many tools, including government and citizen sector support, that should be considered in the world poverty epidemic.

I clearly agree that “people have an inalienable right to food, energy, water, social services, security, education, health care.” That being said, both you and I know that there are many places in the world where the government is not fulfilling its social contract to the people. There are rural villages that operate under local rule, and are left behind by the state. There are places where the electricity line might reach, but service is completely unreliable. We can, and certainly should, work to try to change these defunct situations through the state, but in the meantime these people need choices.

BoP is about choice. It is not about indebting or selling to the poor. It is about providing goods and services that are affordable and accessible. It is about creating incentives so that aid-supported bridges don’t fall into disrepair, villages do not fall off the electricity grid, and yesterday’s crisis is not forgotten because of tomorrow’s headline. It is about creating a more accountable system that delivers quality and choice to people who deserve to be treated with respect and dignity, regardless of their socio-economic situation.

The honorable Nobel Peace Prize winner Mohammad Yunus should be commended for the work that he and other credible lenders have done in the developing world. They have provided capital and empowerment through accountable lending organizations, and have been rightfully praised. Credible microfinance organizations realize the risks associated with credit, especially for those in extreme poverty, and provide support and education into their lending programs.

Under a market-based system, responsible lenders realize that if they cheat borrows they will lose respect in the community, which will lead to the loss of future customers, and eventually the demise of their business. They therefore have more than a moral incentive to be responsible and fair in lending.

In the case of MEC, profiled here, their renewable energy system can provide an investment and an asset to a household that may not even have rights to its land under its governmental system. It provides an investment that pays for itself over time, while also combating larger climate change and health issues.

I think that we should all keep our minds open to innovation in this field, because unfortunately, as we have seen, a gross amount of the world’s population is underserved under our current model. Business (or government) as usual is clearly not sufficient.


Posted by: Grace Augustine on 1 May 08

1. Dignity is more important to the human spirit than wealth.
2. The markets alone will never solve the problems of poverty.
3. Charity and aid alone will never solve the problems of poverty.

These statements are what I call the three fundamental truths of a successful base/bottom of the pyramid (BoP) venture. Whether you are a company, entrepreneur, development worker, government agency, charity or researcher, 'success' depends on understanding and integrating these concepts into your work (note: knowing this doesn't guarantee success, but you're much more likely to fail if you don't.)

Jonas, what do you think? I'd suggest that you agree with points 1 and 2, but not on point 3. I think it's incredibly naive to think that the state alone will be able to solve the problems of poverty. After all, history has shown the state to be marginal at best when it comes to alleviating poverty and delivering critical services to citizens.

Jake, thanks for pointing out that Citi report - it's worth bookmarking. And kudos to Grace for a thoughtful response.


Posted by: Rob on 1 May 08

---------------------------
Jonas, what do you think? I'd suggest that you agree with points 1 and 2, but not on point 3. I think it's incredibly naive to think that the state alone will be able to solve the problems of poverty. After all, history has shown the state to be marginal at best when it comes to alleviating poverty and delivering critical services to citizens.
---------------------------

What do you mean? The modern state has intervened in capitalism to give people the right to vote, the right to organise and protest, the right to housing and food, the right to energy, the right to education, a pension, social services, health care, public transport and mobility and all other services provided by a modern welfare state.

What the BOP-ideologues want us to forget is that the recipe that causes poverty - namely free-market liberalism - can never solve this problem.

Why are states in developing countries unable to root out poverty? Clearly, because of a global neo-liberal economic system.

The very privatisation of the life-world has led to weak states. And now you want to use this tactic once again to solve the problems cause by this privatisation and the erosion of the state?

A dirty trick. And it's called capitalism, brutal and simple. First you destroy states and the socius, and then you say that only the private sector can solve the crises caused by this privatisation. How obscene.

It's blackmail. It must end.


On a final note: BOP-ideologues say that "yes, the state has a role to play, but in the meantime, we must help poor people". No. That's not how it works. What you do here is to destroy the emancipatory potential of the poor.

In the 19th century here in Europe, the laissez-fair BOP-crowd wanted to calm down the workers too, by throwing them some bread and meat. They wanted to destroy their emancipatory power. Luckily, they didn't succeed and the workers united and *forced* the state and the bourgeois capitalists to do things another way.

The micro-credit and BOP-ideologues act like 19th century bourgeois. They want to refuse the poor to use their power of resistance - an autonomous, authentic, and strong power. Using this powers is the only way to get things done.

All those who want to weaken this power, are the enemies of the poor. Not their helpers.


Posted by: Jonas on 3 May 08

I disagree with you, Jonas. While you wait for the utopian vision of a welfare state to take hold in low-income countries, I - along with my fellow base of the pyramid "ideologues" - will be busy building businesses that directly address poverty.

I like WorldChanging because it tends to stay away from ideological battles and focus instead on the business of getting things done in the world. If that's a citizens' movement, then WC will write about it. If it's a business, then WC will write about it. I just don't see how your comments are productive in this particular forum - or in general. Show me a viable, practical, proven alternative to capitalism, and I'll consider it. That's the spirit of WorldChanging, not unsupported ideological rants.


Posted by: Rob on 5 May 08



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