Not many people realise that micro, small, and medium enterprises (MSMEs) form the backbone of India’s economy, driving job creation, industrial output and exports. MSMEs contribute nearly 30 per cent to the GDP and employ over 110 million people. And yet, they constantly struggle to secure adequate credit.
As global priorities shift towards sustainability, MSMEs face the added pressure of remaining competitive while adopting environment-friendly practices. Non-banking financial companies (NBFCs), with their extensive reach and deep insights into the MSME sector, are best positioned to ease this green transition and climate adaptation. They can offer innovative credit programmes tailored to suit the unique needs of these businesses.
The United Nations Brundtland Commission has defined sustainability as “meeting the needs of the present without compromising the ability of future generations to meet their own 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 shows that about 35 per cent of MSMEs are open to adopting sustainable practices, 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 are fostering the transition to a sustainable MSME ecosystem. This is where NBFCs can make a difference, by providing MSMEs the financial support and guidance they need to integrate sustainability into their operations.
Tailored products
NBFCs could offer MSMEs green loans and other financial products specifically designed for sustainability initiatives — such as loans to acquire energy-efficient machinery, renewable energy installations, waste management systems, and other eco-friendly technologies. By offering competitive interest rates, extended repayment periods, and concessional terms for sustainable projects, NBFCs can lower the financial barriers impeding MSME investments.
For instance, NBFCs could introduce a loan product with lower interest rates for MSMEs that invest in solar power installations or adopt energy-efficient production processes.
Longer repayment terms will ease the financial pressure on MSMEs, allowing them to reap the long-term cost savings from sustainable investments.
Government schemes
The Central government has several initiatives to empower MSMEs through access to credit and direct financial support. Union Budget 2025 proposed an increase in credit guarantee cover and launch of customised credit cards for MSMEs. The aim is to enhance formal credit access, bolster lending capacity, and strengthen the regulatory framework, deepening confidence in the financial system and driving economic expansion.
The enhanced credit guarantee scheme limit — ₹10 crore from ₹5 crore — will motivate lenders to focus more on the MSME segment. Likewise, the issue of 10 lakh credit cards to MSMEs will facilitate effective management of working capital. Besides, initiatives tailored to suit sectors, including footwear, leather and toys, will benefit first-time manufacturing entrepreneurs and those from disadvantaged backgrounds. The budget also proposed setting up new institutions and missions for developing sustainable and affordable manufacturing and clean technology.
The budget announcements will strengthen the many initiatives already underway to promote sustainability among MSMEs.
NBFCs can align their credit offerings with government schemes to offer additional financing options or top-up loans. This will complement government schemes, such as subsidies for renewable energy projects or tax incentives for green investments.
Collaborating with government bodies, international organisations and sustainability experts, NBFCs can create programmes to provide MSMEs access to the latest information, best practices and technological solutions. Workshops, training sessions and one-on-one consultations can help MSMEs navigate the complexities of sustainable technologies and integrate them into their businesses.
By connecting MSMEs with green technology providers, renewable energy suppliers and sustainability consultants, NBFCs can help foster sustainable business practices. These collaborations can lead to cost-sharing opportunities, bulk purchasing of sustainable technologies and exchange of knowledge and resources among MSMEs.
(The writer is founder and Managing Director, UGRO Capital)