Solar Micro Financespeech

8/7/2019 Solar Micro Financespeech

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Solar Micro Finance: Potential in INDIA

With Support of Govt Concern authorities have to promoting Social Businesses for fighting poverty and

improving living condition of the low income population

A majority person in India still relies on costly and environmentally hostile

alternatives such as kerosene.

True Power is to expand the use of solar energy which is a cost effective and

environmentally friendly solution source of energy. Ours goal is to provide this

source of energy in an effective and affordable manner. To this aim, True power

plans to build local production plants for PV modules with the technical assistance

of Renewable Energy Experts meanwhile offering micro-lending services to

guarantee accessibility to the lower segments of the population. Effectively the

supplementation of this project, in combining technical expertise and microcredit

techniques will provide a high quality product accessible to a higher proportion ofthe India population. The generalization of solar energy could have numerous

ameliorative impacts on the Indian society, namely: An increase in purchasing

power derived from a reduction in energy costs, an expansion of business activities

in areas previously limited by power shortages and environmental preservation.

The social, economical, and environmental impacts of this innovative project and

the magnitude of its impact on rural and micro businesses makes it very promising.

Solar power could help alleviate rural poverty, Increasing access to energy is critical to ensuring

socioeconomic development in the world's poorest countries.

For these people, even access to a small amount of electricity could lead to life-saving improvements inagricultural productivity, health, education, communications and access to clean water.

Options for expanding access to electricity in developing countries tend to focus on increasing centralized

energy from fossil fuels such as oil, gas and coal, by expanding grid electricity. But this approach has little

benefit for the rural poor. Grid extension in these areas is either impractical or too expensive.

Neither does this strategy help tackle climate change. Power already accounts for 26 per cent of global

greenhouse gas emissions and while most of this comes from the developed world, by 2030 developing

countries are predicted to use 70 per cent more total annual energy than developed nations.

Place in the sun

The Earth receives more solar energy in one hour than the world population consumes in an entire year.

Almost all developing countries have enormous solar power potential most of Africa, for example, has

around 325 days of strong sunlight a year, delivering, on average, more than 6 kWh energy per square

meter a day And yet the countries that receive the most solar energy are often also the ones least able to

benefit from it, due to a lack of knowledge and capacity to harness solar power and convert it into electricity


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.

The technology

There are two ways of using power from the sun: collecting its heat (solar-thermal) or converting its light

into electricity (photovoltaic).

Solar photovoltaic (PV) systems use solar cells, linked together in 'modules' (solar panels), to convert light

into electricity. They range from a few small cells that can run a calculator to huge solar power stations with

thousands of solar panels.

More than 90 per cent of PV systems are based on silicon materials. PV systems that are connected to the

electricity grid include a device called an inverter to turn the direct current (DC) power generated by solar

panels to the alternating current (AC) power used on the grid.

Off-grid PV systems may also include an inverter but also require batteries to store surplus energy, and an

electronic charge controller to prevent the batteries from overcharging.

Sun Energy can be directly converted to electrical energy by means of SolarPhotovoltaic System. Solar Photovoltaic (SPV) Technology enables the conversion ofdirect sunlight into electricity without involving any moving part such as turbine etc.The basic part Solar Photovoltaic is known as Solar Cell. Solar Cells are made ofsemi conducting materials- a thin wafer of Silicon which is exposed to sunlight, toproduce D.C electric current.

In developing countries the percentage of households which have no access toelectricity is more significant. Most of those lacking access live in rural or per-urbanareas. Solar photovoltaic (PV) cell designed to convert light into electricity is oftenused to cover the electricity need of household.

Solar power and other renewable energy sources are seeing technological advancesthat are making them cost effective. Rapid growth is projected.

At the moment, photovoltaic power is expensive, but since we will never run out ofsunlight, it is an exciting source of energy for the future! Solar water heatingsystems pay for themselves in three to five years. The technological challenge weface is to find ways to make solar technologies affordable for everyone.

At present, solar-thermal systems are about 30 per cent efficient at turning heat into electricity compared

with approximately 15 per cent efficiency for PV systems. But, in the long run, the development of newer

materials for PV systems, such as polymers and nanoparticles, should increase their efficiency.

Who uses it?

Solar the Photovoltaic Energy is part of Rural Revolution in the rural areas wheregrid power is not yet reached. In India Solar Photovoltaic System is successfullyinstalled in large number of villages

A household can generate most of the electricity they need with photovoltaic cellson their rooftops. If there isn't enough sunlight at times, electricity can be stored in


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batteries for cloudy days.

Solar water heating systems pay for themselves in three to five years. Thetechnological challenge we face is to find ways to make solar technologiesaffordable for everyone.

The SPV system consists of an 800/860 WP (weather permitting) photovoltaicarrangement, a permanent DC magnet motor-driven floating pump which can pumpwater from a depth of eight meters through the optimum of 6.5 meters. It canideally function in a wide-mouth well with a flow rate of 70,000 liters a day. Thephotovoltaic modules on the solar panel capture energy from the sun and convert itinto electricity. The panel is connected to the pump via a plug so that the farmerfinds it easy to use. The system works as long as there is sunshine. For example inIn South India, the sun is of course plentiful.

Solar home systems

The most common solar PV system in rural settings is the solar home system, made up of a solar panel,

connected to a battery and charge controller. It usually includes at least one light and a socket to power

other electrical equipment such as radios, televisions or mobile phone chargers

What is the Microfinance?

Microfinance is an innovative banking system that provides small loans to poor

people (often women) to help them start their own businesses and gradually work

their way out of poverty.

In remote parts of the Indian subcontinent...through small loans for solar powered

devices, microfinance is bringing light...where a lack of electricity has stymied

economic development, literacy rates and health.."They have increased theirproductivity, improved their health and socio-economic status .

Success Stories:

It is not only technology companies that are pivotal in the spread of sustainable energy.

