green

Green growth may be defined as the use of eco-friendly resources to enhance processes and
generate output in a sustainable way. Green financing is the practice of giving financial resources
to encourage green economic development (Soundarrajan and Vivek, 2016). With rises of 7.1-
2.6% predicted between 2022 and 2023, India is hailed as having the world's fastest-growing
economy (Zeebiz, 2022). As the primary source of funding for infrastructure and development
projects, fossil fuel-related energy investment is still significantly prioritized, and if this trend is
allowed to continue, it might have a negative impact on the environment. According to
estimates, 120 million Indians are employed by Micro, Small, and Medium-Sized Enterprises
(MSME), which also account for around 45% of the country's exports (Confederation of Indian
Industry, 2022). India's economy has constantly benefited from the vital contributions of more
than 63 million MSMEs nationwide, which have contributed a total of 30% of the nation's GDP
in 2020. (India Brand Equity Foundation, 2022). By lowering reliance on limited resources,
green finance for MSMEs may help combat climate change and promote environmental, social,
and economic sustainability.
Green funding is available to MSMEs, however, constraints such as a lack of knowledge,

financial literacy, collateral, and antiquated technology or procedures impede MSMEs from
receiving the money. Strategies for reducing or eliminating these issues are crucial to the Indian
economy. The adoption of Green Financing for MSMEs can play an important part in lowering
India's carbon footprint while also favorably benefiting the economy through higher economic
development and productivity, supporting greater societal welfare.
TABLE OF CONTENT
LIST OF TABLES...........................................................................................................................4
LIST OF FIGURES.........................................................................................................................5
CHAPTER 1: INTRODUCTION....................................................................................................6
1.1. Background.......................................................................................................................6
1.2. Rationale...........................................................................................................................7
1.3. Scope.................................................................................................................................8
1.4. Aim....................................................................................................................................8
1.5. Research Objectives..........................................................................................................8
1.6. Influential Theories...........................................................................................................9
1.7. Methodology...................................................................................................................10
1.8. Paper Structure................................................................................................................10
CHAPTER 2: LITERATURE REVIEW.......................................................................................12
2.1. Introduction.....................................................................................................................12
2.2. Green Financing within the MSME Sector in India.......................................................12
2.3. Main Drivers Influencing the Need for Green Financing...............................................13
2.3.1. Climate Change.......................................................................................................13
2.3.2. Policy and Regulatory..............................................................................................14
2.3.3. International Initiatives............................................................................................15
2.4. Barriers in Accessing Green Financing for MSMEs in India.........................................15
2.4.1. Risk vs reward.........................................................................................................15
2.4.2. Lack of Education, Interest, Information and Access to Lenders in the MSME
Taxonomy...............................................................................................................................16
2.4.3. Capital constraints /Unrealistic expectations / bureaucracy to access.....................17
2.5. Benefits of Green Financing in the MSME sector in India.............................................17
2.5.1. Promote Economic Growth.....................................................................................17
2.5.2. Promotion of Eco-friendly industries......................................................................19
2.5.3. Better Environment through green industries and technologies..............................20
2.6. Strategic Finance for Green Financing for MSMEs in India..........................................21
2.6.1. Risk Management....................................................................................................21
2.6.2. Corporate Governance.............................................................................................22
pg. 1
2.6.3. Strategic Investment................................................................................................22
2.6.4. Investment Financing...............................................................................................22
2.7. Conclusion of Literature Review....................................................................................23
CHAPTER 3: SYSTEMATIC REVIEW AS METHOD OF ANALYSIS...................................24
3.1 Stage 1 - Scope of the Study...........................................................................................25
3.1 Stage 2 – The Search Process.........................................................................................25
3.3 Stage 3 – Evaluation of Quality......................................................................................26
3.4 Stage 4 – Source of the Research....................................................................................26
3.5 Stage 5 – Descriptive Summary......................................................................................27
3.6 Stage 6 – Analysis...........................................................................................................27
3.7 Stage 7 – Conclusion.......................................................................................................36
CHAPTER 4: DISCUSSION........................................................................................................37
4.1. Green Financing within the MSME Sector in India.......................................................37
4.2. Assessment of the Main Drivers Influencing the Need for Green Financing.................37
4.3. Assessment of Barriers in Accessing Green Financing for MSMEs in India.................38
4.4. Assessment of Benefits of Green Financing in the MSME sector in India....................39
CONCLUSION..............................................................................................................................40
RECOMMENDATIONS...............................................................................................................42
REFERENCES..............................................................................................................................44
pg. 2
LIST OF TABLES
Table 1 – Details of the Search Process.........................................................................................25

Table 2 - Data Extraction...............................................................................................................27
Table 3 - Descriptive Summary.....................................................................................................31
pg. 3
LIST OF FIGURES
Figure 1 – Five Approaches to Aligning Financial System to Sustainable Development...............9

Figure 2-Classification of MSMEs in India...................................................................................13
Figure 3 - India's Estimated MSMEs Distribution by Sector........................................................18
Figure 4 – MSMEs Training on Garment Manufacturing in India................................................18
Figure 5 - MSMEs Training on Sanitizers Manufacturing in India...............................................19
Figure 6 - Training provided by KVIC institutions.......................................................................21
Figure 7 - Risk Management Process............................................................................................21
Figure 8 - Stages of a Systematic Literature Review....................................................................24
Figure 9 - Inclusion and Exclusion criteria of Research................................................................26
pg. 4
CHAPTER 1: INTRODUCTION
Green growth can be categorized as the utilization of ecofriendly mediums to improve operations
and produce output in an environmentally friendly manner. The activity of providing financing to
support green growth is termed as Green Financing (Soundarrajan and Vivek, 2016). India is
touted as being the world’s fastest growing economy with forecasted increases of 7.1-7.6 percent
from 2022 to 2023 (Zeebiz, 2022). Financing being the key driver for development and
infrastructure projects remains heavily focused on fossil fuel related energy investment which if
continued the current trajectory can lead to detrimental environmental effects. Investment
continues to be influenced by short term financial profitability rather than long term
sustainability goals (Woo et al., 2019). Both public and private financing actors play critical
roles in the attractiveness and accessibility of green financing and influence institutions
willingness to finance long term green projects (Mazzucato and Semieniuk, 2018). Indian Micro,
Small and Medium Enterprises (MSME) are said to provide employment for approximately 120
million people and contribute about 45% of India’s exports (Confederation of Indian Industry,
2022). The invaluable contributions of over sixty-three million MSMEs countrywide have
consistently aided India’s economy, buffering the effects of economic shocks and have
contributed a total of 30% of the country’s GDP in 2020 (India Brand Equity Foundation, 2022).
Access and adoption to green financing for MSMEs can collectively positively impact climate
change by reducing reliance on scarce resources, leading to environmental social and economic
sustainability.
1.1. Background
70% of India’s harmful emissions emanate from the growing MSME sector causing major
setbacks to the country’s drive towards sustainability (Sugin and Soundara Raja, 2017). The
Global Climate Risk Index of 2021 identifies India as the seventh most vulnerable country likely
to suffer from negative impacts due to climate change (Mahesh et al., 2022). Based on the
United Nations Environment Programme’s findings, India is projected to experience temperature
increases of more than 3 degrees Celsius within the century based on the current trajectory.
These increases can cause snowballing effects on poverty and a downturn in the economy
(Chaudhry, 2022).
pg. 5
The Government of India has stated ambitions to grow the Indian economy to $10 trillion within
the coming eight years which although gargantuan in nature can only be achieved by a relatable
increase in productivity. Some government strategies include the “Make in India” initiative
which promotes the country’s attractiveness for Foreign Direct Investment within the
manufacturing industry in addition to local incentive schemes for an increase in production for
supply to the export markets (IBEF, 2022). This ramp up in productivity can have detrimental
effects on the environment if not managed. India, having committed to net zero carbon emissions
by 2070 must implement measures to support this commitment. MSMEs are a major contributor
to negative environmental impacts and the need for sustainable green practices cannot be ignored
within the sector (Chaudhry, 2022). Given the public perception that financing for MSMEs are
difficult to obtain, the sector would traditionally obtain less formal means of financing such as
borrowing from friends and family members to fulfill business needs. Embedded in this scenario,
is the propensity for these businesses to cling to the most cost-effective fiscal management and
capital investment strategies which in most cases are not green. Bureaucracy together with
inefficient, non-transparent procedures have spurred on financing hesitancy within the
community forcing these companies to rely on conventional practices which may not support the
country’s drive towards a greener more sustainable future (George, 2022). As such an evaluation
of the current barriers to the acquiring of green financing and strategies for the reduction or
elimination of this woes is critical to the Indian economy.
1.2. Rationale
MSMEs have been found to have more detrimental outcomes stemming from the effects of
climate change as well other shocks and have more difficulty in recovery due to financial
shortcomings. They contribute 70% pollution derived from manufacturing (Sugin and Soundara
Raja, 2017). Access to expedient and requisite green financing to meet the needs of the growing
MSME sector in India can positively impact the Indian economy. Environmentally and socially
responsible practices gives businesses favourable consideration from clients and investors giving
the companies opportunities to become more productive and profitable (Kamarun et al., 2020).
MSME investment through green financing can create long term value by allowing them to
buffer the effects of resource scarcity.
pg. 6
Through green financing MSMEs can transform business operations to models that are more
ecofriendly and promote and implement sustainable practices benefiting the country’s
environment, people and the economy (Pathak et al. 2014). Ready access to and adoption of
Green Financing for MSMEs can play an integral role in reducing India’s carbon footprint, while
positively affecting the economy through increased economic development and productivity
thereby promoting greater societal wellbeing (Soundarrajan and Vivek, 2016.)
1.3. Scope
This report’s scope captures the availability and accessibility of Green Financing to Micro, Small
and Medium Enterprises in India highlighting the main drivers, trends, obstacles and barriers
together with feasible courses of action to encourage adoption through less bureaucratic policies
and procedures in the financing community.
1.4. Aim
This report aims to critically analyze Green Financing accessibility and adoption in the Micro,
Small and Medium Enterprise business community in India to achieve sustainable practices.
1.5. Research Objectives

