Financing Solar-powered Livelihoods in India

This report, in collaboration with the SELCO Foundation and supported by the Good Energies Foundation, analyses the financiers’ perspective in lending for solar-powered livelihood appliances in India. It generates evidence on the impact of solar-powered productive-use technologies on the net incomes of end-users and their loan repayments. This helps financiers understand the economic viability of these technologies. It also assesses the prevailing policy solutions and provides recommendations for the private sector, policymakers and donors to improve access to finance for end-users of such products.

The findings are based on interviews with bankers at the state and national level, civil society organisations and other financiers. To understand the economic viability of solar-powered livelihood appliances, the report also analyses the data on income, revenue, cash flow and loan repayment of 300 micro enterprises for two specific technologies supported by SELCO Foundation – sewing machines and digital service centres called Lok Seva Kendras (LSKs).

• Financiers cite lack of awareness and the unreliability of the technology as key concerns while financing solar-powered livelihood appliances. Bankers are sceptical of the techno-commercial viability of proposals.
• Financiers also cite concerns regarding the cost of evaluating and recollecting loans. The loan size for small solar-powered livelihood appliances range from INR 30,000 – 80,000, making it a relatively small loan with higher administrative costs for banks.
• In addition, lending to first-time borrowers’ in the absence of collateral and credit histories is another concern.
• Banks in rural areas currently do not have adequately trained human resource capacity to assess the viability of new technologies and business models including solar-powered livelihood technologies.
• Tailoring enterprises experienced an increase of about INR 25,000, on average, in their annual income after solarising their sewing machines. In the case of LSK, entrepreneurs experienced a median increase in income of about INR 20,000 per annum.
• The median payback period for sewing machines is just 11 months, whereas that for LSK is 15 months.
• About 61 percent of existing tailoring enterprises and 65 percent of existing LSK enterprises are able to repay the product loan from their increased incomes. The remaining entrepreneurs pay 30-50 per cent of their new overall income towards loans.
• Entrepreneurs paying 50 percent of their income on loans could find it challenging to sustain this level of pay-out. This should be an important consideration for both entrepreneurs and financiers while determining the loan amount.
• Extended loan tenure increases feasibility and ease of repayment for the entrepreneur (and reduces the likelihood of default). However, an increase in tenure has marginal impact on the economic viability.
• For relatively lower loan amounts (less than INR 5 lakh), longer tenures would be beneficial, despite higher interest rates.

Key Recommendations

• Create awareness about solar-powered livelihood technologies and their economic value.
• Improve quality of technology and after-sales repair and maintenance services to reduce the risk perception of financiers.
• Account for seasonal variations in income to avoid delays in load repayments.
• Adopt alternative and innovative loan collection mechanisms to enable more frequent and flexible repayments.
• Focus on loan tenure instead of rate of interest.
• Set up targeted support funds for solar-powered livelihoods.