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Microfinancing decentralized solar energy systems in India: Problems in upscaling and mainstreaming Satish Pillarisetti Chief General Manager National Bank for Agriculture and Rural Development (NABARD) India. International Conference on Micro Perspectives for Decentralized Energy Supply
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Microfinancing decentralized solar energy systems in India: Problems in upscaling and mainstreaming Satish Pillarisetti Chief General Manager National Bank for Agriculture and Rural Development (NABARD) India International Conference on Micro Perspectives for Decentralized Energy Supply Technische Universitat Berlin, 27 February-1 March 2013, Berlin, Germany
The background Mission to address problems of access to energy in India Jawaharlal Nehru National Solar Mission of the Government of India 20,000 MW of solar power by 2022 Of which 2,000 MW would be through off-grid applications Major part through solar lighting and heating systems supported by bank finance Rural banks-pioneers in financing solar home lighting units: Aryavart Gramin Bank in UP
Launch of National Level Scheme The success of the scheme in Aryavart Gramin Bank was a huge motivation NABARD supported pilots with subsidy implemented by a number of Regional Rural Banks were also successful Basing upon these positive outcomes, Government of India’s Ministry of New and Renewable Energy (MNRE) launched the scheme Operational guidelines were issued in May 2011
Subsidised Loan and Interest Scheme Objective promote PV and solar thermal off-grid applications of solar energy (e.g. Solar home lighting systems, thermal applications like water heaters, other power applications like irrigation pumpsets and other electricity/power applications) encourage replacement of non-renewable energy sources like fossil fuels, kerosene and diesel with solar energy
Features of the Scheme-1 Scheme administered by NABARD, funding by Ministry of New and Renewable Energy of Government of India through Indian Renewable Energy Development Agency Participating Banks - Commercial Banks/ Rural Banks To cover 9 pre-approved models of Solar Home Lighting Systems (10-200 Wp) and Flat Plat and Evacuated Tube Collector based Solar Water Heating Systems Pre-approved SHLS models of higher capacity to be added in due course Other Solar Applications like energisation of pumpsets to follow 30% of the cost (subject to the boundary conditions) to be provided as capital subsidy and 50% as subsidised loan (5% interest p.a.), the balance(20%) being the margin money
Features of the Scheme-2 Capital subsidy released to Banks by NABARD on loan being sanctioned Loan and subsidy amount together released to supplier by Bank on satisfactory installation Loan repayment period: Maximum of 5 years NABARD refinances 100% of the loan with a repayment period of 5 years Interest rate on NABARD refinance for Banks-2% No collateral for loans upto INR 100,000 ($ 2,000) Suppliers shortlisted after due diligence Aim to produce 200 megawatts of off-grid solar power by 2013
Progress of the Scheme ? Progress of the scheme was dismal in general In 2011-12 all banks together financed only 45,034 units One regional rural bank (Aryavart) alone financed 30,000 units in 4 years Reasons ? A ground level analysis Pockets of success But in adjacent areas no take off Comparative study taken up
Scheme implementation in District A-1 Financing banks had previous experience of financing solar home lighting systems The regional rural bank had financed under NABARD’s pilot subsidy scheme The main commercial bank was a sponsor bank of this RRB and its senior official had earlier experience with this scheme Large number of small borrowers needed convincing regarding utility of the scheme An assured handholding set up was needed Branch staff could not do it Banks entered into an agreement with a local NGO and Extension Centre of Agricultural University (KVK) to popularise the scheme
Scheme implementation in District A-2 NGO and KVK first conduct a (Gram Sabha) village assembly Benefits of solar energy, scheme details and finance facilities explained in detail Audio-visuals and demonstration kits used Short list of volunteers to take up the scheme is drawn up Scheme literature and terms of bank loan and subsidy provided to short-listed Week later short-listed ones taken to visit a functioning unit Financing formalities are completed and unit installed System maintenance and servicing Ensured through a system of Business Facilitator
Scheme implementation in District A-3 Model of Aryavart Gramin Bank adopted A local youth identified by branch manager Trained by company/dealer to maintain the system Provided with a maintenance kit Bank pays a honorarium per month and small fee is also charged to the borrower Each BF can handle 100 systems Arrangement satisfactory for borrower, banker and dealer Ensures continuous operation of the systems NGO and KVK also roped in local grassroots organisations like Farmers Clubs and Self-Help Groups to popularise the scheme
Scheme implementation in District B Scheme operated strictly as per guidelines No facilitating organisations engaged Burden of scheme implementation solely on bank branches No mechanism for after-installation servicing and maintenance Response lukewarm as responsibility was of the bank branch manager alone without any support systems Result: Units financed in 2011-12: 1011 in District A but only 22 in District B
Lacunae in the Scheme Scheme design itself was faulty Two components of capital subsidy and soft loan made it cumbersome Compulsory refinance from NABARD dissuaded some banks which had surplus funds Reserve Bank of India not classifying it as Priority sector advance Cooperative banking system with a network of 120,000 outlets excluded from the scheme Paperwork prescribed was cumbersome
Modifications in the Scheme Scheme design was modified in 2012-13 to overcome some of the drawbacks observed Refinance and soft loan parts were done away with Subsidy fixed at 40 % of the unit cost Interest rate charged would be as per the base rate fixed by each bank RBI classified these advances are Priority Sector advances Some part of the paperwork was simplified with an easy subsidy flow system
Lessons learnt Financing solar home lighting/heating systems is not like any other plain vanilla financing scheme of banks Multi-pronged involvement required from bank’s side Need for top managements of banks to be convinced of the philosophy that solar energy is essential for a country like India Public-private partnership is a must for grounding of this scheme Partner organisation necessary for convincing and sensitising people on the need for solar energy Robust hand-holding mechanism for after sales and installation servicing and maintenance
Way Forward Cooperative banking system yet to be brought into this scheme Banking sector has to take more interest in this scheme and it has to be mainstreamed as a regular credit product of banks PPP mode for motivating and sensitising borrowers and a mechanism for servicing and maintenance should be in built into the scheme Number of organisations like SELCO Foundation, TERI etc. are working to popularise the scheme to take it to a take-off stage. In many areas they are working alongwith NABARD in pursuit of this goal.
