My SELCO Experience: Kalyan Kumar Banerjee, Senior Vice President, MindTree

You don’t need to go more than 20 kilometres outside the Silicon City of Bangalore to enter the world not reached by our electricity grid. While rich like us get electricity delivered at our doorsteps at a marginal cost of five rupees a kilowatt-hour, the poor need to pay money (at 5000 rupees an electricity pole) if they desire electricity at their homes. And if they cannot shell out this down payment, they are doomed to remain in the middle ages even as we plan our leadership in the knowledge millennium.

This story is not about them, but about my discovery of a wonderful organization called Selco. Selco is in the business of providing solar solutions to rural India. They are based in Karnataka, and have their presence in every district. What does “solution” mean? It means they provide you with something that works for you and it makes sense for you to invest in it. They don’t create the technology; that comes from different vendors.

When we think solar, what’s the first idea that comes to your mind? My God, it’s too expensive, I don’t need it. This is a legitimate feeling if electricity is seamlessly delivered at your doorstep at an artificially low cost. If we had to invest in “green” electricity, without disrupting the poor of their land and homes, and paid an honest price for it, the solar equation might suddenly look different. However, that’s not the central point. What I realized is, if solar is expensive for us, it’s expensive for the poor as well. Only, they don’t have an alternative. Thus solar becomes a feasible option, simply because it’s the only available option.

This is where Selco comes in. I see them as innovators in three distinct ways. One, they understand your specific need and provide you a custom solution. What does this mean? Imagine the midwife in a village needing light by night to perform her “operation”. Light at a fixed source does not help her, as it is still dark where she needs it the most. What if she wore something like a miner’s safety lamp, so the light moved with her, wherever she went? Now, that’s innovation, and that’s what Selco provides. This is not the only kind of customizing out here. You could choose a solution where the lights are on just for four hours every evening (you don’t need the light after eleven at night, maybe). Or a solution that switches on once dusk sets in and switches off at the first light of dawn. Such solutions become very useful where it is inconvenient to switch on or off manually.

The second innovation is financial. They know the cost of one-time acquisition of your solar solution is high, and unaffordable for the rural poor. So they have tied up with financial institutions to design loan schemes which are customized based on the customer’s repayment capacity (daily, weekly, monthly, bi-monthly and so on) - Much like Mohammad Yunus and his micro finance revolution.

The third innovation is subtle. It’s about honesty. They tell you the right cost of acquiring solar solutions – how long the battery will last, and how long the panel will last. And they tell before they sell. And ready with supporting you through the life of the product, after they sell. So when you do business with Selco, you know the real cost of ownership, and you know you will utilize the full potential of the solution you are investing in. How is honesty an innovation? Well, as we mature as an economy, I believe there will be more and more business based on relationships and on trust. Honest solution providers will win more often than the sell and scoot vendors.

What was I doing with Selco in rural villages consuming solar solutions? We had created “India Immersion” internships for students from SMU (Singapore Management University), and as part of this program, we wanted them to be exposed to “India”, not just MindTree. Leveraging on Selco was a fortunate choice, as the students got their right exposure to social entrepreneurship, spirit of service, role of values in business, and of course, diverse flavours of the India outside Bangalore. Needless to say, their learning from the exposure to rural India topped anything we could have provided inside a classroom.

Field excerpts from door-step financing

The pulse of SELCO is its dedicated field staff that is closely linked with local partners and customers. Our field experiences have encountered several barriers of which financial ones are the biggest. SELCO took the opportunity to tap into the well established local rural financial networks and establishing strong relationships with local bank staff at a very personal level. However there are numerous roadblocks and listed below are field excerpts from 15 years of experience of working with financial institutions to finance solar systems.

· Relationship between the poor and banks: In rural areas there is a hesitation to venture into the banks because of cumbersome paperwork. Documentation is crucial for banks but the numerous processes deters the poor. Distances, bad roads and poor public transportation also prevent frequent visits to banks leading people to save in their homes thereby increasing the likelihood of instant expenditure.

· Exclusive Solar Portfolio: Since there isn’t an exclusive loan portfolio for solar systems, sometimes the financial institutions do not prioritize existing money towards sustainable energy. Preference goes towards agriculture which has clear cut deliverables for the managers. Hence renewable energy products, although income generating, are not deemed as priority for disbursing loans. More so funds are not pumped into these banks thus lowering priority of allocating money towards these requests.

