Difference between revisions of "RBF closure stories"

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(Lessons learned and ways to improve)
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[[File:EnDev GIZ Dawit Dagnew Ethiopia Mirt-with-chimney-in-use (17)-min.JPG|left|400px|alt=EnDev GIZ Dawit Dagnew Ethiopia Mirt-with-chimney-in-use (17)-min.JPG]] This changed in 2017 when he learned about the [[Results-Based Financing|results-based financing (RBF)]] project in Oromia: cooperatives and small enterprises received a financial incentive for every improved cookstove they sold. The RBF mechanism redefined the relationship between investment and performance. Payments were made only once pre-agreed results had been achieved by the enterprises, instead of making up-front payments for their activities. The incentives helped cover additional costs for transport and marketing, allowing the businesses to sell to more remote rural households. Kedir was among the entrepreneurs who took this opportunity, which led to enormous growth for his business. He increased his production capacity by 500 percent in only 18 months, selling between 600 and 800 improved cookstoves per month. The RBF incentives allowed him to buy a truck, which meant that he could deliver the stoves directly to customers in the 12 areas of Oromia. His capital increased to 125,000 euros and he developed a successful marketing strategy; attending local government meetings, the entrepreneur identified influential villagers who would promote his cookstoves in return for a commission.<br/>
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This changed in 2017 when he learned about the [[Results-Based Financing|results-based financing (RBF)]] project in Oromia: cooperatives and small enterprises received a financial incentive for every improved cookstove they sold. The RBF mechanism redefined the relationship between investment and performance. Payments were made only once pre-agreed results had been achieved by the enterprises, instead of making up-front payments for their activities. The incentives helped cover additional costs for transport and marketing, allowing the businesses to sell to more remote rural households. Kedir was among the entrepreneurs who took this opportunity, which led to enormous growth for his business. He increased his production capacity by 500 percent in only 18 months, selling between 600 and 800 improved cookstoves per month. The RBF incentives allowed him to buy a truck, which meant that he could deliver the stoves directly to customers in the 12 areas of Oromia. His capital increased to 125,000 euros and he developed a successful marketing strategy; attending local government meetings, the entrepreneur identified influential villagers who would promote his cookstoves in return for a commission.<br/>
  
 
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Revision as of 16:58, 8 July 2019

Ethiopia RBF.jpg

A recipe for Ethiopia’s rural communities

Rural markets and the environment benefit from improved cookstoves

 

Kemal Kedir looks on proudly as his 18 employees go about their work on a site about the size of a football pitch. His staff are busy – they produce 100 cookstoves per day, 200 at peak times. It hasn’t always been like this: In 2015, Kedir started his business in Asasa, a town in Oromia, Ethiopia’s largest regional state. With a starting capital of 600 euros, he hired two part-time helpers and produced 20 cookstoves per day in his backyard. Because he didn’t have a car, he could only sell to people in his neighbourhood. The simple mud-plastered houses of the 30,000 inhabitants of Asasa are connected by narrow dirt roads, which meant that the delivery of the heavy concrete stoves was a logistical challenge. For the first few years, Kedir’s prospects didn’t look good.

 

This changed in 2017 when he learned about the results-based financing (RBF) project in Oromia: cooperatives and small enterprises received a financial incentive for every improved cookstove they sold. The RBF mechanism redefined the relationship between investment and performance. Payments were made only once pre-agreed results had been achieved by the enterprises, instead of making up-front payments for their activities. The incentives helped cover additional costs for transport and marketing, allowing the businesses to sell to more remote rural households. Kedir was among the entrepreneurs who took this opportunity, which led to enormous growth for his business. He increased his production capacity by 500 percent in only 18 months, selling between 600 and 800 improved cookstoves per month. The RBF incentives allowed him to buy a truck, which meant that he could deliver the stoves directly to customers in the 12 areas of Oromia. His capital increased to 125,000 euros and he developed a successful marketing strategy; attending local government meetings, the entrepreneur identified influential villagers who would promote his cookstoves in return for a commission.


Results-based financing: a solution for developing rural markets

 

In addition to Kedir Kemal’s business, four other companies in Oromia participated in the RBF project, as well as eight companies in the northern Tigray region. In both regions, the project recognised that there was a thriving urban market for cookstoves. However, high transportation costs to remote rural areas made the products unprofitable and discouraged investment by retailers in the sector. The so-called ‘Tikikil stove’, for example, costs 7.50 euros in urban markets. Adding costs for transportation, loading and unloading in rural areas, the retail price climbed to 11.50 euros – an increase of 30 percent and a very real affordability barrier for potential customers in rural areas.The RBF incentive scheme tackled this by linking rural cooperatives and retail enterprises with urban-based stove producers.
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Retailers were incentivised to cover transportation and other overhead costs, thus improving their marketing capacity and reducing costs to maximise retail profits. This meant that stove prices in the rural markets could be set at a fair level. This led to increased demand from rural households and stimulated market development in remote areas. In the case of the Tikikil stoves, retailers were able to offer the cookstoves for the same price as in urban markets and received 4.30 euros for each sale from the RBF project, off-setting transportation costs while generating additional profits. Eventually, companies were able to expand into the wide-scale commercial sale of improved cookstoves and manufactured their products to sustainably meet the needs of the market.


Results in a nutshell


Within two years, 28,000 improved cookstoves had been sold in Oromia and Tigray. The climate-friendly technology reduced cooking times and improved energy efficiency in domestic cooking for around 70,000 people. Customers now use much less firewood, which improves the air quality inside homes and so benefits the health of women and children in particular. Time spent gathering firewood was reduced, and forests were protected against deforestation and degradation. This saved the equivalent of 25,000
The RBF project in Ethiopia
football fields of forest between 2017 and 2018 alone. With a reduction in fuel consumption there was less carbon dioxide: the cookstoves cut the annual emission of carbon dioxide by about 115,500 tonnes – roughly equal to the emissions produced by 77,000 cars per year. Finally, 98 jobs were created in stove production and marketing in the regions, which motivated other businesses to invest in this sector as well.

Lessons learned and ways to improve

RBF proved to be a powerful tool for steering and stimulating market development, unlocking the growth potential of the many micro enterprises active in the cooking sector. The design and implementation of the RBF project generated valuable lessons. For projects or organisations active in the same field, read here about our experiences and conclusions: