Q: What does SELCO do?
We deliver technology and financing to our clients' doorstep. Both are tailor-made. Our niche is that we know the specific needs of people in rural India—the street vendor, the paddy farmer, and the silk grower. Our primary client base is people who either have no access to energy sources or access to unreliable sources, such as places where the electricity supply cuts power for 8 to 19 hours a day. Here are some examples. Silk farmers grow silkworms in their houses. They typically feed them mulberry leaves every four hours around the clock. This is done in pretty dark settings, so normally they carry candles or kerosene lamps. But a couple of drops of candle wax or kerosene falling on a basket might mean the loss of all the cocoons or silk worms in that basket. We sell a solar light, so there are no fumes and no danger of destroying their product. Another group we serve is flower pickers who generally start collecting between one and three in the morning. By 3:30 they are on a bus to town, to have the flowers for sale when the blossom blooms. There are two approaches to picking. Some pickers carry a flashlight in the left hand and use the right hand to pick. The other approach lets them use both hands by balancing a kerosene lamp on their head. That is dangerous but the cost of batteries for the flashlight over a period of time is expensive. We designed a solar-powered headlamp, which is safe and leaves both hands free. With paddy farmers, they require lighting for the corridor or outdoor space where they thresh rice, peel coconuts, or milk the cow. And inside they want light so children can do schoolwork; also, many of the women do sewing in the evenings, after a day of labor, to extend their hours of income.
Q: What scale of purchase are these lights or headlamps?
Many clients buy systems costing $100–$250. Their income might be $60–$150 a month, on a family basis. For 30–40% of our client base, this is their second-most-expensive purchase, after their house. It might be equivalent to 6 to 12 months' income. They aren't paying for a solar light or headlamp through existing savings, but through financing. They can manage payment through cost reductions compared with existing substitutes. For some the payment costs less than buying kerosene or candles. In other cases, a solar system financed over a period of three or five years, the monthly installment might be 10–15% more than what they were spending on kerosene or candles. After 15 years and 120,000 households, I am still amazed that they willingly pay that extra cost so that their children have something better than they had growing up. It amazes me because when I make a purchase, even one I finance, I'm not going to cut back on tomorrow's lunch in order to do that. For so many of these families, their income has so much instability, that somewhere in the chain it will lead to skipping their lunch. The poor can afford expensive technology, provided that affordable financing makes it possible. But that means that if we aren't supplying good, need-based products it's extremely unethical. And I'm not talking about just good technology; I'm talking about matching their expectations. We only offer products that measurably improve their daily lives. This client base completely trusts you. Delivering what we promise and following up with an after-sale service, if something goes wrong, is mandatory.
Q: Do you consider SELCO a hybrid social enterprise?
It's a for-profit. But all its investors are not-for-profits. The Lemelson Foundation, E+CO, and Good Energies own more than 98% of the organization. So it's a hybrid because we have nonprofit investors, but we don't cross-subsidize any of the processes or the operations by taking soft money. The money is just like any for-profit company; it's hard-core equity. We also have debt from a million dollar loan from the IFC [International Finance Corporation], which is down to $330,000 now.
Q: How did you choose this particular model?
Frankly speaking, when we started this work in the 1990s, there was frustration with the way NGOs ran in India. Even after 60 years of independence, India had the largest number of poor people in the world, despite a huge number of NGOs. We thought a for-profit company would use processes that were sustainable, economically, socially, and environmentally. A for-profit mode was also the only way we could see where the money was going, and whether we were increasing our efficiency. The demands for financial transparency require us to look at the cash flow on a day-to-day basis. I am questioned why it's in the red or it's in the black. With a nonprofit structure, it's always expenses and number of clients, but never how efficient are you with each dollar? If we had not gone to the for-profit mode, we would not have become pioneers in the financial innovations that have made our products affordable for the poor. If we had been a nonprofit, we would have subsidized the capital cost of the good itself. But because we are a for-profit, we are always thinking, "How do we leverage local capital? What is needed to unlock it? How do we leverage local financing? What are the barriers?"
Q: How are you doing in terms of your financials?
We began breaking even in 2000, then made profits up to 2005. At that point Germany implemented a subsidy on solar panels which changed the market and for two years nearly killed us. Now we are back on track. We are sustainable. Over a period of 16 years, we have taken in only $2 million in equity, but that money is mostly still in the bank and we have reached out to more than 120,000 households. That proves that if you can do it in a for-profit mode, you are able to get more for your dollar and reach more families.
Q: My impression is that the bottom line isn't the only way you're judging success. Is that correct?
Exactly. We have 21 centers and we set a target for each one. Suppose the target of a certain branch is $10,000 and 80 households. If they sell systems to two hospitals for $5,000 each, that's fine but you have to reach the 80 households too. And that's very strictly adhered to.
Q: And SELCO is creating entrepreneurs?
Yes, in a few ways. There are entrepreneurs who buy solar lights from us, then rent them to street vendors. If they can rent to 30-40 vendors, the entrepreneur generates an income and the street vendors save compared to the alternative sources of light. They usually spend 10–15% of their income on kerosene for a lamp. Solar is better from a cost perspective and for air quality. Though health reasons are always secondary because for so many the question is immediate survival needs. We also have business associates from different rural areas. They are trusted in their communities and make contacts for us, earning commissions on any eventual sale we make. I would say for 70% of the 150 business associates, this is their primary job. The good ones earn around $300 a month, which is an incredible amount of money for them. The average ones earn $100–$150 a month.
Q: What are your next steps?
A year ago, we accepted our first grant, from the Lemelson Foundation, to create what we call our incubation lab, where we can experiment with solutions for problems in rural life. It's very new. The lab uses a hub-and-spoke model. We don't develop the technology ourselves. We frame the problem and will be highly responsible for the implementation or the modification of the product. The lab is in the rural area, so that we are among the client base. The idea is that both the capturing of the problem and the process of finding a solution are owned by the people who are actually affected. One of the problems that we have solved to date is a hybrid food dryer for bananas or coconut. It uses solar during sunny times and biomass during the monsoons. We're also looking at a humane way to keep wildlife out of crop lands. We are starting to develop a hybrid electric fence. Another problem that we're starting to look at is cheap water purification for different drinking-water supplies.
Q: How much can SELCO scale?
Our plan is to reach 200,000 clients served in the next three or four years. We want to replicate four new enterprises similar to SELCO which have the potential to reach SELCO type of size, not in 15 years that it took us, but in four to five years. We believe in replication, rather than in just scaling up. There are two billion people around the world without electricity. If sustainable energy is going to reach the poor, we need thousands of SELCOs. We want to serve anything that is within a day's bus ride. But because so many of the needs we serve are based on extremely local knowledge we will leave anything beyond that to other entrepreneurs. So this is an open-source organization where people can come to learn. More entrepreneurs will lead to more sustained capital coming into this sector which will lead to better distribution of sustainable technology.
Interview conducted and edited by Ted O'Callahan
For more on SELCO visit the Yale SOM case study.