YES Bank deal helps 26,000 farmers in India

10-09-2009, Mumbai, India

A single loan for approximately €1.4 million will support the development of jatropha nursery plantations, to raise seedlings for distribution to over 26,000 farmers in six states in India. This transaction, developed by YES Bank Ltd (YBL) is the second one to close under a finance bundling project that is executed in partnership by YBL and Environment Energy and Enterprise Ventures (e3V), with some financial support from REEEP.

REEEP’s financial contribution covered some of the administrative costs associated with bundling and providing the loan (including cost of risk assessment and technical and operational logistics). This cost contribution helped YBL maintain a relatively low cost of borrowing for these farmers and the benefit of the administrative cost cover was passed on to them.

Under this scheme, the company will buy back the jatropha feed stock from an estimated 26,000 farmers in the states of  Gujarat, Rajasthan, Uttar Pradesh, Andhra Pradesh, Orissa, and Jharkhand and establish expeller units for extraction of crude jatropha oil from the plant seeds.  Currently, individual farmers in these states do not have access to good quality seedlings nor the money to pay for them. To help get the business model off the ground, the YBL loan enables the company to develop nine nurseries which will supply high-quality seedlings to the network of farmers as part of the overall scheme. Over five years, the goal is to bring 50,000 hectares under jatropha cultivation in each state.

Jatropha plant seeds are very rich in oil (40%) and the plant has been used in India for several decades as a bio-diesel in remote rural and forest communities. Jatropha oil can be used in diesel generators and engines directly after extraction, without refining.  It grows well in dry, marginal non-agricultural lands, so it allows villagers and farmers to make use of non-farm land to generate additional income. The fact that it does not displace food-producing farmland makes it a particularly attractive biofuel option in India. Increased production of jatropha will also reduce the country’s fossil fuel imports and save hard currency expenditure on diesel, the main domestic transport fuel, as well as improve the country’s carbon emissions profile.

The current draft bio fuel policy in India targets a 20% blend of bio-diesel by 2017, which would translate to approximately 35 million acres of jatropha cultivation, and this transaction is calculated to support this expected growth in bio-diesel demand.

The loan transaction is the second to close under a project entitled “Financing for Bundled Small-scale Rural Renewable Energy and Energy Efficiency Ventures in India,” and was developed by YES Bank’s Agribusiness, Rural & Social Banking (ARSB) and Sustainable Investment Bank (SIB) Teams. The goal of the project itself is to develop new credit practices financing bundles of small-scale renewable energy and energy efficiency ventures in rural and peri-urban India.(profile of project linked below)

In the first transaction, YES Bank provided financing in the amount of approximately  €15 million Euros to a bundle of 25,000 farming households across the states of Maharashtra, Gujarat and Rajasthan in a deal to finance the purchase of energy-efficient drip irrigation systems, with a loan averaging about 594 Euros per household. REEEP covered some of the administrative cost associated with bundling this transaction as well.

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