 To identify the main drivers influencing the need for Green Financing within the Micro,
Small and Medium Enterprise Sector in India
 To analyze the barriers in accessing Green Financing in India for MSMEs
 To analyze the benefits of Green Financing in the MSME Sector in India
 To propound feasible recommendations to increase public awareness and to mitigate risk
encouraging financiers to extend Green Financing to MSMEs
pg. 7
1.6. Influential Theories
Financial institutions have a fiduciary responsibility to act in the best interest of their investors
and investment in green financing may be contradictory to company goals of wealth creation
within the short term. This coupled with the high-risk factor can further exacerbate lenders’
hesitance to lend to MSMEs (Shankar, 2016). Wasan et al., 2021 postulates that that major
barriers to green financing adoption are policy, financial limitations and educational gaps all of
which apply to the MSME business community. Policy that is transparent and comprehensible
combined with proper risk assessment and credit eligibility frameworks that provide affordable
financing can aid in MSME adoption (Wasan et al., 2021). The Indian MSME sector is
responsible for providing employment to approximately 40% of the country’s workforce and
green financing accessibility and adoption can ensure that this sector remains vibrant and
persistent (Mukherjee, 2018). MSMEs have continuously broadened their scope of products and
services to meet growing local and international needs and investment in these companies can
provide avenues by which increased entrepreneurship and innovation can be achieved (Reserve
Bank of India, 2019). Informal financial practices, cash flow woes together with delayed
payments make credit risk assessment onerous causing financiers to focus on more established
investment opportunities. The sector’s unfamiliarity with relevant government and banking
incentives and schemes also fuels MSMEs financing hesitation (Shelley et al., 2020).
Figure 1 – Five Approaches to Aligning Financial System to Sustainable Development
Source: (Environment, UN, 2018) pg. 8

1.7. Methodology
Systematic Review will be the methodology used in the analysis of accessibility, public
awareness, adoption and availability for Green Financing for Micro Enterprises in India. This
method of research presents the most appropriate option given its utilization of non-prejudicial
qualitative and quantitative evidence to coalesce strong solutions which are methodical,
transparent and empirically supported (Mallett et al, 2012). Systematic Review methodology
critically evaluates data and allows the writer to condense the supporting evidence (Clarke,
2011). Mallett et al. further postulates that conclusions derived while using the systematic review
approach can be updated and developed based on additional findings that can aid in arriving at
preferable solutions to the researched problem. The systematic review was the preferred
methodology as the writer does not seek to identify knowledge gaps as characteristic of
traditional reviews (Danson and Arshad, no date). Research findings will be credible, relevant
(recent 2015-2022) and supported by peer reviewed journals. Areas of study will be searched
using Google, Science Direct, Google Scholar, Emerald, Research Gate, Green Finance
Platform, Academia.edu and Information contained via the India Chamber of Commerce
website. Moreover, a comprehensive search of “MSME Green Financing,” “ Sustainable
financing in India” and “Green Financing in India” were also utilized to consolidate information.
1.8. Paper Structure

The structure of this study was accomplished utilizing a systematic review from publications and
peer-reviewed journals to meet the research's purpose aim and objectives.
Chapter 1 – Introduction
The chapter outlines the study's aim and objectives, as well as the introduction of the issue and
provides the background information on the investigation.
Chapter 2 – Literature Review

This chapter summarizes the research's literature review on Green Financing for MSMEs in India
and analyzes the information sources used and its quality in relation to the application of theory
to practice.
pg. 9
Chapter 3 – Method of Analysis
This chapter provides the systematic review and displays the analytical technique used in this
study
Chapter 4 – Discussion
This chapter presents the discussion on the findings of the study.
Chapter 5 – Conclusion
This section summed up and highlighted the key areas of investigation.
Chapter 6 – Recommendations
This section is based on the study findings and can be used to address the research problem.
pg. 10
CHAPTER 2: LITERATURE REVIEW
2.1. Introduction
This literature review contributes to the research objectives in an orderly, unbiased, and
concentrated way by identifying the main factors influencing the need for green finance within
the Micro, Small and Medium Enterprise (MSME) sector in India. The analysis of the literature
enables a better understanding of the benefits of green finance for India's MSME sector as well
as the barriers to accessing it. Furthermore, the research reveals realistic solutions to raise public
awareness and risk mitigation capability in order to convince lenders to expand Green Financing
to MSMEs.
2.2. Green Financing within the MSME Sector in India

The term "green finance" describes financial arrangements that are specifically intended for use
with environmentally friendly initiatives or projects that incorporate issues of climate change
((Soundarrajan and Vivek, 2016). The fifth-largest economy in the world, India, is home to over
6.5 billion MSMEs, which employ approximately 11 billion people and account for nearly 40%
of the country's exports. The MSMEs contribute close to 30% of India's GDP (The Business
Line, 2022). As many developing countries, India has been tasked with the challenge of
harmonizing the goals of economic and social growth, with environmental sustainability. Green
Financing is touted as a potential catalyst in India’s efforts towards the alignment of all three in
their quest towards decarbonization as highlighted in the 2030 Sustainable Development goals
action plan (Kashyap, 2022). Active engagement of MSMEs is essential for India to achieve a
comprehensive, low-carbon economic transformation given the sheer size and importance of the
sector. The scale of the MSME sector in India has a sizable carbon impact of its own, according
to studies. Research showed that India is home to over 200 energy-intensive manufacturing
clusters that use over 50 million metric tonnes of oil every year, however, the MSME sector in
India is significantly more sensitive to both physical and transition risks associated with climate
change. This is partly due to the MSMEs low ability to appropriately respond to these risks, in
comparison to their bigger peers (The Business Line, 2022). According to The Business Line
(2022), the opportunities for green finance to help Indian MSMEs' sustainable transformation are
pg. 11
limitless, but this requires a collaboration of the government, financial institutions, and the
MSMEs.
Figure 2-Classification of MSMEs in India
Source: (The Economic Times, 2019)
2.3. Main Drivers Influencing the Need for Green Financing

2.3.1. Climate Change
Climate change is a frequent societal problem. Climate change causes persistent adverse weather
events which have crippling socio economic impacts on developing countries such as India
whose resilience may not be as forthcoming. MSMEs face obstacles such as meagre financial
resources and challenges in accessing credit facilities which hampers their ability to
preemptively plan for these weather events making them reactive rather than proactive.
Anthropogenic undertakings have both directly and indirectly spurred on the mal effects of
climate change in India. Increased temperatures have been experienced globally and carries with
it an inherent risk with the potential to incapacitate the Indian economy of which the MSME
sector plays a significant role (Chaudhry, 2022). MSMEs suffer the most because of climate
change and are also the major contributory sector in manufacturing pollution making Green
Financing crucial in effecting change (Sugin and Soundara Raja, 2017). Through the adoption to
green technology usage and increased utilization of renewable energy sources with the aid of
pg. 12
Green Financing, MSMEs can make a positive contribution towards India’s net zero goals, over
time reducing climate change threats (AFI, 2022).
2.3.2. Policy and Regulatory

