Why most MSMEs in India don't know what's 'green' in green financing
According to Kinara Capital, nearly three in four MSMEs reported being unaware of green financing solutions, while 11.2% were discouraged due to a lack of clarity around the process.
India’s micro, small, and medium enterprises (MSMEs) are increasingly motivated to adopt sustainable practices, yet knowledge gaps remain a critical barrier.
The 5th edition of MSME Insights by Kinara Capital, which surveyed 3,649 MSMEs across more than 100 cities, found that nearly three out of four respondents (73.2%) were unaware of available green financing solutions. Another 11.2% cited lack of clarity in the process as a deterrent, highlighting that the challenge is one of awareness rather than intent.
Green financing is becoming essential for businesses, particularly in resource-intensive sectors, to transition responsibly. Such financing supports investments in energy-efficient machinery, solar-powered equipment, electric vehicles, and waste management solutions, initiatives that can reduce operational costs while contributing to India’s net-zero targets.
Despite these awareness gaps, MSMEs demonstrate strong credit readiness. More than half (51.7%) of those who applied for green loans successfully secured funding. Interestingly, only 3.7% identified lack of rewards as a barrier, suggesting that the drive to adopt sustainable practices is motivated more by operational improvements and long-term competitiveness than by financial incentives.
The survey also highlighted evolving lender preferences. Nearly half of MSMEs (46.7%) accessed green financing through NBFCs and fintech providers, compared with 24.1% via private banks and 17.5% through national banks. This shift reflects a demand for faster, more flexible, and technology-driven credit solutions.
Looking ahead, the intent to adopt sustainable measures remains robust.
Among MSMEs planning to seek financing in the next year, 74.2% intend to channel funds into sustainable upgrades, while 24.9% plan to adopt multiple green solutions simultaneously. This indicates a careful balance between cost-conscious decision-making and long-term resilience.
However, structural gaps in India’s green financing ecosystem continue to limit adoption. According to the Council on Responsible Finance, one major challenge is the lack of consistent definitions of what qualifies as 'green' for MSMEs.
Different financial institutions and government programmes recognise green initiatives differently, creating uncertainty for enterprises and limiting uptake. Policy misalignment across ministries and banks further compounds the problem, leaving MSMEs unsure about eligibility and the types of investments supported.
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Government initiatives such as the MSME GIFT Scheme (Green and Inclusive Financing for Transformation) were specifically designed to address these gaps. The scheme offers concessional financing, technical assistance, and support for renewable energy adoption, energy-efficient technology upgrades, and sustainable waste management. Yet, despite these provisions, adoption has been limited due to procedural complexity and insufficient awareness at the ground level.
The findings from Kinara Capital underscore a clear structural challenge: MSMEs are motivated and capable of embracing sustainable practices, but the lack of adequate knowledge about financing options and fragmented delivery continues to slow their transition to a greener economy.
Edited by Kanishk Singh