Grameen Shakti : Financing Renewable Energy in Bangladesh

Firoze A. Siddiqui¹ and Peter Newman²

Abstract
1. Introduction
2. Why Grameen Shakti focuses on renewables?
3. How Grameen Shakti implements its programs?

3.1 Programs

4. How well is Grameen Shakti going?

4.1 Solar Home Systems Program
4.2 Wind Power Program
4.3 Hydro Power Program
4.4 Biodigester Program
4.5 R&D and Technology Transfer Program
4.6 Training Program

5. Final Conclusions and Suggestions
Notes
References

Abstract

The Grameen Bank in Bangladesh has developed an international reputation for assisting small rural enterprises not normally seen in conventional banking practice. It provides credit to the Bangladeshi rural poor without any collateral. At Grameen Bank credit is a cost-effective weapon to fight poverty and it serves as a catalyst in the overall development of socio-economic conditions of the poorest of the poor who have been so far kept outside the banking orbit on the ground that they are poor and therefore not eligible for banking.

One of Grameen Bank’s special areas is the commercialisation of renewable energy in rural Bangladesh. ‘Grameen Shakti’ has been established under the Grameen Bank umbrella with the purpose of supplying renewable energy to unelectrified villages in Bangladesh. Grameen Shakti’s goal is to supply, market, sell and develop renewable energy systems in thousands of poor rural villages of Bangladesh, with the ultimate goal of alleviating or minimising poverty by creating employment and income generation opportunities.

The paper examines why such projects are so critical to the rural poor, how Grameen Shakti goes about financing such projects and how well the projects are doing. The main program is in individual solar (PV) housing which is providing over 30,000 homes with power though it is expensive and is not therefore reaching the poor in rural villages. Nor is it the best renewable energy system for Bangladesh as demonstrations and R&D by Grameen Shakti are now showing. Thus some conclusions are attempted to show how Grameen Bank’s unique model for financing rural poor may be better adapted to the projected technical scale of renewables at the community or village scale. This linking of social and technical aspects of sustainability through innovative financing mechanisms is critical to sustainable banking.

1. Introduction

The Grameen Bank (GB) is one of the great stories of hope to have emerged in the last years of the millennium. Poverty is entrenched in groups, regions and nations for a range of reasons and to burst out of it usually requires the breaking of some entrenched cycle. The genius of Grameen’s founder Professor Mohammad Yunus was to believe in the credit risk of the poorest in a community (See Note 1). For those who have absolutely nothing, the offer of a loan even if it is tiny by most standards, is the opportunity of a lifetime and for which they will return the trust with extraordinary fastidiousness. Especially is this so when the loan is to individuals in a peer community group that has a responsibility to ensure the one given the loan does indeed repay it or else their own turn will not come.

The success of Grameen Bank is evident in its performance with 2.34 million borrowers, 94% of whom are poor women, located in 38,957 of Bangladesh’s 85,650 villages. By June 1997 total lending grossed US$2 billion and repayment was at an astonishing 95% success rate (Grameen Bank, 1998). This growth has occurred in just 20 years and has been a substantial boost to development in rural Bangladesh (BBS, 1998). It is also the basis for many similar banks across the developing world (HABITAT, 1996). A total of 223 ‘Grameen’ type financial programs have so far been established in 58 countries. Thus this microfinancing approach is expanding rapidly.

Most of Grameen's lending has been for housing and small rural enterprises such as for livestock. In June 1996 the Bank decided it was time to make a special foray into renewable energy and founded Grameen Shakti (literally ‘rural energy’). This paper examines why this has occurred, how it is being done, and how well it is doing as a model for sustainable banking.

2. Why Grameen Shakti focuses on renewables?

The Grameen Bank has so far provided a mechanism for two of the three key pillars to sustainability: economic development and community development. This is no mean feat in a period where the two appeared to be separating as goals into a tradeoff of one for the other (Korten, 1996). However the great challenge of sustainability is to attempt to do the third pillar- environmental development - with the other two pillars (Newman and Kenworthy, 1999).

Grameen Shakti has this third pillar firmly in its focus as it only works on renewable energy. This is unusual internationally as most financial institutions invest in a portfolio of traditional fossil fuel systems along with an attempt to bring in renewables whenever possible. However it is a little less remarkable when it is seen that the vast majority of rural villages in Bangladesh are without any form of electricity.

