How does your proposed innovation leverage public intervention in catalyzing private SME finance?
The project saves energy in countries using electricity to heat water using massive amounts of fossil fuels and generating massive amounts of CO2.
Electricity production is a major environmental concern around the globe. Governments should be interested in promoting the utilization of such devices.
This innovative Green and Financial business model solves buyer’s needs and their constrains. Green SMEs limit their operations and risk to installing and maintaining the system, which is quite stable because those have almost no or few mobile pieces, SMEs can leverage their operations.
The financial engineering involved mixes marketing, environmentalism, legal and financial issues all in one contract chain.
To make the transaction feasible: the local utility firm must enter in the transaction; their main function is to collect the monthly quotas, reducing funder risk. They enforce the collection. Such a financial scheme requires long term financing in a way the quota is reduced and the buyer will not feel the cost of the investment. Years after, once the quotas are paid the buyer will feel the cost reduction due to the installation of the device.
But, most of the electricity utility companies are public or are monopolies regulated by state commissions; that is why selling our electricity saving device, needs public intervention.
Multilateral funds might be provided to finance this project. Multilateral funds normally operate through governments. Even the private arms of multilaterals like World bank’s IFC or IADB’s IIC, would be more prone to invest in this project, if the public or supervised electricity companies are included in the chain of contracts.
Because this financial scheme minimizes the risk the SME, those are more likely to receive the funds required to install the equipments and to collect cash.
What barriers does your proposed solution address?
Asymmetry of information, Informality, Lack of collateral, Lack of financial capacity, Unavailability of financial products tailored to SME needs, Lack of institutional capacity of financial intermediaries, High transaction costs for financial intermediaries to serve SMEs, Lack of competition / incentives for financial intermediaries to serve SMEs, Underdeveloped local capital markets (term local currency funding, exit options for SME equity), Lack of financing to women entrepreneurs.
If you checked any of these barriers, describe how your solution addresses them
Small loans collection transaction costs. Collecting the small monthly quotas in the elctricity bill make it very easy and enforzable.