Energy in Common

Energy in Common is a crowdfunding platform allowing online lenders to provide project-specific financing for green energy through microfinance institutions.

Energy Products/Services

• Microenergy Loans
• Voluntary Carbon Offsets

Target Market

• Microfinance banks making energy product loans
• Microfinanced buyers of energy products

Revenue Streams

• Donations by online energy product lenders.
• Sale of carbon credits to online energy product lenders.
• Eventual sale of products from trading company.

Problem Addressed

• Microfinance reaches 150 million people around the world and represents an exciting way to increase affordability and accessibility of energy products for off-grid borrowers.
• However, many microfinance banks are averse to making energy product loans because they are less-tested and riskier than traditional cash loans.
• In addition, carbon credits are only currently feasible as a funding source for large scale projects, due to the high cost of certification.

Value Proposition

• By providing financing and helping to create linkages with green energy suppliers, EIC is enabling microfinance institutions to either start energy lending portfolios from scratch or significantly increase their capacity to deliver energy loans to the poor.
• Through these efforts, EIC intends to help catalyze uptake of energy lending as a standard microfinance loan product so that 100s of millions of poor can benefit from the poverty alleviation and climate change mitigation advantages of green energy.
• This approach is considerably different to existing efforts in this space which do not provide energy loan financing and therefore are restricted to working with the tiny fraction of MFIs which currently offer energy loans – limiting their ability to grow the industry and achieve large scale impact.
• EIC is also partly financing itself by allowing users to purchase voluntary credits for the carbon saved by its loans.

Impact to Date

• $75,000 of loans through 6 MFIs in Ghana, Tanzania, and Nigeria
• Average of 6.3 people benefiting from each loan
• Average of 0.4 metric tonnes of CO2 emission reductions per year per loan
• 79% of EIC loans have been made to women

Milestones

• 2009: Started pilot loans
• 2010:Launched crowdfunding website allowing individual donors to finance loans
• 2011: Worked with 6 MFIs and 7 energy companies

Growth Plan

• EIC’s goal is to reach 2.4 million people in Africa and Asia and disburse $79 million in debt from the global capital markets towards energy loans by 2015.

Product Sourcing

• Currently, EIC connects its MFI partners to existing energy product suppliers.
• Sometimes these are global suppliers such as Barefoot Power, d.Light, and Philips.  Sometimes they are based in the country where the MFI works.
• Working with smaller local suppliers supports the local economy, but sometimes creates problems with product consistency.
• Products are chosen by partner MFIs.

Distribution

• Microfinance Institutions
  • EIC works with 5 partner MFIs, which promote EIC energy product loans to their existing clients.  Loans and borrower profiles are posted on EIC’s website for online lenders to fund.
  • One challenge faced by EIC (and all energy product lenders) is that the types of systems which are expensive enough to make a good loan product (such as solar home systems) require maintenance which users can’t handle, and banks don’t want to get involved in.
    • Smaller, lower maintenance products such as solar lanterns are not always worth the MFIs’ transaction costs.
    • Because EIC is focused on being a funding platform, it does not address training.
  • Most MFIs do not want to get involved with energy loans for the reasons above and because they are making enough money from normal loans that, even with EIC’s 0% capital, the risk and opportunity cost of an energy loan portfolio is too high.
  • EIC therefore works with younger MFIs with less access to capital as a means of proving its model.
  • EIC intends to only work with each partner MFI until it no longer needs free capital to make energy loans, and then move on.

Marketing

• EIC does 3 types of marketing:
  • Marketing its loans to online lenders
  • Marketing itself to MFIs as a partner
  • Helping MFI partners market energy products to customers
• EIC has received free online advertising from Hulu and Google grants, and a free video ad created by Good Eye Video.
• EIC believes that a huge catalyst for website traffic will be a community section where users can create profiles.

Revenue & Affordability

• Online Lenders
  • Loans are typically repaid in 2 months.
  • Lenders are not repaid if borrowers default on their loans, but defaults are currently at only 1%.
  • Lenders receive no interest on loans, because US Securities and Exchange Commission regulations would require an expensive and time-consuming certification process to allow this.  In addition, users see their loans as a donation, and might be less interested if they received a return.
• Pre-funding
  • EIC does not pre-fund its loans, like some other crowdfunders such as Kiva, partly because sourcing products often takes time and they don’t want money sitting at the MFI because the product has not yet been found.
  • Waiting for online lenders to fund projects gives the MFI time to source product.
  • It is also easier for EIC not to pre-fund because of their current small scale.  They might have to change this in the future.

Financing

• Online lenders typically make a donation of 15-20% of their loan amount to EIC.
• 98% of loans are re-lent, so once the number of lenders grows this should be a sustainable source of overhead funding for EIC.
• For 20% of projects, EIC also calculates a carbon emission reduction and sells the carbon offsets generated to lenders at a price of $15/ton.
• Offsets are voluntary and not sold on the large carbon market, as the projects are too small-scale to make this cost-effective.
• The average project creates .5 tons of carbon offsets, but documentation is expensive and difficult, which is why EIC only sells offsets on 20% of projects.  They are considering shifting their standard for documentation.
• EIC has challenges raising grant funding outside the loan donations, possibly because they are seen as middlemen, which is less sexy to donors.
• EIC’s website is its primary expense driver.

Regulations

• Regulations have not been a challenge, but have kept EIC from working in several countries, such as India and Nepal.

Human Resources

• Currently EIC has a small staff, based in the US.
• EIC uses volunteer ‘EIC Ambassadors’ to conduct diligence on MFI