Indian banks find interest in: UNEP Solar Loan approach.

• Author: Painuly, Jyoti Prasad

IN LESS THAN THREE YEARS, almost 100,000 people in rural areas of southern India obtained clean and reliable electric power because of one main reason: their family could get a loan from a conventional bank that was previously unavailable. More than 16,300 families were part of the Indian Solar Loan Programme of the United Nations Environment Programme (UNEP), which has been working with the finance sector for some time on new approaches to finance renewable energy.

The loans for the photovoltaic solar home systems (SHS) came from Canara and Syndicate Banks, two of India's leading financial organizations. There was no capital subsidy, but instead an innovative interest-rate subsidy that allowed the banks to feel more secure about increasing their lending services for a technology that they had not previously considered financially attractive. India's expanding solar industry has a potential market that includes 65 per cent of rural house-holds, which do not have access to a reliable electricity supply. These households may have access to electricity, which is often unreliable, but many rely on kerosene for light, and on dung and wood for heat--poor-quality energy that impacts their health from respiratory diseases and limits their economic and social development.

Without financing, however, the high initial cost of an SHS constrains the growth of the Indian market. Increased access to credit can enable rural households to buy cleaner energy services and pay for it with the money they are spending on less efficient and often more polluting forms of energy (see table above). India has a well-developed rural banking infrastructure, but the links to the renewable energy sector have been weak at best.

The main objective of the loan programme is to help Indian banks develop lending portfolios targeted to solar home systems in poorly supplied regions of South India. Research shows that without such programmes poor households in rural and semi-urban areas bear the brunt of power shortages and have limited access to better and more expensive alternatives. These programmes also contribute to the Government's efforts to increase local Grameen Bank financing of self-help groups (SHGs), the Indian version of micro-credit lending, whose potential customers are households and small enterprises looking to use SHS for either domestic or income-generating activities.

During the first phase of the programme, many diverse stakeholders were consulted, including...