· Small quantum loans: Many believe that solar products are highly expensive and hence affordability for the customers is low. On the contrary since the quantum of the loan is small in comparison to other loan portfolios bank staff are dissuaded from encouraging solar loans as the transaction costs are higher than the loan itself.

· Staff: The most important component of a partnership is the people representing both parties. There are very few visionary bank managers who encourage its customers to avail solar loans despite the high cost and lack of an exclusive fund. There is also a shortage of staff who can execute these transactions efficiently as limited resources are allocated to more lucrative portfolios.

· Poor infrastructure: Remote locations of banks and poor availability of appropriate technology (within banks and during field visits) increases frustration levels of bank staff which leads them to not focus too much time on low income needs especially since the latter is time consuming.

Despite some these barriers, SELCO has established sustainable long standing relationships with banks by working in tandem with the staff like assistance in identifying and subsequently educating customers of solar loan terms, persistence through routine visits in convincing banks to finance systems, conducting demonstrations and awareness programs as the technical partner thereby allowing the bank to focus on financing, offering innovative financing models keeping in mind the current loan portfolios, and tapping into SHGs and other similar groups or individuals to create access channels for customers in remote areas among others.

In 1996, SELCO was able to convince the Malabhraba Grameena Bank, a subsidiary of the state-owned Syndicate Bank, to offer India’s first solar consumer-loan program. Initially, SELCO began providing PV systems for the Bank’s over 200 branch offices. SELCO then arranged for the training of bank employees regarding SELCO’s products, and soon the financing by bank branches of PV systems for rural households commenced. Today SELCO shares a solar loan portfolio with all the

• · major public sector banks in Karnataka-Syndicate Bank, Canara Bank, State Bank of Mysore, Corporation Bank
• · Regional rural banks like Karnataka Vikas Grameen Bank, Cauvery Kalpathiru Grameen Bank, Pragathi Grameen Bank and so on
• · The largest women's cooperative bank in India, SEWA Bank

SELCO regularly organizes regional workshops with financial institutions and most recently through the REEEP workshop in Manipal (refer blog dated March 28, 2009). SELCO is persistent in discussions on a policy level with RBI representatives and regional head offices of its financial partners to encourage dialogues on improving the financial access to sustainable energy services for the underserved.

SELCO recently held a two-day workshop on “Access to Sustainable Energy Services via Innovative Financing” in collaboration with Bharatiya Vikas Trust and Syndicate Institute of Bank Management at Manipal, Karnataka. This workshop was a platform to disseminate learnings from a series of 10 projects that were implemented under a partnership with SELCO and Vienna based Renewable Energy and Energy Efficiency Partnership (REEEP) www.reeep.org/ from 2007-2009.

Present were eminent personalities including Mr.D.T.Pai, Former Chairman, Syndicate Bank; Dr. N.K.Thingalaya, Former Chairman of Syndicate Bank; Mr. Pramod, GM, Syndicate Bank; Mr.Srihari Bhat, GM, Syndicate Bank; and Mr. K.M. Udupa, Managing Trustee BVT. Over 50 representatives from NABARD, RBI, Syndicate Bank, Canara Bank, Vijaya bank, Karnataka Vikas Grameen Bank and other Regional Rural Banks, Greenpeace and other NGOs also attended the workshop.

SELCO India began as an experiment in the very early 90’s with the mission to provide sustainable energy services to underserved communities through a combination of door step service and door step financing. Even after 14 years of SELCO’s endeavour in bridging the gap for several poor communities to access certain energy services like solar lighting by “piggy backing” on third parties to finance their needs but, it still continues to be an experiment. Today SELCO’s reach has extended to over 100,000 households. Even today, though SELCO has the expertise to come up with any need based technology solution for any segment - financial barrier hinders its delivery to the people who need it the most. The importance for appropriate financing to promote solar lighting systems and other energy services became very clear in the early days of SELCO, which led to lot of investment of time, money and resources in convincing financial institutions about the same.

SELCO’s major presence is in Karnataka which is a hub of financial activity perhaps, as it is the birthplace of five of India’s largest banks: Syndicate Bank, Karnataka Bank, Corporation Bank, Canara Bank and Vijaya Bank. However, despite the existence of these institutions the hesitation to finance solar energy products continues as:

- Margin money or down payment of 15-25%, is required as per the Reserve Bank of India (RBI) regulations to disburse a loan. Unfortunately, for many poor families, even 15% many a time is too high to pay and hence they cannot avail the loan and fall into the “unaffordable category”.