Banks are critical too. In Uttar Pradesh, the Aryavart Gramin Bank has provided the finance

for solar photovoltaic systems, providing electricity for 28,000 rural families across the

state.

The impetus for the banks initiative came from its own need to tackle the problem of an

unreliable mains supply. Having installed solar units in its own branches, it recognized the

potential for its customers who depend on kerosene lights and the potential for it toprovide a commercially profitable service. Credit camps were set up in villages to explain

how the financing would work and loans were offered with an initial deposit of 20% and five

year repayment terms. The repayment costs are covered by the cost savings on kerosene.

The benefits are human better, less polluted and more reliable lighting and economic, as

people have more capacity for income generating activity. The environmental benefits are

also considerable with CO2 savings of over 6000 tonnes/year by 2009. And for the Aryavart


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Gramin Bank the project makes good business sense. A reminder that sustainabilitys

success will be driven ultimately by its ability, in the long-term, to benefit everybody.

The primary goal under this objective is to provide extremely low cost, durable and efficient

lighting systems to the village home and the community. Initially the goal would be to focus onproviding quality and bare bone lighting to the village home and later to the community.

The underlying objective in all the programs shall be to make the village self-sufficient inmeeting its energy requirements through off-grid systems, powered primarily by low energy.

Potentials of Solar Microfinance in India:

Energy is a crucial commodity to the development of any activity.

Many potential customers without access to electricity have trouble mobilizing

sufficient capital to buy solar products. Microfinance loans for solar products canincrease sales and allow solar enterprises to reach clients with low or irregular

incomes.

At present, roughly 1.6 billion people do not have access to electricity and over 2.5

billion people do not have access to clean cooking options. Most of the people

without modern energy access also lack access to financing that would enable them

to purchase cleaner energy services. People on low incomes in developing countries

typically spend a large proportion of their income on energy. For many rural

customers, buying and installing a solar home system typically costs at least US$

250 (depending on the system size and where it is in the world), but can provide

light and electricity for many years with minimal ongoing costs aside from routine

maintenance and occasional battery replacement. However, experience has shown

that most potential customers without access to electricity have trouble mobilizing

sufficient capital to make a lump-sum cash payment for solar products. As such, it is

often easier for solar enterprises to serve higher income people who can purchase

products on a cash basis rather than find ways to target lower income people.

Potential for energy-lending underutilized

Lack of affordable, appropriately designed loans and other financing options is a key barrier

limiting wider access to clean energy products and services. Without end-user finance optionsavailable for their customers, it can be difficult for most solar energy enterprises to achievesignificant scale. Microfinance institutions (MFIs) have demonstrated that providing credit tomicro entrepreneurs and households can be efficient, responsive, and profitable to both theborrower and institution. If appropriately designed, loans offered by MFIs can provide clientswith access to high-quality modern energy services by closely matching loan payments toexisting energy expenditures or income flows.


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Such loans can offset the high upfront costs associated with cleaner, more efficient energytechnologies, including solar. Despite its being the largest expenditure in many poor households,the potential for energy lending is currently underutilized, due in large part to a knowledge andresource gap between consumers, MFIs, and energy providers. However, evidence suggests thataccess to modern energy can be greatly enhanced with access to innovative lending and

microfinance options and can provide a new, profitable product line for both microfinanceinstitutions and the larger financial community.

For many sustainable energy enterprises, market potential is limited to customers who are able topurchase products and services on a cash basis. The potential market for solar energy can betransformed into actual customers if end users are able to access financing for the purchase ofenergy products and services from microfinance institutions. Building strong linkages betweenMFIs and energy enterprises can benefit many stakeholders.

Households and small businesses are able to purchase solar products and services that bringeconomic and livelihood benefits otherwise out of reach if they were required to pay on a cash-

only basis. Microfinance loans for solar products can increase sales and allow solar enterprises toreach clients with lower incomes or irregular income streams. For MFIs, the introduction ofspecial energy loans offers the potential to increase client retention, diversify product offerings,increase competitiveness, and ultimately expand the client base while having added social andenvironmental impacts.

Microfinance partnership

Experience has shown that linking energy and microfinance can be effective, but requires seriouscommitment on the part of both the MFI and energy enterprise. For example, partnering with anMFI may require a solar enterprise to invest significant financial and human resources in client

and loan officer training beyond core operations. As many MFIs can have a nation-wide reach,solar companies may also find that a new microfinance partnership often requires a rapidexpansion of installation and after-sales service coverage to currently underserved geographicareas.

On the MFI side, energy loans need to be designed carefully and may require technical trainingof loan officers, modifying operations, introducing energy-specific monitoring and evaluationprocesses, and identifying dedicated capital to fund an energy portfolio. Finally, the structure ofa partnership agreement between energy enterprises and MFIs must clearly outline roles andresponsibilities of each stakeholder, communication and coordination channels, warranty andafter-sales service provisions, and training requirements.


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Solar Energy for Lighting

Combining the suns energy with modern technology has now

provided mankind with a better way. We try to increase the villagers useful hours

after sunset by providing them lights powered by solar energy. This digital lighting

is non-polluting and eliminates the carbon dioxide being emitted from rural homes.

Technology Advantages of LED Lamps

Solar Energy powered Digital LED lighting systems are clear winners in terms of

luminosity, life span, power required, and costs, when compared to other lighting

products.

FeatureLED lamp with 42

LEDs

Compact Fluorescent

LampIncandescent lamp

LUMINOSITY

(150 Lumens) PowerUsed 2.5W 5W 15W

Lifespan 40,000 hours and more 4000 hours 600 hours

Electricity Used/per Year 7.3 kilowatt-hours 14.6 kilowatt-hours 43.8 kilowatt-hours

Savings in electricity using LED lamps:

Yearly UsageLED

Lamp

Compact Fluorescent

LampIncandescent lamp

Extra electricity used, overLED lamps

07.3 kilowatt-hours moreper year

36.5 kilowatt-hours moreper year

Cost of electricity, over LEDlamps

0 Rs 45 more per year Rs 219 more per year

Unit replacement costs 0 Rs 90 per year Rs 60 per year

Total yearly costs, over LED 0 Rs 135 per year Rs 279 per year
http://www.suryabijlee.com/news/technology-advantages/http://www.suryabijlee.com/news/technology-advantages/


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lamps

Benefits of LED lamps:

Long-lasting - LED bulbs last 10 times as long as compact fluorescents, and 50-100 timeslonger than typical incandescents in normal everyday use situations.

