P A C E – D C A S E S T U D Y

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

                                               

                                                  

                                                        THE                                                           TECHNOLOGY

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

 

 

Box 1

THE TECHNOLOGY

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.

 

 

Affordability Mechanism:

Microfinance Loans for Renewable

Energy Finance

 

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 YEARS
	AVERAGE 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 MONTHS
	ENERGY LOAN SIZE	1,899 TO 5,499 INR (USD 28 TO USD 82)
	ENERGY REPAYMENT  FREQUENCY	EVERY 2 WEEKS
	ENERGY INSTALLMENTS TOTAL	13      18 (LANTERNS)       (SHS OR FAN)

 

Loan design

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.

Repayments

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.

Business ethos

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.

Operational structure

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:

1. 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.
2. 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.
3.  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.
4. 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.
5. 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
6. 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
8. 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.
10. Customer insights
11. •    Redesign of an incentive structure beyond just LOs, all the way from regional and area managers  down to EOs
12. •        Implementation of training programs for field staff
13. •        Introduction of additional product companies
14. 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:
15. 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

Expansion

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.

Expansion

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.

Training

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.

 

                     Lessons Learned

 

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.