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A UN project in India has given thousands of people in rural areas access to reliable electricity by enabling them to take out small loans to purchase solar panels.

The project, launched by the UN Environment Programme (UNEP) in 2003 in the southern Indian state of Karnataka, facilitated over 18,000 loans for solar panels over three years.

A report on the project will be presented at the UN Commission on Sustainable Development, meeting this week (30 April) in New York, United States.

The sunlight-powered systems offer a reliable source of clean energy.

"When this project started, about 70 per cent of people in rural India had no access to electricity," says Jyoti Painuly, senior energy planner at the UNEP Risoe Centre on Energy, Climate and Sustainable Development in Denmark, which helped implement the project.

At the time there were no credit sales, so the solar panels — already available in India for US$300-500  — were too expensive for most people.

"The people who needed the solar panels the most didn't have access to the finance," says Painuly.

UNEP recruited two popular banks to take part in the project as part of their 'priority sector lending' obligation — a government directive requiring Indian banks to give a percentage of their loans to people in rural areas.

To attract borrowers, UNEP negotiated an extension of the loan period from three to five years, decreasing the size of monthly repayments.

The banks agreed to accept a smaller initial deposit and a two per cent cut in interest rates, compared to standard loans. At the start of the project, UNEP also subsidised the loans to further decrease interest rates.

After three years, the project had increased credit loans for solar panels from 1,400 to 18,000, with few loan defaults.

Following the project's success, banks originally unwilling to participate have begun giving poorer people credit to buy the systems, Painuly told SciDev.Net. These 'outside' loans now make up more than half of all loans.

"The whole purpose of the project was to create a viable, sustainable market for these systems," explains H.V. Kumar, director of Crestar Capital, UNEP's implementation partner in India.

He says the project has succeeded because it uses different ways of helping poor people — without the need to donate free systems or use heavy capital subsidies.

"We facilitated the process so that people can access money on their own," says Kumar.

The project has been extended to the Indian states of Gujarat, Kerala and Maharashtra, and UNEP plans to initiate similar projects in Algeria, China, Egypt, Ghana, Indonesia, Mexico, Morocco and Tunisia.