For Machine Financing: Green Tech Creating Green Business
Published on : Tuesday 17-10-2023
With green technology adoption becoming critical to reduce the environmental impact of business operations,
firms offering machine financing are emerging as important facilitators to promote the proliferation of green businesses, says Ms Shilpa Pophale, Managing Director & CEO, Electronica Finance Limited.
While India aims to become a developed economy by 2047, it also needs to replace fossil fuels with renewable energy sources and pursue decarbonisation initiatives to meet its ultimate target of achieving net-zero carbon emissions by 2070. Towards this end, it is vital that the Micro, Small and Medium Enterprises (MSME) sector, which accounts for almost half of the nation’s manufacturing output, embrace eco-friendly technologies and processes that can reduce the overall carbon footprint of business operations. However, for many fledgling businesses and first-generation entrepreneurs, the cost of financing this transition towards green equipment and practices can prove extremely daunting. To resolve this conundrum, a clutch of new-age non-banking financial companies (NBFCs) are leading the way in providing last-mile financing for such equipment and machinery, thereby playing a pivotal role in ensuring sustainable economic development.
Importance of green technology in combating climate change
On a fundamental level, there are many types of technologies being innovated to reduce energy and natural resources consumption, in turn proving less harmful towards the environment than traditional machinery applications. Clubbed under the umbrella term of green technology (or green tech as it is popularly known), these innovations focus on preserving ecosystems while simultaneously improving productivity standards for adopting businesses. The development of alternative plant-based biofuels, solar-powered farm equipment, biodegradable packaging solutions and e-waste recycling plants are a few notable green tech applications that are making a positive impact on the world we live in.
For businesses, adopting green tech translates into reduced energy bills, lower carbon emissions, optimised raw material consumption and increased production efficiency standards, ultimately improving economic output without harming the environment. Obviously, this means replacing traditional machines and equipment with advanced alternatives that have been augmented with green technology. Notwithstanding the initial cost outlay required to transform existing operations into more sustainable businesses, the long-term potential to save on operating expenses while being kinder to the environment makes green equipment a compelling buy. That said, green tech is a constantly expanding category that has come to include many technologies that are still struggling to find mainstream adoption in a developing economy like India.
The need for green technology integration and landmark governmental initiatives
In order to balance both economic and environmental goals, it is important that large industries and small businesses alike adopt sustainable business practices and technologies on an urgent basis. However, while the cost of modernising operations by implementing green technological solutions may not be a big concern, MSMEs and small business owners often find themselves struggling to justify the upfront investment. To help them in adopting the latest green technologies, the Ministry of MSMEs has rolled out the Zero Defect Zero Effect (ZED) Certification scheme that incentivises entrepreneurs to embrace sustainability as a core business principle. Through this scheme, the Indian government envisions developing a zero-defect manufacturing ecosystem that follows energy efficient practices while promoting manufacturing processes that have negligible environmental impact.
The Pradhan Mantri Kisan Urja Suraksha evam Utthan Mahabhiyan (PM-KUSUM) scheme is another stellar example of how green technology when supported by fiscal support can upgrade quality of life and decarbonise the environment. Launched in 2019 by the Honourable Prime Minister Narendra Modi, the PM-KUSUM scheme has three components that envisage the setting up of 10,000MW of renewable energy power plants, install 1.75 million solar agriculture pumps in place of diesel systems and support farmers with additional income on excess solar power returned back to the grid. Moreover, the total central financial assistance and state government support amounts to 60 per cent of the infrastructure costs sustained, with only the remaining 40 per cent to be borne by individual farmers. Aimed at ensuring energy security for Indian farmers, this scheme also supports the larger goal of increasing the share of non-fossil fuel sources in electricity generation to 40 per cent by 2030.
Role of financial institutions in promoting green technology and mitigating allied risks
Apart from renewable energy technologies that now have a sizable amount of historic data to understand inherent risks, other green technologies that aim to introduce more sustainable material alternatives or revolutionise manufacturing industries don’t enjoy the same confidence. Even advanced green nanotechnology and green chemistry applications remain relatively unknown in countries like India, making it a bigger challenge for business owners to procure the necessary capital needed to adopt such green technologies.
Moreover, traditional financial institutions extend working capital loans with hefty collateral in such instances, choosing to protect their funds in the scenario where the business fails to deliver returns on the capital employed. This only exaggerates the problem of low green technology adoption and deters small business owners or farmers from experimenting with green applications and equipment.
How machine financing is driving innovation and fostering green businesses
While there are many novel instruments like green bonds, ETFs, mutual funds and even private equity or venture capital firms that are supporting start-ups to engage in environmentally sustainable technologies, there are limited options for MSME entrepreneurs and small business owners to tap into. This is where the machine or equipment financing segment shines through; offering financial support for the purchase of green machines, modernising operations or even to meet working capital requirements for sustainability focused businesses. A few NBFCs have raised the standards by going as far as to provide collateral-free loans with flexible interest rates, all the while ensuring disbursals within three working days and personalised support. By providing collateral-free financial support that can be easily repaid from profits earned through their businesses, these NBFCs are empowering millions of Indian entrepreneurs in building green businesses
By catering to over 90 per cent of all businesses in the country with machine financing products, these financial institutions are at the helm of ushering a green technological revolution across the MSME landscape. They continue to support budding entrepreneurs in adopting the latest green equipment and technologies that will deliver that ever-important competitive edge needed to thrive in a globally connected economic landscape. With traditional financial institutions only just waking up to the pressing need of dedicating more funds towards such green financing segments, firms with a head start in the machine financing space could emerge as the most important facilitators to implement green technology solutions across the Indian industrial, agricultural and energy landscape.
Ms Shilpa Pophale has been associated with Electronica Finance Limited (EFL) for over eighteen years and has worked in multiple roles before becoming the Chief Executive Officer of the Company in 2003 and taking over as the Managing Director of the company in 2007.