Bangladesh’s electricity grid reaches to only 15% of the population, mostly in cities (80% of people live in rural villages) (BBS, 1998). Thus , as Grameen Bank is a rural bank, the natural focus was to find energy projects that are not grid-based, and renewable energy is now one of the best ways to do this. However, there are new fossil fuel resources recently discovered in Bangladesh, especially natural gas in the eastern part of the country. Nevertheless, Grameen Shakti has been firmly focussed on renewables and thus is an important contributor to the international notion of ‘Sustainable Banking’.

Of course some form of electricity and a more advanced form of cooking fuel than firewood or dung, are basic to rural development. In Bangladesh, the World Bank suggests 36% of the population are ‘very poor’ and 53% are ‘poor’- most of these being in rural areas (World Bank, 1998). With lighting and access to communication technologies the potential for education becomes significantly improved. Electricity can enable cottage industries to become far more efficient and can enable many rural industries to develop beyond subsistence. Health can be greatly improved as the simple provision of a fridge in a community health centre enables vaccines and antibiotics to be kept at hand. Health is also improved if gas or a similar clean fuel replaces smoky wood and dung in cooking.

The renewable resources of Bangladesh are adequate for wind and sunlight based technologies as well as having significant untapped opportunities for providing biogas (from digesting animal manure), some hydro opportunities in the hills and some potential for tidal power in the delta islands of the south (BCAS, 1998; BCSIR, 1998; Newman, Salequzzaman, Corry, 1999). They offer the opportunity for the country to ‘leapfrog’ to the 21^st century renewable technologies rather than keeping to traditional development pathways (Goldemburg, 1998). The application of this approach to the developing world in general is well recognised by UN agencies and other development organizations (World Bank 1999).

Thus the 'why' of Grameen Shakti is both at a global level where it recognises the importance of the sustainability agenda, and also at the local level where energy for rural villages offers an important step to break the poverty cycle using these innovative technologies.

3. How Grameen Shakti implements its programs?

3.1 Programs

Grameen Shakti has established a number of specific programs to implement its goals in renewable energy. These consist of:

Solar Home Systems (SHS) Program- where homes are provided with photovoltaic roof collectors for a small amount of electricity, mostly for lighting.

Wind Power Program- where larger scale systems are being trialed on some coastal locations.

Hydro Program - where mini and micro hydro systems are being investigated in some hilly areas.

Biodigester Program - where households are financed to build small digesters to produce gas for cooking as well as a fertiliser by product.

R&D and Technology Transfer Program - where innovation is being assisted to ensure Bangladesh makes the most out of this energy transition.

Training Program- to assist improving technical and managerial skills of Grameen Shakti’s staff and to educate and popularise renewables among rural people in general.

Each of these will be expanded below but first the 'how' of Grameen Shakti's approach to any project, including energy projects, is outlined.

3.2 Financial Credit Policies: The Grameen Way

The Bank establishes its branches with a Branch manager and a number of Centre managers. The Branch usually covers an area of 15-22 villages. Grameen Shakti has established 17 Branches so far with a further 3 in 1999 (See Note 2). The manager and the workers start by visiting villages and familiarising themselves with the local environment in which they will be operating. They explain to the local community the purpose, functions and the operation system of the Bank and identify the prospective clientele.

The borrowers are organised into small homogeneous Groups federating them into a Centre. The Centres are functionally linked to the local Branch of the Grameen Bank. The Groups and Centres are the primary building-blocks of Grameen Bank’s loan receiving system and as outlined in the Introduction provide the peer pressure so critical to the success of the Bank at achieving repayment. The Bank’s field workers attend Centre meetings every week. Special emphasis is given from the Bank to organisationally strengthening the Grameen clientele in such a way, so that they can acquire the capacity for planning and implementing micro-level development decisions by themselves. In the first stage, five prospective borrowers form a Group but only two of them will be eligible to get a loan at the first stage. The loans are repayable in weekly instalments spread over a year. The Group is observed for several weeks, to see if the members are conforming to the rules of the bank. The other members become eligible for a loan only when the first two members have begun to repay the principal plus the interest for a particular period (normally six weeks or so). The collective responsibility of the Group ( and the broader Centre) serves as the group pressure to keep the individual repayment on schedule.

