Microfinance: The Sustainable Financing System for ... - IEEE Xplore

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shortage. This paper investigates the role of microfinance to develop a sustainable energy management system by the use of Solar Home Systems (SHSs) in the ...
Microfinance: The Sustainable Financing System for Electrification and Socio-economic Development of Remote localities by Solar Home Systems (SHSs) in Bangladesh Md. Ashfanoor Kabir and Himadri Shekhar Dey

Hasan Mohammad Faraby

Department of Electrical and Electronic Engineering Bangladesh University of Engineering and Technology Dhaka-1000, Bangladesh Email: [email protected] and [email protected]

Department of Electrical and Computer Engineering University of California San Diego San Diego,California 92093-0021 Email: [email protected]

Abstract—Bangladesh is a developing country facing with acute electricity shortage. The rural communities of Bangladesh are the worst sufferers of this crisis having limited or even in many cases no access to grid electricity. Solar energy has been proven to be a very promising resource to improve the ongoing electricity shortage. This paper investigates the role of microfinance to develop a sustainable energy management system by the use of Solar Home Systems (SHSs) in the remote communities of Bangladesh. Infrastructure Development Company Limited (IDCOL) funded by international donor organizations is the pioneer of the SHS program in Bangladesh. Grameen Shakti (GS) is a leading partner organization of IDCOL in implementing the program. These partner organizations offer a number of SHS packages that include a solar panel, charge controller, battery, lamps and other accessories. But the lowest package offered by GS costs approximately US $155 whereas the per capita Gross Domestic Product (GDP) of Bangladesh is only US $621. Microfinance has been successfully utilized by the IDCOL partner organizations as a solution of this problem. From this research, it is found that the number of SHS sales has been rapidly increasing during the recent years which is an indication of the success of Microfinance based financial system. Microfinance is also playing a significant role in socio-economic development of the rural communities. Improved telecommunication, better entertainment activities, involvement of rural women in mainstream economic activities, better healthcare and mass awareness etc. are some of the outstanding achievements of this Microfinance based SHS program. This paper also shows a significant impact of SHS program in reduction of CO2 which is one of the major contributors to environmental degradation. Index Terms—Microfinance, Solar Home System, Socioeconomic development, CO2 reduction

I. I NTRODUCTION Bangladesh is currently suffering from severe electricity shortage. Conventional fossil fuel resources are quite insufficient to meet the rapidly rising demand of electricity. As a result, the grid electricity penetration is only 41% [1]. The rural population of Bangladesh is the worst sufferer in this regard. About 25% of primary energy consumption of developing coun-

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Fig. 1. Monthly averaged Solar radiation from Jan 2003 to Dec 2005 (kWh/m2 -day).

tries comes from biomasses and traditional energy resources [2]. These resources include wood, jute stick, cow dung, candles, kerosene etc [3]. In a developing country like Bangladesh, 35%-60% of primary energy demand of the rural people is met by traditional biomass causing deforestation, increased Green House Gas (GHG) emission and ecological imbalance. Therefore, utilization of the renewable energy sources has been strongly emphasized by the Government [4]. Bangladesh can be an ideal location for harnessing solar energy which is currently the most promising renewable energy source for Bangladesh. It is evident from the monthly averaged solar radiation profile from January 2003 to December 2005 as shown in Fig. 1 [5]. In Bangladesh, Microfinance as a financial system has been successfully implemented to achieve sustainable development for the poorer community through promotion of Solar Home System (SHS) program. Microfinance has lead not only to improved rural electrification but also to socio-economic development of the rural communities as a whole. It is also playing