Durable - Since LEDs do not have a filament, they are not damaged under circumstanceswhen a regular incandescent bulb or CFL would be broken. Because they are solid, LEDbulbs hold up well to jarring and bumping. With CFLs, there is the added problem ofmercury toxins spreading on breakage.

Cool - these bulbs do not cause heat build-up. LEDs produce 3.4 btus/hour, compared to85 btus/hour for incandescent bulbs.

Energy-saving - LEDs use a fraction of the wattage of incandescent bulbs. These bulbslast for years, therefore energy is saved in maintenance and replacement costs. This alsomakes LEDs the best choice for use with alternative energy sources

...

This great prayer confers all blessings, destroys all sins, dispels worries and is the

bestower of longevity.

.

Offer prayers to the Great Sun God, who is the owner of rays, and who is

worshipped by every one.

.

He represents all deities; he is brilliant and world-sustaining. He is the nourishing

force for all worlds


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17/01/10

Write up help ;

Rural community in developing countries has no access to modern forms of energy. The World

Bank funding through the Governments and through local village banks forms a very goodnetwork of reaching the people who need the loans to purchase renewable energy systems.

Despite advancement in technology and reduction of the cost of solar systems cost per watt peak,the rural communitys disposable income would not let them purchase these systems. On theother hand renewable energy vending companies did not have capacity to loan out systems totheir customers because of the limited cash flow problems these companies face. Thesecompanies also do not have loan recovery mechanism in place to ensure proper payment for theinstalled systems. So the result was that the rural electrification was not possible.

Now the people of the rural community can go to their local banks or village micro credit banks,apply for a solar loan and work out payment plans suitable to their individual incomes, whichcan be easily verified by the staffs of the microfinance institutions. Then the microfinanceinstitution will sign an agreement with the Governments rural electrification agency (REA) andthe vending company. The microfinance institution will place an order with the vendingcompany for the total number of systems required by its members. And the vending companywill go ahead to supply and install solar systems for the identified customers.

Roles of the 3 parties

1. REA, to ensure quality of the system supplied by the vendor and to do anenergy audit on each system and to give the government subsidy onsuccessful completion of the job to the vending company.2. SACCO, to identify the end user customer who needs a solar system, acertain their capacity to pay the loan, extend the loan and ensure theyreceive a quality solar system. To identify suitable solar vending companies.3. Solar vending company, to ensure quality supply of solar system, install itand see it is in proper working condition and to recover payment from thesaccos and subsidy from the government after successful installation.

The rural community will be serviced with the solar home systems (SHS). Buteach of the SACCO can have one off grid renewable Village power supplysystem, which can supply the whole village.

The following advantages can be got from such a system.

1. Community projects like water pumping, community hall, tele-center, health clinics, Internetcaf etc.2. Surplus power is sold to the national grid if the renewable energy system is near the grid.3. Better security for the power supply4. Small factory and processing equipment for the benefit of the village and as a money


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generation activity.5. Bio fuel generator, bio fuel cooking stove. Lantern and making of soap from glycerol willserve as a stimulus for people to grow Jatropha as a cash bio fuel crop.

Bio-fuel production - Using Jatropha The Next Generation sustainable fuel.

What is bio-Diesel?

AS the volatile Middle East continues to affect global oil supply, countries like Uganda arechocking on heavy oil import costs. Crude fossil oil prices touched $100 this combines with theerratic and increasing dollar rate (at last month high dollar rate this translates to Sh230, 000) perbarrel this year and are expected to reach the $150 (Sh345, 000) mark in two years.

The ever-increasing and erratic oil prices and a volatile dollar are driving many countries tosearch for alternatives of achieving energy independence. This has intensified research andboosted development of bio fuels as the most reliable energy alternative.

Production of bio-diesel from Jatropha Carcus, commonly known as 'Ekiloowa, has manyadvantages. Ekiloowa is well known in Uganda and is commonly used as a support for vanillavines and sometimes as a hedge.Jatropha, a drought- resistant perennial crop with an over 40 - year life span, is a member of theEurophobiaceace family. Its seeds can yield about 37% non-edible oil.

One kilogram of the seeds produces 200ml of oil. Every tree can bear one-and-a half kilogrammes of seeds annually in the begining and as it grows itcan produce up to 6kgs. On a land of 1acre you can plant 1000 jatrophatrees spaces at 2mts interval.

The global bio-diesel market is estimated to reach 37 billion gallons by 2016,growing at an average annual rate of 42%.

Lankveld said developing bio-fuels offers the most immediate and viableresponse to emerging economies in the Tropics to produce and supply theglobal energy market and reduce carbon dioxide emissions as part of thebattle against climate change.

Our company has set up a demonstration project on the shores of LakeVictoria. It will supply renewable energy products and process biofuel.

The company will not be relying on new plantations to source its rawmaterial. Instead it will start by buying up Jatropha nuts already availablefrom the existing plants This year It intends to collect about 10,000 Kgs ofthe seed from vanilla farmers in the districts of Mukono, Kayunga, Jinja,Iganga, Kamuli and Bugiri, from which it expect to extract 3,300 litters ofoil... The company will also plant about 40 hectares (about 60,000 trees) ofjatropha at a new land farm we aquired.


