Seven innovative finance projects light up lives in India with SELCO

09-04-2009, Bangalore, India

Small amounts of REEEP funding can transform the lives of the poor. This is the message in seven encouraging case studies from SELCO India, a REEEP partner that has used funding to remove financial barriers and test finance and product innovation at the grassroots level. In the process, it has refuted many general assumptions about the affordability of renewable energy services targeted at the poor.

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. Today SELCO’s reach has extended to over 100,000 households. Although its major presence is in Karnataka which is a hub of financial activity, there is still a general hesitation on the part of banks to finance solar energy products.

The key barriers are:

  • Indian loan regulations require a down payment of 15-25% which is not realistic for many poor families.
  • Land documents and/or assets as collateral are required.
  • High transaction costs make it difficult for service providers to cover villages in remote locations
  • Interest rates are high.

The seven case studies outline a range of creative interventions to overcome these barriers. A typical example is the story of Channama, reflecting the challenges posed to millions of women in rural India who are faced with the burden of financial debt but who must also support a family.

To pay off debts, Channama, a widow, earns a living through a popular home based profession of making beedis while her teenage son, Lokesh, works as a labourer in a nearby town. Their combined income assists in ensuring an education for her only daughter, their daily living expenses, and clearing her existing financial debt handed down by her late husband.

Channama and her neighbours have been living for generations with no electricity. Channama had to complete her daily chores during the day leaving very little quality daylight time to make beedis. In addition, poor visibility and the strain of working under kerosene lamps have prevented her from fully utilizing the three or four extra hours in the evening to increase her productivity.

During a casual conversation with some friends, Lokesh heard about SELCO’s work and began to look at the viability of solar lights for the household. Financing from a local bank was available, but Channama could not afford the 25% down payment, so her loan was denied. Other neighbours with an interest in purchasing solar lights also faced the same problem.  SELCO utilized REEEP funding to provide the stipulated margin up front, and adjusted the monthly payments to the financial institution. This paved the way for the bank to approve the solar loan applications. Once the loans were approved, SELCO installed the home lighting systems.

Another of the highlighted projects gives twenty-four families access to solar home lighting systems through a slight innovation in their existing loan scheme with a local financial institution and through a partial interest subsidy.

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