The Ministry of Micro, Small and Medium Enterprises has been charged with the administration,
implementation and oversight of policy and framework within India. The Results-Framework
Document (RFD) sites the government of India’s goals relating to MSMEs are to encourage
growth and international competitiveness. Through the MSME Development Act of 2006, the
Indian government has also formulated initiatives to instruct Financial Institutions to facilitate
credit flows towards the MSME sector with an ambition of encouraging increased employment,
advances in technology and promotion of entrepreneurship which will in turn boost the economy
(Palak, 2014). Tripathi et al., 2016 postulates that unrelenting and labyrinthine regulatory
policies act as disincentives to access and adoption of green financing in India in the MSME
taxonomy. The government of India has been making attempts to bolster the sector through
support via incentive schemes such as the Public Procurement Policy which states that
government ministries and CPSUs must procure 25% of their annual products and services
requirements from MSMEs (Government of India, 2019). MSMEs have also suffered financial
woes due to their inability to effectively collect on receivables in a rapid enough timeframe to
alleviate cash flow issues. Another helpful scheme implemented by the Reserve Bank of India is
the Trade Receivables Discounting system (TReDS) which allows Corporates, Government
Departments and other entities to bid on and purchase MSME receivables (Shankar, 2019).
However, the vast majority of MSME business operations are informal due to complicated
establishment procedures, disqualifying them from access to benefits captured under government
policies and schemes (Tripathi et al. 2016). The government of India has also introduced the
Fund of Funds programme which is designed to promote growth in the MSME sector through
equity financing. The aim is to encourage the private sector to invest in MSMEs that are
commercially viable with an aim of enabling growth with an end goal of more MSMEs getting
listed on the stock exchange (ClearTax, 2022).
pg. 13
2.3.3. International Initiatives
The United Nations of which India is a member state has adopted the 2030 Agenda for
Sustainable Development of which the 17 Sustainable Development Goals (SDG) are of primary
focus. The underpinnings of the SDGs are centered on peace, people, planet and prosperity
(United Nations, 2022). The trajectory of these focal points is impacted significantly by the
response of the MSME sector in India as they are a major contributor to the country’s GDP
(United Nations, 2015). UN Environment has undertaken the responsibility of assisting
countries with positioning of policies within the finance sector to support SDG goals through
green financing. These green financing projects provide support to empower the public sector,
aid in the facilitation of public / private sector partnerships through green financing instruments
and encouraging community enterprises to advance micro credit (UN Environment, 2018). India
being one of 200 countries having signed on to the Paris Agreement, therefore pledging its
commitment to reduce greenhouse emissions thereby reducing global warming. With this
commitment, comes their obligation to update their pledge every five years and they have been
given the green light to do so as of August 2022. (Goswami, 2022). The Centre for Energy
Finance study has reiterated the role of green financing in India to enable a smooth green energy
transition (Dutt et al., 2019).
2.4. Barriers in Accessing Green Financing for MSMEs in India

2.4.1. Risk vs reward
A significant portion of the businesses in the MSME sector are unregistered with informal
operations. Resultative broad estimation of industry demographics and performance makes
monitoring and tracking of the sector generally inaccurate spurring on lack of confidence and
lending hesitance by financial institutions (Chatterjee, 2018). Green technology is still relatively
new as compared to their counterparts especially in the energy sector which has over a century of
data in support of its viability. As such green technology and the transition within the MSME
sector is more expensive not only in terms of the infrastructure but also with regards to the
pricing of the green financing instruments. The transition carries a higher risk and as such are
pg. 14
priced with higher interest rates, however the benefits are only evident over the long term for
MSMEs which decreases profitability in the short term (Taghizadeh-Hesary and Yoshino, 2020).
Default risk is an area of major concern for MSMEs in India as they continue to struggle to
collect on receivables, however government intervention via the TReDS scheme has made
significant impact (Shankar, 2019). Evidence however has recently shown that MSMEs carry a
lower risk of default than larger corporations in India (Times of India, 2020). This perception of
high risk for financers and low return for borrowers remains a disincentive to green financing for
MSMEs.
2.4.2. Lack of Education, Interest, Information and Access to Lenders in the MSME
Taxonomy
Due to the high concentration of MSMEs in the rural districts of India, physical access to lending
institutions may be a challenge due to proximity (Kannan and Sudalaimuthu, 2014). The MSME
sector generally employs unskilled labour at cheaper rates. Management and owners of these
business also lack proper education in many cases and as such the evident knowledge gap has a
negative impact on the company’s structure, performance and their ability to transition business
operations to a model that is sustainable with a spinoff of a more favourable response from the
financial institutions. Investment in the implementation of technological advancements such as
automation by MSMEs create a pathway for increased productivity and profitability. Indian
MSMEs face technology access issues together with their incapacity to hire expert knowledge to
facilitate the adoption of technology advancements mainly due to lack of education and
information as well as financial constraints (Kumar and Gajakosh, 2021). Studies have also
shown that transition to a greener model may not be an area of keen interest for MSME owners.
Their perception is that it increases costs without a directly proportionate benefit in profitability.
They also are of the opinion that their customers are disinterested in their suppliers’
environmental conservation efforts as well as they feel that their competitors are also not
engaged in green transitioning. This means that the competitors are not bearing the financial
burdens of green transitioning nor is responsible sustainability practices an area of concern as it
relates to competitiveness (Nulkar, 2014). There are a number of suggested solutions that may
be put out to lower the obstacles for involvement in green funding. Since the MSMEs are the
ones that carry out the project, they are the ones that are most in need of help, which is provided
pg. 15
by financial institutions and the government. The government can promote an easy or expand the
green financing regulatory policies to enable more MSMEs to participate in green financing
(Batrancea et al., 2020).
2.4.3. Capital constraints /Unrealistic expectations / bureaucracy to access
MSMEs require access to financing in all stages of the companies’ life cycle (Kumar and
Gajakosh, 2021). Banks are hesitant to offer financing due to their inability to provide proper
financial records. Collateral requirements are also a major hindrance in MSME’s ability to access
financing. Not only do they lack capital to be used as collateral but also are incapable of
providing favourable documentary evidence of significant equity in support their requests (debt
to equity ratio). Business plans and proper record keeping are often absent and although they
may be able to provide disclosure on some financial activity it is hardly enough to properly
measure the organization’s health. (Kannan and Sudalaimuthu, 2014).
2.5. Benefits of Green Financing in the MSME sector in India

2.5.1. Promote Economic Growth
A significant factor in India's economic growth is the MSMEs sector (The Business Line, 2022).
Adoption of green financing in the MSME sector in India can be seen as a catalyst for economic
growth. Through green financing, businesses can gain access to the financing required to
transform their business operations to more sustainable models. In so doing they can implement
new technology and automation, gain or hire expert knowledge required to execute changes and
get access to capital required for business expansion (Nunes, 2018). Due to its contribution to
the nation's Gross Domestic Product and exports, the sector has risen significantly in
prominence. The sector has also made substantial contributions to the growth of
entrepreneurship, particularly in India's semi-urban and rural areas. Manufacturing and service
businesses make up two categories into which the MSMEs fall. The assistance of green
financing has contributed to MSMEs adapting to new business strategies, investing in cutting-
edge technologies, and conducting business operations more sustainably (Shelly and Bawa,
2020). The involvement and cooperation of developed countries are also required to facilitate
the transition towards greening of the Indian economy. The German Federation Ministry for
Economic Cooperation has pledged its support in this area by providing consultative and
pg. 16
educational services together with financing progammes within certain MSME sectors in India to
assist in energy efficiency initiatives geared towards greening (Keerthi, 2013).
As a result of this transition, MSMEs now have a new set of chances to help persons living in
poverty in both urban and rural areas by creating additional jobs. Through green jobs in
manufacturing, renewable energy, and energy efficiency, the nation’s economic growth
increased. Green jobs reduce greenhouse gas emissions, pollution and waste, restore ecosystems,
and maintain environmental quality (Shelly and Bawa, 2020). These benefits can further
translate to an increase in productivity and profits, allowing for opportunities for diversification
and expansion with a ripple effect of increased employment and GDP for the MSME sector in
developing countries such as India. According to IBEF 2021, approximately 63 million MSMEs
in India generated 30.5% of the country's GDP in 2019 and 30% in 2020 (IBEF, 2021).
Figure 3 - India's Estimated MSMEs Distribution by Sector
Source: (Ministry of Micro, Small and Medium Enterprises – Annual Report, 2021)
Figure 4 – MSMEs Training on Garment Manufacturing in India
pg. 17
Source: (Ministry of Micro, Small and Medium Enterprises, 2021)
Figure 5 - MSMEs Training on Sanitizers Manufacturing in India
2.5.2. Promotion of Eco-friendly industries

