Catalysing the pro-poor market for solar home systems In recent years, the IDC has invested a great deal of effort and money in supply-side initiatives to stimulate the use of renewable energy by developing countries. These have typically been of the technology-forcing and supply-side subsidy variety – often delivered via donor – or governmentdesigned and managed interventions. There has not been as much success as was hoped, though some specific initiatives have worked well.
A different approach was taken in a renewable energy initiative in Karnataka State in south India in which Shell Foundation has been involved along with United Nations Environment Programme (UNEP) and United Nations Foundation. The goal of the initiative – called the ‘Consumer Financing Programme for Solar Home Systems in Southern India’ – is to catalyse the market for solar home systems (SHS) among the underserved rural and peri-urban population in south India. It has two unique features. First, the private sector was extensively consulted about how the intervention should operate. Second, the initiative is actually being run on a day-to-day basis by Syndicate Bank and Canara Bank – two of India’s largest banks with extensive rural operations.
In the $7.6 million programme, donor money is providing a small interest-rate subsidy to this bankrun consumer loan scheme. The banks are administering the scheme much as they do other consumer financing products, but they have received strong training, marketing and other support provided by the approved vendors from whom customers can extract the best deal and system of their choice.
It has catalysed extremely rapid growth in the SHS market (80% between start 2003 and end 2004 with 10,000 systems installed) and now accounts for an average of 60% of new business being secured by the four participating vendors. Over time the interest rate subsidy to the banks has been reduced but the success of the programme in catalysing market growth will likely lead SHS consumer finance to be greatly expanded by the India banking sector, but on an entirely commercial basis and involving no further donor contribution
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