Can electric cooking be considered a ‘productive use’ for microfinance?

By Dr Mamta Tripathi (Loughborough University, UK) and Dr Simon Batchelor (Gamos Ltd.; Loughborough University)

This blog argues that electric cooking (eCooking) for either business or household use is creditworthy.

Microfinance Institutions (MFIs), Savings and Credit Co-Operative Society (SACCOs), Village Community Banking (VICOBA), etc tend to weigh up the risk of a loan as a first step by considering whether it is being used for productive use or consumptive use. As perceived by these lenders, productive loans have the ability to generate income and hence are less risky as against consumption loans which are labelled as ‘non-productive’. Consumption loans may or may not save the household enough existing expenditure to pay back the loan and are therefore seen to be riskier. The blog Productive Versus Consumption Loans has a good discussion of this in the context of water and sanitation. 

The terminology ‘productive use’ in the context of energy is not new although it has sometimes been a challenge to classify what is productive use and what is not. Use of energy to run a solar pump is obviously productive, while solar lights seem to be more about consumption and quality of life – although even lights can enable longer hours of income generating activity. As the blog on water discusses, the benefits from a light in a household might both improve the quality of life and mitigate expenditure on alternatives like torches and candles.

An alternative language for that division can be found – the term ‘asset financing’.  The working paper by CGAP (2020) and its Innovations in Asset financing slide deck, talks about productive assets and ‘Quality of life enhancing’ assets.  They note for the latter, financers may require additional data on customer creditworthiness, and they also introduce the possibility that the asset is not acquired on a loan but is rented from a provider.   

So how should we consider eCooking?  eCooking appliances can certainly enhance the quality of life for the consumer, and can in many cases save regular household expenditure, enabling repayment of a loan, even though a household using an eCooking appliance may not be directly generating more income.

eCooking is now emerging as affordable option – the example of India

Though the launch of Pradhan Mantri Ujjwala Yojana (PMUY) in May 2016 has been instrumental in providing LPG to Below Poverty Line (BPL) families in India, it comes with a huge import cost and financial burden on the government. Linked with this, there are issues of distribution, refilling and consumer adaptation thereby making fuel stacking in the form of biomass and kerosene still a reality.

India aims to be net zero by 2070 and the ‘Go Electric’ campaign which encourages electrification of transportation and cooking is a step in this direction. This is possible as India has emerged to be an electricity surplus nation coupled with a move towards greener energy. This is early days and  the penetration of eCooking in India is in its initial stages – Tamil Nadu and Delhi are currently at the top of the list in relation to eCooking adoption. Research has shown that a variety of Indian dishes can be prepared using an Electric Pressure Cooker (EPC). For instance in comparison to other fuels, cooking using an EPC is energy-efficient, cost-effective and time-saving. An EPC can make huge cost savings – 40% when compared to subsidised LPG plus pressure cooker and 60% when compared to induction plus pressure cooker (see India eCookBook). Also, there is no need to have a range of utensils hence more savings. All this leads to a healthy lifestyle.

India is just one example, similar observations with the clear monetary savings for households have been made for other countries such as Kenya (see Kenya eCookBook), Tanzania (see Tanzania eCookBook), Ghana (see Ghana eCookBook), etc.

So should an EPC be made available through Microfinance?

While many of eCooking appliances are currently sold for cash or retail credit, there is a need for multiple options to  spread the upfront payments for the appliance across a longer time period. The scaling up of eCooking depends upon important factors such as government encouragement, consumer demand, manufacturers’ ability to realise economies of scale, engagement of big corporates, availability of finance, etc. – The latter is particularly important for people who are at the bottom of the pyramid and is also the central theme of this blog.

eCooking as a Small Business – Most MFIs are likely to consider financial support for eCooking if it is for business. In these cases it should be clear that this is productive use that enhances the possibility of income generation and loan repayment. For instance street food vendors, small eateries, cafes, dhabas (in India), etc. can be supported in their food business via microfinance for the purchase of an EPC. This is a clear productive loan wherein the food vendors will not only generate income but, in the process, make savings in fuel costs and time, repay the loan and become self-reliant. For India, the MFIs would then accelerate the Government’s ‘AatmaNirbharBharat’ campaign.

But what about household use? This is not productive in the sense of directly generating income, but is a clear mitigation of daily expenditure on cooking fuels. It could also mitigate health problems, (Household Air Pollution (HAP) is a major health risk), have significant benefits for wider society and could release time for other social and economic activities. So should MFIs, especially those with a social agenda, offer finance for the purchase of an EPC (or other energy efficient ecooking appliances)?

In this context, the following three market segments could be of interest and worth investigation:

• eCooking as a general household saving – EPCs in India can roughly cost in the range of $60 (INR 5000) to $120 (INR 10,000). In a conventional sense, microfinance for EPC for household use would be considered non-productive as there is no attached income. However, this view fails to acknowledge the savings that households can make using EPCs as outlined above. For example, using an EPC a family might save $5 every month and the accrued savings can be used for faster loan repayment and other expenses. That suggests a manageable 12 month payback.  Microfinance for EPCs can therefore lead to social and economic benefits and hence should be eligible for support.
• eCooking as a specific release of time – With more time on their hands, women – the primary customers of MFIs – would be able to engage in more productive and income-generating activities.
• eCooking as a specific outreach to the poor –Families failing to qualify for LPG subsidy or wishing to complement their kitchen with EPC could be supported if MFIs recognise the wider social benefits (health, environment, quality of life) as part of their social mission. 

In summary, there is a need for MFIs and alike to think beyond the direct and simplistic classification of activities that generate income as creditworthy or not. If their aim of financial inclusion can be broadened by giving due recognition to emerging, clean and sustainable eCooking appliances such as EPCs for household and business purposes they will see that both are creditworthy and have the ability to strengthen income and make savings.

Featured image: Image Credit, Finovista