Power to the people: what’s driving the supply of green microfinance?

Abstract

This paper explores some of the possible drivers of the supply of a relatively new form of microfinance: microloans for distributed clean energy systems. The number of microfinance institutions offering this ‘green microfinance’ varies considerably across developing economies. Drawing from a sample of countries in Latin America, we consider whether the green microfinance market is attractive for firms to enter without the need for market interventions. That is, we test the hypothesis that entry will occur provided there is high demand for green microfinance and an absence of barriers to entry. We also test an alternative hypothesis that these conditions are insufficient and that direct support from governments or development organisations is required to promote market entry. Regression analysis using data sourced from development organisations, government databases and industry publications confirms our hypothesis and leads us to reject our alternative hypothesis.