Farm workers clean the solar panels of a solar water pump at the farms of Gurinder Singh a farmer with a land holding of 80 acres in Jagadhri. Photographer: CCAFS/2014/Prashanth Vishwanathan
SwitchON Foundation, a West Bengal-based not-for-profit organization, has partnered with Punjab National Bank to facilitate solar pump financing for small and marginal farmers. Under the partnership, SwitchON Foundation shall set up a first loss default guarantee fund through which Punjab National Bank will be financing solar pumps.
“This partnership is extremely important in creating an ecosystem for encouraging large-scale deployment of solar pumps. It is perhaps the first-of-its-kind agreement between a private-not-for profit organization with a leading public sector bank to set up a Guarantee Fund, which is otherwise usually set up by Governments,” said Vinay Jaju, Managing Director of SwitchON Foundation.
Guarantee funds are set up to improve project bankability and reduce lender’s risk perception. The Ministry of MSME has set up such arrangements to increase lending for small business.
In this unique arrangement, the guarantee fund is being set up to facilitate the financing of solar pumps for unbankable small and marginal farmers without having to oﬀer any collateral.
Because of the guarantee fund’s comfort, PNB is oﬀering a longer than usual payback period of seven years. It comes with a zero down payment for up to INR 1.6 lakh of loan for small and marginal farmers.
Previously, SwitchON partnered with RBL and Axis Bank to sanction loans for over 100 solar pumps, but the foundation said it is the first time a Nationalized Bank has come forward for the financial partnership. There have been zero non-performing assets to date, and farmers have seen a 1.6 times rise in income after adopting solar pumps.
Stephanie Jones of Good Energies Foundation, one of the key funders of the guarantee fund, said that “We are confident that solar pumps can improve farm production and all participating farmers will easily pay back these loans. A default guarantee is a great tool for helping more farmers access bank loans while recognizing the bank’s need to gain first-hand experience with new technologies.”
SwitchON Foundation will conduct farmer sensitization, awareness drives, and farmer due diligence before finalizing each loan’s disbursal.