Page 6 - Supply-side Financing of Improved Biomass Cookstoves in India
P. 6
Discussion Paper
In the backdrop of progressively increasing importance being been described elsewhere in this discussion paper. Hence,
given to clean cookstoves as a development intervention to support the development of a robust market of clean
internationally, more donors are forthcoming for providing cooking technology, it is of paramount importance that
start-up grants to entrepreneurs. However, applying for such low-risk and easily accessible credit be made available to
grants requires skills for making a business case to the donor, entrepreneurs who are interested in establishing an ICS
which most small entrepreneurs lack unless they are supported business in India.
by corporate firms or research institutions. Some common Ensuring better quality of products: As already
sources of finance for ICS suppliers have been listed in Table 4. discussed in previous sections, ICS suppliers shy away from
conducting research and development on cookstoves,
New Sources of Finance for Cookstove setting up a testing facility or integrating quality control
Suppliers processes in their production line. Providing quality-linked
finance to cookstove manufacturers and suppliers (as in
In the past few years, a variety of new financing mechanisms the case of NBCI) may promote better quality stoves
have emerged for cookstove suppliers to enable them to set reaching the end-users at lower costs than the actual
up a cookstoves business. However, most of these financing selling price. This will in turn build confidence in buyers
mechanisms have not achieved a great deal of market about the utility of ICS.
penetration or popularity among cookstoves suppliers yet. While Better after-sales service: Adoption of cookstoves is
it is beyond doubt that these sources of finance hold promise greatly influenced by periodic repair and maintenance of
in making available a larger corpus of funds for cookstove the product after purchase. However, in a disorganized
manufacturers, their suitability in diverse contextual situations market, ICS suppliers do not create a strong after-sales
is still not clear.15 Since the focus so far has predominantly been service network as it involves additional costs, without
on consumer finance, some of these financing mechanisms providing any immediate returns on investment. Providing
try to integrate finance for producers and consumers in the financial support to cookstove suppliers to systematically
same financing stream. Table 5 summarizes some of these new create a strong after-sales service network may help in
finance mechanisms and the perceptions of suppliers about increasing adoption of improved cooking technology.
them, reported in published case studies and understood from Encouraging grassroots entrepreneurs: There are
TERI’s interaction with suppliers in course of the TERI-DfID several case studies of community-based organizations and
Clean Energy Technology Dissemination Programme. grassroots entrepreneurs who have created a successful
ICS business through participation of rural buyers in
Rationale for Financing Cookstove Suppliers India and Africa. Providing grants and soft loans to such
entrepreneurs may encourage them to set up a local ICS
Market development: One of the primary goals of business, which has the potential for directly reaching out
donor agencies, governments, and charities working in the to cookstove buyers in rural markets.
ICS sector is to foster an enabling market environment Encouraging risk-taking behaviour: Financing ICS
for entrepreneurs to engage in ICS business. However, suppliers may encourage them to take risks with new
as evidenced by various case studies of the ICS market cookstove designs, expanding to unexplored markets,
in India and supplier interviews conducted by TERI, it is and testing innovative business models. Currently, due to
clear that development of a viable and thriving ICS market lack of finance to hedge risks in the ICS business, suppliers
is severely impeded by lack of capacity and willingness of choose to adopt time-tested cookstove technologies and
entrepreneurs to invest in the ICS business. The problems market channels for sale of ICS.
connected to the ICS market being a ‘frontier’ market have
Table 4: Common sources of finance for ICS suppliers (Dalberg Global Development Advisors 2013)
Source of finance Challenges
Commercial loans Banks are not easily convinced of the commercial viability of ICS business models. Consequently, value of the collateral required against
a loan may be high
Micro-finance Credit is mostly linked to sale of cookstoves to target customers of the MFI.“Top-up”loans are linked directly cookstove sales
Credit guarantees A third-party provides guarantee against a loan obtained from a bank. However, such guarantees can be obtained only from close personal
contacts, as the guarantor does not benefit much from transaction
Grant funding Donor agencies set preconditions on the grant based on their priorities, which directly influences the business model
6 MAY 2015
In the backdrop of progressively increasing importance being been described elsewhere in this discussion paper. Hence,
given to clean cookstoves as a development intervention to support the development of a robust market of clean
internationally, more donors are forthcoming for providing cooking technology, it is of paramount importance that
start-up grants to entrepreneurs. However, applying for such low-risk and easily accessible credit be made available to
grants requires skills for making a business case to the donor, entrepreneurs who are interested in establishing an ICS
which most small entrepreneurs lack unless they are supported business in India.