In order to achieve sustainable development, there needs to be a complimentary relationship
between industrialization and preservation of the environment. India’s quest for economic
growth has been positively impacted by the contribution of the MSMEs. They are of great
importance to the country’s productivity especially within the manufacturing and export markets
(Government of India, 2020). Green financing aids in the promotion of environmentally friendly
enterprises. MSMEs would be unable to increase their sustainability without funding. In 2015,
India pledged to lower its GDP intensity by 33-35% from 2005 levels by 2030 in the Paris
Climate Agreement. Furthermore, according to Minister Prakash Javadekar, India lowered its
GDP emissions intensity by 21% at the end of 2020. (Ministry of Micro, Small and Medium
Enterprises, 2021). Research showed that only 32.7 million, or 18%, of the India’s 178.7 million
rural households have access to safe piped water (Bakshi, 2019). According to the most recent
Economic Survey, India will be among the worldwide hotspots of water insecurity by 2050. The
Indian government will make attempts to preserve water by growing alternative crops that need
less water. This action will aid in the creation of eco-friendly industries which will benefit India
and the environment (Bakshi, 2019). Additionally, several groups of environmentalists have
pg. 18
expressed worries about the effects on the environment as a result of India's rapid advancement
in the industrialisation industry. However, the businesses themselves are now more conscious of
how their factories frequently impact the ecosystem and have chosen a more environmentally
friendly route to success (Fiinovation, 2022).
2.5.3. Better Environment through green industries and technologies
The environment is an important component of human existence, this is further influenced by the
occupations that people undertake for a livelihood. As a result, the industry or businesses goes
hand in hand with the environment. To flourish in both domains, the environment and the
industry, green technology must be adopted, this leads to sustainable development.
Environmental sustainability requires the making of decisions which attains to environmentally
friendly activities that safeguard nature, with a focus on preserving the environment's ability to
support human life in the future (Ministry of Micro, Small and Medium Enterprises, 2021).
There are two primary organizations in India that pave the way for eco-friendly MSMEs: the
Coir Board and the Khadi and Village Industries Commission (KVIC). The Coir Board was
established by the Government of India under the Coir Sector Act, 1953, for the overall
sustainable development of the coir industry in India. While KVIC, a Ministry of MSMEs
institution, attempts to - plan, promote, facilitate, organize, and help in the formation and
development of Khadi and Village Industries in rural regions in collaboration with other trusts
and organizations involved in rural development. Both KVIC and Coir Board are labour
demanding and environmentally friendly enterprises which provides guidance to MSMEs to
access Green Financing and provides education for business sustainability (Ministry of Micro,
Small and Medium Enterprises, 2021).
In 2020 to 2021, KVIC institutions provided opportunities for employment or self-employment

to 60,797 individuals whom they trained. This ranks highest among the six organizations under
the MSME Ministry that provide youngsters skill development training. This organization's main
goal is to help young people become fully self-sufficient by giving them the necessary training to
get them ready for jobs or starting their own businesses (Ministry of Micro, Small and Medium
Enterprises, 2021). All KVIC institutions are equipped with trained faculty. Today the KVIC
certificate is adequate for a trainee to acquire a job or launch his/her business and even acquire
bank loans. KVIC periodically evaluates the trainees' performance throughout the training term
pg. 19
and follows up with them thereafter to give feedback and provide any further guidance (Ministry
of Micro, Small and Medium Enterprises, 2021).
Figure 6 - Training provided by KVIC institutions
2.6. Strategic Finance for Green Financing for MSMEs in India

2.6.1. Risk Management
Green Financing attempts to foster long-term economic, social, and environmental growth
through financial instruments and product development. Risk is constant and persistent in all
aspects of life; it is increasingly prevalent in MSMEs. Therefore, MSMEs require a risk
management system to control risks because of the industry's size and many constraints. A
sound risk-management strategy may decrease insurance costs, reduce losses on cash or stock
while also reducing the downtime that a business may face (Kadivar, 2022).
Figure 7 - Risk Management Process
pg. 20
Source: (India Research Journals.com, 2020)
2.6.2. Corporate Governance
Corporate governance can be characterized as the structure of policies procedures regulations
and guidelines that establish and guarantees proper ordinance and control of an organization with
oversight by the board of directors (Chen et al., 2021). Most MSMEs in India operate informally,
are family owned and are not registered increasing the propensity towards prejudicial practices
which favour the business owner themselves. Although the government of India has attempted to
address these biases through the guidelines penned in the companies act 2013, with
administration through the Securities Exchange Board of India, many companies remain
unregistered allowing governance practices to remain unmonitored. Proper governance
frameworks with effective execution can increase operational transparency, facilitate proper
monitors and controls, encourage keeping of better financial records, risk forecasting and
promote accountability both internally and externally. These combined benefits can positively
impact company performance by balancing and safeguarding both stakeholder and shareholder
interests and can lead to more favourable responses to green financing credit requests (Mehta et.,
al, 2019).
2.6.3. Strategic Investment

Strategic investment decision speaks to the firm’s acumen to select investments that positively
impact operational and pecuniary performance to drive competitive advantage (Atik, 2012). Lack
of education together with the firm’s inability to hire expert knowledge continues to pervade the
MSME sector. The absence of right fit right role alignment coupled with sound governance
structure hinders potential MSME development as they are unable to successful manouvre their
green transition through timely green investment (Kumar and Gajakosh, 2021).
pg. 21
2.6.4. Investment Financing
Purchasing assets that appreciate in value over time and offer returns in the shape of income or
capital gains is the practice of investing. Purchasing stocks, real estate, and other valuable assets
with the intention of making financial gains or receiving income is referred to as investment
financing (Napoletano, 2022). By providing MSMEs with accessible business loans to meet
their needs for working capital, such as supply chain financing, term loans, and microloans,
lenders can attempt to invest in MSMEs. Investment finance can encourage the development of
MSMEs, stimulate domestic economic growth, lower unemployment, and increase financial
inclusion.
2.7. Conclusion of Literature Review
There is a wealth of thought and literature in India relevant to the principles of green financing of
MSMEs. This study described the main drivers influencing green finance, the barriers in
accessing green financing in India for MSMEs, and the benefits of green financing in the MSME
sector in India.
pg. 22
CHAPTER 3: SYSTEMATIC REVIEW AS METHOD OF ANALYSIS
To critically examine Green Financing accessibility and adoption in the Micro Small and
Medium Enterprise business community in India and develop sustainable practices, the author
used a systematic review as the preferred methodology as it critically evaluates data and allows
the writer to condense supporting evidence (Clarke, 2011). It presents as the most appropriate
review methodology as it utilizes non prejudicial qualitative evidence to coalesce strong,
methodical and transparent empirically supported solutions (Mallett et al, 2012). As further
postulated by Mallett et al, (2012), a systematic literature review approach also allows the author
to update derived conclusions based on updated information and additional findings. The
author's objective and substantial proof collection, analysis, arrangement, and combination of the
data allowed for this approach. A systematic review requires the gathering of information from
trustworthy sources, such as peer-reviewed articles with findings that can be directly applied to
the research. Using this approach, the research’s importance and validity were highlighted. The
secondary data included in this systematic review span the years 2012 to 2022. Although this
method of analysis is most suitable for this dissertation it must be noted that negative results are
often less published as well as updates in information based on new findings may not be
effectively maintained therefore potentially resulting in skewed or outdated results (Lame, 2019).
This study was conducted using the seven steps of a systematic review as defined by Denscombe
(2014). Figure 8 outlines the steps involved in conducting the evaluation and meeting the
necessary standards.
Figure 8 - Stages of a Systematic Literature Review
pg. 23
3.1 Stage 1 - Scope of the Study
This dissertation paper aims at analyzing Green Financing in the MSME sector in India with
pointed focus on accessibility and adoption. This analysis further seeks to investigate the trends,
barriers and benefits of green financing to the Indian economy. Based on the findings as captured
in the literature review, the author would also propose solutions to the accessibility and adoption
problems with an aim of improving the greening transition to allow greater societal, economical
and environmental benefits.
3.1 Stage 2 – The Search Process

