North Karnataka is a semi arid region accounting for nearly 60% of the state’s land mass and is divided into about 13 districts. Imbalanced development efforts have consistently made this region a serial underperformer on major economic and human development indicators in comparison to other parts of the state. The region suffers from high poverty, illiteracy and unemployment forcing these traditional farming communities into migration. Karnataka has the second largest arid zone in the country and the North receives only about 600mm of rain compared to an average of 1000mm in the rest of the state, making it prone to regular drought conditions.

The project targeted communities who were from very backward districts in the region, barely making ends meet and predominantly employed as small farmers, manual laborers, petty businesses or migration workers.

SELCO identified one major need-clean reliable lighting to replace current dominant usage of kerosene lights in the absence of any alternative. While a technology solution was available, uptake of this solution was hindered by the inability to pay upfront for the system. A lack of credit history, low economic profile made it difficult to convince bankers. Hesitation of local financial institutions to lend and any other viable financing mechanism greatly hampered the ability of these communities to access much needed credit to purchase solutions.

SELCO in partnership with Manipal Foundation formed a risk guarantee fund to derisk lending by local banks to overcome a risk perception with “high risk” customers. As and when these loans get completely repaid the guarantee amount will be withdrawn and reused to release a fresh set of loans to similar high risk communities with other bank branches.

This financial mechanism was directed to ensure bankers build their confidence by lending to a few members of the community with the comfort of the risk guarantee fund in case of any defaults and then subsequently lend without any guarantee to the next round of customers.