a significant role towards environmental sustainability. The objective of this paper is to illustrate the role of Microfinance as a financial system in partial mitigation of the rural energy crisis, socio-economic development of the people and positive impact on environment. II. SHS P ROGRAMS T HROUGHOUT T HE W ORLD : Solar Home System has long been considered as a viable option to resolve the energy crisis for the rural people in socially and economically underprivileged societies all over the world. But a proper financial structure has always been sought to deliver the outstanding impacts of this technology to the rural poor. Realizing the prospect of Solar PV technology, since the early 1990s the World Bank, the Global Environment Facility (GEF) and some other international donor agencies have initiated and funded SHS projects in developing countries like Argentina, Bangladesh, Benin, China, India, Srilanka, Togo, Vietnam etc. With the international funding Grameen Shakti successfully implemented the Consumer Credit Model through its Microfinance Policy in Bangladesh [6]. Following this model Srilanka’s leading Participating Credit Institution (PCI) Sarvodaya Economic Enterprises Development Services (SEEDS) financed more than 60,000 systems during 2002-06 [7]. SEWA Bank in India, FAULU and KUSCCO in Kenya, FADES in Bolivia etc are some other organizations providing SHS to rural people using Microfinance policy [8]. III. C ONCEPT OF M ICROFINANCE The concept of Microfinance or Microcredit is the brainchild of Muhammad Yunus, the 2006 Nobel Peace Prize winner and the Managing Director of Grameen Bank. Microcredit gives to people loan without any guarantee. And the loan is recovered from the borrowers in a number of regular installments. According to Grameen Bank, the guarantee is only trust and good faith [9]. Yunus calls it a social business whose aim is to communicate with the poor, locate their problems and solve them through a sustainable financial system with no profit accumulation by the investors. A pertinent example is the case of Grameen Shakti (GS), one of the 25 companies founded by Grameen Bank that produces and sells low cost renewable energy systems, especially the Solar Home Systems (SHSs) [10]. This financial system can reach a substantial population deprived of access to formal financial institutions. Apart from the economic perspective, its impact on empowering the rural underprivileged women is quite significant [11]. IV. M ICROFINANCE S TRUCTURE IN BANGLADESH Infrastructure Development Company Limited (IDCOL) plays the vital role in implementing renewable energy projects in Bangladesh. After its establishment in 1997 by the Government of Bangladesh (GOB) as a non-bank financial institution it promotes SHS program in Bangladesh under the Rural Electrification and Renewable Energy Development Project (REREDP). IDCOL’s initial target was to finance 50,000 SHSs with financial assistance from the World Bank and GEF by the end of June 2008. The target was achieved in September 2005, 3 years

Fig. 2.

Operational Structure of IDCOL.

ahead of schedule and US $2.0 million below estimated project cost. Then IDCOL revised its target and aimed at financing 200,000 SHSs by year 2009 with additional assistance from the World Bank, KfW and GTZ. IDCOL’s Solar Energy Program is one of the fastest growing renewable energy programs in the world and is expected to change lives in remote rural areas of Bangladesh through providing access to electricity. IDCOL promotes Solar Home Systems (SHSs) under REREDP through 15 partner organizations (POs) namely Grameen Shakti (GS), Rural Services Foundation (RSF) etc. IDCOL will promote 210,000 SHS (9.8 megawatt-peak) and few wind, mini-hydro and biomass projects in rural areas by the end of June 2010. Total project cost is US $70 million. The total SHS project can be divided into some specific operations and IDCOL along with the technical standard committee, suppliers, Microfinance Institutions (MFIs) and operations committee provide SHSs to the households. The activities of SHS project under IDCOL are shown in Fig. 2. Among all the POs GS is the pioneer of the implementation of SHS program through Grameen Microcredit Model [12]. V. G RAMEEN M ICRO - CREDIT M ODEL GS is the first organization that developed a successful financial system for the development of SHS program through the rural Bangladesh. The SHSs are delivered to customers

TABLE I GS PAYMENT S CHEMES FOR SHS Options 1 2 3

U TILITY

Initial Down payment 25% of the package price 15% of the package price 100% of the package price

Installments to be paid In 24 months In 36 months Not Applicable

Service Charge 4% (Flat rate) 6% (Flat rate) 4% Discount offered

TABLE II GS S OLAR H OME S YSTEMS (SHS S )

AND PRICE OF SOME

System 130 Wp

Load 11 Lamps (6W) 17”-20” TV point

50 Wp

4 Lamps (6W) 17”-20” TV point

10 Wp

1 Lamp (5W) 2 LED Lamps

Package 1 Panel, 2 Batteries (100Ah) Charge Controller (15A) Lamps, Structure, Accessories 1 Panel, 1 Battery (80Ah) Charge Controller (5A or 10A) Lamps, Structure, Accessories 1 Panel, 1 Batteries (18Ah) Charge Controller (1A) Lamps, Structure, Accessories

Price $1030

Fig. 3.

