How good microfinance is funding sustainable energy in India
John Magrath Programme Researcher
12th Jun 2012
Microfinance sometimes gets a bad press but SKDRDP, this year's Ashden Gold Award winner, is a well-run microfinance organisation helping to meet the energy needs of low-income households in India.
I wrote recently about one of the winners of this year's "Oscars" of the renewable energy world, the Ashdens (formerly the Ashden Awards, but now expanded to a longer-term and more comprehensive programme of support). The specially-made films about the work of each winner are now available to view on the Ashdens website. They are fascinating and inspiring.
The Gold Award this year - the top prize - went to a dynamic Indian rural development organisation that specialises in micro-finance - SKDRDP or to give it its full name, Shri Kshethra Dharmasthala Rural Development Programme.
Microfinance has had a pretty bad press recently, especially in India, perhaps because so many chancers have come into the field on the back of the initial success of the microfinance idea, seeing it as an opportunity to make a quick buck. Some people have got into multiple debt from multiple microfinance providers.
SKDRDP is the largest NGO micro-finance provider in India with a loan portfolio of US$200 million and it works through a network of 169,000 self help groups in rural Karnataka. But its approach is very careful. Each self-help group member has to make a five-year plan for their household or farm - not so much a business plan but a life plan - and save an agreed amount each week (at least 20 US cents).
SKDRDP starts with small loans to members of a group and only allows an increase in amounts loaned when a track record of payments has been established. The group must have been running smoothly for at least three months and members had training from SKDRDP on how to handle loans. Loans must be matched to what members want in their plan, and the amounts loaned, interest charged and payback time vary according to what the member wants, whether it be a loan for housing, water supply, sanitation, agricultural inputs, wedding expenses or whatever.
Energy loans are available after two years - in other words, members are expected to attend to even more basic needs first. Energy therefore makes up a relatively small portion of the loans currently at only US$3.2 million, but they plan to expand that with the boost of the Ashden prize. But that has so far financed 20,000 loans comprising 10,538 biogas plants and 8,379 solar home systems, as well as a small number of cookstoves and pico-hydro plants. The majority of energy loans are given to women. Within a year a further
70,000 of the existing self-help groups will become eligible for energy loans. They also plan to overcome one of the obstacles, that of a lack of trained masons to build the biogas plants, through establishing a programme to train 200 masons in three years.
Once SKDRDP are satisfied a member can handle a loan, one can be made available within 15 days. Contrast that with the sclerotic performance of the Indian banking system. Poor people wanting a bank loan usually give up because it takes an average of 33 weeks, and not only that but the bank may demand numerous visits - taking people away from their work - along with masses of paperwork. In the end the bank may not provide the money either, as they are not used to lending money to poor people. On the other hand, commercial banks are prepared to loan money to a reputable organisation like
SKDRDP (they loaned it US$170 million in 2011) for SKDRDP to fund the support and micro-credit programme.
Dr L H Manjunath, SKRDP's CEO, says: "Our proudest achievement is that we have changed successfully from a charitable institution to a completely sustainable one, and in so doing we have changed the mindset of the people we work with from one that says "you must give to me" to one that says "I have goals and a life plan, and I know how to budget for that"".
See SKDRDP in action