Saija Finance Private Limited (SFPL) is a Non-Banking Finance Company – Microfinance Institution in India which, with the support of the Partnership to Advance Clean Energy–Deployment Technical Assistance (PACE-D TA) Program, has piloted and scaled a solar lighting energy lending program for its clients, helping thousands of poor households get access to clean energy to reduce the use of harmful traditional fuels and improve their livelihoods.
With a hybrid Loan Officer/Energy Officer business model, Saija has overcome various challenges, including attracting, training and retaining the right people for this particular initiative, but with iterative improvements driven by client engagement, monitoring and evaluation and Technical Assistance.
Saija is headquartered in Patna, Bihar, and has a total of 722 employees across 57 branches in 36 districts across the three states of Bihar, Jharkhand and Uttar Pradesh. As of March 2017, Saija had a customer base of 213,502 clients with an outstanding loan portfolio of USD 37 million, with an energy program customer base of over 52,000 energy clients across 35 energy branches, with disbursements of USD 1.7 million and an energy portfolio outstanding of over 820,000.
Saija Finance Private Limited (SFPL) is a Non-Banking Finance Company – Microfinance Institution working in Northern and Eastern India. SFPL started with a small portfolio of microloans,taken over from its associate non-profit entity,Saija Vikas,which was registered as a Society in July 2007 and made its first loan disbursements in November 2007. In addition to SFPL, the broader Saija group of enterprises includes Saija Shayog, the company’s current NGO wing,which oversees the company’s energy lending and financial literacy training, as well as Saija Consultants.SFPL (or “Saija”) provides microfinance services to poor families and Small and Medium Enterprises in urban and rural areas. Headquartered in Patna, Bihar, Saija has a total of 722 employees across 61 branches in 36 districts of Bihar, Jharkhand and Uttar Pradesh. As of March 2017,Saija had a customer base of 213,502 clients with an outstanding loan portfolio of USD 37 million.
Recognizing the importance of providing much- needed clean energy access to its clients, as well as the importance of expanding revenue channels and diversifying its portfolio beyond traditional enterprise microcredit, Saija began a small-scale pilot in energy financing. However, this initial foray into energy lending never moved beyond the initial pilot. The opportunity to partner with the PACE-D TA Program sparked Saija’s interest in trying one more time, especially since the Program offered a structured process for experimenting with energy lending. Saija’s governance and management team, especially the founders Mr. S.R. Sinha and Mrs.Rashmi Sinha,had always been committed to the company’s goal of addressing the need for improved energy access while diversifying the portfolio. Early experiments had made it clear that for an energy lending program to be successful, the complexities of technology, after-sales service, demand creation,distribution, inventory management and investments had to be addressed simultaneously.
Saija joined as a partner of the PACE-D TA Program after responding to an open solicitation for partnership in January 2015. The Program offered technical assistance (TA) to Saija in the critical areas of design, development and scale up of its energy lending program.
Saija has now developed a distinct energy lending busianess that coexists within its micro- finance operations. The energy lending program
is implemented by Saija Consultants, but with SFPL’s loan officers handling the loan appraisal and disbursement of products. As of March 2017, Sajia has reached a customer base of over 52,000 energy clients (all women), growing by 100 percent annually, employing 315 loan officers and energy officers in its energy program, across 35 energy branches, with disbursements of USD 1.7 million and an energy portfolio outstanding of over USD 820,000. During this time, Saija has secured a unique earmarked investment of USD 6.5 million from an international fund to fuel its energy portfolio. Saija’s energy lending program offers an illustrative case of how the core services of an MFI can be leveraged to achieve expanded energy access. Saija’s experience offers a wide range of insights on how MFIs can design and build an energy lending program integrated within their MFI operations that can deliver positive impact in a profitable, sustainable manner.
Context: Energy needs of prospective clients
Saija operates across Bihar, Uttar Pradesh and Jharkhand – three of the poorest states in India. The combination of poor energy access and widespread poverty has meant that energy solutions must not only reliably address the need for energy, they must also be affordable for the end-user. In Bihar, the state where Saija opted to begin its energy operations, 9.4 percent of Saija’s rural energy clients are below the state poverty line – compared to 6.3 percent of the rural population in Bihar as a whole. Among urban clients, the gap is reversed: 5.4 percent of Saija’s urban energy clients live below the poverty line compared to
14.3 percent of Bihar’s urban population. Figure 2 shows the areas of Saija’s operations in Bihar and electrification rates by district.