Data were sourced from peer-reviewed journals, academic journals and accredited online articles
using databases. The literature review was conducted by researching papers containing key
phrases such as MSME Green Financing, Sustainable Financing in India, and Green Financing in
India. The examination of literature includes choices on research publications that fulfill the
requirements for selection (Breslin and Gatrell, 2020). Each keyword was reviewed and some of
the articles found required the complete article to be downloaded. The obtained material was
analyzed and organized into phrases and paragraphs to produce the literature review and
discussion.
Table 1 – Details of the Search Process
Source Description
Search Engines Goggle, Google Scholar

Search Databases/Libraries Academia.edu, Emerald Collections, Research Gate, Science Direct,
University of Bedfordshire Library
Green Finance Platform, Information contained via the India
Research Publications Chamber of Commerce website, Ministry of Micro, Small and
Medium Enterprises of India
Green Financing, Corporate Governance, MSMEs Sector, Mitigating
Keywords Used risk, Sustainable Practices, Investment, Risk Management
To further narrow the search findings, phrases incorporating the
research aim and objectives were used.
Example: Green financing for MSMEs in India, Benefits of Green
Financing for MSMEs in India, Green Financing in India
Public awareness of Green Financing
Period of research evidence gathered 2012 to 2022
Period research was conducted February 2021 – September 2022
pg. 24
3.3 Stage 3 – Evaluation of Quality
Information was taken from numerous reliable journals and publications. An extensive summary
of each article is provided by the data extraction as shown in Table 2. This was classified based
on the research area, author, publication year, and publication findings.
3.4 Stage 4 – Source of the Research

The research source included research publications relevant to green financing for MSMEs in
India which were published during the period 2012-2022. Excluded from this research were
textbooks not aligned to the MBA program, unpublished research, opinion-based publications,
research published prior to 2012, dissertation and thesis reports, YouTube videos and research
material not relevant the chosen topic. Figure 9 below provides a flow diagram of the inclusion
and exclusion criteria used and the final quantity of material applied to this paper.
Figure 9 - Inclusion and Exclusion criteria of Research
pg. 25
3.5 Stage 5 – Descriptive Summary
The journals and publications listed in Table 3 identifies the area of study from the data gathered.
Numbers 1-4 reported information on Green Financing for MSMEs in India. Numbers 5-8 focused on
Drivers Influencing the Need for Green Financing, Numbers 9-11 focused on Barriers for Accessing
Green Financing, Numbers 12-13 focused on Benefits of Green Financing in the MSME sector in India
and Numbers 15-23 focused on Strategic Financing.
3.6 Stage 6 – Analysis

This section is based the use of a thematic analysis which provides a qualitative breakdown of
the data gathered and narrows the research to relevant areas which relates to the research
objectives. 98 initial searches were obtained from the research, however the research was
narrowed down to 23 publications. Table 2 and 3 depicts the findings of the research.
Table 2 - Data Extraction

No. Author & Year Findings Area
 Green Financing: Environmentally friendly financial

arrangements
India Brand Equity
1  Green Financing to MSMEs play an integral role in
Foundation (IBEF) (2021)
reducing India’s carbon footprint, positively affecting
the economy, society, productivity and the climate
 Consumption of scarce resources drives efforts to
Shelly, Sharma and Bawa
2 transform manufacturing sectors for sustainable
(2020)
economic growth
 Green financing is described as environmentally
friendly financial arrangements that incorporate
Soundarrajan and Vivek tackling of climate change
3 Green Financing
(2016)  MSME financing can assist in the reduction of India’s
carbon footprint an encourage economic growth, for MSMEs in
development, productivity and societal wellbeing India
 MSMEs play a significant role in economic growth in
India
 Approximately 20 high growth industries require
suitable training facilities
 India the 5th largest economy has 6.5 billion MSMEs
4 The Business Line (2022) that employ 11 billion people, contribute to 40% of the
country’s imports and account for 30% of India’s GDP
 India has committed to reduce GDP emission intensity
by 33-35% by 2030 via the Paris Agreement
 Collaboration of government, financial institutions and
MSMEs is required to assist in greening goals
pg. 26
 Display of ethical business practices find favour with
5 Kamarun et al. (2020) customers and investors creating opportunities for
increased profitability and productivity
 Increased temperatures carry a risk which can
incapacitate the Indian economy
 MSMEs are a major contributor to negative
environmental impacts and the need for green financing
is evident
 Temperatures are expected to rise more than 3 degrees
Celsius based on the current trajectory and can lead to
6 Chaudhry (2022) economic downturn resulting in poverty Drivers
 Lack of financing and financial resources contribute to Influencing the
MSMEs increased susceptibility to the results of Need for Green
climate change Financing
 MSMEs operate at a low technological level with fewer
resources to tackle climate change than their high
technology counterparts
 The government of India aims to promote equity

financing through the Fund of Funds programme for
7 ClearTax (2022)
commercially viable MSMEs geared towards growth
and MSMEs getting listed on the stock exchange
 India’s firm commitment to the Paris Agreement is
8 Goswami (2022)
reiterated by pledge updates every 5 years
 Lack of collateral is a hindrance in MSMEs ability to
obtain green financing.
9 Batrancea et al. (2020)
 Banks are hesitant to lend to the sector without
adequate collateral
 Within the last 5 years the credit gap has widened for
MSMEs in India
 The Intellecap poll places the MSME credit gap at $240
Billion
 16% of MSMEs are accessing financing from the Barriers for
conventional banking system Accessing
 MSMEs lack the ability to keep proper financial records Green Financing
10 Borpuzari (2022) as compared to larger corporations
 MSMEs do not know where or how and lack the
finances to hire specialists to assist with their accounts
and bookkeeping
 25lakh MSMEs are set to benefit from the Fund of
Funds plan
pg. 27
 47.6 million MSMEs are unregistered
 Lack of registration acts as a disincentive for financial
institutions to lend
11 Chatterjee (2018)
 Financial institutions lack confidence in the sector due
to the absence of supporting data because of broad and
skewed tracking and monitoring
 MSMEs perception is that funding is elusive
 MSMEs traditionally rely on less formal sources of
finance such as friends and family to meet financial Barriers for
12 George (2022) obligations Accessing
 The most economical operational practices are Green Financing
generally not environmentally friendly or sustainable
and can defeat greening progress
 MSMEs have high concentration in rural districts, so
physical access to financial institutions can pose
Kannan and Sudalaimuthu proximity challenges
13
(2014)  Business plans and proper financial record keeping is
generally absent in the MSME sector making
organizational health difficult to gauge
 The Indian government aims to conserve water through Benefits of
the growth of alternative crops that require less water as Green Financing
a result of the country’s restricted safe pipe water
access
14 Bakshi 2019)  This in itself is an environmentally friendly industry
that stands to benefit both the country and its
environment
 Only 18% of India’s rural households (32.7 million)
have access to safe piped water
15 Ministry of Micro, Small  The Ministry of Micro, Small and Medium Enterprises
and Medium Enterprises of is responsible for administration, implementation and
India oversight of policy and framework within India KVIC
(2021) and Coir Board are environmentally responsible
institutions in India that assist MSMEs to obtain green
financing and train the in sustainable business practices
 KVIC assisted with innovation in the MSME industry
via triple layered cotton and silk masks
 KVIC has provide opportunities for employment or
self-employment to 60797 individuals
 KVIC ensures that youngsters are self-sufficient and
properly trained to manoeuvre the job or business
market through trained faculty
 Effective evaluation and follow up is conducted by
KVIC to provide post programme support
 The Coir Board utilized the pandemic to advance
research in the coir industry
 The Indian government has taken steps to ensure that
pg. 28
the full benefits programme through the Atmanirbahar
Bharat Package provides relief in several forms
 Preserving the environment and support of human life
are the end goals of effective sustainability decisions
 India has lowered GDP emissions intensity by 21% at
the end of 2020
16  Stimulus is used to promote MSME adoption of Green

