Two of India's largest financial institutions became the project's initial partners: Canara Bank and Syndicate Bank. Two more banks, the Bank of Maharashtra and Sewa Bank, were added as partners this year.
Although banks in India are required to make 40% of their loans in priority sectors (e.g. causes with strong social objectives), "bankers seldom lend for an unfamiliar product," according to Mr. Usher. "Solar Home Systems were unfamiliar gambles. The Indian Loan Programme used a competitive market development model to help banks enter the sector, remove information and perception barriers while creating standards for quality products, sales and service."
The programme involved an interest rate buy-down, marketing support and a vendor qualification process. The commercial interest rate for equivalent loan types at programme inception was 12%. UNEP's subsidy initially brought this rate down to 5%, the subsidy phased out over time. Loans were offered through more than 1,000 Canara and Syndicate branches and over 1,000 branches of the rural regional banks (the so-called Grameens) affiliated with Canara and Syndicate.
Solar vendors, once qualified, could direct any interested customer to their local Canara, Syndicate or Grameen bank branch for financing. Five solar vendors achieved qualification to take part in the programme, therefore there were plenty of competitive products. Vendors offered long-term warranties and five-year maintenance contracts and agreed to recondition systems for resale in the event of a loan default.
Partner banks agreed to let borrowers pay only 15% of their purchase up front, as opposed to the conventional 25% deposit, loans could
Contact: Terry Collins
UNEP Risoe Centre on Energy, Climate and Sustainable Development