Going Green? Overcoming Cultural Barriers to Promote Green Loans (Part 2)

By Claire Markham, KF16, Kenya

In Kenya, the act of going green appears to be far less of a priority than it is in more developed green economies. In the first part of this blog series, I discussed the cultural barriers that exist in Kenya. In this second part, I attempt to answer the question of how an MFI can break through the obstacles identified in Part 1 to implement a successful green and water loan program. I certainly don’t have all of the answers, but I will describe certain strategies that can be used.

Frame of Reference: Me vs. we, now vs. later

First and foremost, it is important to frame the benefits in a way people will be able to personalize. In countries that have already developed a green economy, many people are willing to pay extra to use an environmentally friendly product or service for a variety of reasons, including:

1) It feels good to do our part by reducing our environmental footprint;

2) There is an awareness of the consequences of ignoring our impact on the environment; and

3) It might actually save money in the long run (as is the case with solar panels, eco-friendly light bulbs, and other products).

In Kenya, the key to convincing borrowers to go green is to demonstrate how a solar or water loan can result in tangible benefits to the borrower in the very near term, whether through direct financial savings, access to energy or water that wasn’t available previously, or improved sanitary conditions. Focusing on the benefits that lie in the distant future is not as likely to have as strong of an impact.

Serving clients that don’t have access to electricity or water

An obvious solution is to focus on clients in rural areas who do not have access to the electricity grid or a clean water source. These clients would be able to derive huge benefits in the form of increased convenience, agricultural business innovations, and ensuring health and safety for one’s family.

Increased convenience

Customers who do not have access to the electricity or clean water often must go to quite inconvenient measures to obtain alternatives, whether this means traveling far to collect water from the river, taking time to gather firewood, among many others. They would be able to save considerable time and energy from having access to a loan to purchase solar panels to power their home or a water tank to collect potable rainwater. This time can be used in more productive ways such as working at their business to generate additional revenue.

Agricultural business innovations

In rural areas, there are many customers whose primary business is agricultural. In periods of drought, using water tanks or irrigation equipment would be hugely beneficial to ensure that the crops can continue to grow and provide income for the farmers. Additionally, there are innovations such as biogas facilities that turn cow manure into renewable energy for the farmers’ homes and fertilizer for the farmers’ crops, in addition to being great for the environment.

Ensuring health and safety for one’s family

Many low-income individuals in rural areas use kerosene or firewood to light and heat their house. Kerosene emits toxic fumes, and the burning of both kerosene and firewood increase the risk of setting fire to their homes. These people may also often obtain water from potentially contaminated sources. By reducing the risk of toxic fumes, possible fire damage, or water contamination through the use of a green or water loan, the borrower can improve the safety and health of both themselves and their family.

In one of the villages I visited, the clients had previously walked 2 km to the nearest river to obtain water. This water is not clean and these clients are putting themselves and their families at risk of disease and illnesses. Unfortunately, they do not have many other options. One customer used to purchase water from someone in their community but it was very expensive.

The potential difficulty in serving clients that don’t have access to electricity or water is affordability – clients who really need the loans might not be able to afford them. Some clients aren’t incurring any savings through their reduced use in energy because they never had electricity to begin with; they have previously been collecting firewood from around their house which has no cost, or using paraffin lanterns which have a very minimal cost. The key for many MFIs, from a risk mitigation stand point, is targeting clients who already have an established business through which the borrower could use the income to pay to service the loan.

Educating clients that already have access to electricity and water

Most potential clients in urban centres already have access to the electricity grid and a clean water source. These clients are more difficult to convince to go green through the use of a solar or water loan, but this is by no means impossible. Through education on personal expenditure savings, potential business opportunities, improved health and safety, and increased reliability, urban clients can be persuaded.

Personal Expenditure Savings

To power their homes, clients will pay for electricity, kerosene, gas, or paraffin lanterns. Each of these sources has costs associated with them and clients would be able to save money by switching to a renewable energy source.

Even if clean water is more accessible in urban regions, it comes at a cost. Customers would derive savings from a conveniently located water tank that has no incremental cost to consume the water it provides.

Potential Business Opportunities

In addition to powering one’s home or providing clean water for one’s family, business opportunities exist from solar panels or water tanks. With a solar panel, clients can earn fees through allowing others to charge their cell phones with the energy derived from the solar panel. With a water tank, clients can sell clean water at a reasonable price to those in their community who would otherwise need to pay large fees at stores for access to clean water.

The clean water can also be used to enhance the customer’s existing business. I met with one client who uses his water tank for his restaurant business so that he can still wash dishes and clean the restaurant during periods of drought.

Improved health and safety

Even though clients in urban areas likely have access to electricity or clean water, it is not free and many low-income individuals resort to the same measures as clients who do not have access at all. These clients might elect to use kerosene, firewood and water from potentially unclean sources to save money. This results in the same risks as discussed above.

Increased Reliability

Throughout Kenya, power outages are exceedingly common and often take place several times a week, sometimes for hours at a time. In such circumstances, clients in urban centers can benefit from the use of solar panels as a backup alternative. Once clients already have the solar panel in their home as an alternative to electricity, they may be more inclined to use it even in times where there are no power outages because there is no additional cost to its use once the upfront investment has already been made.

Educating loan officers

In order for clients to decide to use these loan products, they need to first be aware of the benefits that exist. A select few may hear about green or water loans from others in their community, but a much more effective way to disseminate this information is through the SMEP representatives that they meet on a weekly or monthly basis: loan officers. However, many loan officers are unaware of the extensive benefits that exist. In order for a successful green and water loan program to be implemented, all loan officers need to receive sufficient training so that they are well informed and able to explain to both urban and rural customers all of the benefits.

Hope for the future

Though there are a wide range of products offered by suppliers, most of the clients I interviewed had purchased water tanks for $160-190 and solar panels for $25-100. For low-income individuals, this is certainly a sizeable investment, but the message I consistently received from these customers was that they found the investment to be incredibly worthwhile for many of the reasons discussed above. Many of these customers had even taken out 2^nd or 3^rd loans to purchase additional green products because they were so happy with the results.

There is huge potential for green and water microfinance loans in Kenya; there is an undeniable need for the products from borrowers, and a strong desire to sell the products by microfinance institutions. With a continual focus on marketing these products, training and education for both loan officers and clients, I am confident that the MFIs in Kenya will be able to successfully capture this potential demand and pave the way for a greener Kenya.

Claire Markham is part of KF16, serving with SMEP Deposit Taking Microfinance Limited (SMEP) in Nairobi, Kenya. To lend to SMEP’s borrowers, become part of the SMEP lending team.