Difference between revisions of "RBF closure stories"

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File:Kemal Kider (Centre) with his employees in his production Site photo by Dawit Dagnew.JPG
 
File:Kemal Kider (Centre) with his employees in his production Site photo by Dawit Dagnew.JPG
 
File:Kemal Kider in his make shift office in the production site photo by Dawit Dagnew.JPG
 
File:Kemal Kider in his make shift office in the production site photo by Dawit Dagnew.JPG
 
File:Kemal Kider in his production Site photo by Dawit Dagnew.JPG
 
File:Kemal Kider in his production Site photo by Dawit Dagnew.JPG
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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/>
 
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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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.[[File:Gojam (4)-min.jpg|right|400px|alt=Gojam (4)-min.jpg]] 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.<br/>
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[[File:Tikikil (Household Rocket) multi-fuel stove promoted in Ethiopia2.JPG|right|250px|alt=File:Tikikil (Household Rocket) multi-fuel stove promoted in Ethiopia2.JPG]]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. 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.<br/>
  
 
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== Results in a nutshell<br/> ==
 
== Results in a nutshell<br/> ==
 
<div style="background: rgb(236, 241, 218);"><p style="text-align: center;"><br/></p>
 
<div style="background: rgb(236, 241, 218);"><p style="text-align: center;"><br/></p>
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<div style="text-align:justify;">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[[File:Ethiopia graphic.jpg|border|right|x242px|The RBF project in Ethiopia|alt=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.</div><br/>
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<div style="text-align:justify;">[[File:Ethiopia graphic.jpg|border|left|x242px|The RBF project in Ethiopia|alt=The RBF project in Ethiopia]]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 25,000football 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.</div><br/>
  
 
|}
 
|}
 
</div>
 
</div>
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== Lessons learned and ways to improve<br/> ==
 
== Lessons learned and ways to improve<br/> ==
  
 
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:<br/>
 
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:<br/>
  
{| class="wikitable mw-collapsible mw-collapsed" role="presentation"
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{| class="wikitable mw-collapsible mw-collapsed" role="presentation" width="450px"
 
|-
 
|-
| <div style="background: rgb(156, 192, 24);">'''1. Target the right actors in the value chain'''</div>
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| <div style="background: rgb(236, 241, 218);">'''1. Target the right actors in the value chain'''</div>
 
|-
 
|-
 
|<div style="background: rgb(236, 241, 218);">At first, the RBF project targeted agriculture and energy cooperatives. Cooperatives are well established in Ethiopia and have good rural outreach and a broad member base. They were therefore thought ideal as an intermediary to bring urban produced cookstoves to rural families in the absence of other distribution and retail structures for improved cookstoves in the countryside. Contrary to the project’s original assumption, however, their capacity to participate in the project was very low, requiring a lot of technical support. Moreover, the cooperatives had limited to no financial ability to pre-finance the RBF activities, making them highly dependent on microfinance institutions. More often than not, the microfinance institutions could not satisfy the financial needs due to limited lending capacities, the complexity of their lending procedures, and other priority lending areas. As a result, all contracted cooperatives performed significantly lower than expected and only about 1,000 improved cookstoves were sold.<br/>
 
|<div style="background: rgb(236, 241, 218);">At first, the RBF project targeted agriculture and energy cooperatives. Cooperatives are well established in Ethiopia and have good rural outreach and a broad member base. They were therefore thought ideal as an intermediary to bring urban produced cookstoves to rural families in the absence of other distribution and retail structures for improved cookstoves in the countryside. Contrary to the project’s original assumption, however, their capacity to participate in the project was very low, requiring a lot of technical support. Moreover, the cooperatives had limited to no financial ability to pre-finance the RBF activities, making them highly dependent on microfinance institutions. More often than not, the microfinance institutions could not satisfy the financial needs due to limited lending capacities, the complexity of their lending procedures, and other priority lending areas. As a result, all contracted cooperatives performed significantly lower than expected and only about 1,000 improved cookstoves were sold.<br/>
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|-
 
|-
|<div style="background: rgb(156, 192, 24);">'''2. Be wary of data collection challenges'''</div>
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|<div style="background: rgb(236, 241, 218);">'''2. Be wary of data collection challenges'''</div>
 
|-
 
|-
 
|<div style="background: rgb(236, 241, 218);">Cost-efficient data collection for verification purposes is key to successfully implementing an RBF approach. In the ideal case this means: sales- and customer data is collected and available and is fully digital. In Ethiopia – and especially with small informal businesses – paper-based reporting is still the norm, making customer data collection, which is required for RBF verification, a difficult and cost- and time-intensive endeavour.<br/>
 
|<div style="background: rgb(236, 241, 218);">Cost-efficient data collection for verification purposes is key to successfully implementing an RBF approach. In the ideal case this means: sales- and customer data is collected and available and is fully digital. In Ethiopia – and especially with small informal businesses – paper-based reporting is still the norm, making customer data collection, which is required for RBF verification, a difficult and cost- and time-intensive endeavour.<br/>
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|}
 
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{| class="wikitable mw-collapsible mw-collapsed" role="presentation"
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{| class="wikitable mw-collapsible mw-collapsed" role="presentation" width="450px"
 
|-
 
|-
|<div style="background: rgb(156, 192, 24);"> '''3. Don’t underestimate the need for technical assistance'''</div>
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|<div style="background: rgb(236, 241, 218);"> '''3. Don’t underestimate the need for technical assistance'''</div>
 
|-
 
|-
 
|<div style="background: rgb(236, 241, 218);">There is still limited awareness among rural communities in Ethiopia of the benefits of cookstove technology: improved cookstoves have health, environmental and economic benefits, especially for households that purchase fuelwood.<br/>
 
|<div style="background: rgb(236, 241, 218);">There is still limited awareness among rural communities in Ethiopia of the benefits of cookstove technology: improved cookstoves have health, environmental and economic benefits, especially for households that purchase fuelwood.<br/>

Revision as of 17:50, 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

 

File:Tikikil (Household Rocket) multi-fuel stove promoted in Ethiopia2.JPG
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. 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


The RBF project in Ethiopia
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 25,000football 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: