From the Crowd to the Base: Crowdfunding for Local Climate Action by C2B Crowd-to-Base
Jul 6, 2013
Hello Mr. Ritter, Thank you for your submission and congratulations on your selection as a finalist for the final judging round. To improve your proposal we have the following comments/questions that we would like you to address: 1. Payment Mechanism: Please elaborate the cashflow (i.e. collection/coupon payment) cycle of the project. Who would collect? What about cross-border collection in the event of a default? (Kiva uses the local community...). 2. How would contracts be set-up cross border? What countries offer specific incentives for this type of foreign investment? 3. What are the financials of this type of funding? What type of return could an investor expect and why? 4. How would maintenance and upkeep of renewable energy systems be monitored? 5. How can crowdsourcing be localized? 6. Please submit a detailed budget for allocation of a US$10mn investment. Please consider these comments/questions in your next draft. Thanks, CoLab Judges.
Jul 26, 2013
I am delighted to support Konrad von Ritter's proposal. The priciple attractiveness of the proposal is not that it is just a worthwhile end in itslef, but that it acts as a catalyst for financial institutions, MFIs, green providers and individuals to work on a larger scale and more quickly and efficiently than has been the case before. The potential capable of being unleashed here is considerable. The proposal would achieve this because of various strengths 1 The provision of green products and services in developing countries is moving into a new phase in which it will be delivered more by independent profit/non-profit organisations than before. There are a range of approaches developing in this area. However, the financing required to put such ideas into reality is not often available easily to start-up ventures (as most of these organisations will be). The portal, with its access to funding and underwriting of a a certain element of risk of any new venture, will significantly increase the possibility of funding for strong projects and at an early stage. For an industry which is constantly developing, this will provide a highly flexible resource for new and established projects. 2 Crowd-sourcing is a relatively new way of raising funds and is inherently attractive as a way of broadening the sources of funding. For institutions contributing, the costs and risks are less than traditional investing. For individuals, there is a way of contributing to development without having to 'give' money. While KIVA and other platforms are developing their green portfolios, this proposal would draw all these together and give them new focus and greater prominence. The portal would raise awareness not just within the financial world but beyond and help channel funds where they can best be used. 3 In addition, crowd-sourcing offers financing at considerably lower rates than are normally available for institutions in this field. The portal should encourage more funds to be made available at a lower cost. This will help projects be able to reach areas that cannot cost-effectively be reached now and develop ideas that otherwise would be unaffordable. 3 As the founder and CEO of a MFI, I am aware of the development in the microfinance industry of the understanding of the importance of green products and services and we are working on how microfinance can be used to allow such products and servcies to be taken up affordably and easily by our clients. This proposal will give impetus to this development by offering connections between MFIs, clients, investors and green producers. The exciting thing about this proposal is not that it provides the green products, microfinance, etc, themselves, but that it makes it significantly easier for a large number of organisations to be able to do so. It will put the right people in contact with each other and allow for funding of significant projects to take place in a way that reduces risk and maximises opportunity. There will always be a variety of routes that will be available for funding, even through crowd-sourcing. I can, however, see this portal quickly becoming the immediate 'go to' site for those involved, as providers or investors.
Jul 31, 2013
The authors have updated most of their proposal to account for the Judges’ previous comments, albeit with references to existing business models and institutions. The general premise of a crowdfunding internet portal is novel; it combines a “lending tree” model and loan guarantee model. The proposal aims to enable renewable energy system financing for under financed individuals in emerging economies. The presentation is quite good, however, likely impact and feasibility are variable and less clearly addressed. While the premise makes sense in terms of need, the proposal is based on a lot of assumptions. The main issue is the delegation of the financing responsibility and collection facility to existing micro-financing institutions. If there are defaults, the entity that the proposal seeks to set up would help guarantee the loans, but would pass the responsibility of collection onto MFIs and their local communities. By their nature, renewable energy systems involve a longer term investment period, and it would take a lot more time to normalize and determine the credit-risk profile for this kind of investment. Additionally, unlike Lending Tree, the approach put forward in this proposal doesn’t allow those in need to select competitive financing rates for their loans; instead, they are restricted to accepting the interest rates of the MFIs. As a pure portal, the control of the larger impact would be delegated to MFIs and the project flow they can provide. Due diligence and feasibility is again delegated to the MFIs. While alternative sources for RE financing for under financed individuals in emerging economies are in definite need, the model does not grapple with the projects directly and delegates it to existing MFIs. The Judges’ believe that the proposal does not engage directly enough with the dimensions of a renewable energy project and as a result does not have enough control over a clear cut impact. The proposal is more of a business plan that may be quite successful if it can actually get MFIs to agree to the conditions of the portal’s search. Marketing is also a large issue for all portal models (i.e. Kayak and Lending Tree), and that aspect goes largely unaddressed in this proposal.