Loans are small, there is no lower limit as such, some times it may be from as small as US$10-US$100. Average loans (about 95%) are US$160 but are sufficient to finance the micro-enterprises undertaken by the borrowers for household based rice husking, rural machine repairing workshops, purchase of rickshaws for transportation of goods or passengers, equipment for blacksmithy, pottery, handicrafts or energy systems.

Grameen Bank’s credit delivery system has some unique features apart from its focus on the poorest in the community, its emphasis on women and its group pressure approach to repayments. It also has the following characteristics:

• loans are given without any collateral;
• loans are repayable in weekly instalments spread over the year;
• eligibility for a subsequent loan depends upon full repayment of the first one;
• transparency in bank transactions is much higher than in normal banks to enable group pressure to work on individuals and to enable the bank-staff to keep easy and close supervision. In the vast majority of credit delivery financial systems collateral is a prerequisite irrespective of the size and category of the loans. The Grameen system is the exception in this respect. For Grameen, credit is not an advantage, it is a right of the poorest of society to have access to credit.

Overall, the Bank is much more community-oriented than individual-oriented. Individuals do have responsibility but only within the context of a community. This is the spirit of communitarian movements, social capital and civil society ethics as developed by western authors such as Bellah (1991), MacIntyre (1981) and Sennett (1974). The links between this social capital and economic processes are increasingly being observed (Newman and Kenworthy, 1999) in developed country markets but obviously were recognised inherently by Professor Yunus in establishing the Grameen Bank

modus operandi. The question now is whether this philosophy and approach has been found to work on renewable energy projects.

One immediate difference has emerged. Grameen's niche of lending to the poorest is not as applicable in rural energy systems as there are very few other financial institutions willing to get involved in this field, even with more wealthy clients. The problem is that any energy system (especially for electricity) is generally far more expensive than other rural products. The capital required is an order of magnitude more than normal Grameen loans.

Hence, Grameen Shakti offers special credit policies to those other than the normal Grameen Bank borrowers, who want to buy an energy system on credit. They are offered: (a) 15% down payment and (b) the remaining 85% of the cost is to be repaid within the next 3 years in equal monthly instalments (instead of weekly repayments), with a 12% service charge on any outstanding amount. Such a system is not likely to be accessible to the poorest in the community though its focus is still on helping poor rural people. Thus Grameen Shakti is more like normal banks (as it requires some upfront capital) but still does not have a collateral requirement.

4. How well is Grameen Shakti going?

4.1 Solar Home Systems Program

Individual homes are given PV collectors for their roof and from which batteries can be charged to run simple lights or appliances like a small black and white TV. These systems are expensive so Grameen Shakti has (a) introduced the soft financing scheme (outlined above) to lessen the load and (b) developed small systems for just one or two lamps.

Thus low income people are accessing the technology. In the first year of operation 1033 Solar Home Systems (SHS) were installed (providing 38KW installed capacity).

The program aims to provide an expanding number of these systems as set out in Table-1.

Table-1. SHS Program goals for 10 years (Source: Grameen Shakti, 1999).

Over 10 years this represents 32,400 homes provided with some electricity.

The small power of such systems is seen when the first year is analysed: the average is a mere 37 watts of installed capacity per household. This is only able to provide simple lighting on average. Although most of this power is being used for lighting there are apparently some income generating enterprises that are developing from the program (Grameen Shakti, Status Report 1999):

1. Some customers are using PV systems for heating soldering irons for repairing radios, TVs or other household appliances used by more wealthy people who have electricity,
2. Rural carpenters and other craftsmen are extending their working hours after sunset, and
3. Some buyers have installed PV systems to sell battery-based power in rural market places, especially to shop owners to help light their shops. This micro utility service concept will be expanded below.

Obviously the big problem with this programme is that it is too small - both in what it can give to each household (there are already problems with the expectations raised by having electricity and the little that can be achieved with it) and also the number of households being assisted. The major reason for this is that household PV systems are still much too expensive, though their price does continue to fall (Flavin and O’Meara, 1998). The best way to overcome this problem is for the program concept to be broadened in some way to enable other renewable sources like wind power, hydro power or tidal power to be linked to PV systems. These are much cheaper but are inherently larger scaled (See Note 3). This raises questions about whether household-based power options are inherently flawed and it may be more socially and economically appropriate to utilise Grameen’s community-scaled social processes for power options. This will be pursued in the final evaluation section.