Financing and assist in capital requirements to
Nunes (2018)
transform to greener operations
Benefits of
 Green financing assists MSMEs to invest in technology Green Financing
and conduct business operations more sustainably
2 Shelly and Bawa (2020)  Green jobs reduce greenhouse gas emissions, pollution,
promote ecosystem restoration and maintain
environmental quality
 Strategic investment decision: firm’s acumen to select Strategic
17 Atik (2012) investments that positively impact operational and Financing
pecuniary performance to drive competitive advantage
 Corporate governance: Structure of policies procedures
regulations and guidelines that establish and guarantees
18 Chen et al. (2021)
proper ordinance and control of an organization with
oversight by the board of directors
 40% of India’s workforce is employed in the MSME
sector
19 Mukherjee (2018)
 Green Financing allows the MSME sector to keep
functioning
 A sound risk-management strategy may decrease
20 Kadivar (2022) insurance costs, reduce losses on cash or stock while
also reducing the downtime
21  Proper governance frameworks can increase operational
transparency, assist in risk forecasting, promote
accountability, encourage implementation of proper
monitors and controls
Mehta et., al (2019)
 Good governance can positively affect company
performance by balancing stakeholder and shareholder
interests and can have a spinoff effect of more
favourable responses to requests for credit
22  Investing: Purchasing assets that appreciate in value
over time and offer returns in the shape of income or
capital gains
Napoletano (2022)
 Investment financing: Purchasing stocks, real estate,
and other valuable assets with the intention of making
financial gains or receiving income
23 Reserve Bank of India  TReDS Trade Receivables Discounting system has
(2019) been implemented by the Reserve Bank of India to
assist MSMEs to alleviate cash flow issues by allowing
pg. 29
companies to bid on their receivables portfolio
 MSMEs have continuously broadened their scope of
products and services to meet growing local and
international needs and investment in these companies
can provide avenues by which increased
entrepreneurship and innovation can be achieved
Table 3 - Descriptive Summary
No. Author & Year Journal/Article Title Area
India Brand Equity Foundation (IBEF) MSME Sector - Imperative To Lift Indian
1
(2021) Economy
Role of Micro, Small and Medium Enterprises Green Financing

2 Shelly, Sharma and Bawa (2020)
In Indian Economy for MSMEs in
India
Green finance for sustainable green economic
3 Soundarrajan and Vivek (2016) growth in
India
How green finance can strengthen the MSME
4 The Business Line (2022)
sector
5 Kamarun et al. (2020) Inclusive Green Finance Policies for MSMEs
Green finance can bolster India’s transition to

6 Chaudhry (2022) net-zero. Here’s how, World Drivers Influencing
Economic Forum the Need for Green
MSME Relief Package - Loans, Equity Infusion, Financing
7 ClearTax (2022)
Global Tenders, CGSSD
India’s updated climate pledge to Paris

8 Goswami (2022)
Agreement gets Union Cabinet nod
Greening the financial system in USA, Canada Barriers for

9 Batrancea et al. (2020)
and Brazil: A panel data analysis Accessing Green
pg. 30
No. Author & Year Journal/Article Title Area
MSME day 2019. MSMEs, India's growth

10 Borpuzari (2022)
engine, face a Rs 16 lakh crore credit gap
Financing India’s MSMEs Estimation of Debt

11 Chatterjee (2018)
Requirement of MSMEs in India
Financing the visibly invisible: Green and Financing

12 George (2022)
inclusive micro-enterprises in India
Kannan and Sudalaimuthu INDIAN MSMEs: INITIATIVES AND

13
(2014) FINANCING TRENDS
Water conservation in India: How to manage

14 Bakshi (2019)
water and what to learn from Israel
Ministry of Micro, Small and Medium
15 Enterprises of India MSMEs Annual Report 2021-22
(2021)
Benefits of Green
Drivers and Constraints for Adopting
Financing
Sustainability Standards in Small and Medium-
16 Nunes (2018)
sized Enterprises (SMEs) and the Demand for
Finance
Role of Micro, Small and Medium Enterprises
2 Shelly, Sharma and Bawa (2020)
In Indian Economy
A Strategic Investment Decision: Internalization

17 Atik (2012)
of SMEs
What Corporate Governance Means for the

18 Chen et al. (2021)
Bottom Line
Challenges to Indian micro small scale and
19 Mukherjee (2018) medium enterprises in the era
of globalization
Growth and Performance of SMEs in India An
20 Kadivar (2022) Strategic Financing
Overview
Corporate Governance in Small and Medium
21 Mehta et., al (2019) Enterprises (SME) in India: Does Independent
director make an impact on profits of SMEs?
What Is Investing? How Can You Start
22 Napoletano (2022)
Investing? Forbes Advisor
Report of the Expert Committee on Micro,
23 Reserve Bank of India (2019) Small and Medium
Enterprises
pg. 31
The findings from this research was explained based on the research objectives. The section
below explains the findings.
Green Financing within the MSME Sector in India

The evidence gathered below outlines the research findings that pertains to green financing
within the MSME sector in India
Numbers 1-4 of Table 2 - According to research, MSMEs account for over 30% of India's GDP
(The Business Line, 2022). In addition, MSMEs are also responsible for 70% of the
manufacturing-related pollution in India. According to IBEF (2021), approximately 63 million
MSMEs in India generated 30.5% of the country's GDP in 2019 and 30% in 2020 (IBEF, 2021).
With easy access to and widespread use of green financing for MSMEs, India can significantly
reduce its carbon footprint while still growing economically and producing more, which would
improve social wellbeing (Soundarrajan and Vivek, 2016).
The findings found that there is green financing available for MSMEs in India. This is evident
with the MSMEs contribution to the nation’s GDP.
Main Drivers Influencing the Need for Green Financing

The information below points out the main drivers which influences the need for Green
Financing for MSMEs in India.
Numbers 5-8 of Table 2 - Indian MSMEs are already experiencing the effects of climate change
such as frequent floods, even though they are usually overlooked. The several factors that make
pg. 32
Indian MSMEs particularly vulnerable to the effects of climate change are closely related to the
common problems that MSMEs face, such as scarce financial resources and credit availability
(Chaudhry, 2022). MSMEs are more severely affected by climate change than enterprises with
high-technology facilities because they operate at a lower technological level and have fewer
resources and capacities to deal with climate change consequences (Chaudhry, 2022). MSMEs
can contribute positively to India's net zero targets by embracing green technologies and
increasing the use of renewable energy sources with the help of green financing, thereby
lessening the threat of climate change (AFI, 2022). The Fund of Funds program was launched
by the Indian government with the goal of fostering MSME sector growth through equity
financing. This program's objective is to persuade the private sector to invest in economically
viable MSMEs in order to facilitate development and, ultimately, the listing of more MSMEs on
the stock exchange (ClearTax, 2022). India pledged its commitment to decrease greenhouse
emissions through minimizing global warming in 2015 as one of the 200 nations that ratified the
Paris Agreement. India has agreed to this promise and has been given permission to revise its
pledge every five years beginning in August 2022 (Goswami, 2022).
The findings showed that drivers influencing the need for green financing are: climate change,
government policies and international initiatives. Therefore, a need for green financing is
required so that MSMEs can respond to any situation in an efficient and effective manner.
Barriers in Accessing Green Financing for MSMEs in India

The information reported below highlights the barriers MSMEs may face to access green
financing.
Numbers 9-11 of Table 2 - According to Borpuzari (2022), the fact that the credit gap has
widened over the previous five years is bad for the millions of businesses that make up the
pg. 33
MSME sector in India. According to Borpuzari (2022), only a very tiny portion, or around 16%
of MSMEs, are receiving financing from the conventional banking system. This indicates that
more than 80% of MSMEs received no official funding. In instances where MSMEs do not have
the ability to provide collateral as a form of security for a loan, banks are unable to grant such
loan (Batrancea et al., 2020). Furthermore, because of the broad assessment of industry
demographics and performance, monitoring and tracking of the sector are often erroneous,
leading to a lack of trust and lending hesitancy among financial institutions (Chatterjee, 2018).
Due to the high concentration of MSMEs in the rural districts of India, physical access to lending
institutions may be a challenge due to proximity (Kannan and Sudalaimuthu, 2014). In addition
to the proximity, the MSME sector generally employs unskilled labour at cheaper rates.
Management and owners of these business also lack proper education in many cases and as such
the evident knowledge gap has a negative impact on the company’s structure, performance and
their ability to transition business operations to a model that is sustainable with a spinoff of a
more favourable response from the financial institutions (Kannan and Sudalaimuthu, 2014).
The research findings showed a number of barriers which prevents MSMEs from acquiring green
financing. Some of these barriers are: lack of collateral, obsolete technology or procedures, lack
of financial literacy and education, and unregistered MSMEs.
Benefits of Green Financing in the MSME sector in India

