Climate Innovation Compass

Cross Sector

Problem Overview: Micro and small enterprises are today not considered viable customer base.

More than 70 million micro enterprises in India with a per annum turnover of less than 0.5 M USD do not qualify for most cleantech financing. There are half a million small enterprises with less than 5 M USD turnover - they are not considered a viable customer pool for a clean energy financier due to perceived high risk, lack of formal collateral, and unverified cash flows. Given more than 90% of micro enterprise operate in informal settings, the structural and operational challenges are enormous. However, the sheer number of operational entities in this sector make them hard to ignore if India is to achieve credible decarbonization targets. Without solving MSME credit access, adoption of distributed clean technologies such as rooftop solar, efficient motors, electric thermal systems, and clean mobility will remain structurally constrained.

Core Bottlenecks: Limited Visibility and Flexibility of Demand

1. Lack of formal financing

Less then 15% of MSMEs have access to formal financing, and credit. There is no established credit history. Lack of assets or formal documentations make it harder to qualify for conventional loans. Primary barrier for cleantech adoption such as rooftop solar, energy efficient appliance, etc.

2. Awareness Gap

Schemes and initiatives like Pradhan Mantri Mudra Yojana, credit guarantee fund trust, collateral-free loans are there. However, more than half surveyed enterprises said they did not access any government schemes and were not aware of such programs.^[1]

3. Disaggregated units, high transaction cost

For conventional financial institutions, micro enterprise lending is economically unattractive without aggregation due to high transaction costs. Geographic and cluster fragmentation also creates barriers for scale.

Existing Approaches

Alternative Data Underwriting: Non-banking financial companies (NBFCs) using utility bills, GST returns, mobile payments, etc. to determine a borrower’s ability to repay (emerging).

Where is the white-space for innovation?

Innovative derisking mechanisms with data-driven underwriting for the MSMEs could open a huge market potential for clean energy solutions, and have an even bigger impact on climate and environment. The gap remains for alternative data underwriting, clean energy asset performance monitoring (performance-backed lending), and green credit market access. There is a need for innovation across the board from engineering to finance to unlock the market and make it accessible at scale.

Engineering Innovation

AI supported/data-driven risk analytics engines

Business Model / Financial

Potential for integrated platform to address financing and the creditworthiness challenges.

How we identify climate innovation opportunities?

Our methodology

Footnotes

Policy Circle Bureau, 2025, India’s MSMEs face a Rs 25 lakh crore credit gap - can e-commerce play white knight?
India Brand Equity Foundation, 2026 (MSME Industry in India): This is the economic value that can be unlocked in the country if MSMEs have access to finance.
Calculated based on the total CO2 emission from MSMEs (WRI, 2024)

Abbreviations SIDBI - Small Industries Development Bank of India