The project planning phase explored the issues related to various stakeholders, including target customers, vendors and financial institutions. This included answering the following questions:
- Is restricted access to rural credit a significant reason for the slow growth of the market for SHS, specially the lower end systems meant for lighting purposes (solar lighting products)?
- If so, what are the solutions to encouraging banks in the region to commence loan programs?
Vendor and bank discussions during stakeholder consultations sought feedback on various possible finance support mechanisms, including Front-end or Back-end Interest Rate Subsidies, Credit Default Guarantees, Loan Term Extensions, Beneficiary Margin Support, and Subsidised Transaction costs. An interest subsidy - the structure for which is currently under finalisation in consultation with the proposed bank partners - was selected based on the feedback received.
The main findings from stakeholder discussions were as follows:
- Maximum demand for Solar Home Systems is in areas with non-existent or erratic electricity grid
- Benchmarking of energy costs is often done against equivalent costs for running generators and inverters rather than conventional grid power. However, power tariffs are going up, making alternative energy sources more attractive
- Apart from addressing basic needs of lighting, the strongest motivators for use of SHS are children's education and TV
- One of the most important barriers to increased use of solar home systems has been the lack of available credit for financing purchases:
- Banks have not been forthcoming either because bank managers are not sensitized to the feasibility of solar home systems or the vendors have been unable to forge working relationships with these financial institutions.
- The banking system is well financed presently, and banks are seeking new loan products into which to channel their Resources, although they are not yet ready to treat SHS as a standard product.
- Transaction costs are relatively high for small loans for SHS, reducing the attractiveness for the banks. This is mainly due to the small number of systems currently financed and a lack of familiarity of the technology amongst bank managers.
- Although some banks have given loans for SHS on a very small scale, they do not have any formal loan programs for buying SHS. They are however receptive to the idea to experiment and then scale up lending on a larger scale.
- Group lending through Self-Help Groups ("SHGs") could help reach out to poorer households. Lending to SHGs has been a good experience and hence many banks now prefer to go through them; this also helps reduce transaction costs.
According to both vendors and banks, an interest rate subsidy could help address many of these barriers and in so doing wouldaccelerate SHS adoption by providing bank loan managers an incentive to promote the product and consumers attractive terms to purchase the product.
Implementation of such a scheme will require close consultation with the various stakeholders viz., partner banks, vendors, and experts. Governmental organisations (Ministry of Non-Conventional Energy sources and their local affiliates) must be kept informed, and NABARD and Reserve Bank of India will need to be consulted for regulatory measures, as required. Active participation of some NGOs and customers involved in promotion and use of SHS will also be explored.
The project has been designed through ongoing stakeholder interaction during project preparation. Their input has been used in finalising the various components of the project including the form of the interest subsidy, the awareness raising programmes, vendor qualification process, etc. This consultative approach will continue to be used during implementation with a view to obtaining feedback on the project performance and suggestions for improvement. The scheme is thus based on stakeholder needs and preferences and can be expected to have their full commitment.