by corporate firms or research institutions. Some common Ensuring better quality of products: As already
sources of finance for ICS suppliers have been listed in Table 4. discussed in previous sections, ICS suppliers shy away from
conducting research and development on cookstoves,
New Sources of Finance for Cookstove setting up a testing facility or integrating quality control
Suppliers processes in their production line. Providing quality-linked
finance to cookstove manufacturers and suppliers (as in
In the past few years, a variety of new financing mechanisms the case of NBCI) may promote better quality stoves
have emerged for cookstove suppliers to enable them to set reaching the end-users at lower costs than the actual
up a cookstoves business. However, most of these financing selling price. This will in turn build confidence in buyers
mechanisms have not achieved a great deal of market about the utility of ICS.
penetration or popularity among cookstoves suppliers yet. While Better after-sales service: Adoption of cookstoves is
it is beyond doubt that these sources of finance hold promise greatly influenced by periodic repair and maintenance of
in making available a larger corpus of funds for cookstove the product after purchase. However, in a disorganized
manufacturers, their suitability in diverse contextual situations market, ICS suppliers do not create a strong after-sales
is still not clear.15 Since the focus so far has predominantly been service network as it involves additional costs, without
on consumer finance, some of these financing mechanisms providing any immediate returns on investment. Providing
try to integrate finance for producers and consumers in the financial support to cookstove suppliers to systematically
same financing stream. Table 5 summarizes some of these new create a strong after-sales service network may help in
finance mechanisms and the perceptions of suppliers about increasing adoption of improved cooking technology.
them, reported in published case studies and understood from Encouraging grassroots entrepreneurs: There are
TERI’s interaction with suppliers in course of the TERI-DfID several case studies of community-based organizations and
Clean Energy Technology Dissemination Programme. grassroots entrepreneurs who have created a successful
ICS business through participation of rural buyers in
Rationale for Financing Cookstove Suppliers India and Africa. Providing grants and soft loans to such
entrepreneurs may encourage them to set up a local ICS
Market development: One of the primary goals of business, which has the potential for directly reaching out
donor agencies, governments, and charities working in the to cookstove buyers in rural markets.
ICS sector is to foster an enabling market environment Encouraging risk-taking behaviour: Financing ICS
for entrepreneurs to engage in ICS business. However, suppliers may encourage them to take risks with new
as evidenced by various case studies of the ICS market cookstove designs, expanding to unexplored markets,
in India and supplier interviews conducted by TERI, it is and testing innovative business models. Currently, due to
clear that development of a viable and thriving ICS market lack of finance to hedge risks in the ICS business, suppliers
is severely impeded by lack of capacity and willingness of choose to adopt time-tested cookstove technologies and
entrepreneurs to invest in the ICS business. The problems market channels for sale of ICS.
connected to the ICS market being a ‘frontier’ market have
Table 4: Common sources of finance for ICS suppliers (Dalberg Global Development Advisors 2013)
Source of finance Challenges
Commercial loans Banks are not easily convinced of the commercial viability of ICS business models. Consequently, value of the collateral required against
a loan may be high
Micro-finance Credit is mostly linked to sale of cookstoves to target customers of the MFI.“Top-up”loans are linked directly cookstove sales
Credit guarantees A third-party provides guarantee against a loan obtained from a bank. However, such guarantees can be obtained only from close personal
contacts, as the guarantor does not benefit much from transaction
Grant funding Donor agencies set preconditions on the grant based on their priorities, which directly influences the business model
6 MAY 2015
