This article was republished by The Christian Science Monitor
In India, one iconoclastic solar company employs deep knowledge of the ways communities use energy to overthrow the traditional means of bringing power to the people.
Now, coming off a September meeting with President Barack Obama, Bangalore-based SELCO is stepping into the light of international attention. As a UN report (PDF) from last year shows, it's been a difficult journey—and one with lots of lessons for other social enterprises.
Since 1994, SELCO has transitioned from a simple solar-light provider to an energy solution company seeking to correct the failings of the Indian energy market and provide affordable energy to the poor.
Founder Harish Hande, a University of Massachusetts Ph.D who'd become enthusiastic about rural solar energy during field work in the Dominican Republic and Sri Lanka, says he set out to dispel three myths when he launched the company from an office in his aunt's home:
1) Poor people cannot afford sustainable technologies;
2) Poor people cannot maintain sustainable technologies;
3) Social ventures cannot be run as commercial entities.
The Indian energy market has largely failed the rural poor, explains the UN report, because “most of India’s rural population does not have access to electricity. Instead, they are dependent on highly polluting and inefficient sources of energy such as kerosene or forest wood.” India’s massive blackouts this summer reveal major problems even for the people connected to the central power grid. Solar options have been present, but no banks were willing to make loans for the high start-up costs of solar energy. Furthermore, rural inhabitants had formed a negative perception of solar power based on government-installed solar street lights that were not maintained and would stop functioning after a few months.
Serving needs, not wants
SELCO acted to correct these breakdowns with a business model built on products and services people needed. In the mid 1990s, Hande began fixing some of the pre-existing solar street lights and training locals on how to maintain the technology themselves. Fast-forward a few years: these now-experienced technicians were snapped up by SELCO as employees.
At SELCO’s inception, Hande insisted that the company be a commercial enterprise rather than dependent on grants, which could run out or be unreliable. He felt that the poor would “be willing to pay for technology if they found it useful.”
Drawing on various equity investments and early loans from Tata BP Solar and USAID, through SELCO’s U.S.-based non-profit partner Winrock International, Hande was able to set up three rural service centers, “which were essential for creating a sustainable rural delivery model.” By relying on the local, experienced solar technicians from its service centers, SELCO was able to provide reliable solar power to even the remotest of customers. The technician customizes SELCO’s products and services based on his local knowledge of the customer.
The UN report describes a hypothetical customer:
His need is for a minimum of four lights, one each for the kitchen, bedroom, living room and cowshed. However, a deeper understanding of his lifestyle might reveal that while he needs these four rooms to be lighted, the rooms need not be lighted simultaneously.
A smart SELCO salesperson would install technology for four lights but only sell the customer two actual lamps.
The solar technicians literally sat with midwives during nighttime births and calculated budgets with street vendors to determine the ways each used electricity and when it was needed most. Hande explains:
Today, when we design a solution for a midwife, a vegetable vendor or a mason, we begin with the precept that the solution must pay for itself. It should be financed from the additional income that it generates. There is a big difference between creating a want and selling a product, and identifying a need and designing a solution to fulfill it. We always want to focus on the need.
SELCO's name for the individualized, one-day-at-a-time repayment plan for each client, based directly on the cash flow freed up by the solar lights, is "doorstep financing." It's a format the company believes deeply in, going so far as to organize field trips for loan-wielding bankers to show how valuable solar power is to its customers.
Rolling with change
But even the best ideas can fail if the global market takes a turn in the wrong direction, as they did in 2005 when SELCO diversified its supplier base for cheaper products and Germany started subsidizing its solar market causing global prices to plummet. On the edge of financial disaster, Hande stabilized company costs and reassessed its business model. SELCO eventually climbed into profitability by 2008 after a second round of funding from socially-oriented investors such as International Finance Corporation, E+Co, and Good Energies and Lemelson Foundation.
What might have become a fatal crisis for SELCO turned out to be a useful course correction.
“In retrospect, Harish feels that those difficult days helped SELCO not only refine its business model but also to have a better set of investors whose philosophy is aligned to that of SELCO,” concludes the UN study.
SELCO had determined that its success depended on several key practices: reliance on a network of locally connected salespeople, all of them on staff; a strong, flexible relationship with a single reliable supplier, Tata BP; and, above all, an intimate knowledge of the electricity needs of its customers.
Strong relationships with philosophically-aligned investors, suppliers, employees and clients, coupled with an unwavering mission to its social objective, are key to SELCO’s success. This approach is also the reason SELCO’s growth strategy is to replicate itself rather than to scale up the original business; Hande recognizes that for long-term growth, SELCO must continue to operate in the context and communities of the people it serves and understands best. A growth alternative—setting more and more aggressive sales targets in existing locations—might actually lead the company to turn away from the low-income buyers it aspires to serve.
Today, 90 percent of SELCO’s clients pay for their solar systems with credit. SELCO technicians work out of one of the company's 25 energy service centers, which employ 170 people in Karnataka and Gujarat. They have "sold solar lighting to more than 110,000 rural homes and to 4,000 institutions” and, with the help of aforementioned social investors, aim to reach twice that amount.
The UN study concludes with Hande explaining, “It is better if we now focus on building other SELCOs rather than trying to grow this SELCO.”
“Every staffer, including Hande, is an employee," notes Business Today. "The firm does not take out profits but reinvests in the business.”
The result has been a good idea that has led to other good ideas, like a small local startup that leases SELCO lights to street vendors who only need them part of the day. Today, SELCO's "innovation department and incubation laboratory," funded in partnership with the Self Employed Women's Association Bank, sets out to “explore and generate new ideas that can be developed into products and services to address needs of the poor.”
And the benefits of SELCO to its clients? Some cite “the significant savings in energy costs as their primary benefit ... the rest pointed to their children’s education.” The impact on pollution, meanwhile, “is yet to be quantified."
As Hande steps back from the company he founded 15 years ago to focus on other innovations for the poor, SELCO is doing about $3 million in business. Hande feels that could increase to $10 million in the coming years, but he believes that “fresh ideas, fresh legs” from the younger leaders are the ones to take SELCO forward. Social Vigil explains that Hande hopes to “replicate the SELCO model across India” and create six centers of innovation for the poor by 2017. And as Business Today reports, he "wants to reach out to still poorer people, work with the poorest of the poor. He wants 20 percent of SELCO's turnover this year to come from families with a monthly income of Rs 3,000 [USD $55] or less."
The UN findings mark SELCO as a truly market-driven enterprise with sustainable, large-scale impact in rural Karnataka. The hundreds of millions of Indians who lack energy have every reason to hope that SELCO's many reinventions will continue.