Crowd-Financed Loans Can Help Farmers Go Solar By Filling In The Financing Gap

P. Bhaskaran, a farmer in Tamil Nadu's Salem region, was frustrated by unpredictable power supply and voltage fluctuations that periodically damaged his electric irrigation pump, so he took out a bank loan and installed a solar-powered pump in 2013. His irrigation demands are met properly by the solar pump. "However, due to two crop failures and a high loan interest rate, I ended up paying nearly twice as much for the solar pump," he said to IndiaSpend. "It took eight years for me to pay off the loan."

Because of the unstable electrical supply, Bhaskaran's fellow farmers frequently employ diesel-powered agricultural irrigation pumps. They, too, want to transition to solar 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. Farmers stated they couldn't afford a solar pump, which costs between Rs 2.42 lakh and Rs 4.59 lakh depending on the pump's capacity, because they earn an average monthly income of Rs 10,218 and had an average debt of Rs 74,121.

The state and union governments each grant a minimum 30 percent subsidy toward the cost of installing solar pumps for agriculture; farmers are responsible for the remaining costs. Some state governments, like as Tamil Nadu's, offer a subsidy of more than 30%. Even if Bhaskaran's other farmers are able to obtain a subsidised pump, they claim it will be impossible to fund their part. Overall Tamil Nadu, around 92 percent of farmers are marginal or small, meaning they possess less than 2 hectares (about 5 acres) of land; in India, roughly 88 percent of farmers are marginal or small. According to them, the wait for a subsidised pump might last for years because demand outnumbers supply.

Many farmers informed us that purchasing a solar pump outright is difficult since neither banks nor micro-finance organisations provide money for assets like solar pumps. While farm loans may be used to purchase solar pumps, most farmers noted that providing collateral is difficult because they have already committed any valuable asset.

Farm input financing operators informed us that alternative funding models such as crowdfinanced loans through peer-to-peer platforms (P2P) can help bridge the funding gap. The crowdfinancing approach has previously 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 might address both the cost barrier for farmers to own their own solar pumps and the financial burden of subsidies on both solar pumps and farm electricity on governments, because many individuals and investors are interested in farmers' welfare.

Solar Irrigation Pumps Are a Cleaner Alternative To Diesel Irrigation Pumps

According to PM KUSUM - A new green revolution, a booklet published by the Ministry of New and Renewable Energy (MNRE) in September 2021, roughly 8 million (26.5 percent) of India's 30 million agricultural pumps are diesel pumps. According to statistics from the International Energy Agency, increased usage of solar pumps among all agricultural irrigation pumps in use in India since 2014 has been followed by a corresponding decline in the use of electric pumps, while the share of diesel pumps has remained stable since 2010. According to the MNRE PM-KUSUM brochure, these diesel pumps result in yearly carbon dioxide emissions of 15.4 million tonnes.

Solar Pumps Distributed Under a Government Subsidy Scheme Are In Short Supply

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

Depending on the degree of the 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 income to spare in 2018-19, with an average monthly income of Rs 10,218. In September 2021, IndiaSpend reported that half of India's agricultural households (50.2 percent) were in debt, with an average outstanding loan of Rs 74,000. This is before the rural economy was hit by the Covid-19 pandemic's economic impact.

Closing The Funding Gap

The majority of the farmers we met with indicated they couldn't afford non-subsidised pumps, which may cost up to Rs 1.20 lakh, including installation, for a 1 hp pump. They also claimed that bank loan interest rates are too high, or that some banks cut interest rates while increasing other costs, making it difficult to repay.

According to a NABARD official who did not want to be identified, the public sector National Bank for Agriculture and Rural Development (NABARD) is no longer participating in the PM-KUSUM initiative, which is managed by the Union and state governments, and hence does not support solar pumps. Officials from the Tamil Nadu Grama Bank (TNGB) also informed IndiaSpend that they only issued loans for solar pumps a few years ago, under the state government's pre-PM-KUSUM subsidy scheme.

Farmers May Benefit From Crowd-Funded Loans, Which Can Help Them Lessen Their Reliance On Subsidies

Subsidies for installing solar-powered pumps are necessary for farmers' short-term adoption due to the high capital cost, but they are unsustainable in the long run, according to a 2014 feasibility study by the Shakti Sustainable Energy Foundation, a Delhi-based think tank.

According to experts, here is where crowdfunding, or crowdfinancing, may make a difference. According to a document released in 2020 by the Asian Bureau of Finance and Research, crowdfinancing of infrastructure and renewable energy projects is becoming a prominent means of alternative funding in Europe and America, but has seen minimal application in Asia.

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

Solar pumps, according to Vishnu Mohan Rao, a senior researcher with the Citizen Consumer and Civic Action Group (CAG), a Chennai-based advocacy group, might be deemed an agricultural input rather than an asset for which loans are simpler to get.

"Crowdfunding is an option worth considering. Because farming has inherent risks, the RBI should consider social fairness when initiating or facilitating sectoral loans "Rao said. "We can assist carbon-free, sustainable farming if we can remove the hurdles and create a robust mechanism for crowdfunded loans. The solar pumps will be grid-independent, allowing the government to save a significant amount of money on agricultural power subsidies."