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.