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The project will also be giving farmers high quality jatropha seeds to increasecrop output for the future. Rather than setting up large plantations, theventure is promoting Jatropha as a means of diversification for farmers,encouraging its integration alongside millet, sorghum or maize and revivingthose who had abandoned it because of the disappointments in the vanilla

market and using it as fencing material for their farms.

We believe in small-scale, decentralized bio-diesel processing plants, where there is localproduction of jatropha nuts to minimize transport. We also believe that selling of plant oil stoveswill encourage the local farmers to grow jatropha and other oil crops primarily as a source of fuelfor their kitchen cooking and later as a commercial cash crop venture. We will also sell to themsmall oil hand mills so that they can extract their own oil for domestic use.

The first test runs of Uganda electronics and computer industry ltd, small-scale off gridrenewable energy and biodiesel plants will take place in November 2010. However startingOctober we are running sensitization seminars in 3 districts, collecting seeds, selling stoves and

processing oil.

The UN special reporter on the right to food recently recommended jatropha as a bio-fuels cropfor developing countries. Jatropha was recommended because of its high inedible oil content,gestation period and ability to grow on degraded soils.

There is need for developing countries to invest in bio-fuels production because with climatechange, the world's energy polices is bound to change for the worst.

Uganda can excel in bio- diesel production since the majority of the people derive their incomesfrom agriculture. Jatropha offers enormous potential to alleviate poverty and improve health. A

farmer can earn up to $250 (sh427, 500) annually from a 1km hedge of jatropha.

Long Term Potential

Speaking about the long-term potential of bio-diesel, the realities of the bio-diesel markets, asuccessful bio-diesel business plan begins with an effective feedstock strategy from whichprocess design flows. To make bio-diesel a long term business opportunity attention must bepaid to the critical issue of availability of right feedstock at right cost.

Jatropha will be a vast source of bio-fuel and a key to reducing our dependence on fossil fuel.Jatropha can bring significant environment benefits. It can replace jet fuel and fossil fuel from

petroleum companies without interfering with food crops or leading to clearing of forests. Thegood thing about jatropha is that you are producing a tree shrub that lives for a long time anddoes its job. Producing oil while it also sequesters lots of carbon from the atmosphere. Jatrophais a multipurpose crop to alleviate soil degradation, desertification and deforestation, which canbe used for bio-energy to replace diesel, cooking fuel wood and for soap production and climaticprotection and hence deserves special attention. Jatropha can help increase rural incomes, self-sustainability and alleviate poverty.


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Financing of Renewable Energy Projects for Microfinance Institutions in India

Funding for Renewable Energy Projects Indian Renewable Energy Development

Agency (IREDA), established in 1987 as a Public Limited Government Company,

under the administrative control of MNRE, is a specialized developmental financial

institution with the objective to provide financial support to specific projects andschemes for generating electricity and/or energy through new and renewable

sources .

Indian Renewable Energy Development Agency (IREDA), established in 1987 as a Public Limited

Government Company, under the administrative control of MNRE, is a specialized developmental

financial institution with the objective to provide financial support to specific projects and schemes for

generating electricity and/or energy through new and renewable sources and conserving energy through

energy efficiency.

It offers term loans to renewable energy projects at rates slightly more favorable than general commercial

lending rates. As of March 31, 2010, IREDA financed 1,921 projects with a loan commitment amountstotaling over Rs.121.8 billion.

Other government agencies that actively fund renewable energy projects are the Power Finance

Cooperation (PFC), the Rural Electrification Corporation (REC), and National Bank for Agricultural and

Rural Development (NABARD). Corporate financiers of renewable energy projects in India are primarily

concentrated on the large wind and hydropower projects, where captive power generation and the

application of accelerated depreciation benefits play a significant role.

Of late, the growing awareness and favorable government policies & regulatory mechanisms (both at

Central & State level) have led to gradual increase in confidence of domestic commercial banks providing

loans to renewable energy projects.

Renewable Energy and Microfinance

A number of microfinance institutions (MFIs) facilitate the purchase of renewable energysystems like solar cookers, solar lanterns, or small biogas plants in off-grid areas of the country.The Self Employed Womens Association (SEWA) is perhaps the most well-known example ofan MFI in India.

NABARD releases disbursement figures for MFI's

The National Bank for Agriculture and Rural Development (NABARD) has reported that bankloans amounting to Rs. 3732.33 crore has been disbursed to 581 Micro Finance Institutions(MFIs) during the year 2008-09 and as of 31.3.2009, the loan outstanding stood at Rs. 5009.09crore against 1915 MFIs. The loans were given for lending to the poor both in the Further,NABARD has reported that under the Self Help Group-Bank Linkage Programme, as of 31March 2009, there were more than 61.21 lakh saving-linked SHGs and more than 42.24 lakhcredit-linked SHGs and thus about 8.6 crore poor households have been covered under the Self
http://indiamicrofinance.com/renewable-energy-microfinance-institutions-in-india.htmlhttp://www.ireda.gov.in/http://www.pfc.gov.in/http://www.recindia.nic.in/http://www.nabard.org/http://indiamicrofinance.com/renewable-energy-microfinance-institutions-in-india.htmlhttp://www.ireda.gov.in/http://www.pfc.gov.in/http://www.recindia.nic.in/http://www.nabard.org/


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Help Group- Bank Linkage programme.The deposits outstanding from these Groups stood at Rs.5545.62 crore and loans outstanding stood at Rs. 22679.85 crore.

This information was given by Minister of State for Finance, Shri Namo Narain Meena in a written reply

to a Question in Lok Sabha on Friday.

Indias once- booming Microfinance industry has fallen into the crosshairs of the countrys murky

politics. Will the industry survive and what could be the industrys possible contours going

forward?

Microfinance has been very much in the news lately. The financial markets led by savvy PrivateEquity funds, started taking notice of and investing in the industrys rapid growth a few yearsback, culminating in the highly successful first ever IPO of an Indian MFI in August of thisyear. Unfortunately, the industrys fortunes have steadily plunged downhill thereafterpaper connects the dots of the MFI industry scenario with other key economic and politicalfactors playing out in the country. The views discussed in this paper are strictly non-political, but

are an effort to link various situations leading up to a holistic case for the future.