4.2 Wind Power Program

Demonstration wind power projects are being established, especially in the coastal areas of Bangladesh, along with data collection to better ascertain the wind resource. The demonstration projects are:

1. Two small wind turbines (300W and 1KW) at Sitakunda and Chokoria of Chittagong district to provide power for fish farms established by Grameen Bank.
2. Four hybrid power stations (combination of wind, diesel and PV) which have been installed in four cyclone shelters (set up by Grameen Bank) to provide power for Grameen Bank members to start micro enterprises in and around the shelters.

The application of these systems in a financing model has not yet been advanced; they are being evaluated technically first to see how they could be extended or applied elsewhere. Some comments are made below on their potential.

4.3 Hydro Power Program

This program is still in the preparatory phase, evaluating sites and is not likely to be very large as few people live in the hilly districts being examined. This program could be diverted into a tidal evaluation as a concept has been developed for small scale tidal systems using flood control barrages and sluice gates (see Newman, Salequzzaman & Corry, 1999). This is highly appropriate to Bangladesh as it builds on water (and mud) management systems already well developed in coastal communities. They are also likely to be cheaper and fit into the community scale of power production outlined below.

4.4 Biodigester Program

Biodigesters are not as well used in Bangladesh as they are in India, Vietnam and China. Probably because there is no shortage of wood for domestic cooking as Bangladesh villages all grow trees (very rapidly) for fuel. However gas is cleaner burning and so has some appeal. Demonstration biodigesters are being developed to ensure the best model for Bangladesh is available before it is put into mass production for villages. There is considerable potential here as long as villagers can have a minimum of 5 cows and can obtain financing (Grameen Shakti, 1999). This program has yet be implemented but again is best at a community scale rather than a household scale approach.

An example of an innovative and relevant technology being examined is biomass gasification. A biomass gasifier (10 KW generating capacity) in northern part of the country, has supplied 45 connections with a total of 1125W load. It is planned to be extended to supply 100 consumers in total from this source. Grameen Shakti is now conducting a study on technological performance as well as the economic aspects of the technology in existing rural socio-economic conditions. This technology has many advantages as it can use as its feedstock weed species like water hyacinth and convert it into a gas that feeds into a diesel generator. Its scale is again more appropriate to be applied at the village or community scale rather than household scale.

4.5 R&D and Technology Transfer Program

The Grameen Shakti R&D program is researching technology suitable for Bangladesh as well as how to finance it through its innovative style. Its stated goals are:

1. exploration of ways to develop appropriate renewable energy technologies and their uses,
2. development of possible ways to popularize renewable energy systems that will be easily accessible to a large number of rural community and institutions,
3. innovation of financial service systems for the customers to facilitate rapid expansion of renewable energy use.

4.6 Training Program

Special training is being instigated to enable Grameen Shakti professionals to be technically literate as well as being able to ensure there is good backup for the renewables systems when they are installed. Community-based education to start the popularising of renewables is also developing.

5. Final Conclusions and Suggestions

The Grameen Shakti approach to financing development of the very poor is well

underway in the area of renewable energy. Most programs are just beginning but the two

most significant programs warrant some further comments.

The Solar Housing Scheme is the chosen way to begin the Grameen Shakti process mainly because an international loan was provided to finance solar housing. The very small scale PV systems fit into Grameen’s social model based on individuals in a transparent and supportive community context i.e. individual households can receive loans to purchase PV systems as long as they are part of a Group and a Centre. However, the systems are too expensive to be very useful in themselves as a model for any extensive application of sustainable development. And if they were adopted by a whole Group (and then a whole Centre) the situation is not improved by any scale effects as each household remains unconnected to each other in terms of the power system.

