MICROCAPITAL STORY: USAID Note from The Field, Greening Microfinance to Turn Waste Into Wealth

United States Agency for International Development (USAID) recently published a note about efforts in India to provide an integrated approach in addressing poverty alleviation, global health and energy. Shortage of cooking fuel is a key problem in India where approximately 260 million of the country’s total 1.2 billion population live below the poverty line. Some households burn cow dung cakes as an alternative fuel source, creating environmental hazards and causing harmful health consequences, including acute respiratory infections in children. According to a 2006 Shell Foundation Report, deaths linked to biomass smoke exposure compete with malaria as the leading cause of death in adults in developing nations every year.

Integrating clean energy initiatives with microfinance has the potential to positively impact the environment by creating localized renewable energy sources that can simultaneously improve health and reduce deforestation. GreenMicrofinance (GMf), an organization that ties renewable energy technologies – solar, wind, hydro, and biofuel – to microfinance, performs market study research with microfinance institutions (MFIs) to assess the demand for and supply of renewable energy systems, as well as the potential suppliers for partnership. GMf uses the results of these studies to work with MFIs to design a business model and loan product for renewable energy technologies.

One GMf implementation is with partner Wesco Credit in the south Indian state of Kerala and consists of a solution to regional disease control and waste management. Wesco understood the connection between waste and health so they developed integrated waste management systems to help prevent sickness outbreaks. Wesco’s solution was to construct biogas plants, which generate both clean energy and income for families (primarily by reducing household energy costs). Thus far, they have constructed 350 biogas plants that cost approximately $325 and service a family of five to six. These units are financed by self help groups (ShGs) supported by Wesco Credit with loan terms of two years.

Program participants place biodegradable waste, usually manure, along with wastewater into the biogas cement chamber and seal it. The waste decomposes anaerobically inside the chamber, producing a mixture of methane-carbon dioxide biogas that is pumped directly to the kitchen’s gas-run stove. The process also generates solid compost called sludge slurry, which serves as a potent fertilizer that Wesco clients use to promote organic farming. “All these programs are interlinked from the grassroots level to industry and the marketplace” said Father Moonjely, Executive Director.

With the assistance of GMf, Wesco Credit intends to install about 1,200 residential biogas units, 1,000 family-size units and 200 units to be used in rural farms. It also plans to install 50 institutional biogas plants to be used at hospitals, parish halls, and apartment complexes.

Evangelical Social Action Forum (ESAF), an Indian MFI has installed five biogas plants attached to institutions, restaurants, and hospitals. Paul Thomas, Director of ESAF, states, “Renewable energy provisions could provide access to income-earning avenues and would ultimately complement the efforts to reduce the poverty. A full range of appropriate energy options should be considered while providing energy services to the poor.”

ESAF was founded in 1992  and is based in the Kerala Province of India. As of March, 2007, ESAF had a Gross Loan Portfolio of USD 12.9 million, a Return on Equity of 58.6 percent, and a Debt to Equity Ratio of 3,653.8 percent. It currently holds the MIX Market’s 5 diamond rating for disclosure and transparency.

Wesco currently operates in 172 villages and oversees some 2,000 local self-help groups (ShGs) comprising more than 35,000 economically impoverished women in the region.

A discussion of environmentally sustainable microfinance initiatives will be facilitated by the GMf Team through USAID’s Speaker’s Corner program from November 18-20. The program is entitled Microfinance and Climate Change: Can MFIs Promote Environmental Sustainability? For more information or to sign up, visit http://www.microlinks.org/sc/greenmicrofinance.

The note was authored by Elizabeth Israel, Thomas Israel, and Betsy Teutsch of GMf. To read the full publication click here.

Scott Everett, Research Assistant

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