Only 40 percent of Bihar is recorded as electrified; 60 percent of Saija’s overall client base is electrified, but the average hours of connectivity are low. In an independent phone survey conducted in 2016, 69 percent of clients reported over 16 hours per day of connectivity, but among these, many reported frequent and erratic interruptions of connection, a common feature in rural India. The consequences of this as it relates to demand are clear. While nominal connectivity in terms of potential hours per day is fairly high among Saija’s clients, the quality and reliability of that access was extremely low, and the availability of dependable access in the hours when it is needed most was very poor. In the early stages of the PACE-D-Saija partnership, Saija’s management was assured that there was great scope for Only 40 percent of Bihar is recorded as electrified; 60 percent of Saija’s overall client base is electrified, but the average hours of connectivity are low. In an independent phone survey conducted in 2016, 69 percent of clients reported over 16 hours per day of connectivity, but among these, many reported frequent and erratic interruptions of connection, a common feature in rural India. The consequences of this as it relates to demand are clear. While nominal connectivity in terms of potential hours per day is fairly high among Saija’s clients, the quality and reliability of that access was extremely low, and the availability of dependable access in the hours when it is needed most was very poor. In the early stages of the PACE-D-Saija partnership, Saija’s management was assured that there was great scope for
“We have had to build a business model that provides a quality distributed technology to our clients, with the financing to make it affordable, alongside a service offering that gives the customer
peace of mind in making this
decision.” – S.R. SINHA
Saija sells a range of portable solar lanterns, mini solar home systems and a DC solar fan from two market leaders, Greenlight Planet (GLP) and d.light.The PACE-D TA Program is product and partner-neutral, so an important element is to present a range of energy products to partners to enable them to choose the best option for their operating context.
A variety of companies offer small-scale solar products today, and there were a range of partners as well as Saija sells a range of portable solar lanterns, mini solar home systems and a DC solar fan from two market leaders, Greenlight Planet (GLP) and d.light. The PACE-D TA Program is product and partner-neutral, so an important element is to present a range of energy products to partners to enable them to choose the best option for their operating context.
A variety of companies offer small-scale solar products today, and there were a range of partners as well as
SOLAR PORTABLE LIGHTING In Bihar, Saija introduced the Greenlight Planet (GLP) Pro All Night in early 2015, a mid-sized solar portable light (SPL) with mobile charging, which sells for INR 1,899 (USD 28). In UP and Jharkhand, Saija offers the similar d.light S300 light for INR 2,195 (USD 33). Both products offer a good balance of luminosity, flexibility and portability (they can easily be detached for carrying outside at night or hung as a central lamp to light a room), battery life and functionality including cell phone charging.
SOLAR HOME SYSTEM
In Bihar, Saija introduced the GLP solar mini home system (Home 60) in late 2015, with two LED lights and mobile charging capacity for INR 5,000 (USD 74). In UP, Jharkhand and Bihar, DC solar fans are also offered. The solar home systems offer the added functionality of three LED lights which can permanently light different rooms of a house as well as the outside areas, with separate switches for each – as well as charging capacity for mobile phones.
Microfinance Loans for Renewable
|FIGURE 3. LOAN PRODUCTS|
SAIJA TAILORS ITS ENERGY LOAN OFFERING SPECIFIC TO EACH PRODUCT
|Saija’s Microfinance and Energy Loan Products|
|MICROFINANCE LOAN TERM||1OR 2|
MICROFINANCE LOAN SIZE
|20,000 TO 25,000|
INR (USD 298 TO USD 373)
|MICROFINANCE REPAYMENT FREQUENCY||EVERY 2 WEEKS|
|ENERGY LOAN TERM||6 OR 9|
|ENERGY LOAN SIZE||1,899 TO 5,499|
INR (USD 28 TO USD 82)
|ENERGY REPAYMENT FREQUENCY||EVERY 2 WEEKS|
(LANTERNS) (SHS OR FAN)
Saija’s team felt that integration of energy loans with microfinance loans was important. For small and relatively affordable products such as those offered by Saija, it is possible to offer “top up” loans, rolling an energy loan into a client’s existing microfinance loan without the expense and complications of writing a new, standalone loan, and without creating unacceptable risk.
Moreover, it was clear from pre-pilot research that ensuring energy loan repayments could be made at the same time as microfinance repayments would be important, both for the clients (minimizing their opportunity cost with travel time and expense) and for Saija itself – putting too many burdens on loan officers.A balance would need to be found between reaching clients who would truly benefit from clean energy products, but refraining from offering energy loans to clients with no track record of repayment.
