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  • Financing solar power for the poor

Solar power can light the homes of the off-grid poor, but how can people buy the equipment? Pinaki Roy and Katherine Nightingale report.

As night falls, Shafiqul Islam, a teacher in the tiny Bangladeshi village of Saatkuta, can see the electric lights twinkling in Indian villages across the barbed wire fence that marks the border.

But in his own village, 300 kilometres from capital city Dhaka and numbering just 125 households, electricity has been a dream.

In common with 70 per cent of the 140 million Bangladeshis, Shafiqul's village is not on the electricity grid and people depend mainly on kerosene lamps for lighting.

But recently a few electric lights have appeared in the village. In 12 of the houses, as dusk sets in, there is now the glow of compact fluorescent lamps powered by solar systems.

Shafiqul was the first to buy a solar home system. His 50 watt system charges a battery during the day that allows his household to run three or four lightbulbs and a television for at least four hours a night.

It is quietly transforming his life. He marks exam papers in the evening and then reads, or watches television. But so many more could be doing the same.

Buying into home systems

Putting reliable solar power systems into the hands of poor and remote villagers has not been easy. Across Africa and Asia organisations are trying different methods, according to Anne Wheldon, technical director of the UK-based Ashden Awards for Sustainable Energy, which promotes low-carbon, local forms of energy.

The two most promising ones involve making it easier for people to buy the systems and also promote some method of long-term maintenance, she says. People can take out a microfinance loan from a bank or microfinance institute and buy direct. Or a non-governmental organisation (NGO) or social enterprise installs systems in return for payments spread over an agreed period.

Wheldon says that aid and government programmes have been less successful than these two methods. There are lots of government solar programmes around the world that haven't worked particularly well.

They've been done with the best of intentions but usually they don't have good service. Solar systems don't need a lot of service but any equipment needs some level of repair.

A solar-powered sewing machine: putting reliable solar power systems into the hands of poor and remote villagers has not been easy

Katie Bliss, programmes manager for SolarAid an NGO based in the UK that aims to bring solar power to the poor agrees.

Part of the reason why solar projects have failed in the past is because there is a lack of ownership. Aid can create dependency and doesn't empower people to do things for themselves, and can undermine the skills and capacity that already exist in countries.

Microfinance in practice

In Saatkuta, Shafiqul acquired his solar system through a microfinance loan.

I was not able to pay the whole 26,800 Bangladeshi taka (US$387) at one time, he says. But I found they were offering instalments and that was affordable for me.

For his 50 watt system there was a down payment of US$72 and he is now paying US$11 a month for three years.

The cost is about the same as using four kerosene lamps each night, he says.

Behind the Bangladeshi solar power scheme is Grameen Shakti, a not for profit venture of Grameen Bank, which created a revolution in microfinance and brought a Nobel Peace Prize to its founder Muhammad Yunus.

Since 1996, Grameen Shakti has sold 280,000 solar home systems that are benefiting three million people. Many of its customers are farmers, small grocers and traders.

Fazlul Haque, deputy general manager of Grameen Shakti, says: We tried to sell them in different ways including cash for the whole cost or instalments over two or six months.

But most of the rural people are not able to afford much money at once so Grameen Shakti now offers small instalments over two or three years.

Salespeople from field offices collect the monthly instalments from customers with a success rate of about 94 per cent.

Loans won't cover all

Grameen Shakti has a big infrastructure 726 branch offices under 110 regional offices, monitored by 12 divisional offices, plus 45 technology centres.

One benefit is that the loan comes from an established lending organisation that has a large amount of capital to draw on, says Wheldon.

Next door, in India, the Aryavart Gramin Bank, which provides banking for rural areas in Uttar Pradesh, also has a large and successful solar system loan programme for its customers.

But not everyone has access to banking or microfinance. Although such financing is designed to help poor people, terms can still be impossible to meet for the very poor.

And as Wheldon says, programmes such as equipment loans may be limited to existing bank customers. They may also require some sort of collateral which the poorest people don't have. For example, customers with the Aryavart Gramin scheme need a good track record to qualify for a solar loan. They also need to make a 20 per cent down payment.

Even in Bangladesh, Grameen Shakti has to insist on evidence that the customer has a minimum regular income before the loan can proceed.