- Having proper land documents and assets as collateral is not mandatory in practical lending conditions for loans below Rs.25, 000 as per the Reserve Bank of India regulations. However, financial institutions are hesitant to take on the risk of lending to end users without collateral as non-repayment could severely affect their loan portfolio and professional track record. A third party partially covering the risk would persuade them to lend. Though the underserved communities are willing to pay the installments, their application for a loan normally gets rejected due to their inability to satisfactorily meet this pre-requisite.

- Even if the financial institutions are flexible to customize a loan product for renewable energy services, the roadblock is the relative high interest rates.

- In India, several communities do not have access to modern energy services and infrastructure due to their remote locations making it difficult for the service provider to run a profitable business due to the high transaction cost. The associated financial institutions also incur high expenses for the same and would be hesitant to raise their interest rates in some cases.
REEEP’s support was a huge impetus for SELCO to break many of the above mentioned barriers and paved the way for it to prove that if financed appropriately, and designed based on needs, the poor can and will pay for services. REEEP’s support enabled SELCO to create and experiment with financial models.

SELCO published a booklet (http://selco-india.com/pdfs/selco_booklet_web.pdf) which highlights 7 case studies which stand testimony to the fact that capital subsidy on renewable energy products, such as solar, is not always the answer. End users can afford solar despite its perceived initial high costs, as channels were created to facilitate affordable financing and not subsidize the product. The government could step in and re-allocate these subsidies to financial institutions to facilitate financing to the poorer sections of the society.

Welcome to SELCO INDIA!

In SELCO we believe that poverty is the greatest threat to the environment. The poor use some of the most inefficient and polluting types of fuel. They do that not because it is cheap but, because they do not have a choice.

In 2009, India is supposed to be growing at a rate between 7-9% however, 650 million of its citizens still do not have access to reliable electricity and many more millions do not have access to cleaner forms of cooking.

Most of the population seem to be insulated from the growth that the government and many of the corporates are celebrating! The classic line taken by corporates is that the growth will have a trickle down affect. Well, let us not fool ourselves with percentages, growth patterns, demographics and so on. From our own experience in the field – we can boldly say that the trickle down effects have been more on the negative side than positive. The growth has led to increased migration from the rural to urban, drastic growth of slums in urban areas, unimaginable pressure on limited resources like water and other basic amenities: well we can keep going. What we need to ask ourselves is who is responsible? – All of us are!

Today we are hiding behind programs like CSR activities, Green initiatives, Volunteering etc. These are not solutions that will make a big difference. They will not lead to any concrete solutions to the complex problems that make up the whole issue of poverty.

We all need to act fast – not in coming up with solutions – but with putting in processes to apprehend the problems and bring out the appropriate solutions. There is absolutely no quick-fix solution to poverty – we are not selling soap or shampoo packets here. We are trying to come up with solutions that will address the basic needs of the poor and not the ‘wants’. The wants have been conveniently disguised as needs by the corporates that are making a mockery of the sector called as ‘rural markets’. Most of the supply chains created to ‘capture’ the rural markets have been one-sided. Not only are the solutions ‘rich’ centric but we also expect the poor to buy the goods that the rich produce and we hardly reverse the supply chain in a way that the poor can have access to the ‘rich’ markets.

For a sustainable solution to alleviate poverty – many of the processes need to be reversed. Solutions have to come from the stakeholders (the poor) themselves. – but they need to be provided with appropriate infrastructure, tools, access to finance and so on.

We, in SELCO, believe that sustainable energies like solar energy can lay the foundation for creating the appropriate platform for the poor to come out of poverty. Decentralized technologies using sustainable energies cement the missing links in many parts of the chain – a chain that will lead them to a better quality of life in a more holistic way. SELCO INDIA has provided reliable services to more than 100,000 households and for many we been partners with to take the 1st step away from poverty.

We will express our views on a variety of subjects through this blog and welcome your thoughts and opinions to engage ourselves in an open discussion on how we can move closer to, if not finding solutions, at least asking ourselves the right questions that will point us in a direction to alleviate poverty.