Reforming capital subsidy scheme to finance energy transition for the below poverty line communities in rural India

India's rural poor are caught in a downward energy poverty cycle with either a lack of access to modern energy sources or reliable grid electricity supply. Overcoming these barriers will require strategies that account for extremely low levels of income, lack of access to finance, poor awareness of alternative energy technologies and deficient post-installation service on solar home systems (SHSs). Our study is novel in examining reasons accounting for the slow adoption of SHSs in rural areas from the perspective of a rural (Grameen) bank. We reveal current government energy policies especially SHS subsidy scheme, largely exclude those below the poverty line. This self-induced socioeconomic barrier, in turn, limits the involvement of the banking sector who report additional barriers including higher lending costs and financial risks coupled with internally restrictive lending practices. We propose a revised framework the Rural Energy Transformation through Pro-Poor Subsidy to support an SHS capital subsidy scheme which specifically includes below poverty line households, and incorporates an electronic subsidy disbursement mechanism designed to improve efficiency and effective delivery between five key actors. These include the National Bank for Agriculture and Rural Development, the Regional Rural Banks and suppliers deploying and maintaining subsidised SHS and the rural households. The framework would establish a contractual partnership between banks and suppliers, and at a policy level would require the government to mandate banks to lend at low margins and offer dedicated subsidy benefits to low-income populations to enable a rural energy transformation.