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## MODEL FOR SUSTAINABLE SELF-FINANCING INTEGRATED RURAL AND POOR URBAN DEVELOPMENT FOR THE WORLD'S POOR

Incorporating innovative social, financial, economic, local administrative and productive structures, numerous renewable energy applications, with an important role for women in poverty alleviation in rural and poor urban environments.

"Money is not the key that opens the gates of the market but the bolt that bars them"

Gesell, Silvio The Natural Economic Order

Revised English edition, Peter Owen, London 1958, page 228

Edition 11: 15 August 2006

Published in "Refocus" ed. October 2001

### INTRODUCTION

Innovative self-financing integrated development concepts enable even the world's poorest to finance their own development. Mass applications for PV (and alternative energy in general) offer ethical least-cost solutions to some of the most widespread problems facing mankind. This article describes how PV technologies can be usefully incorporated without subsidy or paternalism in development projects .

Most development projects incorporating PV systems to date appear to have privileged highly subsidised water pumps for irrigation purposes and (mostly subsidised) solar home systems for non-productive purposes. While these applications may be to the advantage of the usually large corporations operating with a "business as usual" approach keen on getting their large slice of the development aid cake, the benefit to the necessarily few users is far from clear. With the present cost of PV panels, the cost of a PV irrigation pump, where most of the water pumped is destined to be lost through evaporation, and where up to 70m3 of water per day may be required for each hectare of land, is so high that cost recovery from the increased productivity of the land is unlikely. The highly decried installation of PV home systems for non-productive, or comfort, purposes simply encourages on-going financial leakage for the unsubsidised part of the purchase or leasing contract from poor areas where they are installed. Such applications are anti-economical, detrimental to the reputation of the PV industry, and increase the financial dependence of the poor they claim to be helping.

Yet carefully conceived development projects offer a unique opportunity to the PV industry. The industry can supply ethical unsubsidised least cost solutions to many development problems, with an annual business turnover potential many times greater than the present world production of PV generators.

Integrated self-financing development projects have been designed to cover a complete package of basic services for sustainable development in poor rural and urban areas. They will usually include, but not be limited to, hygiene education, the provision of drinking water and sanitation services, PV lighting for study, PV lighting and refrigeration in clinics, waste removal, high-efficiency stoves and bio-mass to fuel them. They will provide a strong thrust for on-going local development, productivity, and employment and contain many decentralised solar energy applications.

One of the most important causes of poverty is on-going financial leakage from poor rural and urban areas and nations to richer national and international havens. This financial leakage is caused mostly by interest, which constitutes up to 40% of the end user cost of a typical western product, and the cost of imported energy and capital goods.

Self-financing systems aim to set up cooperative, interest-free, inflation free economic environments. They use technologies permitting the construction of most items necessary for basic development in low cost labour intensive project level production units with 100% local value added. Items imported into the system must be necessary for essential services such as water pumping or to increase local productivity.

Project applications are self-financing because they allow the recipient communities to fully exploit a network of sustainable development activities using an interest-free seed loan, Local Exchange Trading (LETS) systems, and multiple re-cycled interest-free micro-credits. The micro-credits are generated by recycling seed loan repayments and project reserves during the loan term, and by recycling repayments of the micro-credit loans themselves.

#### Interest-free seed loan

The interest-free seed loan is repayable in 10 years. The minimum amount needed is just US$ 60 per user, which covers the entire basic package of structures and services, and calls for a monthly payment of US$3 per family of five into a Cooperative Development Fund. A typical project area would include about 50.000 users or 10000 families. The projects are structured so that some, if not all, of the monthly payments can be recovered by savings on the current expenditure of the families for the (inadequate) structures and services available to them.

Since the seed loan is interest-free, funders in fact make a gift for the amount of the unpaid interest. This may be justified since most economic activities in the communities in question are non-monetised and the communities in developing countries play little direct role in the creation of inflation. Another justification is that payment for development aid is often made by way of gift anyway. Under self-financing systems the seed capital at least is returned to the lender after ten years and can be re-invested in more projects.

