Financing Low Carbon Transition in India’s MSME Sector

The report analyzes the financing of low carbon transitions for India's MSME sector, which is highly GHG intensive due to fossil fuel reliance. It identifies a significant credit gap—estimated at USD 240 billion in 2018—and a lack of awareness and technical capacity as primary barriers. While national schemes like RAMP and ZED certification exist, the report finds fragmented implementation and varying levels of alignment between central and state policies, noting that Gujarat partially aligns with national goals while Maharashtra shows significant divergence. Recommendations include scaling incentive-based models, leveraging supply chain pressure from large companies, and mobilizing international climate finance.

• India's MSME sector is highly GHG intensive, consuming approximately 25% of the industrial sector's total energy, with 85% of that consumption coming from thermal energy.
• There is a massive financing gap for MSMEs in India; as of 2018, the credit gap was estimated at USD 240 billion (approximately INR 16.66 trillion), and only 16% of MSMEs are financed through formal banking systems.
• The climate finance landscape in India is fragmented, involving a mix of central authorities, state-level actors, international funds, and private/public bodies.
• National legal frameworks, such as the MSME Development Act and the Energy Conservation Act, lack specific directions for transitioning the MSME sector toward a low-carbon economy.
• Gujarat's 2020 Industrial Policy partially aligns with the central government's low-carbon agenda, focusing primarily on the adoption of advanced energy-efficient technologies, though it lacks a holistic approach to market access and credit.
• Maharashtra's industrial policy shows significant divergence from national LCT goals, with over 75% of identified sub-parameters not aligning with central policies and a notable lack of capacity-building frameworks.
• Major barriers to LCT financing include a lack of awareness among MSMEs, high upfront capital costs for green technologies, acute scarcity of emissions data, and stringent bureaucratic procedures for accessing international funds like the GCF.
• Multi-stakeholder partnerships (MSPs), such as the BEE-UNIDO-GEF and JICA-SIDBI initiatives, are identified as effective tools for leveraging additional finance and reducing technical risks for MSME clusters.
• The report recommends that large companies in hard-to-abate sectors encourage their MSME suppliers to adopt greener processes by reporting on source materials and including Scope III emissions in disclosures.
• To improve financial access, the report suggests adopting innovative models such as blended finance, revolving finance mechanisms, and an account aggregator framework to reduce non-performing assets and fraud.

APA

Goel, S., Biswas, D. A., Banerjee, S., & Kedia, S. (2022). Financing Low Carbon Transition in India’s MSME Sector. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2022/09/220909_Report_India.pdf

Chicago

Goel, Shubhi, Dorothy Ashmita Biswas, Soham Banerjee, and Shailly Kedia. Financing Low Carbon Transition in India’s MSME Sector. Climate Strategies, 2022. https://climatestrategies.org/wp-content/uploads/2022/09/220909_Report_India.pdf.

Wikipedia

{{cite report |last1=Goel |first1=Shubhi |last2=Biswas |first2=Dorothy Ashmita |last3=Banerjee |first3=Soham |last4=Kedia |first4=Shailly |title=Financing Low Carbon Transition in India’s MSME Sector |publisher=Climate Strategies |date=September 2022 |url=https://climatestrategies.org/wp-content/uploads/2022/09/220909_Report_India.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{goel2022financing, author = {Goel, Shubhi and Biswas, Dorothy Ashmita and Banerjee, Soham and Kedia, Shailly}, title = {{Financing Low Carbon Transition in India’s MSME Sector}}, institution = {Climate Strategies}, year = {2022}, month = sep, url = {https://climatestrategies.org/wp-content/uploads/2022/09/220909_Report_India.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }