Microcredit scheme for solar lighting system

Rural families pay less than what they spent on kerosene lamps for off-grid lighting

By Ruhi Kandhari
Published: Tuesday 13 September 2011

Saroj Devi's family of six used to spend over Rs 900 every month to buy kerosene for lighting the three lamps in her house. Their village, Lala Teekar, in Moradabad district of Uttar Pradesh has two rivers passing by and is often called the Andaman and Nicobar Islands of Moradabad. This is because the only access to the village—a narrow rickety road—closes during monsoons, cutting off access to the village.

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Her family used to face blackouts for months together in case of fault in the electricity lines. But four years back, Saroj Devi bought a solar home lighting system (SHLS) under an installment scheme. Since then, the expense she incurred on lighting has decreased, and power reliability has improved. She pays Rs 300 per month for two CFL bulbs and one fan that run six hours a day. These bulbs and fan are connected to small solar panels.

Government push
The Jawaharlal Nehru National Solar Mission has used microcredit model to promote off-grid solar energy. Since November 2010, the Ministry of New and Renewable Energy has announced a capital subsidy of 30 per cent on the price of solar home lighting system and an interest subsidy at 5 per for 50 per cent of the price. The remaining 20 per cent can be down payment or the bank can decide at which rate it wishes to finance with a payback period of a maximum of five years. The Centre has allocated Rs. 35 crore for financial year 2010-11 to the National Bank for Agriculture and Rural Development (NABARD) to provide funds to the regional rural banks at 2 per cent interest to support solar systems.

According to Vivek Mehra, managing director of Sustainable Investment Banking, Yes Bank says that this business would be best organised through regional rural banks ( RRBs) and perhaps microfinance institutions ( MFIs). Organisations like commercial banks would have very high cost of operation for such schemes and given that many of these funding schemes are promotional in character, the risk-return profile, may not provide a very profitable segment for bankers to work in.

“With the present financing scheme, other than some of the state-owned financial institutions, MFIs and RRBs, few are motivated to be part of the process as it is defined, given the relatively lower profit margins but with full risk of recovery,” he says. “A bunch of other instruments such as renewable energy voucher/stamps, viability gap funding and green energy bonds have been listed among others in the guidelines for off-grid solar energy, but there is very little detail known on the nature of these instruments. The devil is in the details and at this stage these are largely futuristic statements of intent.” he adds.

“My grandson staying in Moradabad town scores above 95 per cent marks in every examination, but my grandson here could not score more than 80 per cent because of lack of electricity. In the past four years, grid lines have been stolen twice and we did not have electricity for months on end,” says Saroj Devi. But now she not only gets sufficient light, but also uses a fan in summers and at times uses the solar panel to operate her black-and-white television set. Her grandson's grades have also improved.

No one in Lala Teekar village had bought SHLS, costing Rs 14000, till 2005. That was when Prathama, a rural bank, introduced its microfinancing option under which customers could pay an installment of Rs 300 per month. Since 2005, over 500 families comprising 80 per cent households of Lala Teekar village have bought SHLS. Overall, the bank has financed over 29,000 home lighting systems in three districts—Rampur, Moradabad and JP Nagar in western Uttar Pradesh—under the scheme called Prathama Solar Jyoti. Over 75 per cent households in 21 villages in these districts now depend only on solar energy.

“Thousands of villages having no grid electricity connection in India and villages that are connected to the grid have irregular access to electricity. This is a huge market for solar energy if the credit options are available to the rural masses,” says R C Virmani, Chairman of Prathama bank. “Prathama is one of the many regional rural banks in India that are using microfinance to make solar energy popular in rural India,” he adds.

Private players tie up with rural banks

In eastern Uttar Pradesh, many other families like that of Saroj Devi have received assistance from the Aryavart Gramin Bank (AGB). It promotes solar home systems through its 289 branches by holding credit camps to create awareness on microcredit option for solar equipments. Tata BP, a leading player in the solar energy systems, has sold nearly 80,000 SHLS in Uttar Pradesh by tying up with regional rural banks, such as AGB of Lucknow, Prathama Bank of Moradabad and Gomti-Kashi Bank of Allahabad.

Similarly, solar technology provider SELCO Solar has tied up with four commercial banks and nine rural banks to make the technology available to 1.2 lakh households, the majority of which are in Karnataka. According to the managing director of the company, Harish Hande, rural electrification is happening using off-grid solar applications due to the initiative of entrepreneurs and banks. “When SELCO was founded in 1995, the biggest challenge was convincing rural banks to finance sustainable energy systems for poor households, as they had not yet been in the business of financing solar lighting technology,” he says. He adds that the solar credit scheme picked up when in April 2003, the United Nations Environment Programme (UNEP) partnered with 10 banks to subsidise lenders to reduce end-user interest rates from a standard 12.5 per cent to a 5 per cent.

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