This post originally appeared on NextBillion.
By Umang Prabhakar and Manisha Pandita
In Northern India close to the Arabian Sea, salt farmers known asagariyas harvest salt in large pans from sub-surface brine. Every day during the seven-month-long production season, they labor for eight to 10 hours pumping, channeling, scraping and piling salt in salt pans. As they work, their diesel pumps, which help them harvest, run for over 16 hours a day. When the season ends, farmers typically amass about 150,000 Indian rupees in income (about $2,356 U.S. dollars). But after subtracting the cost of inputs, they’re left with only about 5,000 rupees (about $80 U.S. dollars) as savings.
Solar-powered pumps could help these farmers save much more. By swapping expensive diesel for solar power, farmers’ savings could go up substantially, as up to 60 percent of their income is spent on diesel and associated fuel costs. But without access to local financing to purchase solar pumps individually, the cost of the pump itself – ranging from 100,000 to 150,000 Indian rupees (about $1,575 to $2,360 U.S. dollars) – is prohibitively expensive.
However, Dalberg estimates that if farmers made a 20 percent down payment on a solar pump, and were charged market rates of interest (10-25 percent), they would be able to repay a loan for a solar pump in three years from the savings generated by the pump. To help farmers realize the benefits of renewable energy in salt farming, we explored financing options for solar water pumps in the Little Rann of Kutch, a salt marsh located in Gujarat, North India.
Financing Options for Solar Water Pumps
On the one hand, there has been increasing activity in consumer financing for renewable energy in India. A few examples include Yes Bank, the Central Bank of India and Union Bank, which offer a variety of loan products, and Sustainable Agro-commercial Finance Ltd., Bajaj Finserv and Srei Infrastructure Finance Limited, which offer loans for solar lighting, heating and pump products.
However, we found that salt farmers in the Little Rann of Kutch can’t take advantage of these offerings. Most low-income farmers lack credit and transaction history, and cash and/or assets to offer as collateral – and they don’t have access to a banking branch. Further, the seasonally-linked cash flows of farmers are rarely compatible with fixed payment schedules. In short, institutions are offering financing solutions, but they’re not reaching the farmers most in need.