Wheldon contrasts this with the situation for agricultural loans.

Quite a lot of banks will make loans for agriculture equipment where they can see the potential for earning money, she says. The difference with a solar system is that there may be earning potential [for example, by working in the evenings] but it's not necessarily going to.

It would help if it became well understood within the banking and microfinance system that solar systems can be creditworthy.

The NGO approach

Another approach, in which NGOs act as 'middlemen' to provide the credit and work with customers, is also underway in Bangladesh.

The Infrastructure Development Company Ltd (IDCOL), set up by the Bangladesh government, is working with various NGOs to sell solar home systems With World Bank support, IDCOL also provides a US$46 grant to NGOs for each system they sell. So far, 14 NGOs are taking part in the scheme and a further six have registered.

Solar home systems are benefitting about three million people

Monirul Islam, general manger of IDCOL, says that the NGO grants are gradually being decreased as the systems become more popular, because the government wants the NGOs to be self-sufficient.

Apart from the grants, the World Bank is financing IDCOL to provide loans at half the commercial rate to the partner NGOs to help them promote the systems.

IDCOL had, by December 2009, approved more than 416,000 solar home systems.

Keeping the lights on

Another advantage of the NGO approach is that they can also maintain systems while selling to new customers.

If somebody is going to collect a payment for a system they can also be trained to do the basic checks that a system is working. It's quite a good way of linking service and payment, says Wheldon.

Aryavart Gramin Bank addresses servicing by paying a small amount to a local entrepreneur to do maintenance. The money is added to the cost of the system.

But you need to be doing it on a fairly large scale to do that it wouldn't work if you were a small local bank, says Wheldon.

In Bangladesh, Grameen Shakti provides a one-day training course to all customers about maintenance.

Entrepreneurs step in

Whether run directly by a bank or microfinance operation, or indirectly through an NGO, there is the problem of the sheer scale of collecting payments from thousands of people.

One way to reach more people is to sell solar systems to entrepreneurs.

Sunnymoney, a project run by UK-based NGO SolarAid, acts as a broker, bringing banks and entrepreneurs together and providing solar equipment and know-how for entrepreneurs once they have secured funding.

It was launched in Kenya in January 2009 and is now established in Malawi, Tanzania and Zambia. It mentors 130 entrepreneurs in the four countries. Thousands of solar powered lights and chargers are being sold.

Sunnymoney does not provide credit, so the entrepreneurs must buy their own solar products usually a solar panel that charges batteries to power an LED lantern or a mobile phone charger. They buy the systems for about US$21 each and sell them for US$25.

But SolarAid helps the entrepreneurs find credit by matching them with local microfinance sources such as financing cooperatives, banks or charitable microfinance institutions.

Credit the key issue

One obstacle for the very poor, however, is that they usually have to buy the entrepreneur's solar systems with a one-off payment.

Sunnymoney is working on a cheaper solar home system that can be bought in pieces at different times

The entrepreneurs themselves aren't really in a position to offer finance, says Bliss. In some cases they will offer a kind of credit scheme but it's completely of their own doing they might do it within their community or social network but that's their decision.

So, she adds, solar systems probably reach the lower middle classes in rural areas but not those who are much poorer. To tackle this, Sunnymoney is working on a cheaper solar home system that can be bought in pieces at different times, with consumers adding extra panels, lights and chargers when they can afford them.

SolarAid is now seeking social investment to run the project. The idea is that companies will invest in 'social enterprises' that are run like businesses but for which the social outcome is paramount.

NGOs can also help people who can't get credit from banks, notes Wheldon.

The crucial element for the NGOs is the link to a source of credit, as in the IDCOL initiative in Bangladesh.

Rent a light

For those unable to commit to buying a system, renting may be a useful option, says Wheldon. A market trader, for example, could hire a pre-charged solar lantern for the evening to improve her business at a night market.

The smallest solar systems are becoming increasingly affordable for the poor. Of all the ways of getting lighting into their homes and businesses aid, microcredit, NGO projects, rental Wheldon believes that microfinance through banks is the best option.

It's a route that has got the potential to expand NGOs would find it difficult to scale up because they don't have large reserves of capital to draw on.

It would be fantastic if solar power loans became part of regular banking.

Maybe that would get all of Saatkuta's homes twinkling at night.

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