Eligibility of clients
On the microfinance side, Saija offers its microfinance clients loans of between INR 20,000 to 25,000 (USD 298 to USD 373), or INR 15,000 (USD 224) for new
clients, who are then eligible for larger loans on their second and subsequent cycles. In terms of energy finance,Saija offers top-up loans on over and above of the existing larger, microfinance loan.These were initially given only to second-time (or subsequent) borrowers, who had established a track record of timely repayment over their first loan cycle. After pilot testing, the energy loans were extended to first-time borrowers as well, once they had made four microfinance repayments, and as long as the number of remaining microfinance installments was greater than the number of energy installments to be paid.
For the larger products such as the GLP Home 60 system, there are additional financing options, including a nine-month energy loan instead of the typical six-month loan. For microfinance clients in the middle of a cycle, the system can still be bundled as a part of a top-up loan. In all scenarios, the installments are aligned so that the repayment for the energy component of the client’s aggregate loan happens at the same time as the microfinance repayment.
Guarantee and after sales services
Guarantees and after sales services are an important part of Saija’s offering to clients.The MFI offers its clients the same level of guarantee extended by the manufacturer, in this case a two-year product replacement guarantee for faulty products from the date of purchase. The client brings the product to the relevant branch, and after a screening process to ensure the product has not been tampered with (a screening process formalized in guidelines by the product manufacturers), the branch manager hands a brand-new product to the client. Five percent surplus inventory is always provided by the supplier and kept on hand to ensure immediate replacements are available, but to date, Saija has not faced any significant problem with faulty products, and has recorded approximately a two percent replacement rate.
“Our clients are poor, and live and work in the worst areas of India in terms
of access to clean and reliable energy. So
we’ve seen an opportunity to help them, while diversifying our
portfolio and build a new business.”
Key Drivers and Concepts
During the business planning process, Saija realized that appropriate products and financing were not enough to build a robust energy lending program. It also required an operational framework that could manage the procurement, delivery, inventory, after-sales and marketing of such products. Saija also needed an organizational structure that could manage the business while remaining integrated within the MFI operations.
One of the most important success factors for Saija was the commitment that its founders, Mr. S.R. Sinha and Mrs. Rashmi Sinha, maintained on the potential of distributed renewable energy solutions to address the energy needs of Saija’s clients. They were willing, despite prior challenges, to experiment with a new approach and adapt processes and systems to enable the pilot to succeed.
Initially Saija adopted a pure “Energy Officer” (EO) structure in which an EO works in parallel with the company’s microfinance operations. The EO is an employee of Saija, typically hired from within, and charged with accompanying “Loan Officers” (LOs) to microfinance group meetings, conducting product demonstrations and, serving as the point of sale for the product.
There are advantages in an EO model – not least that it minimizes the burden on the LOs. However, Saija, with the support of the PACE-D TA Program, decided to refine this into a hybrid model. There were several reasons for this:
- There was originally one EO per branch, and the EO would accompany the LO to the field. But the movements of the EO were tied to those of the LO, and with no autonomy or transport, the EO’s ability to extend outreach was limited.
- The EO was slightly isolated within the branch from the microfinance operations, with LOs sometimes skeptical of the value of what seemed like a separate business channel, and not really benefitting from it themselves.
- LOs had built up relationships of trust with clients, and the trust was not extending to the EOs who needed to close a sale. The lack of integration of the EO into the microfinance model meant that clients saw a salesperson for a solar company, and not an employee of an MFI they knew and trusted, coming to offer them an opportunity.
- Under the PACE-D TA Program, this preferred model was refined into a hybrid model in which an EO handles several administrative requirements, conducts demonstrations of products and takes money (for cash sales). But the LO – sometimes called the Field Executive or Field Officer – would conduct the appraisal and disbursement of the energy loan. After iterative improvements, Saija’s team with support from the PACE-D TA Program developed a model in which the EO accompanies the LO to microfinance group meetings and the promotion of product benefits is a shared responsibility. From the perspective of the client, the product’s benefit is implicitly “vouchsafed” by the LO. Initially, Saija was reluctant to incentivize LOs (offering a bonus for each sale), but this was adjusted after a pilot review in late-2015 due to the extra work being asked of the LOs.
