Boosting the improved cookstove supply chain through a revolving fund

Producers of improved, greener cookstoves in Lao PDR often encounter challenges in securing capital to run their businesses. Many banks are unfamiliar with the product and are proven to be uninterested in providing loans as the average amount is too small – sometimes only about USD 500. If producers have no money for labour or to buy raw materials such as metal buckets, then production halts. Retailers on their part are afraid of taking the financial risk of pre-investing in a new product and in turn fewer improved cookstoves end up in shops meaning that customers and end users lack access to improved cookstoves, which keeps the demand low and affects the income of producers.

The Improved Cookstoves Programme (ICS), implemented by SNV Netherlands Development Organisation, Oxfam, and The Association for Rural Mobilisation and Improvement (ARMI), and funded by the European Union (EU) Switch Asia Programme, seeks to help Small and Medium Enterprise (SME) stove producers to sustainably produce high quality ICS.  In recognition of this, SNV set up a revolving fund of USD 10,000 to frontload costs of production and sales of improved cookstoves that would have been constrained by cash flow challenges.

While only producers can borrow money from the fund, it has benefits along the entire supply chain. Producers, with the availability of the working capital, are able to continue production and have the flexibility to sell improved cookstoves on consignment to retailers. Retailers, in turn, stock their shops and shelves with Improved Cookstoves, increasing access and awareness for end users, who then reap the benefits of a more energy- and time-efficient stove.

Nine producers in Savannakhet, Champasak and Vientiane Capital are making use of this facility with 50 short-term loans already having revolved over the past 12 months. Thus far, this fund has contributed to 9,650 cookstoves that otherwise may not been made due to cash constraints. An important benefit is that producers have learnt to better plan and manage their cash flow by distinguishing between ‘working capital’ and private money. This has increased the resilience of their businesses, making them less susceptible to unexpected financial shocks and has helped to ensure a more balanced cash flow and income level.

“In the past, cookstove producers were often unable to pay for the metal buckets upfront and would ask to pay later.  But now that the ICS producers are able to borrow money from the revolving fund, they are able to buy buckets for their cookstoves outright,” says Mrs. Syfong, a bucket producer at Phonsykhai village in Champasak province.

Mr. Bouthieng, one of the programme’s star producers – who on average produces 500-600 cookstoves per month – noted, “With the money from the revolving fund, I am able to buy raw materials more easily. I’m even able to buy raw materials in bulk during the dry season when they are cheaper, which allows me to lower my production costs for larger profits.”

The Association for Rural Mobilisation and Improvement (ARMI), which is managing the fund, has seen a gradual uptake among producers. “Producers were initially hesitant because they feared being in debt. However, as more producers are enrolling, it’s becoming more apparent that the fund helps them increase their production and eventually their income,” says Khamleth Sengsoulichanh, Improved Cookstoves Programme Manager at ARMI. “We hope that with the fund, producers are able to improve their business on their own and will no longer need the fund but rather manage their capital wisely.”