YES Bank’s ‘blended finance facility’ to the rescue of Rann of Kutch’s salt farmers

YES Bank claims to have developed a first-of-its kind “blended finance facility” for traditional salt farmers in Gujarat’s Rann of Kutch.

“It is aimed at facilitating access to mainstream debt finance for women salt farmers, basically for transitioning from energy-inefficient diesel pumps to eco-friendly solar pumps. In the pilot phase, 200 women salt farmers were brought into mainstream banking. The facility combines grants from the bank with financial services provided by the local co-operative bank and the support of an NGO as a local implementing agency on the ground,” said Namita Vikas, Group President and Global Head, Climate Strategy and Responsible Banking, YES Bank.

She went on to explain how this climate-smart blended finance intervention has helped address the issue of income inadequacy and debt burden, which farmers in the Rann of Kutch area face every year.

Rann of Kutch is a salt marsh, which accounts for more than 75 per cent of the salt production, and is considered among the single-largest locations for salt production in the world. The region, which is also the home of the expansive Thar desert, experiences extremely hot temperatures.

A community of traditional salt farmers, known as ‘Agariyas’, have been carrying on this trade for centuries. Salt production is seasonal – between November and April every year – and is their primary means of livelihood.

As the area stays flooded for the rest of the year, salt farmers are forced to vacate salt pans and seek alternative means for sustenance.

These farmers follow the conventional method, which involves drawing the brine from the ground and allowing the sunlight to evaporate it, which leaves salt crystals behind. They had, over the past decade, taken to diesel-powered pumps to draw brine into salt pans.

The rising cost of diesel, coupled with the extremely low price for salt (₹60 per tonne), made production unviable. Salt farmers had to depend heavily on unorganised money lenders to make ends meet. They could not afford basic necessities and their plight worsened due to the release of toxic fumes from diesel pumps, Vikas told BusinessLine .

What is blended finance?

“After understanding the plight of the salt farmers, we developed this blended finance facility, which has the potential to address multi-fold challenges. The facility has a component that addresses the perceived high default risk to the local lender, posed by the farmers, owing to their current financial condition and lack of formal credit history,” said Vikas.

The bank provides grants towards credit enhancement (a default guarantee to the cooperative bank) and credit affordability (interest subvention to the cooperative bank). On the basis of the credit enhancement and credit affordability grants to the local cooperative bank, it provides affordable five-year tenor loans to farmers for buying solar pumps. The repayment is matched with cash flow cycle.

As solar pumps are six times more efficient than diesel pumps, it has helped increase productivity, reduce production cost, and improve income.

“The intervention has had a positive impact on the environment. Each solar pump has helped reduce 2.7 tonnes of carbon dioxide,” added Vikas.

COMMENT NOW