On the one side, most of the post crisis headline news on Microfinance (i.e. September 2010) has been negative. Getting it right on Microfinance, Microfinance in India islike subprime lending, Anatomy of a crisis, Are MFIs showing Shylockian streak?, Whatswrong with Microfinance Institutions in India? to name a few, paint a picture of an industrystruggling to survive. On the other side, there is increasing coverage and focus onInclusive Growth in India meaning mainly financial inclusion, which could be a starting stepfor some interesting developments in the midst of the growing political controversy.

To begin with, MFI industry fortunes can only be understood with an appreciation for the effect

this rapid industry growth has had, where it has increasingly impinged directly on the agenda ofstate and federal level politics in India.

Background of the situation

One of the key mandates of our current government is Inclusive Growth mFinancial Inclusion. Unfortunately, our national leaders have been spending more of their time inhandling/ responding to the several multi- billion rupees scams and digesting poor electoralperformance in a few key states in the country. The recent controversies in

Andhra Pradesh politics dispute within the state, Chief Minister quitting, former Chief

Ministers son rebellious act and the MFI saga has led to some opposition parties playing thepolitical card by urging borrowers not to repay their loans to MFIs. Andhra Pradesh accounts foraround 30% of the MFI loans in the country and has witnessed an alarming number of suicidesby some debtors, purportedly due to harassment from MFI agents over repayment.

The Indian MFI industry which has close to Rs 30,000-crore in outstanding loans to 30 millionborrowers is going through a rough tide and has been challenged ever since the SKSMicrofinance IPO. Major Indian Public and Private Banks State Bank of India, Bank of India,


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Indian Overseas Bank, Punjab National Bank, Andhra Bank, SIDBI, Axis Bank and ICICI haveamongst the maximum credit exposure to MFI firms, estimated to be close to 70% of the totalcredit outstanding to the industry.

Some of the figures lent to MFIs by banks, according to data from a rating company, are as

follows-

Bank Amount

SIDBI ~ Rs. 4000 crore

ICICI Rs. 2000 crore

SBI > Rs.1000 crore

Corporation Bank~ Rs. 600 crore

Andhra Bank Rs 320 crore

Source: CARE rating

In addition to their direct lending to MFIs, most of the public and private banks have purchasedloan pools for millions of dollars from MFIs. These loan pools are also expeunder pressure, as the securitization mechanism exposes the investors to the ultimate borrowersand a drop in repayment rates will subsequently affect them.

Public Sector - Private Sector

Bank Amount Bank Amount

Bank of

Baroda

Rs.1.3 crores

Yes Bank Rs. 4.5 crores

Bank of India Rs. 2.8 crores

Axis Bank Rs. 13 crores

Corporation

Bank

Rs. 6 crores

IndusInd Bank Rs. 3.6 crores,PNB Rs. 9 crores

HDFC Bank Rs. 9 crores

Union Bank Rs. 2 crores

Kotak Mahindra Rs. 1.3 crores


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BankCanara Bank Rs. 3 crores.

Source: Morgan Stanley Asia Pacific Report through Moneylife

THE RESULT

Stocks of banking companies, mainly the private sector have been under pressure lately afterhaving outperforming the market over the last few months. Banks with the highest MFI exposurehave witnessed the sharpest fall in their share price in the last week. Shares of Yes Bank fell byaround 10% in the three trading sessions last week, while those of Axis Bank and Oriental Bankof Commerce fell by 9% each. But even though the impact on ICICI Bank and HDFC Bank issomewhat similar to that on Axis Bank and Oriental Bank of Commerce, their shares fell at alower rate of 6% and 3.4%, respectively.

One of main concerns of the investors is the asset quality of microfinance institutions (MFIs),

which is under pressure after measures taken by the Andhra Pradesh (AP) govtighten regulations governing the industry which challenges the existing business model banning of the weekly collections from the borrowers. This has resulted in a sharp decline in therepayment of loans across AP and the trend is spreading across the country mainly in areas suchas West Bengal, Madhya Pradesh, Orissa and Karnataka.

Source Microfinance exposure takes toll on banking stocks through Livemint

Latest Developments the dots

In spite of the current crisis, many MFIs have approached banks for emergency funds amounting

to Rs 10,000 Cr, admitting to suffering a severe liquidity crisis. As some banks in some stateshave stopped lending to MFIs, many are worried that the crisis could deepen and threaten acollapse. As per Vijay Mahajan, one of the pioneers of the Indian microfinance industry in Indiaand the President of Microfinance Institutions Network

(MFIN), the MFI industry will collapse and will be finished as early as first quarter of thecoming year in case the banks decline to support and lend to the microfinance institutionsbecause of the current environment in the MFI market.

Amid all the chaos, some of interesting developments in the economic and political environmentare:

The Union Finance Minister clearly indicating not to strangulate the industryand to finalize the regulatory architecture for microfinance institutions andthe

Microfinance Bill by early next year


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MFI bill introduced in Andhra Pradesh assembly and Karnatakagovernment planning to establish a state funded microfinanceinstitution like Andhra Pradeshs SHG-based SERP programme

MFI regulation panel proposed by Orissa state government

Nations largest lender State Bank of India announced its 750-million euro

(about Rs. 4,650 crore) five-year bond issue and also awaiting governmentsnod to come out with a Rs. 20,000-crore rights issue improve itscapital base sometime in late December or early next year

Union Banks direct entry in the MFI business

Axis banks top managements apprehension in relation to huge exposure tothe

MFI sector

Major PSU Banks Bank of Baroda and Indian Bank sign contracts with MFIs

to rein interest rates, ensuring MFIs do not charge interest rates beyond acertain ceiling from their borrowers Corporation bank managements mooted thought of converting the debt

from

MFIs to equity, for safeguarding risks in case of default

Indian Banks Association proposal for roping in Bollywood film stars forspreading the message of financial inclusion to educate rural masses aboutthe benefits of bank accounts and other financial services

One of the leading NBFCs from the South, Muthoot Pappachan Group hastied up with Accion of US to boost lending in microfinance sector and also in

the final stages of acquiring a leading MFI player in the North

The way forward Connecting the dots

The microfinance industry which was considered to be an instrument in realizing the goal offinancial inclusion, as they serve a segment of the population without access to banks, willcertainly face regulatory headwinds. The issue is primarily whether the proposed regulationswill be supportive of an industry that has emerged as a global frontrunner in combining socialand economic goals or whether they will land up throttling the industry with unviablerequirements.