Number of SHS Installed by IDCOL POs

$435

$155

through 3 different schemes as shown in Table I. In the first two schemes the customer has to pay a certain percentage of the package price as an initial down payment. Rest of the price has to be paid in several monthly installments. A fixed amount of service charge has to be paid with each package. The third option allows the customer to pay the full price at the time of purchase with a 4% discount rate [13]. Some typical SHS packages and their prices offered by GS are shown in Table II.

Fig. 4.

SHS Sales Growth of GS

VII. S OCIO - ECONOMIC D EVELOPMENT VI. S UCCESS OF SHS P ROGRAM IN RURAL E LECTRIFICATION Up to December 2009, approximately 4,38,000 SHSs were installed under the IDCOL SHS program [12]. The cumulative SHS sales by the participating organizations up to 26 October 2009 is shown in Fig. 3. GS is the major contributor in terms of SHS sales and sustainable development. Up to 1997 the number SHSs installed by GS were only 228. By November 2009, GS has installed about 3,06,595 SHSs . The year wise SHS sales by GS are shown in Fig. 4. From this figure it is evident that SHS program by GS is experiencing a rapid growth. At present total capacity of SHSs installed by GS is 15.5 MW and daily power generation capacity is 62 MW-hr [14]. SHSs are mainly used in home lighting, homestead oriented business, mobile phone charging, entertainment activities, small business etc. The monthly payment for an SHS is almost same to the monthly Kerosene cost for home lighting for a typical rural family. This is one of the outstanding successes of the SHS program [9].

Apart from pacifying rural electrification SHS Programs are contributing to the socio-economic development of the rural people in Bangladesh. The socio-economic impacts include computer and internet connections to remote localities, improvements in the standard of living of the people like better light for child education, reduced in-door air pollution (from conventional kerosene lamps), more security and income including reduced work load for women etc. Businesses such as rice/saw mills, grocery, tailoring shops, restaurants, market places etc with the help of SHSs have increased their income by extending working hours after dusk. In addition to these developments, women are enjoying hazardless and hassle free lighting systems in their daily life. They are getting the opportunities to earn extra income by utilizing their time after dusk by sewing, poultry farming or setting home based industries. Two very successful applications of SHS are Micro-utility model and SHS powered Polli-phone. Micro-utility is an initiative by GS that has provided thousands of shopkeepers with extended business hours and increased business turnover by giving them the opportunity to share lights of an SHS among

power from the solar panels can make user power bill small or obsolete. In this way, significant reduction of home or office greenhouse gas emissions is possible. Installing a gridconnected system is also the perfect way to meet rising building energy efficiency standards. IX. C ONCLUSION

Fig. 5.

CO2 savings and electricity generation according to SHS capacity

themselves. This scheme allows a shopkeeper or a client to buy the whole system with 10% down payment with 42 monthly installments and no service charge. Presently about 10,000 clients are benefited by this scheme [9]. Polli Phone has created a successful synergy between women and technology - thousands of women are running profitable mobile phone business in offgrid areas powered by GS installed SHSs. From the global experience, it has been observed that SHSs are economically viable for distant rural electrification program which upgrades the living standard of the rural mass . Deploying SHSs will not only provide electricity, it will become a stimulant for other development activities, like poverty alleviation, health care, education, women empowerment, family planning etc. A study by United States Agency for International Development (USAID) has found that among a large number of household samples 93.7% of the electrified households reported a decrease in fuel cost, 78.2% reported an increase on working hours, 93.7% reported an increase in children’s study time, 92.0% reported an increase in amusement as well as standard of living [15]. Electrification of microenterprises in the off-grid areas can increase income or create new job opportunities for the rural poor which has been observed from the experience of GS. VIII. E NVIRONMENTAL I MPACT Under the Clean Development Mechanism (CDM) project initiated by the GOB, it is estimated that the project will save 8.6 thousand tons of CO2 per year. It may also be noted that estimated generation of electricity is about 34.47 MWh per year. Fig. 5 shows the generation of electricity and savings of carbon dioxide according to the capacity of SHS. Upon full implementation in five years, the project activity will annually replace 13.5 GWh grid electricity, equivalent to an emissions reduction of 12,150 tonnes. Over the entire crediting period of 21 years, the project will lead to a reduction of 2, 30,850 tonnes of CO2 emission [16]. A grid-connected solar electricity system links several solar panels together through an inverter to the power grid. No electrical storage batteries are required, as excess electricity generated by the solar panels not required by devices in the house is redirected into the grid, meaning that unused

