Micro-finance and Renewable Energy

This year the Nobel Peace prize went to a guy called Mohammed Yunus ; the self confessed "Banker to the Poor". See www.grameenfoundation.org/
As a trained Economist it seems to be a fairly good model to disseminate credit amongst poorer societies. Basically Mr Yunus's Grameen Bank began issuing very small amounts of money to poor Bangladeshis (often women) to invest in crops/small enterprises etc at reasonably high interest rates and short repayement terms. This proved to be very successful as this group had time, spare productive capacity, incentive to invest and little or no access to capital ; and more importantly the women who borrowed the money has a strong moral and cultural imperative (mainly community pressure as any debts would be socialised amongst the village) to repay. This model has worked reasonably well in South Asian ; but just as the Nobel judges have recognised the founder of this movement - it is starting to founder. The main problem seems to be that once there is a defaulter amongst a group of borrowers - the incentive to repay effectively vanishes (ie once you have been shamed its difficult to rehabilitate yourself). Sometimes the debt is rolled over into a new loan multiplying the debt and making it impossibe to repay, ending in a situation where the debt is sold on to a third party "debt collector" whose methods for collection can sometimes be questionable. In Africa the model seems not to work for other reasons, some cultural and some due to the lack of microinvestment opportunities for poorer people in these nations. As this article points out www.greenleft.org.au/2006/689/35791. However, these problems are not a reason to throw out this model. Safeguards and openness are required - and a degree of flexibility. Not everyone is an entrepreneur and a certain amount of any banks loan portfolio turns "bad" in normal circumstances. It is only when the bad loans outweigh the successful ones that the bank needs worry - and the success of the Grameen bank shows that this has not been the case - yet.
One area not addressed by this style of finance is the structural gaps that exist in developing countries. It is quite easy to provide some money to a farmer - who then might upgrade their farm equipment and become more productive; or buys a means of transport to reach a new market ; buy a phone and charge villagers a few cents a call etc. But these success stories can easily burden infrastructure available - especially electrcity and water supplies. In the past these issues have usually been in the scope of the World Bank and regional banks such as the Asia Development Bank. But large projects (such as dams and hydroelectricity plants) have tended to lend themselves to dodgy deals, corruption and poor outcomes for those most in need.
What I would like to see is a Micro-Renewable Energy Fund (Energy Bank) set up for projects in developing countries. In the same way as small amounts of money can tap in to latent productivity small amounts of energy (or even just a greater degree of reliability) can find productive places in villages and towns in poorer parts of the world. Anyone who has lived or travelled in third world nations knows that the supply of electricity is one of the major problems facing developing nations.
Some early thoughts on how this might work:

• Surveys of countries where low electricity supply and reliability levels exist (probably already done)
• Of these areas - an assessment of places where there is the greatest opportunities to supply moderate cost micro-renewable energy (such as Mini-Hydro/ Wind Farm/ Solar Thermal/ Landfill or Sewage Gas Electricity Generation)
• Research on the amount of money needed for infrastucure to make sure electricity can be reliably supplied to villages surrounding these plants
• Modelling of the lending of small energy parcels to poor people in these villages - determine appropriate interest rates; perhaps look at parcelling the energy and a microfinance loan together ; what price the energy - would people be able to afford it?
• Environmental safeguards - if for example loans are expected to go to farmers who pump water from deep aquifers - then these should be limited as far as is possible ; or to small entreprenuers who build polluting enterprises etc.
• Find donors for original funding (perhaps tradional lenders such as World Bank) and determine the appropriate ownership structures for the Electricity Generation assets once capital costs have been repaid by repayment of energy loans.
• As this is renewable energy find out how this would fit into a future global carbon or renewables market

On this last one - it is expected that developing nations will receive some carbon allocation for future development in any future carbon trading scheme. Probably the best way to encourage this is to institute an international Mandatory Renewable Energy Target - where a worldwide target of say 30% of all energy comes from renewable energy sources - with developed countries subsidising the cost of this to developing countries.

Just got a little carried away on that one...time to buy some Chrissy presents.