The other major activity by Grameen Shakti is to test some larger scale renewable systems. In particular, the valuable demonstrations of Hybrid Power Stations (at the cyclone shelters); the biomass gasification system and more recently the opportunity of small scale tidal power are all community scale power systems. As such they offer a model for how Grameen Shakti may have to shift their focus and their financing approach. These systems can provide much more substantial amounts of power at considerably reduced price. The question remains how these systems could be grafted into Grameen Shakti’s social process. The model being suggested by our research group (Ellery, 1999) for a demonstration project in rural areas of Bangladesh is:

1. To incorporate a Hybrid Power Plant into a village as a community facility (using wind, PV and diesel backup that uses Biomass Gasification), together with other opportunities such as tidal or microhydro.
2. To provide power to individual households and small enterprises in the first stage through a battery charging and distribution system (rather than a small grid as it saves considerably on costs and keeps the system all DC (direct current), avoiding the need for costly inverters); as needs grow a grid can be built and even connected to the main grid in a distributed power system (Flavin and Dunn 1997).
3. To finance the system through the establishment of Groups and Centres (as in all Grameen projects); the Centre then acts as a mini utility for the village or part of the village. The particular clients chosen to be funded as participants would need to demonstrate they could pay for their electricity to the Centre who would run the Power Plant. When households show they can pay then other participants could be invited in; the Hybrid Power Plant could be extended through extra PV, wind, biomass gasification modules when necessary or be supplemented by innovations such as tidal power generators.

This model would enable Grameen to make the most out of the scale-up

advantages available in the renewable energy systems identified so far in their research and could at the same time make the most of Grameen’s unique social model that appears to work so well in Bangladesh. The scale of the technology fits the scale of Groups and Centres in the Grameen Bank model, so tying together energy technology with an already well developed finance system. The model is thus attempting to facilitate village community development, improve rural and regional economic development and assist global and local environmental development i.e. sustainability. Its application to other parts of the developing world becomes obvious.

Such matching of appropriate technologies and financing via the development of packages that build on community values, is the kind of challenge which faces all who seek to pursue new models for sustainable banking.

Notes

1. Grameen Bank website: http://www.grameen-info.org
2. Grameen Shakti website: http://www.grameen-info.org/grameen/gshakti
3. Such technologies are much cheaper than the small PV systems in the Solar Home Systems (SHS) but are larger in scale.

References

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BCAS (1998) Final Report on Wind Energy Study Project, Dhaka.

BCSIR (1998) Evaluation Report on Biogas Extension Project, Dhaka.

Bellah, R (1991), The Good Society, New York.

Ellery, Mark (1999) Renewable Energy Program In Bangladesh, ISTP Discussion Paper, Murdoch University, Perth, Australia.

Flavin, Christopher and Molly O’Meara (1998), ‘Solar Power Market Boom’, World Watch Sept/Oct 1998.

Flavin, Christopher and S. Dunn, (1997), ‘Rising Sun, Gathering Winds: Policies to Stabilize the Climate and Strengthen Economies’, World Watch Paper 138,

Washington DC

Goldemberg, Jose (1998) ‘Leapfrog Energy Technologies’, Energy Policy 26(10)

Grameen Bank (1998) Annual Report 1997, Dhaka, Bangladesh

Grameen Shakti (1999) Status Report , Dhaka, Bangladesh.

Korten, David (1996) ‘Civic engagement in creating future cities’ in Environment and Urbanization, 8(1): 35-49.

MacIntyre, A.C (1981), After Virtue: A Study of Moral Theory, Duckworth, London.

Newman, Peter. and Kenworthy, Jeff (1999), Sustainability and Cities, Island Press, Washington D.C.

Newman, Peter, Salequzzaman, Corry, Brendan, (1999)Tidal Power Prospects: Western Australia and Bangladesh, SOLAR ‘99 ANZSES conference paper, Melbourne, Australia.

Sennett, R (1974), The fall of public man, Cambridge University, Cambridge.

United Nations Centre for Human Settlements (HABITAT)(1996) ‘Finance for Housing, Infrastructure and Services’, An Urbanizing World: Global Report on Human Settlements, Oxford: Oxford University Press.

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Endnotes

¹ Ph.D Scholar, Institute for Sustainability & Technology Policy (ISTP), Murdoch University, Perth, Australia; Principal Engineer, Bangladesh Council of Scientific & Industrial Research (BCSIR).

² Director and Professor, Institute for Sustainability & Technology Policy (ISTP) Murdoch University, Perth, Australia; Visiting Professor, University of Pennsylvania, USA.