Page 5 - Can Subsidies be a Tool for Strengthening the Improved Cookstoves Market?
P. 5
Policy Brief
market. Offering subsidies commensurate with cookstove cookstove business models that fall short of financial
performance will encourage the development of better viability. The viability gap funds can be systematically
performing improved cookstoves. Also, considering the reduced as the investment capacities of manufacturers
relatively much higher health and climate benefits of forced- increase, market-related costs of dissemination decrease
draft improved cookstoves, the proportion of subsidies to and buyers’ willingness to pay enhances.
the total cost offered to such stoves must be higher than
what is currently offered to natural draft cookstoves. 5. Synergizing subsidies with end user finance
4. Viability gap funding as opposed to subsidies Availability of loans for purchase of improved cookstoves
serves as a solution to the problem of poor paying
The raison d’être of subsidies must be value chain capacities of rural buyers. However, financial institutions are
development in the cookstoves market. The present not readily willing to offer loans for purchase of improved
limited view of bringing down the cost of the cookstove cookstoves due to the ‘consumptive’ nature of the product,
to the end user does not augur well for long-term cost its low ‘ticket-size’ and risk of recovery. In the TERI-DFID
optimization of improved cookstoves in the market. It programme, subsidies were used to absorb the interest
must be realized that once subsidization programmes on loans for the purchase of improved cookstoves, which
are discontinued, market forces of demand and supply enhanced the repayment capacity of end users and hedged
determine the price of improved cookstoves. One way of the risk of financial institutions on these loans. Synergizing
utilizing subsidies to bring down the cost of the cookstove subsidies with end user finance enhances financial inclusion
and strengthen the market at the same time is to transfer of improved cookstove buyers, and helps boost the demand
them to value chain actors as ‘viability gap funds’. for improved cookstoves in the market from households
Viability gap funds support economically justified improved who are willing to purchase, but unable to pay.
51 APRIL 2015
market. Offering subsidies commensurate with cookstove cookstove business models that fall short of financial
performance will encourage the development of better viability. The viability gap funds can be systematically
performing improved cookstoves. Also, considering the reduced as the investment capacities of manufacturers
relatively much higher health and climate benefits of forced- increase, market-related costs of dissemination decrease
draft improved cookstoves, the proportion of subsidies to and buyers’ willingness to pay enhances.
the total cost offered to such stoves must be higher than
what is currently offered to natural draft cookstoves. 5. Synergizing subsidies with end user finance
4. Viability gap funding as opposed to subsidies Availability of loans for purchase of improved cookstoves
serves as a solution to the problem of poor paying
The raison d’être of subsidies must be value chain capacities of rural buyers. However, financial institutions are
development in the cookstoves market. The present not readily willing to offer loans for purchase of improved
limited view of bringing down the cost of the cookstove cookstoves due to the ‘consumptive’ nature of the product,
to the end user does not augur well for long-term cost its low ‘ticket-size’ and risk of recovery. In the TERI-DFID
optimization of improved cookstoves in the market. It programme, subsidies were used to absorb the interest
must be realized that once subsidization programmes on loans for the purchase of improved cookstoves, which
are discontinued, market forces of demand and supply enhanced the repayment capacity of end users and hedged
determine the price of improved cookstoves. One way of the risk of financial institutions on these loans. Synergizing
utilizing subsidies to bring down the cost of the cookstove subsidies with end user finance enhances financial inclusion
and strengthen the market at the same time is to transfer of improved cookstove buyers, and helps boost the demand
them to value chain actors as ‘viability gap funds’. for improved cookstoves in the market from households
Viability gap funds support economically justified improved who are willing to purchase, but unable to pay.
51 APRIL 2015