This section reports on the findings for the benefits of green financing in the MSME sector in
India.
Numbers 15-23 of Table 2 - The Indian government will try to conserve water by growing
alternative crops that use less water due to the restricted access of safe piped water by millions of
rural families. This will contribute to the development of environmentally friendly industries that
will benefit both India and the environment (Bakshi, 2019). By acquiring green financing,
businesses can put new technologies and automation into use, acquire or recruit the specialized
pg. 34
skills needed to carry out improvements, and have accessibility to the finance needed for
corporate growth (Nunes, 2018). Consumption of resources, such as fossil fuels or non-
renewable resources, is now more important than ever with enhanced efforts to make the
manufacturing sector a vital element of sustainable economic growth (Shelly and Bawa, 2020).
KVIC and Coir Board are two labour-intensive and environmentally responsible institutions in
India that assist MSMEs in obtaining green financing and offer training in sustainable business
practices (Ministry of Micro, Small and Medium Enterprises, 2021). Even in the current
challenging COVID-19 pandemic condition, KVIC appeared to be immensely popular by
supporting individuals with their creative Personal Protective Equipment (PPE) kit designs. With
the massive demand for face masks in mind, the KVIC worked with MSMEs to create double-
and triple-layered cotton and silk face masks using double-twisted Khadi fabric. The Coir Board,
on the other hand, has made effective use of the pandemic period by advancing research and
development in the coir industry (Ministry of Micro, Small and Medium Enterprises, 2021).
The findings showed that India can benefit by promoting economic growth, promoting eco-
friendly industries, and improving the environment through green industries and technologies
with green financing to MSMEs.
3.7 Stage 7 – Conclusion

Through the use of the thematic analysis, evidence was gathered relating the need for green
financing, barriers for accessing green financing as well as the benefits for green financing
MSMEs in India. The following chapter provides a discussion based on the evidence and
literature so as to provide any required recommendations.
CHAPTER 4: DISCUSSION
4.1. Green Financing within the MSME Sector in India

The phrase "green finance" refers to investments that work to protect the environment. This
covers both public and private acts, such as those of banks, governments, businesses,
organizations, and others. Green financing covers a wide range of activities and projects, such as
planning, promoting initiatives with the potential to have long-term effects or establishing
sustainable business models.
pg. 35
MSMEs in India, like in other developing nations, are the bedrock of economic growth, playing a
key role in creating large-scale employment and reinforcing the complicated supply chain of
products and services. Given the immense size and significance of the sector, MSMEs' active
participation is essential for India to achieve an inclusive, low-carbon economic transition,
particularly considering the 2015 Paris Climate Agreement's commitment by the Indian economy
to reduce its GDP intensity by 33–35% from 2005 levels by 2030 (The Business Line, 2022).
Physical risks to the industry may include factors like destruction to its physical infrastructure
and staff or disruptions in supply chains, whereas transitional risks could include modifications
to rules in India and export markets or changes in consumer tastes and technology. According to
Sugin and Soundara Raja (2017), The Indian economy may benefit from easy access to
necessary green funding to support the country's expanding MSME sector. Businesses that
follow ethical business practices gain favour with customers and investors, this can create
opportunities for increased productivity and profits (Kamarun et al., 2020).
The findings from the analysis supported the literature.
4.2. Assessment of the Main Drivers Influencing the Need for Green Financing
MSMEs typically respond to the effects of climate change rather than anticipate and plan for
them. MSMEs are recognized for their capacity to respond quickly to pricing and market demand
changes; yet, considering the enormity of the difficulties that lie ahead, this reactive strategy to
climate change adaptation may be too myopic. More empirical research is required to analyze the
general outlook of the Indian economy, and in particular MSMEs, towards climate change
consequences. This would help to increase MSMEs' understanding of the need to adapt to
climate change.
While the government of India is implementing policy to promote green financing, there is a gap.
The Fund of Funds program was launched by the Indian government with the goal of fostering
MSME sector growth through equity financing. This program's objective is to persuade the
private sector to invest in economically viable MSMEs in order to facilitate development and,
ultimately, the listing of more MSMEs on the stock exchange (ClearTax, 2022). However, only
25 lakh MSMEs are anticipated to gain from the Fund of Funds plan, according to Borpuzari
(2022). In addition, only MSMEs that are regarded as having an "AAA" rating are eligible to
pg. 36
use this program (Borpuzari, 2022). High creditworthiness is indicated by the triple-A rating. It
is the highest rating that may be given by a significant credit rating agency. Evidence however
has recently shown that MSMEs carry a lower risk of default than larger corporations in India
(Times of India, 2020). This demonstrates that the MSME must have a solid history of honoring
their financial commitments and have the lowest default risk. With this thought, it can be viewed
that only some MSMEs may have favorable effects from this government policy.
From this discussion, there is a need for the government to relook their policies to ensure all
MSMEs can access green financing in order to fight against climate change and other situations.
4.3. Assessment of Barriers in Accessing Green Financing for MSMEs in India

For the nation's MSME sector, it is generally recognized that there are financial access issues and
a funding shortage (Kumar and Gajakosh, 2021). Figure 2 shows that 47.6 million MSMEs are
unregistered. This creates a hurdle for lending institutions to supply MSMEs with credit. Even
though green financing can help countless MSMEs increase the quality of life for people,
businesses, and ultimately India's GDP as well as its environment, many MSMEs find it difficult
to acquire funding. The community's financial reluctance has been fueled by bureaucracy and
ineffective, opaque procedures, causing MSMEs to rely on outdated methods that would not
assist the nation's efforts to move toward a greener, more sustainable future (George, 2022). Due
to the thought that funding for MSMEs is hard to come by, this sector has historically relied on
less formal financing options including borrowing money from friends and family to meet its
financial obligations.
The tendency of this sector to stick with the most economical capital investment and fiscal
management practices, which are typically not environmentally friendly can defeat the propose
of promoting green sustainability. In instances where MSMEs do not have the ability to provide
collateral as a form of security for a loan, banks are unable to grant such loan (Batrancea et al.,
2020). This evidence showed a gap because recent research showed that MSMEs carry a lower
risk of default than larger corporations in India (Times of India, 2020).
pg. 37
The findings and the literature shows that there is need for the government of India to think of
plan so as to work on eradicating the barriers MSMEs face in accessing green financing.
Enabling MSMEs investment through green financing may mitigate the consequences of
resource shortages and generate long-term value
4.4. Assessment of Benefits of Green Financing in the MSME sector in India

The three primary advantages of green financing for MSMEs in India are: promoting economic
growth, promoting eco-friendly industries, and improving the environment through green
industries and technologies. The issue of sustainability has recently come to the forefront of
development on a global scale, and the Indian government has publicly pledged to take a number
of actions at the national and international levels to protect the environment. One measure
sponsored by the government of India is the "Make in India" with "Zero Defect and Zero Effect"
initiative, which expresses the desire to strike a balance between economic growth,
sustainability, and social inclusion. It also encourages MSMEs to continually improve the quality
of their products and processes without harming the environment. To achieve the joint goal of
constructing a sustainable nation, all economic sectors such as, agriculture, manufacturing and
other services, are required to participate. These sectors make up most of the MSMEs. A
stimulus for economic growth may be found in India's MSME sector's adoption of green
financing. Businesses can acquire the capital they need to change the way their operations are
run to be more sustainable by using green financing. The industry has gained a lot of recognition
as a result of its contribution to the country's Gross Domestic Product and exports.
The findings from the analysis supported the literature.

