India’s notable and sustained economic growth gave rise to the demand for energy resources. The MSME sector plays a major role in the Indian economy and is one of the largest consumers of energy. Hence, using alternate energy options, particularly renewable energy sources, is one of the most desirable ways to address demand increase in the short term, while diversifying energy infrastructure and improving energy security.
The MSME sector is expected to contribute greatly to achieving the government’s target of building 40 GW of rooftop solar capacity by 2022. However, the adoption and growth of MSME rooftop solar in the MSME sector in India is yet to pick up. Scaling up rooftop solar in the MSME sector in India needs addressing various issues such as the lack of low-cost financing. Financial institutions are often unwilling to lend to MSMEs because they prefer borrowers with strong financial track records and good corporate credit ratings.
MSME sector is largely untapped and it has the potential to drive large-scale rooftop solar adoption in India if accessible financing were made easily available to them. MSMEs face many obstacles in obtaining financing for rooftop solar installations, including insufficient credit history, lack of collateral and long-term uncertainties in their businesses.
Steps Being Taken
Credit enhancement schemes like the World Bank’s upcoming first-loss guarantee fund and a US$41 million line of credit from the U.S. Agency for International Development (USAID) and DFC are examples of steps being taken to make financing for rooftop solar more accessible to MSMEs. Schemes like these allow lenders to absorb risks and increase access to collateral-free loans. Further, loans from national and regional banks and non-banking financial companies (NBFCs) have also started to offer one-stop financing options. This type of financing is likely to scale up, particularly as most big lenders and concessional credit lines are largely focused on the major rooftop solar developers.
Sufficient support to MSMEs becomes important from the point of view of accelerating the growth of rooftop solar amongst MSMEs. Suprabha’s program aims to design a mitigating product or a framework that enables greater lending to MSMEs for the uptake of rooftop solar.