- Human resources :- After the introduction of this incentive structure for LOs, the energy program, which had earlier made tentative progress, started showing improved performance. The incentive structure was so designed that it is attractive enough to encourage LOs to spend time promoting the benefits of clean energy to clients, but not so attractive as to encourage undesirable or even fraudulent
- behavior (such as making future microfinance loans conditional on taking energy loans). This balance mandates a sufficient base salary that LOs are not financially compelled to “push” products – something Saija is very serious about preventing– to vulnerable clients. And at the same time the sales bonus structure needs to be sufficient that taking the extra time and effort to make sales is worth it.This balance was however not achieved immediately. Turnover had been high within the energy team, especially the Energy Head position. There had also been some skepticism about the viability of the program after the failure of the earlier, pre-PACE-D pilot energy program. Also, the selection of the right Energy Lending Head took longer than expected, resulting at first in lack of coherence in the strategy of the program, and uncertainty for other staff. This instability is not unusual in MFIs with fledgling energy programs as outside recruits may have other aspirations in mind (such as moving to a big commercial bank) and do not demonstrate the personal commitment required to grow a pilot to scale. At the same time, while internal hires may have loyalty to the organization, they may lack particular skills such as understanding risks, sales and also technology.The specific set of skills needed for managing an energy lending program make it especially difficult to recruit the right person, and MFIs need to take into account that the process may take longer than they expect and that the program may suffer setbacks during the recruitment process.• Expansion beyond Bihar to UP• Increase in frequency of field visits for management, LOs and his own team• Improved interaction and communication with the area manager and field managersThe new Energy Head immediately demonstrated aptitude in dealing with product companies, negotiating on margins, supplier discounts, and even employee incentive schemes through the energy companies (such as the energy company offering a free international trip as the prize for an internal Saija sales competition).Like many MFIs, Saija makes a point of soliciting regular feedback from clients during microfinance group meetings on their perspectives about the financial services it provides. In the case of energy products the focus is on understanding customer insights on product usage and aspirations. Saija and the PACE-D TA Program evaluated results continually throughout the pilot stage, taking the findings and adapting the business model to reflect customers’ wishes. Ongoing qualitative research, including professionally-guided focus group discussions, has built upon this. In addition, independently-managed and analyzed customer phone surveys has added more nuance to the initial customer insight, including responses on customer satisfaction, product failures, recommendations, future intentions, reductions in household energy expenditures, and reasons for purchase. One of the most important sources of customer insight is the informal feedback offered to LOs during client meetings which they collate and can provide to branch managers and the Energy Head. All of these different sources of information help to paint a more complete picture of the customer experience. Saija uses these insights to continually improve its product and service offerings. A focus on women
- Saija is a women-led organization with women as its core target group – it was co-founded and is led by Mrs. Rashmi Sinha and its mission and daily work is focused on empowering women at every stage. Women make up 100 percent of Saija’s client base and most of these clients live in Bihar where women’s lives are more restricted than in other parts of India. Typically, women are expected to work inside the home to generate income through activities like embroidery or tailoring, as well as other trades. As a result, they are the primary users of energy inside the household and their work is usually done after dark, due to the many demands on their time during the day. Mrs. Sinha believes that women are more negatively affected by traditional forms of energy and that as a result clean energy loans particularly benefit women. She says, “Women benefit doubly by energy loans – they use loans for both production and consumption. Clean energy enables women to generate an income but it also helps their children study, it provides a feeling of safety and security and it alleviates health issues caused by dirty fuel.” Although women in communities where Saija operates do not usually work outside the home, Saija has made a strong effort to recruit women to work as LOs and EOs, and currently 25 percent of these roles are filled by women. By providing women access to cleaner and safer energy in their households, by offering opportunities to generate income, and by recruiting women to take professional roles within the organization, Saija is ensuring that clean energy loans have an outsized positive impact on a population that is traditionally marginalized.
- Customer insights
- • Redesign of an incentive structure beyond just LOs, all the way from regional and area managers down to EOs
- • Implementation of training programs for field staff
- • Introduction of additional product companies
- Luckily for Saija, in September of 2015 after months of flux, the MFI was able to find a young, ambitious and dynamic new Energy Head from within the company. With support from the PACE-D TA Program, he introduced a series of program changes, including:
- In addition, Saija has used marketing strategies like lotteries for clients and target-based prizes for field staff (such as an all-inclusive overseas holiday) which can be very effective, particularly if implemented with the cooperation of the product partner, which shares the incentives of the MFI and its staff in increasing sales.
Factors Influencing Continued
Several factors have driven Saija’s success to date and drive its plans for the future.
A long-term vision
Saija’s willingness to enter the energy finance sector was driven by recognition of two factors: providing finance for energy products offers a profitable way of diversifying its revenue streams and loan portfolio (and attracting new sources of wholesale funding from investors and donors as well); and improving the lives and livelihoods of Saija’s clients by increasing access to quality energy products, reducing the health consequences of kerosene in particular, and increasing the available productive hours (and therefore potential income) for clients’ enterprises.This vision has been embedded in the organization since the beginning, and it is key to the long-term perspective required for success. Because of this vision, Saija’s governance and management teams have been willing to be patient, and to address challenges, rather than give up and go back to their core service of microcredit.
