A new $4 million fund aims to speed up the development of supply chains for less polluting cookstoves in poor communities, by lending to businesses that would otherwise struggle to finance their growth, the Global Alliance for Clean Cookstoves said.
The Clean Cooking Working Capital Fund, the first debt fund focused on greener cookstoves, awarded its first loans this week to two U.S.-based social enterprise firms, Envirofit International and BioLite.
They will use the money to expand production and distribution of smart stoves that cook faster and cut down on fuel use, smoke and climate-changing emissions, in markets in Sub-Saharan Africa, India and Latin America, the alliance said.
This fund will then be catalytic in raising future debt capital for companies in the sector. It is really a demonstration.
Peter J. George, director of impact investment, Global Alliance for Clean Cookstoves
BioLite’s high-tech stoves can also produce electricity.
Peter J. George, the alliance’s director of impact investment, said the fund would provide debt finance to “companies that many other commercial banks and traditional lenders probably wouldn’t be lending to at this stage”, because they are still refining their technologies and business models.
“This fund will then be catalytic in raising future debt capital for companies in the sector. It is really a demonstration,” he told the Thomson Reuters Foundation.
The alliance said a global market for clean cooking solutions is needed to reach the 3 billion people who still cook food with heavily-polluting solid fuels.
When burned in open fires and traditional stoves, wood, coal, charcoal and other solid fuels emit harmful smoke that claims 4 million lives annually, making household air pollution the fourth greatest health risk in the world, it said.
The new fund, set up by Deutsche Bank and the alliance, plans to provide loans of between $250,000 and $500,000 each to 12 to 15 enterprises by the end of 2017, George said.
Those will include businesses based in Africa, Asia and Latin America.
Radha Muthiah, CEO of the Global Alliance for Clean Cookstoves, said in a statement that the funding would help the companies to “grow their businesses, create jobs, boost local economies and ultimately drive adoption of cleaner, more efficient cookstoves and fuels”.
100 million by 2020
The alliance, a public-private partnership hosted by the UN Foundation, has a goal to foster access to clean and efficient cookstoves and fuels in 100 million households by 2020.
In its latest annual report, it said 50 million homes were reached between 2010 and 2014, and the 100 million target might be exceeded.
The private sector has become more involved in this work, distributing over half of the clean cookstoves and fuels reported in 2014, the report said.
George said the development of innovative financing models to expand the use of clean cookstoves lags behind that of the solar sector in developing countries, where hire-purchase equipment and pay-as-you-go solar power has gained a foothold.
To help change that, the alliance also runs a fund providing grants and equity finance for fledgling companies to build their business, which it hopes to increase to between $4 million and $5 million per year, George said.
So far, the new working capital fund has raised over half of its $4 million target from initial funders including Deutsche Bank, the Netherlands Enterprise Agency, Royal Dutch Shell and several foundations, he added.
In the early days, some clean stoves were criticised for not being suited to local cultures and traditions, curbing uptake.
Another challenge has been “stove stacking”, where families use cleaner models but continue to cook with old, smoky stoves at the same time, reducing the potential health benefits.
But George said approaches are evolving. For example, it is now harder to finance cookstove projects by selling carbon credits based on estimated emissions reductions, where the appeal of the stoves to users was less important.
“With the downturn in the carbon markets, companies have recognised that their business models need to rely on revenue from customers who want to buy their products,” he said.
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