NB Financial Health
How a Colombian Utility Buttresses the BoP: How EPM’s social financing works
The EPM Group is a Colombian utility company that provides water, domestic gas and electricity in Colombia and other countries like Guatemala, El Salvador, Panama, Mexico and Chile. Many of our clients belong to the low-income segment of the population.
Instead of discouraging us, this reality has become a challenge in which innovation and, above all, EPM’s social responsibility principles, have been essential to offering sustainable solutions.
EPM provides high-quality, accessible public services in an efficient manner, and focuses on creating positive impact for its clients while contributing to the country’s poverty reduction goals. We therefore make a conscious effort to serve low-income communities for exactly this purpose.
Social funding, housing layout, prepaid energy, rural electrification and gas beyond borders are some of our programs — with one only goal in mind — to create opportunities for social development and to facilitate the access and use of public utility services. All of our programs contribute, directly or indirectly, to achieving the United Nations Millennium Development Goals (MDGs). For example, our services enable positive impact around education, health, and the creation of global partnerships for development.
Social Funding: A Process of Co-growth
Growing with our clients is the main idea behind this program. Its focus is to facilitate the efficient use of public utility services, extending credit to customers, particularly those who are at the base of the pyramid, for the purchase of electric appliances, gas appliances, construction materials for home improvement, and ICT devices.
This program contributes to building a credit payment history that helps our clients obtain other financial services. It also contributes to the productivity of families as they can buy items such as computers, refrigerators, washing machines, ovens, sewing machines, among other things, which improve their quality of life and also encourages them to venture into small businesses to boost their income.
Up until 2012, our social funding program benefited more than 120,000 families by providing loans worth US$69 million. By the end of 2013, we expect to serve nearly 33,000 new families and deliver an additional $US28 million in loans.
Working with the IDB
This program began with a clear social focus. Eighty-six percent of customers who acquired this financing option are located in the most populated and marginalized sectors of the market in terms of access to financial services.
Most of these clients don’t have access to modern, energy-efficient appliances. They usually buy second-hand items, which are more expensive and inefficient, or get finance at rates of more than 100 percent annual interest through commercial entities or through individuals that move in the underworld of the so-called “pay-daily “or “trickle down” system — essentially making it impossible to pay back. These dynamics perpetuate the commonly known poverty trap.
The innovative element in the social funding program is the possibility that customers have to repay loans through the same bill with which they pay for services. This option helps to minimize the risk of non-payment and to offer better financial terms compared to other consumer loan options in terms of rates and handling fee collection.
The Inter-American Development Bank’s Opportunities for the Majority sector supported this program with a loan of US$10 million, which complements a consultancy with the IDB’s Multilateral Investment Fund (MIF) to open a loan portfolio for micro and small companies.
The social funding program illustrates EPM’s principle of helping improve the quality of life of our clients and to help them achieve greater well-being and enjoyment in the use of public utility services.
With the help of the IDB, EPM is contributing to urban and rural development and poverty reduction as it is granting the base of the pyramid access to durable goods that open opportunities for education, inclusion and more income for the families that access the program.
For the benefits it represents to the people, to our customers and to users with limited income, this credit has become one of the most important social responsibility actions undertaken by the EPM Group.
Gratitude, trust, support, safety and well-being; with these words we can summarize the EPM social funding program.
Juan Esteban Calle Restrepo is the CEO and leader of the EPM Group