> Posted by Jeffrey Riecke, Communications Specialist, CFI

In the Delhi area, nearly 2,000 schools experienced multiple-day closures; construction and demolition was halted; almost 10 percent of workers called in sick; the government advised individuals to stay indoors as much as possible; and shops ran out of masks. India’s capital is reportedly experiencing its worst smog pollution in 17 years. This isn’t a mere inconvenience in terms of visibility or quality of life. This is an enormous threat to the health of the nearly 22 million people who live in the Delhi metropolitan area.

Air pollution levels are currently at 30-times the acceptable level set by the World Health Organization (WHO). And in India, air pollution is the leading cause of premature death, with about 620,000 people perishing each year from pollution-related diseases. Globally, among children under five years of age, nearly one million die from pneumonia each year and roughly half of these deaths are directly linked with air pollution.

Clean energy financing like that provided by microfinance institutions certainly can’t eradicate this complex problem. Some of the biggest contributors to pollution in the Delhi area are coal-fired power plants, vehicle emissions, dust from construction sites, smoke from the burning of crop stubble, setting fires at landfills, and fireworks from Diwali and other celebrations. But clean energy financing can undoubtedly help, and in a number of ways.

First, let’s look at private energy consumption. More and more, urban households in India have adopted solar power panels for electricity and solar water heaters for heating purposes. However, there remains huge room for further expansion. Solar power units, even those offered by socially-driven organizations, might cost as much as Rs. 5500 (US$80) while the daily wage of a construction job for example might be as low as Rs. 200 (US$3). Currently, those who are living in slums or who are lower-income often use biomass fuels for cooking food and sterilizing water, which pollutes the air and can cause health problems. In fact, during the winter months, pollution in Delhi is worsened by many of the city’s lower-income residents burning garbage at night to stay warm. In rural areas of India, households often use kerosene lamps for lighting and biomass and firewood for heating and cooking – all of which not only contributes to pollution and health risks, but also presents financial costs associated with travel to urban areas for acquiring these materials.

Burning of crop stubble to make way for subsequent crops is response for roughly one-quarter of the air pollution ailing Delhi during winter months. Hundreds of thousands of farmers in the nearby states of Punjab and Haryana set fire to their fields, burning leftover straw from their rice harvests to make room to plant their wheat crop. The scale of this practice is massive: these fields produce the majority of the country’s rice and wheat crops; an estimated 32 million tons of leftover straw is burned; and the resulting smoke gets carried by winds across the northern plains into Delhi. For its part, the Government of India outlawed the crop burning. But this hasn’t been enforced. While there are hundreds of thousands of farmers burning crops, only roughly 1,200 fires have been reported with US$12,000 in fines collected.

Microfinance intervening in both of these instances – supporting clean energy inclusion and supporting agriculture – isn’t new, but its utility bears repeating.

Over time, clean energy sources have generally gotten better while dirty (conventional) energy sources have gotten worse. The price of solar products – like solar lanterns or solar power stations which can be used for things like charging mobile phones – has improved. And the cost, price volatility, and availability of energy sources like kerosene and firewood have generally gotten worse. Examples in India of microfinance institutions working with solar energy companies to offer financing options for the purchase of clean energy products include:

  • SELCO India, a social enterprise that offers sustainable energy products and services, partnering with MFIs such as SEWA, Grameen Bank, and Syndicate Bank.
  • Thrive Solar Energy partnering with WSDS Microfinance of Manipur to provide solar devices in rural areas.
  • Project Dharma, Boond, and Frontier Markets serving a range of products such as solar lighting and efficient cookstoves.
  • Arc Finance testing, piloting, and expanding business models focused on financing for sustainable energy including microfinance, remittances, asset finance, crowd-funding, and pay-as-you-go mechanisms.

Along with clients purchasing financed clean energy products directly from microfinance institutions, microfinance institutions also are well-positioned to support entrepreneurs looking to build businesses that provide clean energy products themselves. Frontier Markets, which works in Rajasthan and Andhra Pradesh, finances village-level entrepreneurs who sell the products themselves.

One core criticism to-date on clean energy financing has been the quality of the solar products. During the early days problems arose surrounding product reliability and capacity, as well as serving options for when things go wrong. These times were characterized by cheap products flooding the markets and both MFIs and clients losing trust in the process. However in recent years there has been great dynamism, growth, and change contributing to improvements in product quality, utility, and servicing.

Along with the social objective of meeting clients’ energy needs, microfinance institutions might have the vested interest of providing energy financing options to strengthen their portfolios’ stability. CGAP shares examples of how kerosene price shocks and volatility have impacted portfolio quality. After all, choosing between paying for energy and making a loan repayment is a difficult situation for clients experiencing energy pricing increases.

In the case of farmers burning crops, there are alternatives to this practice, but they come with a price tag, and microfinance can help. The Government of India is promoting a seeder that can be mounted on a tractor to enable the planting of wheat without needing to dispose of the leftover straw. Though this device, called the Happy Seeder, costs about $1,900. The Government is offering to cover half this cost, but it’s still enough of a financial hurdle to impede uptake. Reports from those that have used the device indicate that use of the seeder increases yields of both wheat and rice, suggesting that not burning the fields improves the fertility of the land. If a strong business case can be cemented, microfinance institutions offering financing options for the purchase of such equipment might make sense from a triple bottom line perspective.

Finally, given their outreach, microfinance institutions might be well-positioned to support awareness building among lower-income individuals surrounding the harmful effects of the country’s increasingly prevalent air pollution. Accounts of the recent rise of pollution in Delhi indicate that there is inadequate appreciation for the harmful effects that will likely be caused by the breathing in of contaminated air.

In India, an astounding 300 million people don’t have access to electricity. As the country continues to strengthen economically, for the sake of air quality, not to mention climate change, it’s increasingly important that these individuals become em-powered through clean energy means. And there undoubtedly is great potential for this. A study by Deloitte and the Confederation of Indian Industry estimates India’s solar potential at 749 gigawatts – which is nearly three-times what the country’s installed electrical capacity was in 2012, and, as it stands, only 1 percent of this solar potential is currently being captured.

Have you read?

2016 Global Microscope Highlights Gains in Financial Inclusion, Led by India; Digitization on the Rise

India Gets Serious about Grievance Redressal

Country of the Year: India