Pioneering bio-digester financing in Ethiopia

One of the main constraints of bio-digester dissemination is a lack of or limited access to finance. A micro-finance institution (MFI) is pioneering in financing bio-digesters in Ethiopia.

“The major success factor for mass dissemination of bio-digesters in the region is access to credit”, said Zerihun Desalegn, Manager, Regional Biogas Program Coordination Unit of the Southern Nations, Nationalities and People’s Region (SNNPR) of Ethiopia.

Meklit Micro Finance Institution Share Company (Meklit MFI SC) is one of the microfinance institutions contributing to bio-digesters dissemination through its Bio-digester Loan Product. The company, understanding the benefits of bio-digesters to the users and to the environment, engaged in providing loan to rural farmers.

The product, according to Debela Fekadu, Operation Manager, Meklit MFI SC, launched Bio-digester loan financing in Oct 2011 at Meskan Woreda, in SNNP region to address lack of access to credit finance to invest on bio-digesters. All its branches and sub-branches are providing the service. Until April 2016, in Meskan Woreda, more than 360 households received loan amounting ETB 2,541,000.00 and started to benefit from their bio-digesters. This contributes to the effort that Ethiopia is exerting in reducing greenhouse gas (GHG) emissions and deforestation.

Maximum loan size of the company is ETB 7,000.00 for two years at 16% declining annual interest rate and 2% service charge. All of the loans are financed from the company’s own source. As of June 2016, the repayment rate of the company is about 95% which is the highest among MFIs engaged in providing bio-digester loan in the country.

Before launching the product, the company signed Memorandum of Understanding with Mine and Energy Agency (MEA) of SNNPR, Meskan Woreda Administration, and Meskan Woreda’s Water, Mines and Energy (WME) Office.

Collecting demand, Meskan Woreda’s WME Office shares the list of households to the MFI. Then, Meklit MFI SC engages the Kebele (lowest administration unit in Ethiopia) administration, for further reality check. Before dispersing bio-digester loan for the users, the company organises awareness creation session with stakeholders and orients users on the benefits of bio-digesters and features of company’s bio-digester loan product, including loan size, loan repayment interval and interest rate. For ease of its customers, Meklit has introduced various repayment schedule options: monthly, quarterly, biannual and annual.

“Meklit MFI SC is providing loan for bio-digesters. It has less complicated and clear loan procedure and has installed a strong follow up and monitoring system” said Jemal Mohammed, WME Office Head, Meskan Woreda.

A bio-digester mason, Tsegaye G/Selassie, from Meskan Woreda said, “If customers meet the requirements, Meklit releases loan for bio-digester product, immediately”.

In some cases, users were not willing to pay their loan with the pretext that their bio-digesters are not functioning. However, the company’s follow up, monitoring and the collaboration with the Woreda WME office, helped to change the attitude of users in loan repayment. Besides, the company links households with non-functional bio-digesters to WME office/masons for after-sales-services. To date, only 6 households have defaulted to repay their loan.

“A good number of the company’s existing clients for other loans are potential bio-digesters users and the company will easily reach out to them, to achieve its bio-digester loan expansion plan”, said Operation Manager.

The company has submitted proposal to Development Bank of Ethiopia (DBE) to access World Bank (WB) funded “market development for renewable energy and energy efficient product” line of credit, with a support letter provided by the MEA. Hoping to get the finance from DBE, the company has planned to finance more renewable energy and energy efficient products. To this end, the company is introducing a new energy loan product to all branches while increasing the loan size to ETB 10,000.00.

To sustain its commitment for providing loan for bio-digesters, in particular and alternative energy products, in general; it is important that a combined effort is made by all concerned, to avail funds to MFIs like Meklit MFI SC, in order to increase access to clean energy products, such as bio-digesters, including for poor people, who cannot afford the up-front cost.