Drivers and Challenges for Rooftop Solar Loans to Small and Medium Enterprises in India

The report evaluates the CAPEX loan model as a way to scale rooftop solar for Indian MSMEs, who struggle with the high upfront costs of the CAPEX cash model and the bankability issues of the RESCO model. Analysis shows the CAPEX loan model can be up to 14% cheaper than the RESCO model, primarily due to accelerated depreciation benefits. However, adoption is hindered by lender disinterest—driven by perceived credit risks and high transaction costs for small projects—and a lack of awareness among MSMEs. The authors recommend implementing partial risk guarantee funds, mandatory O&M contracts, EPC performance guarantees, and standardized solar loan products to mitigate these risks and reduce costs.

• India has significantly underperformed in its rooftop solar targets, achieving only 2 GW of the 40 GW targeted by 2022.
• The CAPEX loan model is financially more attractive than the RESCO model, with a potential cost reduction of up to 14% over the project's life, largely because of accelerated depreciation benefits.
• Lender disinterest is the most severe barrier to the CAPEX loan model, caused by information asymmetry regarding borrower credit risk, perceived performance risks of solar projects, and high transaction costs for small-ticket loans.
• Performance risks that deter lenders include sub-par equipment quality, inadequate operation and maintenance (O&M), and erratic weather patterns in India.
• MSMEs face specific financial constraints that limit solar adoption, including a lack of awareness about technical and economic viability, over-leveraged balance sheets, and the high opportunity cost of investing in non-core business activities.
• To mitigate credit risk and lower interest rates for MSMEs, the report recommends the creation of a partial risk guarantee fund using public funds.
• To address performance and quality risks, the report proposes mandatory O&M contracts and minimum generation guarantees provided by EPC contractors.
• The report suggests that banks develop a standardized solar loan product with defined assessment procedures and templates to reduce the transaction time and cost of small rooftop projects.
• Standalone solar insurance is recommended to cover resource and generation risks caused by unpredictable weather.

APA

Sinha, J., Joshi, S. S., & Shrimali, G. (2018). Drivers and Challenges for Rooftop Solar Loans to Small and Medium Enterprises in India. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2018/10/Drivers-and-Challenges-for-Rooftop-Solar-Loans-to-Small-and-Medium-Enterprises-in-India.pdf

Chicago

Sinha, Jolly, Sagar Srijan Joshi, and Gireesh Shrimali. Drivers and Challenges for Rooftop Solar Loans to Small and Medium Enterprises in India. Climate Policy Initiative, 2018. https://www.climatepolicyinitiative.org/wp-content/uploads/2018/10/Drivers-and-Challenges-for-Rooftop-Solar-Loans-to-Small-and-Medium-Enterprises-in-India.pdf.

Wikipedia

{{cite report |last1=Sinha |first1=Jolly |last2=Joshi |first2=Sagar Srijan |last3=Shrimali |first3=Gireesh |title=Drivers and Challenges for Rooftop Solar Loans to Small and Medium Enterprises in India |publisher=Climate Policy Initiative |date=October 2018 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2018/10/Drivers-and-Challenges-for-Rooftop-Solar-Loans-to-Small-and-Medium-Enterprises-in-India.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{sinha2018drivers, author = {Sinha, Jolly and Joshi, Sagar Srijan and Shrimali, Gireesh}, title = {{Drivers and Challenges for Rooftop Solar Loans to Small and Medium Enterprises in India}}, institution = {Climate Policy Initiative}, year = {2018}, month = oct, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2018/10/Drivers-and-Challenges-for-Rooftop-Solar-Loans-to-Small-and-Medium-Enterprises-in-India.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }