The backbone of India’s economy is formed by micro, small, and medium enterprises (MSMEs), driving job creation, industrial output, and exports. Contributing nearly 30 per cent to the GDP and employing over 110 million people, MSMEs struggle to secure adequate credit. As global priorities shift towards sustainability, MSMEs face pressure to remain competitive while adopting environment-friendly practices. Non-banking financial companies (NBFCs) are well-positioned to facilitate this green transition and climate adaptation, offering tailored credit programs for MSMEs.
Sustainability, as defined by the United Nations Brundtland Commission, involves meeting present needs without compromising future generations’ ability to meet their needs. For MSMEs, adopting sustainable practices can lead to improved operational efficiency, reduced costs, and enhanced market competitiveness. However, adoption rates remain low. A Confederation of Indian Industry (CII) report in 2023 indicated that about 35 per cent of MSMEs are open to sustainability, provided they receive financial support and technical training.
Government initiatives like the Micro and Small Enterprises Cluster Development Programme (MSE-CDP) and Zero Defect Zero Effect (ZED) certification aim to foster a sustainable MSME ecosystem. NBFCs can play a role in providing financial support for MSMEs to integrate sustainability into their operations. By offering green loans and other financial products tailored for sustainability initiatives, NBFCs can lower financial barriers for MSME investments. For example, introducing a loan product with lower interest rates for MSMEs investing in renewable energy installations can encourage sustainable practices.
Government schemes such as increased credit guarantee cover and customised credit cards for MSMEs aim to enhance formal credit access and lending capacity. NBFCs can align their credit offerings with government schemes, offering additional financing options to complement existing subsidies or tax incentives for green investments. Collaborating with government bodies, international organisations, and sustainability experts, NBFCs can create programs to provide MSMEs with the latest information, best practices, and technological solutions for sustainable business practices.
Overall, NBFCs have the opportunity to support MSMEs in their transition to sustainability by offering tailored financial products, aligning with government initiatives, and collaborating with stakeholders to promote green practices. By facilitating access to information, resources, and financing, NBFCs can help MSMEs navigate the complexities of sustainable technologies and integrate them into their operations effectively.