Atem S Ramsundersingh
Aug 26, 2013
This proposal is timely to address the need for funds to satisfy the rapidly growing demand for energy in emerging markets. It is also setting the stage for a new way of funding renewable energy: clean and quick! Currently there are many people on the ground in ASEAN who are very much supporting RE for their cities, towns, villages and factories. But, the current financial industry is not set up or reformed to address small capital products in RE projects that are relatively small. For example, when developing a RE energy project for a nature reserve in Philippines requiring a USD 6 million financing for power plant and micro-grid, Banks immediately reject because of size for which they require USD 20 million or more per project! Such conservatism and operating protocols of Banks require much time to be reformed and made suitable for realities on the ground. Hence the need for Crowd-funding where any individual can help financing with a better return on equity than any Bank can give them today! This proposal deserves to be supported!
Atem S Ramsundersingh
Aug 26, 2013
Some of the questions raised by a CoLab Judge, I would like to answer to support this proposal: 1. Payment Mechanism: Please elaborate the cashflow (i.e. collection/coupon payment) cycle of the project. Who would collect? What about cross-border collection in the event of a default? (Kiva uses the local community...). >>>> for bill collection (off-takers of power) one would be advised to use "smart meters" that are "corruption/fraud free" and ensure more than 95% payment of bills to the operator of an RE system. COllection can be done via a cellphone mechanism i.e. "pay as you go" systems or payment at the power office in town giving an electronic signal to open or close the meter (via micro-wave technology or GPRS). The technology is available and only slightly more priced than the conventional systems. As for the collection of crowd-funders money one should be able to combine credit-card systems with shopping-mall desks, community-centers collection point or even consider a strategic partnership with the "foreign workers remittance banks" (such Western Union) in the emerging markets. Obviously, in the industrialized countries, the owners of crowd-sourcing can use the known methods. 2. How would contracts be set-up cross border? What countries offer specific incentives for this type of foreign investment? >>>> Cross-border contracts will need to be set up through a series of Joint-venture project vehicles engaging local businesses. The "crowd-funding" company, would need to be based in a country that provides good tax-incentives and has excellent cross-broder trade and investment agreements with the target countries (both where funds are raised and where investments are made) to ensure there are minimal losses due to cross-border transactions (e.g. loss of dividend repatriation). In several countries governments implement different policies for RE-investors from abroad. In quite some countries studied by us, governments have proper incentives in place, mainly via tax-mechanisms and so called accelerated depreciation of investments, subsidies for tariffs, import of RE equipment (zero), etc. But, some countries would not allow a foreign company to take more than 40% stake in RE JV company, so in such cases one could work through a "loan-company" that is made "locally owned". Not too complex, but a good corporate lawyer can create the right structures to make the operation work against minimal losses for crowd-investors. 3. What are the financials of this type of funding? What type of return could an investor expect and why? >>> based on calculations made for Hybrid Sola PV/Diesel + MicroGrids IRRs could be around 15%, so one could - with coverage of risks, currency shocks, natural disasters - could expect a return of around 10-12 percent, easily. For lease-projects of Solar PV/Diesel to provide factories electricity in countries such as Myanmar or Indonesia IRRs could be around 20-23%! Payback could be around 5-9 years. Initial investments could be between USD 600k (for a small 4,000m2 rooftop solar PV installation for an industrial building in an Asian country) to about USD 6 million for a power plant + micro-grid covering 250 off-takers varying from 5-star hotels to low-income households in The Philippines. 4. How would maintenance and upkeep of renewable energy systems be monitored? >>> RE-systems can be monitored from an iPhone or any other mobile device, at least some of the key monitoring parameters (where one would have Internet connection or a GPRS connection for cellphones). RE-power systems are relatively simple as compared to diesel operations; RE is less human-intensive. In remote areas one would need to run visual inspections once in 4-6 months, give instructions to the local vocationally trained staff, supervise them, handhold them and ensure maintenance is done adequately. 5. How can crowdsourcing be localized? >>>> see my answer above. Local community groups are the best ways to go, but perhaps giving such community centres a financial incentives to raise money i.e. a small percentage of the catch or 'free power supply for 10 years to the local school or the community center'. SO much more to share. Hope it helps to answer some of the questions. Regards, Atem Singapore