Expanding Financial Inclusion: Microfinance & Carbon Credits

Many of the world's poor lack not only financial resources but also adequate access to energy to power their homes and business places. The inefficient use of energy in under-served communities is also a contributor to climate change. But what if there were a way that lower-income communities could help reduce greenhouse gas emissions while also improving their financial and energy usage profiles?

In Mongolia, many lower-income residents live in portable tent-like structures--called gers--that are traditionally under-insulated and heated by inefficient coal-burning stoves that contribute to the notorious air pollution in the country's urban centers. However, a simple household insulation product (a "ger blanket") can greatly increase heat retention and--together with more energy efficient stoves--lower the rate of costly fossil fuel consumption and harmful carbon emissions.

The two issues are linked, since gers have to be paid for and the lack of financial resources slows their adoption. To help speed the widespread installation of more ger blankets while unlocking access to financial services for underserved Mongolians, Citi Microfinance worked with three partners: Citi's own London-based Environmental Products Trading & Origination team, the U.S.-based social enterprise MicroEnergy Credits, and Mongolia's XacBank.

Here's how our solution works:

• Mongolia's XacBank is providing microloans that its customers can use to purchase ger blankets and efficient cookstoves. With improved burning efficiency and better insulation, less heating is required, resulting in reductions of carbon emissions.
• Those reductions are then assigned to MicroEnergy Credits, which develops carbon finance projects and brings clean energy to low income households in developing countries in partnership with financial institutions.
• MicroEnergy Credits then quantifies, aggregates and sells the credits to Citi, which in turn seeks to sell them on the open market.
• Proceeds from Citi's carbon credit purchase are distributed to XacBank via MicroEnergy Credits, allowing the Mongolian lender to expand its clean energy program, build additional marketing and customer service centers, and increase access to affordable clean energy loans.

Over the next six years, the arrangement is expected to generate at least 1.17 million metric tons of carbon credits, enable 100,000 Mongolian households to save money on energy with access to home improvement microloans, and substantially reduce harmful greenhouse gas emissions. The deal demonstrates that the microfinance sector has the ability to incentivize and impact the energy use of millions of low-income households around the world, helping them to clean the environment, improve their quality of life, save money, and responsibly build a credit history.