Crowd-funded loans can help farmers switch to solar power by closing the financing gap








Crowdfunding





P. Bhaskaran, a farmer from the Salem region of Tamil Nadu, was frustrated with the unpredictable power supply and voltage fluctuations that periodically damaged his electric irrigation pump. He therefore took out a bank loan and installed a solar pump in 2013. His irrigation demands are successfully met by the solar pump. “However, due to two bad crops and high loan interest rate, I ended up paying nearly double for the solar pump,” he told IndiaSpend. “It took me eight years to repay the loan.”












Due to unstable power supply, other farmers in Bhaskaran frequently use diesel-powered agricultural irrigation pumps. They, too, want to switch to solar-powered pumps, which have minimal operating and maintenance expenses and, unlike diesel, are a sustainable energy source. However, they told us that the expense is a stumbling block. The farmers said they could not afford a solar pump, which costs between Rs 2.42 lakh and Rs 4.59 lakh depending on the capacity of the pump, as they earn an average monthly income of Rs 10,218 and had an average debt of Rs 74,121.

State and union governments each provide a minimum subsidy of 30% towards the cost of installing solar pumps for agriculture; farmers are responsible for the remaining costs. Some state governments, like that of Tamil Nadu, offer a subsidy of more than 30%. Even if other farmers in Bhaskaran manage to get a subsidized pump, they claim that it will be impossible to fund their share. In Tamil Nadu as a whole, about 92% of farmers are marginal or small, meaning they own less than 2 hectares (about 5 acres) of land; in India, about 88 percent of farmers are marginal or small. They say the wait for a subsidized pump could last for years as demand outstrips supply.

Many farmers have informed us that buying a solar pump outright is difficult because neither banks nor microfinance organizations provide money for assets such as solar pumps. While agricultural loans can be used to purchase solar pumps, most farmers noted that it is difficult to provide collateral as they have already pledged valuable assets.












Agri-input finance operators have informed us that alternative financing models such as equity lending through peer-to-peer (P2P) platforms can help fill the financing gap. The crowdfunding approach has already been tested in Europe and with a rooftop solar project in Delhi, and the Reserve Bank of India should make it much easier. According to experts, the crowdfunding model for loans could solve both the cost barrier for farmers to own their own solar pumps and the financial burden of subsidies on solar pumps and farm electricity on governments, because many individuals and investors are interested in the welfare of farmers. .

Solar irrigation pumps are a cleaner alternative to diesel irrigation pumps

According to PM KUSUM – A New Green Revolution, a booklet released by the Ministry of New and Renewable Energy (MNRE) in September 2021, about 8 million (26.5%) of India’s 30 million agricultural pumps are diesel pumps. According to statistics from the International Energy Agency, the increase in the use of solar pumps among all agricultural irrigation pumps used in India since 2014 has been followed by a corresponding drop in the use of the pumps. electric, while the share of diesel pumps has remained stable since 2010. According to the MNRE PM-KUSUM brochure, these diesel pumps cause annual carbon dioxide emissions of 15.4 million tonnes.

Solar pumps distributed under a government subsidy program are rare

In its attempts to achieve a sustainable energy transition, the Union government has promoted solar energy through several programs to address both the challenges of unpredictable power supply and diesel emissions. The most recent, the Pradhan Mantri Kisan Urja Suraksha Evam Utthaan Mahabhiyan (PM-KUSUM), was introduced in March 2019 as a farmer energy security grant scheme.












Depending on the degree of CFA and state government subsidies, the farmer may be responsible for up to 40% of the cost. According to the findings of the Situation Assessment of Agricultural Households and Land and Livestock Holdings of Households in Rural India (SAS) study, few agricultural households have disposable income in 2018-2019, with an average monthly income of Rs 10,218. In September 2021, IndiaSpend reported that half of Indian farm households (50.2%) were in debt, with an average loan outstanding of 74,000 rupees. This was before the rural economy was hit by the economic impact of the Covid-19 pandemic.

Closing the financing gap

The majority of farmers we met said they could not afford unsubsidized pumps, which can cost up to Rs 1.20 lakh including installation for a 1hp pump. They also claimed that bank loan interest rates were too high or that some banks cut interest rates while increasing other costs, making repayment difficult.

According to a NABARD official who declined to be identified, the public sector National Bank for Agriculture and Rural Development (NABARD) no longer participates in the PM-KUSUM initiative, which is run by the Union and state governments , and therefore does not support solar powered pumps . Tamil Nadu Grama Bank (TNGB) officials also informed IndiaSpend that they only provided loans for solar pumps a few years ago under the government’s pre-PM-KUSUM grant scheme. of State.












Farmers can benefit from crowdfunded loans, which can help them reduce their reliance on subsidies

Subsidies for the installation of solar-powered pumps are necessary for short-term adoption by farmers due to the high cost of capital, but they are not sustainable in the long term, according to a 2014 feasibility study by the Shakti Sustainable Energy Foundation, a Delhi-based think tank. Tank.

Experts say this is where crowdfunding can make a difference. According to a 2020 paper by the Asian Bureau of Finance and Research, crowdfunding for infrastructure and renewable energy projects is becoming a leading alternative financing medium in Europe and America, but has seen application. minimal in Asia.

Crowdfunding is becoming a more popular approach in India. In 2019, Oorja, a startup that installs community solar pumps, received funding for a project in Assam using crowdsourcing. Oakridge Energy, a Delhi-based startup, received funding from German crowdfunders for a rooftop solar project in October 2021. Other platforms, like the Nirvana Foundation, specialize in solar crowdfunding for businesses and investors.

According to Vishnu Mohan Rao, senior researcher at Citizen Consumer and Civic Action Group (CAG), a Chennai-based advocacy group, solar pumps could be seen as an agricultural input rather than an asset for which loans are easier to obtain. .












“Crowdfunding is an option worth considering. Because agriculture has inherent risks, the RBI should consider social equity when initiating or facilitating sector lending,” said Rao. “We can help sustainable, carbon-free agriculture if we can remove the barriers and create a robust mechanism for crowdfunding loans. The solar pumps will be grid independent, saving the government a significant amount of money on farm energy subsidies.”






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