Saija recognizes that providing clean energy access to its client base is possible with the retention of key staff, the full buy-in by management and adequate investment. Saija also recognizes the fact that by adopting new energy lending strategies and business models, which
are focused on expanding sales and distribution, it will help to avoid the risk of plateauing when it saturates its existing client base. Saija is currently exploring a Village Level Entrepreneur (VLE) model, which will offer opportunities for outreach to non- clients through agents – perhaps using trade finance, which offers attractive credit terms to people who want to become solar entrepreneurs. Bihar, in particular, has considerable demand for off-grid clean energy, especially lighting, and Saija is well-placed with its ground operations in that state to reach millions of new customers.
Saija recognizes that a proactive and talented workforce is critical to determining success or failure of any initiative. Retaining talented individuals such as the current Energy Program Head is important, but more important is the creation of processes and procedures that support the energy program’s continuity such as succession plans, training manuals, and strong communication channels between senior management, area and regional managers, LOs, EOs and clients.
Training of LOs within the Saija energy program has involved branch-level training – inviting senior management for training on sales, marketing, awareness building, process, systems adaptation and after sales service – and frontline training of sales staff on demand, usage, product ranges, capacities and specifications, clients’ “pain points,” segmentation and positioning. Long term success of the program will require incorporation of these standardized training procedures into the corporate culture.
Saija has a strong internal training program for microfinance LOs, who are selected for their enthusiasm and willingness to work. According to Saija’s HR and Training departments, LOs demonstrate “honesty, comfort engaging with people of different backgrounds and education” and recruitment processes include testing “for stress management and conflict resolution, and identifying candidates who want to make a career, not just take a job.”
The PACE-D TA Program worked with Saija to create a training program that aims to develop, attract and retain candidates that understand the complexity of energy lending. The training program is layered. LOs receive the initial training: one week of induction training in the field and in the head office where the Field Executives are briefed on sales processes and engages in role-play and visualization. The Executives are shadowed for the first two months and regular feedback is obtained from Supervisors. After two months a refresher training program is organized, with a “motivational activity” that can include games and simulations. There are regular one-on-one meetings in the field between Field Executives and Supervisors to evaluate job satisfaction, and some are groomed for management positions.
Together, this demonstrates that robust systems (which include retention and training of staff, strong procedures and processes that are iteratively updated) are the risk mitigation strategy against natural attrition.
Key role of Energy Head
The turnaround of the energy program when the current Energy Head took over showcases the crucial importance of the role. It is a difficult position, which requires a wide range of skills and qualities. It is imperative that the Head believes in the program, and displays a commitment that will be noticed and emulated by the person’s subordinates. While it is tempting to use recruiters to find an external hire who has experience in managing large teams, Saija instead recruited from within, giving a chance to someone who had strong communication skills and a real commitment to the program.
- Choose the right business model
Initially, Saija introduced a pure EO model where the EO served as the Point of Sale. Clients made it clear that their preference would be to deal with LOs with whom they have a long relationship. However, Saija decided that a pure LO model would be unviable for reasons of focus, time management and misaligned incentives. Saija created a “hybrid” of sorts, which balanced the need for EOs to conduct product demonstrations with the important role of LOs in appraising loans and managing client interactions.
- Develop appropriate incentives for staff
It is difficult to scale an energy finance program without the proper incentives for field staff and senior area managers. Existing staff are used to evaluate enterprise loans, and will be reluctant to divert attention from that to selling energy products without an incentive. The incentive needs to be crafted carefully so that it does not result in “forced selling” where products are pushed on people who cannot afford them, or who are too vulnerable to be able to refuse. Most importantly, incentives need to be matched with a fair base living wage.
- Hire the right energy team leader
Having the right personnel in a management role can fundamentally change the program dynamics. Finding someone, regardless of age or experience, who understands what the company is trying to achieve, and knows how to convey that idea with enthusiasm is critical.
- Pilot the program carefully
It is tempting for the management, in its efforts to show results, to rush the pilot stage and move as quickly as possible to the roll out and expansion phase, however, it is much easier to adapt processes and procedures during the pilot stage. Saija has learned that a carefully designed pilot phase that precedes scale-up is critical as it enables the MFI to learn from mistakes and better understand its new and unfamiliar business and also ensure that the model is right before committing to investment in expansion.
- Invest in training
It is easy to cut corners on training with the rationale that time spent training is time that could be spent selling or earning.While this is true, it is also a false economy. Training staff, both initially so they feel confident at their job, and then on an ongoing basis so that problems can be identified, tactics honed, feedback provided and talent identified is key. Training is always an investment that pays off.