The self-financing projects will usually be carried out in countries and areas where political stability over the long term (at least the period of the ten year interest-free seed loan) necessary for development cannot be guaranteed. While capital structures installed within the framework of project applications may, if rarely, be insurable against loss or damage by Act of God such as lightning, hurricanes, or earthquakes, it is not usually possible to insure them against loss or damage deriving from Act of Political and Military Authorities, civil war, commotion, rebellion, and strikes. Even if insurance were to be available the cost would be so high that it would constitute a major on-going financial leakage from the project area, which is just one of the major problems self'financing projects are designed to stop. What happens in case of loss of or damage to capital structures installed under a given project before repayment of the interest-free seed loan after ten years must therefore be clearly addressed at the time the project application is being financed.

Most people in project areas are by definition poor and the loss or damage in question derives from causes entirely beyond their control. To require these poor people to repay a loan after ten years for capital structures they have lost for reasons beyond their control is in profound contradiction with the short term and long term goals of development. Some lending organisations may have forms of insurance available to cover funds at risk in projects in developing countries. In such cases they would ensure, at their own cost and by way of gift, that projects are insured. Where insurance is not available, lenders should accept that in the case of loss of or damage to project structures deriving from causes beyond the power and control of the users the interest free loan be converted into a gift so that users are freed from their contractual obligations. Apart from the mentioned "gift" aspects relating to the interest-free seed loans, the projects are entirely self-financing. The second of the three financial instruments involved is the Local Exchange Trading (LETS) concept, which allows any goods and services supplied locally using local materials to be paid for under the local LETS currency without the need for any formal currency at all. LETS systems

To take full advantage of the LETS systems projects must be based on technologies, and in particular the Dutch Beosite. technology, which allow most items needed for basic services in the project area to be built or carried out within the LETS systems with 100% local value added.
Some examples of items which can be supplied this way are:

Well linings
Drinking water tanks
Water harvesting tanks
Water containers
Urine tanks
Faeces tanks
Toilets
High efficiency stoves

Fig. 1 : Structure for LETS systems within a self-financing development project application

LETS systems are operating world wide, mostly in the West. However, their incorporation as a fundamental element of integrated self-financing development projects is thought to be new. Interest-free micro-credits

The third financial instrument used in the proposed package comprises multiple re-cycled interest-free micro-credits to provide formal money needed to develop local production capacity.

The formal currency capital available for recycling in the form of micro-credits is made up of :

a) Part of the initial seed loan money until it is needed for the project application
b) Seed loan repayments
c) Micro-credit repayments
d) The long term maintenance fund
e) System capital replacement fund which will be built up after the ten years' seed loan has been fully repaid

For instance, a woman may need a sewing machine to be able to make clothes. She will need "formal" currency to buy the sewing machine (and perhaps some cloth), which is presumably not made in the project area itself. That money will be made available to her in the form of an interest-free micro credit. She will sell outside the local LETS system some of the clothes she makes to earn the "formal" money she needs to repay her loan. The rest of the clothes can be sold within the local currency LETS system. As she repays her loan, the repaid capital can be promptly recycled for another interest free micro-credit project, so the available seed money repeatedly re-circulates within the local economy.

Fig.2 The finance cycle

The proposed micro-credit systems will be different from most of those formed up till now. Formal currency loan capital repayments and longer term reserves within the projects themselves will be used to finance the micro-credit systems. These funds are already available for multiple re-cycling, interest-free. When, at the close of the ten years' seed loan repayment period, the original project capital is repaid, the users will continue to pay their monthly contributions into the Cooperative Development Funds to build up capital for system extensions and/or to replace system hardware after 20-30 years. These fresh Cooperative Development Funds will become quite large. They in turn become available for interest-free micro-credits within the project area until they are needed, so that permanent on-going sustainable development in ten-yearly cycles is ensured .

Final repayments of blocks of micro-credits will be co-ordinated so that money for long term capital investment purposes (system replacement and extensions) will be available when it is needed. An example of this is shown in columns 37, 38, 39 and 40 of the chart in fig 3 , where the higher columns indicate shorter payback times for the last lots of micro-loans so that the entire interest-free seed loan capital of US$ 3.000.000 is available for payment in the 41st quarter.

Money for the interest-free formal currency micro-credits granted is therefore generated by the users themselves within the framework of the project applications. The money and the micro-credits belong to the users. They are interest-free and continue to re-circulate within the local economy. Based very conservatively on an average payback time of two years, the theoretical average interest-free micro-credit finance made available during the first ten years to every family of five persons in a given project area is US$ 1500. If the average payback time were to be shorter, the interest-free funds available would be greater still.