Snapshot of the Microfinance IndustryTime Line PESTEL

Past(Before

crisis)

PresentFuture


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Political

(interference)

Low High Moderate

Economic

(Interest)

Very High Low Low*

Social

(Objective)

High Medium Medium /

High

Technical(Experti

se)

Low Medium High

Environment (to

venture into this

business)

High Low Medium*

Legal (Issues) Low High High

* Depending on nature of regulation that emerges

Going forward, the MFI promoters as well as for the Investors might not have the best news atleast not to the extent they would have imagined couple of months back. In case the sametrend continues- borrowers defaulting, very limited access to capital, regulatory risks, ratinwith negative implications and political resistance, MFIs would be faced with both solvency andliquidity challenges. An IPO exit would remain a distant dream for the players, as well as their

private equity investors.

Analyzing and evaluating the sequence of events strategically, along with some crystal ballgazing, the following might be the way forward for this industry

Potential Convergence between Banks and MFIs: Although current regulations maintaina clear demarcation between scheduled commercial banks and MFIs (the large MFIs are mostlyregulated as NBFCs), the mutual advantages to each other are fairly obvious. MFIs cansignificantly lower their cost of funds, and also remove potential hazards of dependence oninstitutional liquidity through conversion to a banking model; banks can get into the financialinclusion game through best practices from MFIs.

The convergence needs to be initiated through regulatory changes from the RBI, and theresulting activity could either be organic or inorganic. Though the business model is differentbetween Banks and MFIs, there could be some interest from the Banks to acquire MFIs giventheir exposure to the industry and also which could give them access to new and rural parts of thecountry. SBI raising funds (may be part of it is to acquire MFIs), Union bank entry into thisbusiness and Corporations bank intention to acquire stake in MFIs might be early signs fromBanks intending for consolidation in financial services space.


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It might be premature to discuss the modalities of partnership at this point in time, but this ideashould certainly be explored by Y.H. Malegam and team, a sub-committee appointed by RBI tostudy the industry and recommend ways to better its practices. This could be a win-win situationfor banks, regulatory bodies and mainly the customers provided the banks give a decentvaluation for the MFIs. From the governments perspective, this could be a one of the bes

strategies to fulfill the Financial Inclusion objective as well as to get the situation politicallycorrect.

Partnership with Regional Rural Banks (RRB): As per the data till last financial year, therewere 82 RRBs (with a network of 15475 branches spread over 619 districts in 26

States and 1 Union Territory), of which only 3 RRBs out of 82 RRBs were incurring losses. Inaddition, the RRBs were given a target by the Finance Ministry to open 2000 branches byMarch 2011 with the right banking technology platform as part of their financial inclusionstrategy. Partnership with MFIs could be one of the routes which could be explored by RRBsto have better access to similar client base and to fulfill their mandate of financial inclusion

Consolidation within the MFI industry: Consolidation amongst existing MFI players couldcome about, in the situation that present stressed conditions continue for a further quarter or two.Larger MFIs with good balance sheet, with appetite for risk till the regulatory framework isworked out and also having the capacity digest an acquisition in this environment might look tobuyout other small/medium MFIs for their customers and loan books, at distressed valuations.However, the challenges in this case as mentioned earlier remain - borrowers defaulting, verylimited access to capital, regulatory risks, ratings with negative implications and politicalresistance.

Jaipuria Institute of Management, Jaipur (JIMJ) is conducting a national seminar on Micro finance in

collaboration, with National Bank for Agriculture and Rural Development (NABARD) on Monday the8th March, 2010. JIMJ is a fast developing centre of management education singularly committed to

impart excellence within the student fraternity, the corporate world and the society at large.

The objective of this seminar is:

* To create awareness towards Inclusive Growth and significance of Micro Finance

* To familiarize with operational aspects of Micro Finance implementation by various stake holders and

NABARD Initiatives

* To motivate/ develop the mindset to get associated with Micro Finance activities in their future

endeavors

* To strengthen the team building and Capacity Building* To encourage the students to enhance their knowledge through micro finance quiz

The areas to be covered during this seminar would be:

* Inclusive Growth & Micro Finance :An Overview, key elements and current status

* NABARD initiatives and SHG Model

* Financial Inclusion & Financial Literacy


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* Sustainability of Micro Finance Operations

* Role of Management education in development and strengthening of Micro finance sector

The Seminar would have another unique feature of organizing a Micro Finance Quiz Competition for

student participants to appreciate their general awareness about social banking, Micro Finance,

operational/implementation issues, latest developments associated with this segment and other relatedareas

Financing of Renewable Energy Projects for Microfinance

Institutions in India

Funding for Renewable Energy Projects

Indian Renewable Energy Development Agency (IREDA), established in 1987 as a PublicLimited Government Company, under the administrative control of MNRE, is a specializeddevelopmental financial institution with the objective to provide financial support to specific

projects and schemes for generating electricity and/or energy through new and renewable sourcesand conserving energy through energy efficiency.

It offers term loans to renewable energy projects at rates slightly more favorable than generalcommercial lending rates. As of March 31, 2010, IREDA financed 1,921 projects with a loancommitment amounts totaling over Rs.121.8 billion.

