Indian Solar Loan Program Offers Access to Light

If you live in a rural area of southern India, two lights can literally save your life.

Just ask Vinoj Kanaya, farmer of silkworms who lives outside a small village located 250 kilometers from the new Silicon Valley of Bangalore. Like many people in developing countries, Mr Kanaya wanted something better than burning wood, dung or kerosene for which he paid a higher proportion of his income than someone in a developed country.

After he installed two solar-powered lights with the help of a solar loan, Kanaya says attacks by deadly cobras have gone down because the snakes are scared off by the brighter solar light. The lights are much cheaper to run than those powered by kerosene and there are fewer accidents and burns with solar lights. Kanaya says that both his helpers and his silkworms work much better without the smoke and fumes of kerosene lamps.

But with an annual income of just US $2,000 to support seven people, the initial US $300 cost of the solar lights was simply too expensive. Too expensive, that is, without an affordable loan.

MR. RameshEnter Mr. Narsabba Ramesh (left), chairman of the Gramathi Grameen Bank in the regional town of Bellary, and a crucial aspect of Kanaya’s silk farm. Over the last four years, Ramesh’s bank has been a partner with the United Nations Environment Program to make loans for solar power an affordable reality for people such as Kanaya.

UNEP’s Indian Solar Loan Program worked to overcome the natural suspicion of bankers towards new technology by “holding their hands” as they evolved new lending products, offering incentives and guarantees that are gradually withdrawn as the loan market matures.

In the case of the Indian Solar Loan Program, UNEP “bought down” the interest rate charged by the banks from about 12% to 5%. In essence, the banks continued to make their normal rate of return for a perceived higher risk loan, while the customer paid the lower, more affordable rate. This “interest rate subsidy” was gradually withdrawn over the three-year program.

Ramesh is one of the program’s champions with 10,000 solar loans under his financier’s belt from his 350 branches. Because of his work, solar-powered lights are installed in 2000 villages. That’s fully half of all the loans granted under the program.

Sitting in his modest office with his own solar light, Ramesh says the first time he heard about solar lights was “a bolt from the blue” and “a pleasant surprise.” He explains that solar-powered lights are a “long cherished dream” of rural villagers who often have no power, or power supplies that are at best irregular. “They are one product that can meet aspirations of people living below the poverty line,” he says.

Sure, but is it good business?

“Bankers can sell this product desired by customers,” he answers a bit too politically. Bear in mind that Ramesh is part of the state’s Grameen Banking system that covers 6000 branches and whose mandate is more socially broad than that of a conventional bank. Such banks and their branch managers are highly respected, and often serve to educate their customers who have limited knowledge on new products and services. Some customers must sign their loan papers with a thumbprint.

Ramesh is also trying to walk the talk by installing solar systems in more than 140 of his branches as the unreliable grid supply also affects his operations.

Mr. H. V. Kumar (pictured at right in the green shirt, alongside two SELCO reps) of Crestar Capital helped UNEP set up the program with two of India’s largest banks, Syndicate Bank and Canara Bank, along with their associated Grameen banks. The Indian Solar Loan Program financed more than 18,000 systems over three years, bringing clean and reliable solar power to more than 100,000 people. The modest US $1.5 million program was supported by the Shell Foundation and the UN Foundation.

Kumar is not a fan of the subsidy mindset prevalent in India, preferring instead to focus on the long-term benefits in marketing promotions. Five years ago when he went into the field, he says, buyers were concerned about power cuts. “Today, however, people not only see how reliable solar power is, they also see it as a way to save on power costs because power prices are not coming down and inflation is rising,” he says.

Research studies, he adds, say solar is not financially viable, but in this case, economically rational customers say they save money. “This is great product acceptance and a maturing of the market.”

One of the strengths of the Indian Solar Loan Program is the qualification of vendors, including a requirement to maintain local service centers. “We didn’t want a technician driving 200 kilometers from Bangalore to service a system,” says Kumar. Such rigorous standards, he says gives the banks and customers confidence. “If the solar system stops working, the customer stops paying the loan,” he says.

SELCO was one of four qualified vendors in the program and a success story in its own right, with more than 100,000 solar systems installed throughout India.

One of its most ingenuous schemes also funded under the Indian Solar Loan Program was to design a solar charging station for portable lamps that are distributed fully charged each evening to street hawkers. Just like the silkworm farmers, these merchants no longer have to put up with smelly kerosene lamps while also saving money.


Kumar and Pullenhav at SELCO offices in Bangalore
The UNEP Program has helped change the Indian solar market from a small, cash-only business in 2003, to a growing market with more than 50% of sales financed by more than 20 banks through their networks of more than 2000 branches. UNEP has used the success of the Indian Solar Loan Program to expand such finance programs into Morocco, Tunisia and soon Algeria, Indonesia, Mexico and Chile.

One interesting lesson from these programs in some countries, however, is that merely providing access to finance can be more important for customers than the cost of such finance.

An extra light or two that may not mean much to many in the developed world, but for Kanaya and thousands of others, they’ve brought safety, profits and better quality of life. For SELCO Vice President, Mr. Thomas Pullenkav, the equation is simple: “quality of light equals quality of life.

Peter Fries is an environmental writer and filmmaker based in Queensland, Australia. He visited India courtesy of the United Nations Environment Program.

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