Transitional Foreign Exchange Debt Platform: Paths to Enable Foreign Currency Debt to the Rooftop Solar Sector in India

The document identifies that low access to debt capital hinders India's goal of 40 GW of rooftop solar by 2022. It argues that while foreign debt could bridge this gap, small-scale developers are precluded from using it due to foreign exchange (FX) risk and their inability to access commercial hedging instruments like cross-currency swaps due to poor credit ratings. The proposed 'Transitional FX Debt Platform' routes USD loans from the Overseas Private Investment Corporation (OPIC) through a local private Indian financial intermediary that lends in INR to borrowers. To make this viable, the platform utilizes OPIC credit guarantees to mitigate borrower default risk and donor grants to subsidize the landed cost of debt, ensuring it remains competitive with domestic benchmark rates. The study estimates that every $1 of donor grant capital could leverage $17 to $34 of additional foreign debt into the sector.

• Small-scale rooftop solar developers in India face significant barriers to accessing foreign currency debt because they cannot hedge foreign exchange risk. These barriers include the high counterparty credit risk associated with cross-currency swaps, which makes authorized dealers "unable or unwilling to take on the counterparty credit risk" for developers with revenues under $30 million and poor credit histories.
• Existing options-based hedging strategies are unsuitable for the target sector. Long-only options are either too costly to provide adequate protection or have tenors limited to 5-7 years, which is too short for typical loan durations. Structured options (bear call FX spreads) are restricted by Reserve Bank of India regulations to listed companies or unlisted companies with a minimum net worth of INR 2 billion, a threshold most USICEF borrowers do not meet.
• The proposed Transitional FX Debt Platform overcomes market gaps by using a private sector Indian financial institution as an intermediary. This intermediary borrows in USD from OPIC and lends in INR to borrowers, managing the FX risk through its own treasury or financial markets. To protect the intermediary, OPIC provides a credit guarantee against the end borrower's default.
• Due to inefficient USD-INR swap pricing, the landed cost of debt for the intermediary (estimated between 11.95% and 12.45% without support) often exceeds domestic benchmark rates. The study recommends using donor grants from philanthropic foundations to subsidize these costs, targeting a lending rate close to the market benchmark of 11.5% set by the IREDA-KfW Renewable Energy Program.
• The financial leverage of the proposed platform is high, with an estimated grant capital requirement between 0.45% and 0.95% of the debt capital annually. This means each dollar of public donor finance can enable $17 to $34 of additional private foreign debt for the rooftop solar sector.

APA

Atal, V., Purkayastha, D., & Shrimali, G. (2018). Transitional Foreign Exchange Debt Platform: Paths to Enable Foreign Currency Debt to the Rooftop Solar Sector in India. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2018/06/Transitional-Foreign-Exchange-Debt-Platform_Paths-to-Enable-Foreign-Currency-Debt-to-the-Rooftop-Solar-Sector-in-India-1.pdf

Chicago

Atal, Vinit, Dhruba Purkayastha, and Gireesh Shrimali. Transitional Foreign Exchange Debt Platform: Paths to Enable Foreign Currency Debt to the Rooftop Solar Sector in India. Climate Policy Initiative, 2018. https://www.climatepolicyinitiative.org/wp-content/uploads/2018/06/Transitional-Foreign-Exchange-Debt-Platform_Paths-to-Enable-Foreign-Currency-Debt-to-the-Rooftop-Solar-Sector-in-India-1.pdf.

Wikipedia

{{cite report |last1=Atal |first1=Vinit |last2=Purkayastha |first2=Dhruba |last3=Shrimali |first3=Gireesh |title=Transitional Foreign Exchange Debt Platform: Paths to Enable Foreign Currency Debt to the Rooftop Solar Sector in India |publisher=Climate Policy Initiative |date=June 2018 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2018/06/Transitional-Foreign-Exchange-Debt-Platform_Paths-to-Enable-Foreign-Currency-Debt-to-the-Rooftop-Solar-Sector-in-India-1.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{atal2018transitional, author = {Atal, Vinit and Purkayastha, Dhruba and Shrimali, Gireesh}, title = {{Transitional Foreign Exchange Debt Platform: Paths to Enable Foreign Currency Debt to the Rooftop Solar Sector in India}}, institution = {Climate Policy Initiative}, year = {2018}, month = jun, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2018/06/Transitional-Foreign-Exchange-Debt-Platform_Paths-to-Enable-Foreign-Currency-Debt-to-the-Rooftop-Solar-Sector-in-India-1.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }