Arc/REMMP’s five-branch energy finance pilot program begins in Uttar Pradesh
As one of India’s most successful and dynamic microfinance institutions (MFIs), Utkarsh is one of Arc’s most exciting partner organizations under its USAID-funded Renewable Energy Microfinance and Microenterprise Program (REMMP). The partnership offers a fantastic opportunity to “piggyback” Utkarsh’s nascent energy lending program on top of its underlying vigorous growth. Following a multi-month process, Arc Finance’s pilot program with Utkarsh has just begun renewable energy finance operations in Uttar Pradesh.
A non-banking financial company (NBFC) registered in Varanasi, Utkarsh was founded in August 2009 by Govind Singh, who has 26 years of microfinance experience across public and private sector banks and NBFCs. Utkarsh started its microfinance operations in September, 2009, and currently operates in five states through 118 branches, catering to more than 268,000 members, with a portfolio of Rs 246.76 crores (approximately US$40 million). Utkarsh operates in north-central India – Uttar Pradesh, Bihar, Madhya Pradesh, Uttarakhand and Delhi – where there is a large Below Poverty Line (BPL) population and relatively low competition from other NBFCs or banks.
Utkarsh has placed a strong focus on risk management, responsible finance and social performance, as evidenced by its “credit plus” activities, such as setting up health clinics and camps (with free medicines to members), vocational training, market linkage programs, and financial awareness initiatives through its NGO arm, Samutkarsh. Samutkarsh will administer the REMMP pilot, which will begin with rolling out solar portable lighting through cash sales and loans, and will provide credit to Utkarsh clients interested in purchasing solar lights. The lanterns will be promoted through Utkarsh’s network.
The delineation of responsibility between Utkarsh and Samutkarsh is an important part of the pilot and a potential model for current and future MFI partners introducing energy lending. Management established from the outset that the energy program would be rolled out under Samutkarsh to preserve a clear distinction between its credit and non-credit activities. Samutkarsh will conduct marketing of the lights: through demonstrations; aggregating demand for distributors; providing credit to Utkarsh clients to enable them to purchase solar lights; and distributing lights to members at branches. Utkarsh will provide support to Samutkarsh branch staff for marketing; follow up with Utkarsh clients for sale; and collect solar light loan installments at branch or center meetings.
Arc believes that there is far more to a successful energy finance program than just introducing products to clients and telling them they can get a loan: there are demographic, regional, product and timing decisions to be made and potential risks that need to be assessed. Utkarsh considers energy an area of high potential demand and impact among its mostly rural, agrarian clients in UP, however, across its geographical reach, grid connection rates are increasing. And while the level and reliability of service remains poor, the highly subsidized cost of grid electricity (and the common practice of illegal interconnection, resulting in free electricity – for some) may contribute to a low price reference among clients, which would in turn reduce willingness to pay for higher-cost alternatives. The persistence of the national and state governments in heavily subsidizing kerosene is a key factor in designing an energy pilot, and high levels of poverty and income insecurity among Utkarsh’s clients is an additional risk that may supress demand and result in low capacity to pay. Arc and Utkarsh carefully evaluated each of these potential risks in assessing the viability of an energy program.
The journey from idea to pilot rollout offers useful instruction in crafting an energy finance program and navigating potential pitfalls. Once Utkarsh had confirmed its interest in implementing an energy program planning proceeded with visioning sessions, market research to assess demand, selecting a product partner (with selection process training from the Arc team), and, with Arc’s support, pilot planning, including the development of an operational model and processes.
In August, Arc Finance oversaw a visioning and planning session with the Utkarsh team and agreed on a detailed activity plan for the following two months. Market research began, with focus groups conducted soon after. Product selection is as important a decision for a partner (and as important an element of Arc’s Technical Assistance) as any other. Getting the product choice right can open up immense opportunities. Getting it wrong can scupper a project before it’s off the ground – especially considering the large variability in solar lighting product quality available in India. Arc, which is product-agnostic, provided Utkarsh with a tool to rate the companies being interviewed, and during September, Utkarsh and Arc met with five product companies to decide on a product partner for the pilot.
With Arc’s assistance, Utkarsh produced an operational manual during October and November, with detailed processes for Utkarsh staff for rolling out the program. Utkarsh hired energy executives and staff, finalized process mapping, and conducted training within five pilot branches during November and into December. As the pilot program kicks off in the five initial branches, the coming year will focus on monitoring implementation and processes, evaluating after-sales service and impact, and, based on initial results, outlining plans for full rollout.
After several months of preparations, the program launched in a single branch on the 12th of December and sold its first lantern on 16th, only a couple of days after the first round of client product demonstrations. Three days later, 20 units had been sold. The pilot will expand to three branches within a month, and a further two soon after, bringing the pilot total to five: Harahua; Chandvak; Aurai; Lalganj; and Durgavati.
The program’s objectives are ambitious in scope: reducing or eradicating kerosene consumption in clients’ households; increasing productivity in daily activities; improving health conditions with use of eco-friendly energy products; and improving educational conditions for children. But Utkarsh is an organization well accustomed to managing growth, mitigating risks, hiring the right people, planning well and adapting rapidly to changing circumstances. It is very early days, but in Utkarsh, Arc has a partner organization of the very highest professionalism and vision, and we look forward to bringing you regular program updates in the months to come.