Green credit takes root in Mexico
Jun 24, 2015
When the MIF, in partnership with the Nordic Development Fund, first launched the EcoMicro program—which works with microfinance institutions in the region to develop green credit products—there was a lot we didn’t know for sure. Were there many MFIs out there seeking to make their portfolios more environmentally friendly? Would there be demand among customers for loans to help them make their homes or businesses more energy efficient? And once the pilot versions of these green credit products had been introduced, would they be scaled up and reach sustainability?
I am just back from Mexico City, where I attended an event hosted by Financiera Te Creemos to present the results of its EcoMicro-supported green credit project. And I am pleased to report that the news was very positive.
Both of Te Creemos’ green credit lines have been extremely successful. One provides credit to small shops for replacing old, inefficient refrigerators. Even taking into account the fact that the shopkeepers needed to replace appliances that were already paid for, the energy cost savings from the new units more than make up for the monthly loan payments. Once the loan is paid off, the business keeps all the energy cost savings.
The second credit provides financing for small solar water heaters for low-income populations without access to hot water. Te Creemos has developed a credit that allows this technology to be affordable to clients, and again, money saved from not having to purchase gas or firewood partially offsets the cost of the credit.
Beyond these direct results, however, two other interesting points arose at the event. First, the EcoMicro pilot has already had a direct effect in changing Te Creemos’ growth and expansion strategy. Buoyed by the success of the pilot, the institution is planning to expand the two loan products to all branches, and is also developing new credit for other technology producers. It expects that green credit will soon represent 10-15% of its total portfolio—some 100-150 million pesos. It also expects a return on investment from these credits of 16%. Second, Te Creemos confirmed that the process of implementing green loans led them to rethink their basic credit processes to make them less disbursed and more efficient, and they are now applying these methodologies to their entire portfolio.
Finally, one innovation that was very exciting to see was the way that Te Creemos has partnered with a refrigerator manufacturer to train the manufacturer's sales force to offer credit. In this way the salespeople become credit sales agents, and the cost of making the sales is absorbed by the manufacturer, allowing the MFI to offer a lower interest rate. In this circle everyone wins. The clients save enough money on energy to cover the loan costs, and they get new refrigerators; the manufacturer sells more products to clients who previously could not afford them; and the MIF places more credit. A truly virtuous circle—that also benefits the environment!
EcoMicro and its Te Creemos project were honored at the UN Council of Parties Event in Lima in December. The video below illustrates these products and their benefits to clients better than any words.