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Are Foreign Investment Regulations affecting energy access in rural India?

Created Sep 03 2015, 11:03 AM by Boris Lopicich

While banking regulations can be designed to support clean energy access, in some cases, existing regulations can unintentionally impact financing for energy access services. India is a perfect example of this: even having a vibrant off-grid energy market, still 1/3 of its population lack access to energy, partly due to banking regulations in place for security purposes that limit SMEs from utilizing foreign social investors, international crowdfunding, foreign donors and loaners.

As domestic finance is often expensive and resources are limited, many SME’s in India rely on foreign donations and investment for all or part of their capital and operating expenses, especially at start-up. However, such foreign money is subject to multiple regulations, including the Foreign Contribution Regulation Act (FCRA). The act regulates foreign donations as a potential national security threat and places stringent rules with strict penalties on recipients of foreign money. The extensive paperwork, documentation and approvals required, in addition to a ninety-day waiting period, pose a significant hurdle for SMEs—especially those still in the initial start-up phase. In addition, the Reserve Bank of India mandates that loans from foreign sources to MFIs must remain in the country for at least three years before being paid back, adding risk and a large disincentive for foreign investors and lenders.

Where restrictions on foreign investments are included in national banking regulations, policymakers may want to consider their impact on the electricity access market funding and determine whether exceptions for social enterprises are appropriate.

For further information, you might want to check Off-grid energy powered by the crowd | International Institute for Environment and Development or tweet me @borislopicich

Are Foreign Investment Regulations affecting energy access in rural India?

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