The following chart (fig. 3, which has been drafted in Euros) shows a typical build-up of micro-loan investment over the first period of ten years of a project application. It shows the amount of new micro-loans actually (re)invested each quarter during the first period of ten years. The amounts are net of current outgo for project administration and maintenance of structures.

Fig 3 - Amounts invested each quarter in interest-free micro-loans

In the chart in fig. 3, the original interest-free seed loan is paid back in the 41st quarter. The capital available for micro-loans temporarily falls back to the amount actually being paid into the Cooperative Development Fund each month by the users. It will then gradually build up again over the next period of ten years, so that a further amount of at least US$ 1500 can be made available (on an average) to each family in the form of interest-free micro-loans. This time the funds accumulated belong to the users themselves, and are available for renewal and/or extension of project structures when needed.

The purpose of the planned Micro-Credit systems is to ensure that individuals or co-operatives without access to formal currency can get interest-free micro-credit loans for capital investment for production purposes to boost the local economy. The interest-free Micro-credit loans are therefore applied mainly to buy items necessary for production purposes which are made outside the local currency trading (LETS) systems.

The pay-back time for the interest free loans will vary from case to case. Some micro-credit investments will generate more goods and services that can be sold outside the local LETS currency area than others. Some users will therefore be able to earn formal currency to repay their micro-loans more quickly than others. The users themselves will decide from case to case during their monthly meetings on what is acceptable to them.

The possibility of sale of some of the production to consumers outside a project area for formal currency will usually be a condition precedent for the granting of a micro-credit loan. This condition of partial "export" sale lapses as soon as the micro-loans have been repaid. In project applications where an export-import cooperative has been set up, the cooperative may often be able to help the beneficiary of a micro-loan export part of his or her production in exchange for formal currency.

Foreign currency for the importation of capital goods for productivity development in the project area must also be covered by exports outside the national boundaries so that the international currency balance over the whole duration of the project also tends to zero. The national government must, however, grant a franchise on the need to export during at least the first, two, executive years of the project application, and allow the project area a reasonable time to gradually build up its international exports.

### HOW PV TECHNOLOGIES FIT INTO THE SYSTEM

Within the interest-free, inflation free, cooperative economic environment created, not all items needed for the basic package to improve users' quality of life can be made locally. Some items need to be imported into the project area. One of the major goals of self-financing development is to block financial leakage, and one of the most important causes of on-going financial leakage from a project area is energy. That is just where alternative energy technologies and in particular PV come in. Interest-free purchase of PV equipment for self-financing development opens new worlds for the PV industry. Here are a few examples.

#### Water pumping

Drinking water supply will be decentralised. Large diameter wells and bore holes will be dug or drilled using wherever possible local labour, construction methods and materials supplied under the local LETS money systems.

About 6-9 high pressure solar submersible pumps will be installed in each well or borehole. Each of the pumps will supply water to a dedicated water tank serving a local community of up to 40 families (200 people). The well is the hub of the supply system. The water pipelines radiating from it are its spokes. The water tanks should not be more than 150 meters away from the users' houses. The distance between the water source and the dedicated water tanks can be several kilometers.

Adoption of the mulitple pump solution means that fewer wells/boreholes need to be dug or drilled than would otherwise be the case. Savings on well and borehole costs may sometimes alone be enough to compensate for the costs of the solar pumping systems.

Fig. 4 : Solar pumping system layout

The solar submersible horizontal axis piston pump technology recommended enables water to be pumped against heads up to 150 meters (500 feet) and more, and to be transferred over kilometers where necessary to the dedicated water tanks as well.

Fig. 5 : A solar submersible horizontal axis piston pump

Generalised use of solar pumps for irrigation purposes is not foreseen, as the cost of PV pumping systems, and in particular of PV panels, is still such that the application is economically unjustifiable . Where high value cash crops are to be grown using drip or seepage installations, users can apply to finance these under the interest-free micro-loans system.

#### PV lighting and appliances

The projects cover PV lighting at a local level, usually involving about 200 users or 40 families, for study purposes provided a suitable study room is available or has been built under the local LETS system for the purpose by the local community. This application can be extended to community television systems for study purposes where security of the equipment can be guaranteed and where suitable programmes are available in the local language of the users. PV lighting for clinics is also covered as is PV lighting for schools where evening classes are needed, especially for adult education. PV refrigeration for vaccines and medicines will be installed in clinics where necessary.

