An Experience on Cooperation Between Commercial Banks and Local MFIs for Lending in Solar Home Systems

This paper describes a subsidy program in Nepal that aimed to help poor households buy solar home systems (SHS).

The Nepalese government has been promoting the use of renewable energy technologies in rural Nepal, with the help of subsidies. SHS is one such technology for which there is a subsidy of 30-50%. Despite the subsidy, only the well-off rural segment has been purchasing SHS. The government launched a pilot credit program called Credit Financing SHS –– 2065 to make the system available to the very poor.

The pilot project found immense demand for SHS in remote areas. It revealed that:

• Chosen districts had to have financial intermediaries, such as cooperatives and MFIs;
• Involving urban banks in cooperative selection enhanced partnerships between them;
• Having many manageable partners is imperative because of the multiple benefits the sector can have;
• Income generating activities, if promoted along with credit for SHS market creation, would ensure sufficient cash generation to repay the loan;
• Building the capacity of solar companies and financial institutions was necessary;
• Urban financiers gave importance to loan security.