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India seeks $500m loan from Asian Infrastructure Investment Bank for solar projects

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India hopes to receive one of the first loans issued by the China-led Asian Infrastructure Investment Bank (AIIB) later this year, as it looks to raise $500m for solar power projects from the newly created lender, Indian officials said.

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Funding for clean energy projects would allay fears of environmental lobbyists that the bank’s relaxed lending criteria could promote dirty fuels like coal in developing economies, like India, that are in a hurry to ramp up energy output.

The multilateral investment bank, which has authorised capital of $100bn, plans to join global clean-energy initiatives, and could fund eco-friendly investment projects to avoid allegations of promoting pollution.

India, the bank’s second biggest shareholder after China, is looking to borrow from the AIIB, a senior official said, to back prime minister Narendra Modi’s plan of expanding installed solar capacity to 100 gigawatts by 2022.

“In about six months, funds could start flowing from AIIB,” Tarun Kapur, joint secretary at the Ministry of New and Renewable Energy, told Reuters.

Interest on the loan is likely to be 2-2.5% and would be linked to Libor – a floating benchmark based on the rate at which commercial banks lend to each other – for a term of over 15 years.

The AIIB, which is headquartered in Beijing and was launched in January, did not comment directly on borrowing by India but said it was developing a project pipeline in a number of countries.

“It is expected that the first loan decisions will be taken later this year,” it said in written answers to questions submitted by Reuters.

India is in talks with the World Bank, the Asian Development Bank, Germany’s KfW and the New Development Bank, set up by big emerging economies that form the BRICS bloc, to raise more than $3bn in the financial year that starts on 1 April.

India has requested $500m in financing from the ADB to support rooftop solar, and a similar sum to expand transmission networks to connect to solar parks. The ADB signed a cooperation agreement with the US Agency for International Development (USAID) to back the solar power expansion.

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