PV lighting and power systems will be provided under the interest-free micro-loans scheme where required for the purposes of productivity increase. As already mentioned, it is a condition of the micro-loans that part of the new production or services be sold outside the project area for formal currency to enable repayment of the micro-loan. Some examples are communications centres, consultancy services, home production in the evening. PV solar home systems in general

In so far as they are intended for "comfort" purposes, PV solar home systems are in principle not included under the projects. Such investments do not lead directly to an increase in the production of goods and services. As the financial base of the individual users gradually improves, centralised cooperative purchase of solar home systems for financing by a local bank under a separate micro-credit scheme will be introduced. However, where current outgo for lighting, radios and similar is such that savings in petroleum, gas, and battery costs would be enough to repay the cost of an interest-free solar home system over a period not exceeding three years, project applications will include a separate fund for the installation of solar home systems. PV powered information centres

The following four types of PV powered information centres will be set up as business enterprises under the cooperative interest-free micro-loans scheme. They are:

-Local consultants to help local people choose crops to grow, instruct on agricultural methods, and give professional advice on productivity questions
-Information shops with telephones, faxes, computers.
-Cultural and economic websites ( see recent experiments in India), where individual interest groups make their cultural activities and their wares known to the outside world, either independently or through the information shops.
- A project level radio station

### BIOMASS

The far-reaching effects of bio-mass production and use incorporated in the self-financing projects tend to be more indirect than direct. Small scale electricity generation from biomass is not specifically foreseen, although there is no reason why this cannot be included where considered appropriate as is sometimes the case in India. The qualifying feature of biomass related initiatives under self-financing integrated development projects is that they can usually be entirely financed under the LETS local money systems, and no formal currency at all is required. This means there is in principle no limit to the number and nature of the initiatives taken.
Here are some examples:

#### Mini-briquettes for high efficiency cookers

High efficiency cookers built at project level from Beosite., using 100% local value added will be introduced. The cookers will be fuelled by mini-briquettes made from waste materials and bio-mass using recipes varying according to the type of basic (waste) materials locally available. The mini-briquettes will be produced and sold within the local LETS systems, so that current outgo for traditional cooking fuels such as firewood, charcoal, and gas can be used for the monthly payments made by each family into the Cooperative Development Fund. In many cases, savings on cooking costs alone are expected to pay for the entire costs of a given project application.

The bio-mass needed for the mini-briquettes will be sourced in the project area in the form of waste products or purpose grown bio-mass crops. Care will be taken to ensure that adequate natural fertilisers and soil conditioners be retained for agricultural purposes. Use of biomass crops to make mini-briquettes for high efficiency stoves will help reduce CO2 emissions in the project areas and have an immediate effect on forest conservation . Local forests will be automatically protected once wood and charcoal are no longer required for cooking purposes. Communities in project areas will be encouraged to proceed with re-afforestation programmes to be executed under the local money LETS systems. Re-afforestation initiatives create CO2 sinks, help combat erosion, and with time create a high value resource for recreation and a sustainably run quality timber industry.

#### Recycling of urine and compost from faeces

Dry sanitation systems involving the separation of urine and faeces and their re-cycling at household level for productive purposes are foreseen. Urine appropriately mixed with water or waste water in a ratio of 1:10 can be used directly as a high quality fertiliser in home gardens, including vertical roof gardens where no other garden space is available. Assuming an average family of five the annual amount of fertiliser available is about 27.5 cubic meters.

Faeces are composted separately in locally built Beosite. tanks. The fully composted faeces are an excellent soil conditioner which can be used in the home garden or collected under the LETS systems.

### CONCLUSION

Self-financing integrated development projects offer vast opportunities for expansion world wide of PV and other alternative energy applications. They are often the best and least-cost solution to development problems, and, intelligently used, can play a major role in limiting on-going financial leakage from project areas, which is one of the main causes of poverty.

Highly subsidised anti-economic solar pumping for irrigation purposes and the indiscriminate installation of (subsidised) solar home systems for non productive purposes are, on the other hand, harmful to the reputation of PV in the longer term, cause serious on-going financial leakage, serve no practical purpose, and are to be avoided. The Model on which self-financing integrated development projects are based has been placed in the public domain and can be freely downloaded together with all associated documents through the homepage of website www.flowman.nl

"Money is not the key that opens the gates of the market but the bolt that bars them"

Gesell, Silvio The Natural Economic Order; Revised English edition, Peter Owen, London 1958, page 228

List of articles on subjects related to the Model.

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