For the electricity-starved in India, solar energy has really not been an option. Even for the urban middle class—a social class several layers removed from the base of the pyramid—solar power is perceived to be expensive. On the other side, solar energy providers struggle to sell their innovative products, mostly because of the initial capital load and the lack of awareness, even though the Indian government has attempted to popularize this off-grid solution. Despite these myriad challenges and misconceptions, Selco, a social enterprise traditionally focused on providing solar energy to the rural underserved, has launched a new urban model in India.
The initiative has managed to solar electrify a set of slum-dwelling households in Bangalore with the key ingredients for scaling up. The initiative’s early success has been less about the feat of solar electrification in slums, which is not insubstantial, and more about creating a ripple effect for its social impact.
Multiplying Social Impact
One of Selco’s main goals is to dispel the myth that poor people cannot afford or maintain sustainable technologies. Selco’s Senior Manager of Mission Projects, Prasanta Biswal, says, “We assume all too easily that the urban slum-dwellers are economically poor. The fact is that many of them are materially deprived. Their problem is one of access.” Recognizing this difference helped Selco design a model that focused beyond provision of energy to the social impact of sustainable solar energy provision as well. Selco has linked its consumers with loans for solar energy to increase access. The result has been an ushering in of financial inclusion for the urban poor that has further impacted their access to education and livelihoods.
Solar lighting has helped individuals at the base of the pyramid improve productivity – in their work and study – without dependence on fuel-based options. For families who never had electricity in their homes, it represents a big improvement to their quality of life. Slum electrification, through active demonstration, has also helped improve awareness about solar power and increased acceptance of this unfamiliar technology.
Selco’s Foray into Slum Electrification
India’s urban poor are accustomed to going long hours without electricity. This impairs their ability to work or study after dark, making their climb out of poverty even more difficult. Selco, founded in 1995, first started looking at the urban poor as a market in 2008, and found that what this group really lacked was access to finance–without which solar energy becomes unaffordable. The urban poor had no access to loans since they could not provide collateral. Mostly migrant laborers, the slum-dwellers come from different states in India and set up illegal housing on government land. On paper, Selco’s urban poor market simply did not exist and had no identification to even attempt to apply for bank loans.
The Selco team’s first urban initiative in 2008 was focused on a slum of over 400 households in Manipal, a university town in Karnataka—the same state as Selco’s home base of Bangalore. Though the slum-dwellers were employed and had earned income, their illegal settlement was not allowed to access “the grid” cables that crisscrossed overhead. Instead, families spent INR45 (US$1) per liter on kerosene—a financially unsustainable solution that could only be used for bare necessities such as cooking. Light for working or studying was a precious commodity.
The Selco team identified an interest and willingness among these slum-dwellers to pay for solar power systems in installments, but they clearly expressed an inability to pay INR6,000 (~US$133) or more at one go. The systems installed in the slum households are priced between INR6,000 and INR11,000 (~US$219) based on the number and types of lights installed.
Financing Solar Energy
Loans were the solution, but the Selco team found that it was very difficult to convince banks to lend to these households. In late 2009, they partnered with a small cooperative bank that loaned funds to small businesses in Manipal and who was willing to take a chance on expanding into solar financing for the poor. This was the bank’s first endeavor with solar and, therefore, it demanded a 100% guarantee from Selco. In what was later seen as a turning point, Selco agreed to offer a 100% guarantee for the first five systems priced at INR10,000 (~US$222) each with a one-year deposit of INR50,000 (~US$1,111) made to the bank. Remarkably, the entire repayment to the bank was completed within one year. The bank soon realized that this was a stable set of borrowers and offered to finance an additional five systems. This time, they went forward without a guarantee.
With the financing in place, Selco solar powered 65 households, and the bank continued to provide loans to the slum-dwellers, even opening savings accounts and sending out a collection agent every week. Soon they had around 400 savings accounts with people saving sums ranging from INR50 (~US$1) to INR 1,000 (~ US$20) per week. The savings were no longer just for solar power alone; account-holders used their savings accounts to take out motorcycle loans, appliance loans and more. The Selco financing model had resulted in financial inclusion that was powering many parts of their lives.
Scaling Slum Electrification
Since the Manipal pilot, Selco has launched initiatives in other slums in the city and Bangalore as well. “The model is scalable, but it all depends on the financing. The nature of the slum community varies from slum to slum. Not all of them are reliable, and not all slum-dwellers stay in the same slum for long durations of time. Slums are demolished and relocated.”
Scaling up challenges ranged from poor financial literacy to simply not having considered an alternative to expensive and unsustainable firewood or kerosene. In a second slum, for instance, repayment was poor in the first month. The Selco team discovered that this was because the borrowers were financially illiterate and felt they could pay the installments at any time that was convenient. Selco and the bank helped with some basic financial literacy training to drive home the importance of regular payments. The bank agent even brought an ATM to the slum households and collected the payments strategically on the day after pay day, reducing he likelihood of default.
With experience, the Selco team found ways to dig deeper and define affordability to the urban poor. They found out that in a typical urban slum household of five members, expenditure on firewood amounted to INR450 – 600 (US$9 – US$12) in addition to the cost of 10-15 liters of kerosene at the rate of INR45/liter. Families were more than happy to consider paying for solar power in regular installments that matched this amount. Taking the unique circumstances of each community into consideration, the Selco team works out a plan that suits both the bankers and the borrowers.
Since its initial pilot initiatives, Selco has had an easier time establishing collaborations with local banks for financing, and the banks, in turn, have devised innovative ways of working with their new customer base. Biswal adds that banks are leveraging technology to allow urban poor people to repay loans or save even when they relocate to other slums or if their slums are destroyed. The Unique Identification Program (UID) program, he says, will help strengthen a bank’s ability to know ita borrowers better and to help organizations like Selco provide services to the poor with unstable or unsettled homes.
Selco’s strengths stem from its ability to look for unconventional solutions and focus on the final outcome. Says Biswal, “It is not about financing just solar power. When we convince banks who are perhaps happier to fund business loans as it is directly income generating, we talk to them of how solar energy empowers the urban poor to spend an additional couple of hours after dark in income generating activities such as beedi (cigarettes) or agarbatti (incense sticks) rolling.”
The Selco model of delivering affordable products and services to the poor – and consciously multiplying social impact – is one that can easily be adopted by organizations who are seeking to achieve sustainability with social impact and financial inclusion. Dr. Harish Hande, Selco’s Managing Director and this year’s Ramon Magsaysay Award winner, says that his company looks at scaling up differently. They are focused on replicating and incubating more Selcos rather than building a huge geographical footprint. ‘Selco people,’ as they are proud to be known as, have a different philosophy on responsibility: their job does not end with a sale – it is a long-term relationship they share with the underserved, which grows as they are empowered through financial inclusion, education and livelihoods.