Replicating a Model of Credit and Vendor Financing of Solar Home Systems
Rural Electrification through SHS typically involves high capital investment and low operating and maintenance costs. Due to the high initial cost of SHS, the majority of rural households remain deprived of SHS. To lower the initial cost to users, the government provides subsidy for SHS installations.
Poor households in rural areas still cannot afford SHS, even with existing government subsidies. However, AEPC has recently discontinued the subsidy for SHS due to the shortage of subsidy fund for the systems which has added to the challenge of implementing the project. Due to the stoppage of subsidy fund, the partner LFIs are facing a new challenge to put a strategy in place to promote SHS in the targeted areas. Hence, all the consortium partners are working on developing a strategy to pilot a market based financing model without a subsidy mechanism.
Access to credit is therefore vital in order to reach households able to afford SHS only with credit. The discontinuation of government subsidies further increases the importance of credit. Grassroots-level Local Financial Institutions (LFIs) can play an important role in providing access to credit to the poor. Yet LFIs are constrained by limited financial and technical capacity to finance SHSs, and have been unable to access commercial sources of funds.