Other government agencies that actively fund renewable energy projects are the Power FinanceCooperation (PFC), the Rural Electrification Corporation (REC), and National Bank forAgricultural and Rural Development (NABARD). Corporate financiers of renewable energyprojects in India are primarily concentrated on the large wind and hydropower projects, where

captive power generation and the application of accelerated depreciation benefits play asignificant role.

Of late, the growing awareness and favorable government policies & regulatory mechanisms(both at Central & State level) have led to gradual increase in confidence of domesticcommercial banks providing loans to renewable energy projects.

Renewable Energy and Microfinance

A number of microfinance institutions (MFIs) facilitate the purchase of renewable energysystems like solar cookers, solar lanterns, or small biogas plants in off-grid areas of the country.

The Self Employed Womens Association (SEWA) is perhaps the most well-known example ofan MFI in India.

Status of Micro Finance in India, 2009-10

Umesh Chandra. Sarangi, Chairman, NABARD released a booklet on Status of Micro

Finance in India, 2009-10 on 4 November 2010 at a function held at Head Office,
http://www.ireda.gov.in/http://www.pfc.gov.in/http://www.recindia.nic.in/http://www.nabard.org/http://www.ireda.gov.in/http://www.pfc.gov.in/http://www.recindia.nic.in/http://www.nabard.org/


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NABARD, Mumbai. The Booklet presents data on the number of Self Help Groups

(SHGs) having Savings Bank accounts with the banks, loans disbursed by the banks

during 2009-10 to SHGs and aggregate

loan outstanding as well as Non Performing Assets against SHGs as on 31 March

2010. As on 31 March 2010, there were 69.53 lakh SHGs having savings accountswith banking sector of which 48.51 lakh SHGs were credit linked and having loans

outstanding amounting to `28038.28 crore. During 2009-10 banks have disbursed

loans to 15.87 lakh SHGs with loan amount of ` 14453.30 crore

NABARD has disbursed ` 22.55 crore as Revolving Fund Assistance to MFIs and the

outstanding assistance as on 31 March 2010 was at ` 33.27 crore. Under Capital

Support to MFIs NABARD had disbursed ` 7.87 crores during the year to various

MFIs and outstanding support as on 31 March 2010 was at ` 24.17 crore. NABARD

has also supported MFIs for their ratings

and released Grant assistance ` 15.83 lakh during 2009-10. NABARD has provided

Refinance assistance to Banks against their loan disbursement to SHGs and

released ` 3173.56 crore refinance assistance to Commercial Banks, Regional Rural

Banks and Co-operative Banks during the year and the cumulative refinance

provided aggregated to ` 12,861.65 crore under this sector.

NABARD also provides Grant assistance to various NGOs, Banks and individuals who

are engaged in promotion of SHGs as Selp Help Promoting Institutions and

sanctioned ` 28.78 crore to them during the year and thus taking the aggregate

sanctions to ` 107.66 crore. Government of India has set up Micro Finance

Development and Equity Fund (MFDEF) with the total corpus of ` 400 crore. with

NABARD which is contributed by Reserve Bank of India, NABARD and Banks.

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MISSION OF NABARD ( National Bank Of Agriculture & Rural Development )

To promote sustainable and equitable agriculture and rural prosperity through

effective credit support , Related services , institutional development and other

innovative initiatives .

Should NABARD regulate micro finance?

The Micro Financial Sector (Development & Regulations) Bill 2007 has been under

the scanner of late. The bill proposes to make the National Bank for Agriculture and

Rural Development (nabard) the regulator of micro-finance sector in the country.

Until now, the Reserve Bank of India has been regulating financial organisations

involved in collection of public deposits.

The proposal, however, has sparked a debate. While a section feels that it will bring
http://www.indiaenvironmentportal.org.in/node/34783http://www.indiaenvironmentportal.org.in/node/34783


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about legitimacy in the system, others say the move is not appropriate because

nabard does not have experience in the regulatory field . The government, however,

maintains that the move is necessary to give the sector a much-needed boost.

"The micro-finance bill will address ambiguity in the collection of savings to ensure

depositors' protection,' says Amitabh Verma, joint secretary, Union ministry offinance.Adds V Satyamurti, ceo of All India Association for Micro Enterprise

Development: "There are micro-finance institutions (mfis) which operate without

clarity on regulations relating to moneylending, non-banking finance activities and

income tax. The bill will help such organisations.'

According to the bill, all societies, trusts and mfis, but not self-help groups, need to

register with nabard before beginning operations. nabard will frame penalties for

violation of norms. Verma says those who violate norms will be punished heavily

The bill stipulates Rs 5 lakh as the minimum corpus before an entity starts

mobilising deposits. Some groups feel that a low minimum capital requirement may

bring in players who will venture into micro-finance by accepting deposits from thepoor.

The bill does not propose any cap on interest rate, which the National Association of

Community Development Finance Institutions (sa-dhan) is in favour of. "For us, the

issue is not about interest rate, it is about a range of financial services made

available for the poorest and low-income households,' says Mathew Titus, executive

director, sa-dhan, founded by leading mfis like Sewa Bank, Basix and Pradan.

Smita Premchander, general secretary of Sampark, a Karnataka-based ngo,

however, says the bill does not address the problems faced by rural cooperativecredit institutions or rural banks, which were created for disbursing credit to the

poor and marginalised. Cooperatives also oppose the bill. "Amendment of the

Cooperatives Societies Act is still due. The move to bring about the micro-finance

bill is not justified,' says Rama Reddy, president of Hyderabad-based Cooperative

Development Foundation.

The ministry of finance estimates that about 2.3 million shgs practise a bank- mfi-

shg linkage model and about Rs 12,500 crore worth of credit has been disbursed.

