What is Green Financing
There is a lot of confusion in terms of exact definition for this term. If you search this term on internet you will find varying definitions. One of the most complete definition can be found in a paper published by German Development Institute as:
[“Green Finance” (] GF [)] comprises all forms of investment or lending that take into account environmental impact and enhance environmental sustainability. A key element of GF is sustainable investment and banking, where investment and lending decisions are taken on the basis of environmental screening and risk assessment to meet environmental sustainability standards.”
Green Tech in India
India is the second more populous country in the world. Its population is over 1.2-1.3 billion people. Energy, water and sanitation needs for such a huge population are tremendous. Ever since its independence – India focused on developing its own industries. Private sector started to become major contributor from 1990s. This created increased demand for energy, waste disposal, water treatment and more. The focus then started to shift towards adopting green tech – hence minimizing impact on the environment.
Government of India has taken numerous concrete steps to show its support for cleaner energy / technology. Most prominent example is the Energy Neutral Cochin Airport and the Chandigarh International Airport at Mohali which is the first airport in the country that is ‘totally green’.
Indian Government has provided clear directive to financial institutions to facilitate clean tech startups / SMEs in India. In this blog post, we will explore various options available to Indian SMEs.
What are the Green Financing Options available
1. SIDBI – Small Industries Development Bank of India: SIDBI was established in 1990s with sole purpose of providing financial assistance to Micro, Small and Medium Enterprises (MSMEs). It is one of the world’s leading development banks. Recently, in order to support micro-business units a completely separate entity – Micro Units Development Refinance Agency (MUDRA Bank). Complete product offerings are listed here. Loads from INR 50,000 to INR 1 million are available under various schemes.
2. SIDBI-KfW Innovation Finance Programme is specially tailored for innovative projects / SMEs in energy efficiency, water and waste recycling, pollution control, and sustainable transport solutions. So far it has provided an estimate assistance of 53 million Euro to various SMEs in India.
3. UNIDO’s Energy Efficiency and Renewable Energy in a close association with Global Environment Facility (GEF) offers financing in Energy Efficiency through SIDBI and Bureau of Energy Efficiency (BEE). Global CleanTech Innovation Program (GCIP) is another excellent venue to showcase your eco-startup and get access to smart capital and recognition. Participants can win up to USD 20,000 in cash and a chance to showcase their startup idea in Silicon Valley.
4. GEF-World Bank Financing Energy Efficiency with SIDBI and BEE programme provides financing in the Energy Efficiency domain through SIDBI and BEE. Around Euro 6.0 million have been disbursed.
5. SIDBI-JICA Energy Saving Line in partnership with Japan International Cooperation Agency (JICA), SIDBI offers financial assistance to MSMEs sector for energy saving investments in plant & machinery / production process to reduce energy consumption, enhance energy efficiency, reduce CO2 emissions. Minimum assistance available through this channel is INR 1 million. Please visit eligibility requirements page for more details.
6. National Bank for Agriculture and Rural Development (NABARD)
NABARD is instrumental in providing financial assistance to farmer and agricultural development. They offer financial assistance for dairy, rural godowns, organic farming, solar energy. They specifically offer two products for green / clean tech:
7. Indian Renewable Energy Development Agency Ltd (IREDA)
IREDA is mainly focused on providing assistance to renewable energy projects. From 2010-2015, IREDA had given funding of EUR 1.4 million, mainly in the renewable energy projects. It has recently launched a funding scheme for rooftop solar startups. Financing for SMEs is sponsored by Germany’s financial cooperation programme with India.
Financing through Banking Sector
Public sector banks in India account for 25% of loans given out to all sectors. Even though financing options for SMEs is rising however their growth is slow. Share of loans to SMEs have risen only 0.1% from 14.6% in 2000 to 14.7% in 2015. In April 2015, an important move was taken to expand priority sector for lending to also consider SMEs (as opposed to only micro and small industries earlier) and renewable energy.
In Renewable Energy sector public and most private sector banks have provided assistance to very large scale projects. It is very difficult to get funding for new or early-stage startups. Only RBL Bank has sponsored projects from small early stage start-ups.
In Energy Efficiency sector two banks stand out among others. Canara Bank’s Energy Saving Loan Scheme for SMEs provides assistance to cover 90% of cost for projects worth up to INR 10 million. (EUR 0.14 million). Bank of Baroda’s Energy Efficiency Financing Scheme provides financing up to 75% of total project cost ranging from INR 500,000 (EUR 7000) to INR 1.0 million (EUR 0.14 million).
In short, future of Eco startups or SMEs look very bright. There are numerous options available for financing your bright eco-friendly idea in India. However, given the size of the country and resources needed – swift availability of capital is not possible. There is much to be done in private sector. Regulations for providing capital to SMEs needed to improved and expanded.