Energy Lending: Microfinance and Access to Modern, Alternative Energies

This paper examines the potential and challenges in energy lending, which involves the use of microfinance to expand access to modern, alternative energy systems. It states that current challenges in energy lending can be resolved through innovation. The paper states that many of the obstacles faced by MFIs wanting to establish energy lending programs are variations of those encountered by MFIs that have established partnerships with other private sector industries. These include:

• Accessing rural markets and financing;
• Types of products and methodologies employed;
• Weak MFI capacity to engage the industry;
• Portfolio security and issues of sustainability;
• Legal and regulatory environments;
• Competition;
• Building market awareness and demand.

Energy lending by MFIs is in its formative stages. In order for it to become a mainstream product within the industry, MFIs and their energy industry partners must identify least-cost technologies that add value for clients and implement them. They must also address gaps in financing models specific to the energy sector.