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How SIDBI is helping MSMEs go ‘green’ in line with India’s climate commitments

By Prerna M

Sustainability for MSMEs: India’s ‘Panchamrit’ goal announced by Prime Minister Narendra Modi at the 26th session of the Conference Of Parties (COP26) conference in Glasgow in November last year has once again underscored the significance of encouraging sustainable or environment-friendly businesses practices. Enterprises in fact need to keep a close check on their carbon footprints to help India meet at least four of its five panchamrit targets by 2030, viz. increasing India’s non-fossil energy capacity to 500 GW, meeting 50 per cent of the country’s energy needs from renewable energy, reducing carbon emissions by 1 billion tonnes, and lowering the carbon intensity of the economy by less than 45 per cent.

Given the enormous size of the MSME sector with around 6.5 crore businesses, helping them go ‘green’ with affordable access to finance would help the country to be compliant with its climate change commitments. Here, the role of the Small Industries Development Bank of India (SIDBI), the principal financial institution for the promotion, financing, and development of the MSME sector assumes significance.

For the uninitiated. green businesses are ones that prioritize minimizing the environmental impact of the company instead of maximizing the profit. This may include the adoption of renewable energy. Towards this, SIDBI in February this year had set up a dedicated vertical with an objective to increase the resilience of the MSME sector to combat climate change and with a view to facilitating the greening of MSMEs in line with the COP26 goals.

Among other developmental efforts by SIDBI towards greening MSMEs have been the Srijan scheme to provide highly concessional loans up to Rs 2 crore per project at 3-5 per cent per annum interest rate for innovative technology projects that have either reached the pre-commercialization stage or have tested the market and are ready for scale-up. SIDBI has also refreshed the corpus of its End-to-End Energy Efficiency (4E) scheme channelized in joint collaboration with the World Bank. The scheme intends to support energy efficiency and solar projects with a quicker dispensation of term loans up to Rs 3 crore at 4.90-7 per cent interest rates.

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SIDBI has also launched a Green Finance Scheme in March this year to support green projects such as water management efficiency, wastewater treatment, carbon capture and storage, environment protection, green building, and more in the MSME sector with up to Rs 20 crore assistance.

However, MSMEs have been hesitant to invest in green financing projects due to a lack of access to funds. “To kindle energy investments, businesses need substantial investments and most green finance projects have higher transaction costs and longer gestation period, for example, the cost of capital and its availability is a challenge for MSMEs in low carbon technologies. Businesses require a factor of incentive or subsidy for green investment,” said Ravindra Kumar Singh, CGM, SIDBI in his masterclass session at MSME Business Conclave organised by Financial Express Online last week.

Singh suggested providing MSMEs access to trusted advisory services for technology transfer and conducting energy audits along with providing credible business service providers to support MSMEs with green investments.

Moreover, “Green financing requires non-financial support as well by creating awareness for it…Provision of soft infrastructure for the skilling and upskilling and hard infrastructure such common facilities such as lab testing centres must be made available for MSMEs,” he added.

To further encourage green investments, Singh noted that a better rate of interest is required for such investments while brown investments or projects that are not climate-friendly should be taxed more.

Also, bankers must prepare the Environment Social Governance (ESG) framework on their part for balancing their investments towards environmental responsiveness while MSMEs too should comply with requirements of their state pollution control board by using energy-efficient equipment along with social aspects such as the provision of a safe working environment and afforestation, according to Singh.

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