The success of Microfinance based financial system has initiated a revolutionary movement in the energy sector of Bangladesh. The economic, social and environmental impact of SHS program has encouraged the GOB to adopt policies to promote the program to wider and greater extent. GOB plans to install more than 100000 SHSs within 2015 to produce about 54 Mega-watt (MW) of electricity everyday [4]. So, it is quite evident that Microfinance based SHS is going to be a revolutionary weapon to deal with the energy crisis, poverty alleviation, improvement of rural lifestyle, empowerment of rural women and environmental crisis management in the coming days. R EFERENCES [1] Bangladesh Power Development Board, Annual report 2006-07. Dhaka, Bangladesh. [2] S. C. Bhattacharyya and G. R. Timilsina, Energy demand models for policy formulation: a comparative study of energy demand models. Policy Research Working Paper No. 4866, The World Bank, March 2009. [3] R. Heltberg, Fuel switching: evidence from eight developing countries. Energy Economics, vol. 26, pp. 869-887, 2004. [4] Power Division, Ministry of Power, Energy and Mineral Resources, Government of the People’s Republic of Bangladesh, Renewable energy policy of Bangladesh. November 2008. [5] M. Hussain, M. S. K. Khadem, H. R. Ghosh, Final Report of Solar and Wind Energy Resource Assessment (SWERA) - Bangladesh Project. Published by Renewable Energy Research Centre (RERC) University of Dhaka, Bangladesh. Supported by United Nations Environment Programme (UNEP) and Global Environment Facility (GEF), February 2007. [6] E. Martinot, A. Cabraal, S. Mathur, World Bank/GEF solar home systems: experiences and lessons learned 1993-2000. Renewable and Sustainable Energy Reviews, vol. 5, pp. 39-57, 2001. [7] C. Govindarajalu, R. Elahi, J. Nagendran, Electricity beyond the grid: innovative programs in Bangladesh and Srilanka. ESMAP (Energy Sector Management Assistance Program) Knowledge Exchange Series, no. 10, September 2008. [8] E. Morris, J. Winiecki, S. Chowdhary, K. Cortiglia, Using Microfinance to expand access to energy services: summary of findings. Published by The Small Enterprise Education and Promotion (SEEP) Network, November 2007. [9] S. I. Khan, M. A. Hoque, H. S. Dey, Sustainable financing system for the success of rural electrification by Solar Home System in Bangladesh. In the proceedings of Symposium on Small PV Applications Rural Electrification and Commercial Use, Ulm, Germany, pp. 202-207, 25-26 May 2009. [10] M. Yunus, Economic security for a world in a crisis. In World Policy Journal, vol. 2, no. 2, pp. 5-12, 2009. [11] S. Khandker, Does Micro-finance really benefit the poor? Evidence from Bangladesh. Conference on Asia and Pacific Forum on Poverty: Reforming Policies and Institutions for Poverty Reduction, Asian Development Bank, Manila, 5-9 February 2009. [12] Website of Infrastructure Development Company Limited (IDCOL), http://www.idcol.org/. [13] D. C. Barua, Grameen Shakti: An integrated and sustainable model for bringing light, income, health, and affordable climate friendly energy to the rural people. published by Grameen Shakti, Dhaka, Bangladesh, January 2008. [14] Website of Grameen Shakti (GS), http://www.gshakti.org/. [15] Website of Rural Electrification Board (REB), Bangladesh, http://www.reb.gov.bd/. [16] Website of SouthSouthNorth (SSN), http://www.southsouthnorth.org/.