Single deal bundles 25,000 farmers in India to finance drip irrigation

12-05-2009, Mumbai, India

One single transaction worth nearly 15 million Euros has successfully bundled 25,000 farming households across the states of Maharashtra, Gujarat and Rajasthan together in a deal to finance the purchase of energy-efficient drip irrigation systems, with a loan averaging about 594 Euros per household.

his is the first completed bundled EE transaction under the REEEP project titled “Financing for Bundled Small-scale Rural Renewable Energy and Energy Efficiency Ventures in India”.  Taken on its own, the deal has already amplified REEEP’s original financial contribution to the project by nearly 15,000%.

In structuring this transaction, Yes Bank’s Agribusiness, Rural & Social Banking and Sustainable Investment Bank teams worked together with Jain Irrigation Systems Limited (JISL), India’s largest drip irrigation company, to develop an instrument to provide farmers with financing for high-efficiency irrigation systems.

The current norm is for farmers to use flood irrigation system to irrigate their crops. This wastes a huge amount of water and consumes large amounts of electricity in its pumping.  In contrast, energy-efficient drip irrigation systems deliver water to crops using a network of pipes with outlet points spaced along them. Each dripper/emitter orifice supplies a measured, precisely controlled dose of water, nutrients, and other required growth substances directly into the root zone of the plant.

This greatly reduces energy usage and saves up to 70% of the water used with flood irrigation techniques, which require the pumps to be operational for longer periods of time to flood the fields. The drip systems lead to an increased yield of up to 230% and enhance fertilizer efficiency by close to 30%.

Despite the obvious benefits, the high initial cost of these systems, ranging between 450 and 1500 Euros per acre – depending on the type of crop, quality of water, topography and soil physiology -- has traditionally been a barrier for poor farmers.  In addition to this, the individual loan sizes are too small to carry the costs of evaluating, disbursing, monitoring, and collecting each loan.  As such, banks have been reluctant to provide farmers with loans for these irrigation sytems.

In this transaction, Yes Bank appointed JISL as its ‘Managing & Collection Agent’ to undertake functions such as aggregation and supply of farmers’ details to the Bank for credit assessment, facilitating disbursements and collection of repayments.  Yes Bank trained field staff and dealers of JISL to undertake these functions and developed the necessary reporting and monitoring formats and processes.

Compared with the previously used flood irrigation systems, each drip irrigation system saves about 10kWh of power per day per acre. With the drip systems operating for about 150 days in the year, they save about 1,500 kWh of electricity per acre annually. Over the 4 to 5 year life of these kinds of systems, it is expected that this loan from Yes Bank will save about 480 million to 600 million kWh of energy.

It is hoped that this will be the first of many such transactions that allow rural Indian households to finance the purchase of energy efficient drip irrigation systems.
 

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