CONCLUSION
India, the world's fifth-largest economy, has over 6.5 billion MSMEs, which employ almost 11
billion people and account for about 40% of the country's exports. According to research,
MSMEs account for over 30% of India's GDP (The Business Line, 2022). As with many
emerging countries, India has the trilemma of balancing economic and social expansion with
environmental sustainability. Green financing is being hailed as a possible accelerator in India's
pg. 38
attempts to align all three in their pursuit for decarbonization, as noted in the action plan for the
2030 Sustainable Development Goals (Kashyap, 2022). Although enormous in scale, the Indian
government's stated goal of growing the Indian economy to $10 trillion over the next eight years
can only be met by a commensurate rise in productivity. In addition to local incentive programs
for a growth in output to serve the export markets, some government measures include the
"Make in India" project, which promotes the country's attractiveness for Foreign Direct
Investment within the manufacturing industry (IBEF, 2022). If not controlled, this increase in
production might harm the environment. India must take steps to uphold its pledge to attaining
net zero carbon emissions by 2070.
Borpuzari (2022) estimates that only a relatively small percentage of MSMEs, roughly 16%,
receive financing from the traditional banking system. This shows that more than 80% of
MSMEs did not obtain any government support. MSMEs may encounter a number of challenges
when attempting to obtain green finance because of the inherent limitations that come with being
extremely tiny firms. Some MSMEs' owners suffer with challenges including lack of collateral,
obsolete technology or procedures, lack of financial literacy and education, and unregistered
MSMEs. Green financing can assist in addressing the significant talent gap in the MSME sector.
In many circumstances, there is a significant disparity between the industry's requirements and
the skilling of its employees. The fiduciary duty of financial institutions to operate in their
investors' best interests may conflict with their short-term wealth development objectives if they
participate in green financing. Lenders' unwillingness to lend to MSMEs may be made even
more difficult by this combined with the high-risk element (Shankar, 2016). Policy, financial
constraints, and educational gaps, all of which affect the MSME business community, are
thought to be the main obstacles to the adoption of green financing, according to Wasan et al.,
2021.
Adoption of MSMEs may be aided by policy that is clear and understandable, together with
suitable risk assessment and credit eligibility regimes that offer reasonable financing (Wasan et
al., 2021). According to The Business Line (2022), for example, as many as 20 high-growth
industries, including construction, hotels, cars, healthcare, and logistics, needed suitable training
facilities. This talent gap is exacerbated by entrepreneurs' lack of understanding of current,
digital alternatives. Promoting economic growth, encouraging eco-friendly companies, and
pg. 39
enhancing the environment through green technology and industries are the three main benefits
of green financing for MSMEs in India. Due to its contribution to the GDP and exports of the
nation, the MSME sector has attracted a lot of attention.
Even though they are typically disregarded, India’s MSMEs are already feeling the consequences
of climate change, such as more frequent floods. The several elements that make Indian MSMEs
particularly susceptible to the consequences of climate change are closely tied to the typical
issues that MSMEs experience, such as a lack of financing and financial resources (Chaudhry,
2022). Through green financing, MSMEs may change their business models to be more
environmentally friendly and promote and execute sustainable practices that are beneficial to the
nation's environment, people, and economy (Pathak et al. 2014). Green financing for MSMEs
may significantly reduce India's carbon footprint while also having a beneficial impact on the
economy through enhanced economic growth and productivity and encouraging greater societal
wellbeing (Soundarrajan and Vivek, 2016). Even though India has adopted several initiatives to
help MSMEs, there is still a need for increased public awareness and policy revisions to
incentivize lenders to provide funding and MSMEs to access green financing.
pg. 40
RECOMMENDATIONS
The research’s aim was to critically analyse the accessibility and acceptance of Green Financing
in the Micro, Small, and Medium Enterprise business community in India in order to attain
sustainable practices. The research met its aim and objectives, and it will provide
recommendations to raise public awareness and reduce risk, thereby encouraging financiers to
extend Green Financing to MSMEs. In 2015, India's ratification of the Paris Agreement and the
2030 Agenda, signaled a turning point in the global effort to combat climate change. With the
knowledge of its ability to affect economic development and social activities, most notably by
financing infrastructure improvements, as well as by fostering entrepreneurial ideas, the need to
acquire finances for sustainable goals arose. The Government of India can use the following
recommendations found below to bring public awareness so that more MSMEs can be equipped
to access the green financing, based on the gaps identified in the discussions.
1. Create a National Literacy Programme

The National Literacy Programme (NLP) is a program that focuses on adults, young people, and
out-of-school children. The NLP aims to encourage intergenerational learning and family literacy
training. It is thought that one of the key components to providing access to school is to raise the
literacy skills of parents or other family members. In India, this initiative can be introduced on a
quarterly basis. Especially in rural regions, so that business owners may be prepared to seek
green financing. Face-to-face interactions should be utilized as the primary way and the
programme should be simple to learn. The program should be available online as well so as to
promote peer learning and support.
2. Amend or create policies which forces financers to lend MSMEs loans based on the
policy terms
Not all MSMEs are eligible for the chance to access green financing. It is important to examine
and update policies to take into account new ways for MSMEs to access the available green
financing. To ensure that financiers feel secure conducting the transactions, the regulations
should also take risk into account. To encourage MSMEs to benefit from this, the amended
legislation must be often disclosed and easy to understand to implement a seamless shift.
pg. 41
3. Introduce financial incentives for registration
The government should consider the introduction of financial incentives for the regularization of
the MSME sector. At present the majority of MSMEs remain undocumented and as such
accurate data cannot be captured to aid in the analysis of the industry to assist in the sector’s
betterment. By introducing these financial incentives MSMEs who might be liquidity strapped
will feel inclined become registered in order to avail themselves of this financial relief.
4. Increase in training for skilled workers

An increase in training is necessary so that the MSME sector can make sure that its employees
are proficient in the latest technology. The upskilling of the labour force can also stimulate
confidence of the workers making them less hesitant to green transitioning given the decreased
knowledge gap and greater awareness of the benefits.
pg. 42
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Green growth may be defined as the use of eco-friendly resources to enhance processes and

Green funding is available to MSMEs, however, constraints such as a lack of knowledge,

Table 1 – Details of the Search Process.........................................................................................25

Figure 1 – Five Approaches to Aligning Financial System to Sustainable Development...............9

1.5. Research Objectives

Figure 1 – Five Approaches to Aligning Financial System to Sustainable Development

Source: (Environment, UN, 2018) pg. 8

1.8. Paper Structure

Chapter 2 – Literature Review

2.2. Green Financing within the MSME Sector in India

Figure 2-Classification of MSMEs in India

Source: (The Economic Times, 2019)

2.3. Main Drivers Influencing the Need for Green Financing

2.3.2. Policy and Regulatory

2.4. Barriers in Accessing Green Financing for MSMEs in India

2.5. Benefits of Green Financing in the MSME sector in India

Figure 3 - India's Estimated MSMEs Distribution by Sector

Figure 4 – MSMEs Training on Garment Manufacturing in India

Source: (Ministry of Micro, Small and Medium Enterprises, 2021)

2.5.2. Promotion of Eco-friendly industries

In 2020 to 2021, KVIC institutions provided opportunities for employment or self-employment

Figure 6 - Training provided by KVIC institutions

Source: (Ministry of Micro, Small and Medium Enterprises, 2021)

2.6. Strategic Finance for Green Financing for MSMEs in India

Figure 7 - Risk Management Process

2.6.3. Strategic Investment

Figure 8 - Stages of a Systematic Literature Review

3.1 Stage 2 – The Search Process

Search Engines Goggle, Google Scholar

3.4 Stage 4 – Source of the Research

Figure 9 - Inclusion and Exclusion criteria of Research

3.6 Stage 6 – Analysis

Table 2 - Data Extraction

 Green Financing: Environmentally friendly financial

 The government of India aims to promote equity

16  Stimulus is used to promote MSME adoption of Green

Table 3 - Descriptive Summary

No. Author & Year Journal/Article Title Area

Role of Micro, Small and Medium Enterprises Green Financing

5 Kamarun et al. (2020) Inclusive Green Finance Policies for MSMEs

Green finance can bolster India’s transition to

India’s updated climate pledge to Paris

Greening the financial system in USA, Canada Barriers for

MSME day 2019. MSMEs, India's growth

Financing India’s MSMEs Estimation of Debt

Financing the visibly invisible: Green and Financing

Kannan and Sudalaimuthu INDIAN MSMEs: INITIATIVES AND

Water conservation in India: How to manage

A Strategic Investment Decision: Internalization

What Corporate Governance Means for the

Green Financing within the MSME Sector in India

Main Drivers Influencing the Need for Green Financing

Barriers in Accessing Green Financing for MSMEs in India

Benefits of Green Financing in the MSME sector in India

3.7 Stage 7 – Conclusion

4.1. Green Financing within the MSME Sector in India

The findings from the analysis supported the literature.

4.3. Assessment of Barriers in Accessing Green Financing for MSMEs in India

4.4. Assessment of Benefits of Green Financing in the MSME sector in India

The findings from the analysis supported the literature.

1. Create a National Literacy Programme

4. Increase in training for skilled workers

Aligning the financial system with sustainable development – a transformational approach in

Bhamra, A. (2022) Financing Green MSMEs in India, www.devalt.org. Available at: