The MFIs have, for over several decades now, been responsive to the demand of small-scale borrowers for savings, business and personal financing, catering to the financial requirements of the micro-economy typically composed of market vendors, tricycle operators, small traders and other small scale borrowers.

In view of the outreach and the especially significant role that MFIs have taken on in the economy, the participation of the MFIs was a major consideration when the Rural Power Project (RPP) of the Department of Energy was conceived. The RPP is one of the flagship programs of the government which aims to improve the quality of life in the rural areas of the country through the provision of adequate, affordable and reliable energy services in partnership with the private sector. One of the subcomponents of the RPP is the installation of stand-alone renewal energy systems consisting mainly of solar photovoltaic (PV) systems for individual users in off-grid areas. The PV system taps solar energy in providing electricity for the rural community and the rural households. The RPP-PV subcomponent involves the commercial dissemination of PV systems for single homes or establishments for institutional and community applications. It is a simple technology ideal for rural households which need basic lighting services. For the PV systems for institutional and community applications, fund sources such as donors, public and private sectors have been identified to fund the PV systems. In the case of solar home systems, on the other hand, MFIs have been identified as the vehicle that will provide the rural households financing to acquire the PV systems at affordable prices. With the MFIs’ greater outreach in the rural communities and their considerable expertise in dealing with the disadvantaged sector of the Philippine economy, a partnership with the MFIs for the installation of the PV systems was deemed by government to be the appropriate mode to provide the needed electrification for off-grid rural households.

In assessing the marketability and viability of this sub-component, it was necessary to estimate that level of amortization that would be attractive to households such that the amortization would at least equal or approximate the amount expended for a household’s energy expenditures. This was necessary considering that the purpose for the loan would not be a direct income-generating activity, although it may possibly lead a household to finding livelihood opportunities in the process where possible sources for payment of amortizations may be derived. This was considered in a survey undertaken for the project to assess the market for solar home systems (SHS) where the probability that a household’s energy expenditures were equal to or greater than the monthly amortization of the different SHS was estimated and then the number of households who could afford the monthly amortization was estimated as the potential demand for the SHS. The survey also took into consideration the households’ willingness to pay for and interest in obtaining an SHS.

Considering the riskier nature of providing SHS to households via a loan and the fact that the loan will probably be of a longer term ( 2 to 3 years) so repayment terms are affordable for households, the RPP infused a guarantee feature into the project, known as the RPP — Loan Guarantee Fund. The RPP-LGF offers partial credit guarantees to MFIs that will be providing loans to rural households investing in PV systems or SHS. The establishment of the fund is one of the risk sharing mechanisms under the RPP aimed at lifting the financial barriers to PVS purchase by unelectrified rural homeowners. At the same time, other partners such as the Development Bank of the Philippines (DBP) and the People’s Credit and Finance Corporation (PCFC) also provide wholesale funds to MFIs to shore up liquidity for relending to households. With World Bank backing via the guarantee fund, the MFIs are assured of payment against default by rural households up to the extent of the guarantee of the RPP-LGF.

As the country aims to achieve 100% barangay electrification by 2008 and 90% household electrification by 2017, the MFI’s role in contributing to the attainment of these targets become all the more remarkable. In fact, the LGU Guarantee Corporation, the program manager for the RPP-LGF, has been intensifying its efforts to accredit more MFIs under the RPP-LGF. Now that performance standards are in place for all institutions engaged in microfinance to allow for greater transparency, there is currently a better means of gauging the operations of an MFI. Under the RPP-LGF accreditation system, these performance parameters are already being used to evaluate MFIs for accreditation. To qualify for RPP-LGF accreditation, an MFI should comply with the following: a) with at least 1,000 clients; b) have demonstrated its mission to serve the poor; c) has been in operation for at least three years; d) PESO rating of at least "3"; e) with portfolio at risk (PAR) greater than 30 days of at most 5%; and f) near or above full operating self sufficiency (OSS).

MFIs which participate under the RPP-LGF should on other hand, consider the following when gauging borrower eligibility: a) the borrower is gainfully employed or engaged in economic livelihood activities for 1 year that generate sales or income daily, weekly or monthly; b) a permanent resident and can provide valid identification documents; c) of legal age; d) in good health; e) has no record of past due with banks, suppliers and other creditors; and f) must have occupied the house, where PVS will be installed, continuously for at least the immediate past five (5) years as a homeowner or lessee.

Under this scheme, it is hoped that barriers to accessing finance for the installation of PV systems will be addressed, and thus poverty alleviated. Households get access to affordable electricity while MFIs are able to expand their markets to other unserved areas, assured of a guarantee to mitigate the greater risks in an untested but deserving market. Thus it can be said that more than merely being service providers, the MFIs’ part in rural electrification is more as "agents of transformation in the countryside."

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