Bank loans light up rural Karnataka with solar power

May 7th, 2008 - 12:43 pm ICT by admin  

By Joydeep Gupta
New Delhi, May 7 (IANS) Over 100,000 people in Karnataka’s villages have benefited in the last five years after banks started providing loans for solar lighting at low interest rates, a UNEP official has said. In 2003, the UN Environment Programme (UNEP) persuaded Canara Bank, Syndicate Bank and their rural (Grameen) affiliates to lend $300-500 for small solar lighting systems that would work for two to four small lights or appliances, the programme’s spokesman Nick Nuttall said.

An initial UNEP subsidy brought the interest rates on the loans down from 12 percent to five percent. It has led to a 13-fold increase in the number of solar systems financed in the pilot area of Karnataka, from 1,400 to 18,000.

The $1.5-million pilot project managed by UNEP has now become a model for other developing countries. The Indian programme’s success has already inspired similar efforts in Tunisia, China, Indonesia, Egypt, Mexico, Ghana, Morocco and Algeria.

Banks not included in the initial partnership have also launched solar loan products and competition is heating up. Two more banks, the Bank of Maharashtra and Sewa Bank, were added as partners in 2007.

Eric Usher, head of the Renewable Energy and Finance Unit in UNEP’s Paris-based Division of Technology, Industry and Economics, said: “This project empowers people to invest and helps free them from reliance on government interventions.”

Even if a solar home system was the best option from a villager’s economic standpoint, little or no access to credit meant it was simply beyond reach.

“Bankers seldom lend for an unfamiliar product,” according to Usher. “Solar home systems were unfamiliar gambles. The Indian loan programme used a competitive market development model to help banks enter the sector, remove information and perception barriers while creating standards for quality products, sales and service.”

The programme involved an interest rate buy-down, marketing support and a vendor qualification process.

UNEP’s loan subsidy has been phased out over time. Loans were offered through more than 1,000 Canara Bank and Syndicate Bank branches and over 1,000 branches of the Grameen banks affiliated to them.

Solar vendors, once qualified, could direct any interested customer to their local Canara, Syndicate or Grameen bank branch for financing. Five solar vendors achieved qualification to take part in the programme.

The banks agreed to let borrowers pay only 15 percent for their purchase up front, as opposed to the conventional 25 percent. Loans could be repaid over five years instead of the usual three years allowed for non-mortgage loans, and security and documentation requirements were simplified.

“Our bank takes great pride in contributing to social change in association with UNEP,” says M.B.N. Rao, chairman and managing director of Canara Bank.

The typical home system is a roof-mounted solar photovoltaic module, storage battery, charge controller, interior wiring and switches and electric lighting fixtures. The solar panels have generally been in the 18-40 watt range, capable of powering up to four CFL lights and a DC fan.

In addition to private homes, the project found household clusters (30-40 houses each) in an estimated 50 villages pooling resources to install solar home systems as an alternative to the grid, Nuttall said.

Apart from this, an independent initiative by the Small-Scale Sustainable Infrastructure Development Fund (S3IDF), an international NGO, in collaboration with vendor Selco, has spawned several small street hawker solar lighting projects. More and more small town hawkers are switching from kerosene lamps to solar lights.

A survey showed the top reason behind buying a system was chronic grid power failures and shortages, Nuttall said.

UNEP executive director Achim Steiner said: “The project’s multiple benefits range from reducing the emissions that are causing climate change to overcoming poverty and the serious health toll taken by dirty fuels - especially on women and children and particularly in the home.”

The efficiency of kerosene lamps is not even 10 percent of the most inefficient incandescent electric lighting. This means high costs for lighting plus pollution.

In addition to many social and health benefits, the project has created much new employment at factories producing solar panels and related products, at sales dealerships and for maintenance workers, Nuttall added.

(Joydeep Gupta can be contacted at

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