Sahil Khanna

Financial inclusion increasingly enables 'energy inclusion' in rural India

Microfinance institutions (MFIs) serve nearly 3.2% of India’s population, enabling unbanked and underbanked individuals to access micro-loans for small businesses or other important investments to support their family’s livelihood. The majority of clients served by MFIs live in rural areas faced with infrastructure challenges, and according to Prayas ESMI data, only 11% of the rural areas in 66 locations of 23 states in India receive at least five hours of grid energy between 5 and 11pm, leaving most inhabitants in the dark precisely during the hours that they are likely to be home and in need of access to light and basic household appliances.

Distributed off-grid energy solar solutions that provide multiple light points and a range of appliances are designed specifically for these, typically lower-income, households with intermittent access to the grid.  Given that microfinance institutions and distributed energy companies so often serve the same household, these seemingly distinct types of businesses are increasingly stepping into formal business partnerships to more efficiently reach and serve the hardest to reach households. 

Off-grid solar businesses focus on innovating affordable technology for use in households and micro and small enterprises. They are driven by a mission to accelerate ‘energy inclusion’, and in India, partnerships with financial service companies have enabled them accelerated access to serving rural, lower-income households.

To illustrate how this works, here’s the story of Shikha, a woman who lives with her family in Howli, a small town in Assam.

Following unexpected financial hardships, Shikha and her husband had to sell their assets and shift to rented accommodation, and she decided to start contributing to her family’s income by picking up some tailoring work.  She bought a sewing machine with a small business loan she secured from a local microfinance institution.

In the early days of her business, Shikha faced several challenges common of early-stage entrepreneurs.  For example, she didn’t have a way to ensure a steady pace of work: on some days she’d find herself in high demand, overloaded with work, while on others she had idler time than she preferred. The typical challenges of getting an early-stage business off the ground were exacerbated in Shikha’s case by the erratic nature of the local electricity supply in her locale.  She struggled to maintain a fast pace, she risked producing lower quality work, and she faced increased chances of injury while working through frequent, unexpected blackouts.   

When Shikha was offered the chance to purchase a Sun King solar-powered lamp through a loan offered by an MFI, she seized the opportunity immediately.  The financing allowed her to spread the cost of investing in a larger asset for her business over a longer period of time, and more importantly, it enabled her to work at home predictably and consistently, after sunset, regardless of whether they had electricity or not. 

The consistency that her independent energy supply affords is also prompting Shikha to scale her business; she plans to invest in multiple sewing machines and to hire a team of sewers to work with her. She’s also working on plans to open a tailoring school in Howli to expand the breadth of her business and support more men and women to enter the tailoring profession.

Shikha will also save money, thanks to her Sun King solar lamp. Without it, she would have spent about Rs. 7,500 to fuel a kerosene lantern over five years.  In comparison, she invested Rs. 4,999 for her solar-powered solution that provides environment-friendly, significantly brighter light without the risk of fire or the noxious fumes of an open flame.

Shikha's is just one story that illustrates the profound role financial inclusion can play in increasing energy inclusion.  All across India, millions of small businesses and individual households are investing in solar-powered energy solutions through financing made provided by MFIs and rural banks. 

Financial institutions directly benefit from these types of ‘cross-sell’ opportunities: by offering to finance for productivity-enhancing appliances, they increase client loyalty and help enable additional income generation and cost savings opportunities.  At the same time, clients that elect for a top-up or asset loan to purchase a solar-powered home energy system benefit from the opportunity to improve their standard of living, increase productivity and assets that can help generate more income.

Collaborations between clean and off-grid energy companies and financial institutions may not seem obvious, but each party shares a common client base and a product offering that enables social development through private sector means, and together, they have the power to accelerate socio-economic advancement.