Four years into the program the banks have financed 19,533 Solar Home Systems and the subsidy has been fully phased out. Although the solar home sector was pretty much a cash-only business in 2003, today over 50% of sales are financed. The credit market has responded well to the impetus. Although Syndicate and Canara were the first major lenders to the sector, their market entry caused other banks to take notice and by 2004 a number began to compete in this new credit market. Although Syndicate and Canara are not thrilled by this competition, it is a sign of a maturing credit market.
Interestingly, it has become apparent that although the interest subsidy did provide an incentive for customers early on, the real driver of market growth has been the access to financing afforded by the 2076 bank branches taking part in the program. In fact, the program was the first at UNEP to show that the barriers to bank engagement in clean energy can indeed have more to do with soft market development barriers and perceptions than underlying economics. Based on the positive results of this programme a number of new initiatives have since been launched elsewhere in India and in various other countries, including Tunisia, Morocco, China and soon Indonesia. Each initiative is aimed at establishing consumer financing markets for renewable energy systems, and most often they are based on the multi-bank / multi-vendor programme model developed in the Southern Indian states. This model means offering the same support package through several banks and qualifying any solar vendor that can meet basic qualification criteria. The approach creates competitive forces both between the banks and the vendors and therefore lets the market dictate pricing and system configurations.
Today banks in many developing countries have sufficient liquidity (i.e. capital) and in general are seeking to develop new loan products. It is the combination of the newness of renewable energy technologies and inconsistencies in the quality of product/service offered by the different vendors that can make lending difficult. In these situations the development community needs to shift away from simply relying on traditional credit line approaches and instead start to focus on more subtle incentive programs that help banks set up their first loan portfolios and gain experience with the clean energy sectors. It’s cost effective – for instance the $900,000 in interest subsidies that UNEP put into the Indian program generated $6.7 million in commercial financing for solar home systems. This level of commercial leverage is seldom generated using more conventional development finance approaches.
Are these sorts of programs enough to change the finance sector’s view on clean energy? UNEP experience has been that once loan portfolios get beyond 10,000 systems then the sector is considered a pretty commercial credit market and the banks will generally take it from there. Getting past this 10,000 threshold could help accelerate renewable energy uptake in many countries.