Microfinance Focus July 12, 2011: The Asian Development Bank (ADB) is providing a $400 million loan facility to help the Indian state of Madhya Pradesh, provide reliable, 24-hour electricity to rural households that will open up business and employment, along with better educational opportunities for the poor.

The ADB Board of Directors approved the multitranche financing facility which will support the second phase of the state’s ongoing $1.1 billion energy efficiency investment program to improve power distribution infrastructure in 32 districts. Under the first tranche, ADB will provide $200 million.

An official from ADB confirmed that the investment program will benefit over 2.6 million households and provide new power connections to 1.3 million homes.

At present, the overuse of electricity for irrigation provided through a single distribution feed leaves households short of power for much of the day. Ageing and overloaded distribution lines and transformers also result in large technical losses and poor quality supplies.

ADB’s loan funds will be used to help establish separate power feeders for households and agricultural use, install high-voltage distribution systems, provide new power connections and improve the financial sustainability of the distribution companies.

ADB is also providing linked technical assistance of $1 million to train poor women in target districts as entrepreneurs to take advantage of the new economic opportunities that will emerge with the advent of uninterrupted power to their rural communities.

Madhya Pradesh’s demand for power has been rapidly rising in tandem with increasing economic growth in the state, and ADB has been working closely with the authorities to support electricity sector reforms. As a result of measures taken over the past seven years, 85% of villages now have access to electricity and 60% of households have formal power connections.

Along with ADB’s financing, the Government of Madhya Pradesh and three state distribution companies will provide $156 million for the second phase of the investment program, totaling $556 million. ADB’s first tranche loan has a 25-year term with a grace period of five years and interest determined in accordance with ADB’s LIBOR-based lending facility. The technical assistance grant comes from ADB’s concessional Technical Assistance Special Fund. The state distribution companies will carry out the program which is expected to be completed by February 2015.