This aside, another 2.3 million shgs are covered under the Swarna Jayanti Rozgar

programme, with Rs 7,500 crore in credit already given. nabard data shows that

more than 1.6 million shgs have received loans of more than Rs 6,00 crore fromcommercial banks and the average loan amount per beneficiary works out to be

around Rs 2,000, which is too small to enable poor families to fight poverty.

Besides, sources in the banking industry say the total demand for microcredit in

India is estimated to be close to Rs 200,000 crore."Microcredit in its present form is

not in a position to address the livelihood issues of poor,' says Vijay Mahajan,

managing director of Basix.


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There is need to expand the paradigm from microcredit to livelihood finance' by

extending services such as savings, insurance cover, nutrition, health, education

and vocational training, experts say.

The phenomenal growth of Indian microfinance sector and its potential for furtherexpansion attracts everyone in terms of product deepening, divand expansion of geographical spread.

The Self Help Group-Bank Linkage Programme (SBLP), pioneered by NABARD in1992, has emerged as the largest and the fastest growing community microfinance programme in the world resulting in credit-linkage of more than 4.85

million SHGs as on 31st March 2010.

The Microfinance Institutions (MFIs) too have emerged as strong players insupplementing the role of formal financial institutions in providing microfinanceservices to the poor. However, despite various policy interventions aimed at

upscaling the efforts to bring in the excluded families, particularly the weak andvulnerable members of society including those who live on the fringe of forests,tribals, etc., within its fold, financial exclusion continues to deprive millions of

people living below a sustainable level of income. The comparativelydisadvantageous groups like various tribal communities struggling to have assuredmeans for livelihood need to be approached in an entirely different manner thanwhat is generally designed for people living in other parts of the country.

There is also a need to debate on the sustainability of SHG-Bank Linkage programme itselfwhich has completed about 20 years of its existence in various forms in the country and nowregarded as the world s largest community based programme. The issue needs to be

viewed from the angle whether an SHG member in the rural area has really gained thecompetence and confidence of providing a physical collateral security for his/her credit needsfrom the formal banking system.

Further, on account of unemployment and under-employment in various rural parts of thecountry, sizeable rural population migrates to semi urban and urban areas of the countryin search of employment. One of the problems relating to migrant workers is the lack opportunity to husband their daily small savings at their places of work and remittance of theirsaved money to their native place. If the issue of remittance is tackled in a manner suitable tomigrant workers and their family members (recipients), it will definitely create a dent on thepoverty of the migrant workers families.

Further if the migrant workers are SHG members, their families can pay the thrift/ repay the loaninstallment without any default and thus can continue their effective membership in the SHGs oftheir villages.

Of late, the experiments like Joint Liability Groups, producers groups, etc., have led to theincreased application of micro-finance approaches in meeting the credit needs of agricultural sector. However, much has to be done in bringing the small farmers, marginal


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farmers, tenant farmers, share croppers and oral lessees into the microfinance movement so as toprovide opportunities for them to sustain their farming operations leading to increased incomefor their families.

The microfinance sector across the globe, over the past few years, has shown tremendous growth

in terms of its efficiency and outreach which was made possible due to various experimentsdone by diverse stakeholders in different parts of the world. However, in spite of best efforts ofthe Rural Financial Institutions (RFIs) and the MFI sector, the magnitude of financial exclusionis truly staggering. Further, one of the key challenges facing the policy makers today is how tomake the growth process more inclusive. In this background, it is felt that results of varioussuccessful models/ experiments need to be widely disseminated amongst all thestakeholders in order to provide suitable options, particularly to those practitionersconcentrating in regions where microfinance has not yet penetrated.

These challenges call for a need on the part of all the stakeholders in the microfinance sector tocome together and share their experiences on the issues identified for the seminar. They may

adopt and implement innovative approaches after learning from experiences andinnovations made by other experts in various fields of microfinance.

Rural community in developing countries have no access to modern forms of energy. The worldbank funding through the Governments and through local village banks forms a very goodnetwork of reaching the people who need the loans to purchase renewable energy systems.

Despite advancement in technology and reduction of the cost of solar systems cost per watt peak,the rural communitys disposable income would not let them purchase these systems. On the

other hand renewable energy vending companies did not have capacity to loan out systems totheir customers because of the limited cash flow broblems these companies face. Thesecompanies also do not have loan recovery mechanism in place to ensure proper payment for theinstalled systems. So the result was that the rural electrification was not possible.

Now the people of the rural community can go to their local banks or village micro credit banks,apply for a solar loan and work out payment plans suitable to their individual incomes, whichcan be easily verified by the staffs of the microfinance institutions. Then the microfinanceinstitution will sign an aggrement with the Governments rural electrification agency (REA) andthe vending company. The microfinance institution will place an order with the vendingcompany for the total number of systems required by its members. And the vending company

will go ahead to supply and install solar systems for the identified customers.

Roles of the 3 parties

1. REA, to ensure quality of the system supplied by the vendor and to do an energy audit on eachsystem and to give the government subsday on successfull compleetion of the job to the vendingcompany.2. SACCO, to identify the end user customer who needs a solar system, acertain their capacity to


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pay the loan, extend the loan and ensure they receive a quality solar system. To idendify suitablesolar vending companies.3. Solar vending company, to ensure quality supply of solar system, install it and see it is inproper working condition and to recover payment from the saccos and subsdy from thegovernmet after successfull installation.

The rural community will be serviced with the solar home systems (SHS). But each of theSACCO can have one off grid renewable Village power supply system, which can supply thewhole village.

The following advantages can be got from such a system.

1. Community projects like water pumping, community hall, tele-center, health clinics, Internetcaf etc.2. Surplus power is sold to the national grid if the renewable energy system is near the grid.3. Better security for the power supply

4. Small factory and processing equipment for the benefit of the village and as a moneygeneration activity.5. Bio fuel generator, bio fuel cooking stove. Lantern and making of soap from glycerol willserve as a stimulus for people to grow Jatropha as a cash bio fuel crop.

Documents

Solar Micro Financespeech