Green finance has a last-mile problem
Large solar parks find money easily. The rooftop panel, the e-rickshaw and the efficient motor in a small factory still struggle. Closing that gap is a distribution problem more than a capital problem.
Amogh Suman
India's green finance story is usually told through big numbers: gigawatts of utility-scale solar, sovereign green bonds, large wind projects. Those deals matter, and they are well served. A developer with a long power purchase agreement and a rated balance sheet can raise money from banks, bond markets and global funds.
The harder half of the transition is small and scattered. A dairy cooperative wants a solar chiller. A driver wants to switch to an electric three-wheeler. A foundry wants to replace an old furnace. Each loan is small, the borrower is often thin on paperwork, and the lender has little data on how the asset performs. That is where green finance stalls.
The money side has started to move
The RBI framework for green deposits, issued in April 2023 and effective from June 2023, lets scheduled commercial banks, including small finance banks, and deposit-taking NBFCs raise deposits earmarked for green activities. Lenders must keep a financing framework, track how proceeds are allocated and get that allocation independently verified.
So lenders now have a dedicated pool of funds that has to find green assets. The bottleneck shifts to origination: finding, underwriting and monitoring thousands of small green loans at a cost that makes sense.
The capital is looking for green assets. The small borrower is looking for a lender who understands the asset.
Four pieces a lender has to build
In advisory work on green financing programmes, the same four workstreams keep coming up.
- A taxonomy. A clear list of what counts as green, so a loan officer can tag a loan in seconds and an auditor can check it later.
- Products built for the asset. Tenors that match the payback of a rooftop system or an EV battery, with repayment linked to the savings the asset creates.
- Partners who originate. Installers, dealers and OEMs already meet the borrower. Lending through them cuts acquisition cost and gives better data on the asset.
- Measurement. A simple, credible way to report emissions avoided, so the deposit framework's disclosure requirements are met without a manual exercise every year.
Where blended capital fits
Development finance institutions and dedicated green funds can absorb first losses while lenders learn how these assets behave. Structured as an alternative investment fund, a green fund can pool such capital and lend through NBFCs that already serve small borrowers. Once a few years of repayment data exist, the risk premium falls and mainstream capital follows.
- For lenders: could your loan officers tag a green loan today, and could an auditor verify it?
- For OEMs and installers: which lender could you embed at the point of sale?
- For funds: where would a first-loss tranche unlock the most small-ticket green lending?
Source: Vinod Kothari Consultants on the RBI green deposits framework.