Energy efficiency and consumption of renewable energy resources have been encouraged throughout the MSME industry. The Government of India, with the objective of incentivizing such MSMEs that promote sustainable energy development, has introduced the Sustainable Finance Scheme (SFS). This scheme is aimed at providing financial aid to such MSMEs that support Environment and Climate Friendly energy consumption and production processes. 

SIDBI's vision of Sustainable Development of the MSME Sector is continuously backed up by a range of schemes offering affordable & suitable energy efficiency or environmental financing. Various schemes are also in place to improve understanding among the MSME sector of the benefits of climate control. SIDBI's targeted loan schemes encourage investment in renewable technology and energy-efficient technologies and/or production processes. 

Additional Reading: Micro Small And Medium Enterprises Loan

The objective of the Sustainable Finance Scheme (SFS)

As discussed above, the scheme aims at financing MSMEs adopting energy-efficient methods in their enterprise. The scheme works with the following vision:  

  1. Promote energy efficiency of the MSME sector in India

  2. Improve understanding of the benefits of climate control among MSE clusters. The targeted loan schemes of SIDBI encourage investment in renewable technologies and energy-efficient technologies/production processes

  3. Aid MSMEs in designing, upscaling, demonstrating and promoting innovative project based on technology

Applicability of the SFS loan scheme

This scheme can be availed by MSMEs for the following initiatives: 

  1.  For the introduction of end-to-end energy efficiency initiatives

  2.  To meet part of the cost of capital expenditure, including the procurement of equipment/machinery, construction, civil works, commissioning, etc. for the implementation of the energy efficiency measures as recommended in the DPR

  3.  Any other relevant expenditure needed by the department, given that it is not more than 50% of the total capital costs towards the above-mentioned undertakings

(Second-hand machinery/equipment financing; land acquisition and building construction (except for minor civil works) are not covered by the program)

Eligible activities under the SFS Scheme

This loan scheme is available for registered MSMEs undertaking the following activities: 

  1.  Renewable energy projects for captive/non-captive use, such as solar power plants, wind generators, mini-hydropower projects, biomass gasifier power plants, etc.

  2.  Any form of potential investment in CP (Clean Production) which involves waste management

  3.  Green microfinance offering micro-credits up to Rs.5 lakh for green/energy-efficient equipment initiatives to micro-enterprises

  4.  Audit/pollution control and management consultancy services spending on energy audit/environment regulation

  5.  The spending on Green Ranking, Eco-Friendly Marking, Rating of BEE ratings, etc.

  6.  Cost for obtaining ISO 50001/14000 or other certified certification for energy/environment

  7.  Registration for CDM Expenditure confirmation

  8.  Appropriate aid for OEMs manufacturing energy-efficient/cleaner production/green machinery/ equipment. The support could be made either in the form of deferred payment agreements, channel partners/referral agreements, etc. The OEM must be an MSME or it must supply a substantial number of MSMEs with its goods.

The eligible borrower under the SFS Scheme: 

  1.  MSME units involved in the manufacturing or services sector

  2.  Applicant unit should have been in service for at least three years and should have gained cash profit in the last two years of operation and should not be in any bank/FI default

  3.  The proposal should be in the range of C1 – C8

  4.  The unit should have undergone the Detailed Energy Audit (DEA) phase through a BEE accredited technical agency/consultants. In addition, the Detailed Project Report (DPR) report should have reviewed by the EEC of SIDBI

  5.  The unit should not have availed Performance Linked Grant under the WB-GEF Project for the proposed EE Project

  6.  The unit should be in compliance with the Environment & Social Management Framework 

Quantum of Finance offered under the SFS Scheme & the repayment terms

  •  This scheme covers up to 90% of the project cost as submitted by the MSME. The minimum loan amount is Rs.10 lakh and the maximum loan amount cannot exceed Rs.150 lakh per eligible borrower under this scheme.

  •  The repayment tenure shall not be more than 36 months for loans up to Rs.50 lakh and 60 months for loans beyond Rs.50 lakh, including an initial moratorium period of up to 6 months. 

  •  Interest rates on the loan are fixed based on the internal rating of the MSME by SIDBI. 

  •  A margin of 10% is to be borne by the borrower.

  •  Hypothecation of the assets purchased serves as the security for the loan.

  •  Collateral security may be required wherever deemed necessary for adequate asset coverage.

  •  CGTMSE cover may be taken, if available.

Additional Reading: What is SIDBI and its functions?

The application process for the SFS Scheme

Step 1:   The prospective lender must submit the Detailed Project Report (DPR) to SIDBI for vetting by the EEC. (EEC shall make available the sample format of the DPR if necessary).

Step 2:  Upon vetting, the report should be submitted to the SIDBI Branch Office

Step 3:  Along with the loan, the required amount of capital subsidy under CLCSS, TEQUP, etc. is also approved according to the prevailing guidelines.

Step 4:  The disbursement shall be made in accordance with the terms and conditions of the provisions laid down in the Letter of Intent and documents in accordance with the current DCS guidelines.

Fiscal Incentive:  Energy Service Companies (ESCOs) implementing the Energy Efficiency/Cleaner Production/Renewable Energy Program are given sufficient assistance using term loans or working capital. The ESCO must be an MSME or otherwise the entity to which it delivers its services must be an MSME in order to qualify for this benefit.

Points to Remember:  During 2012-13, SIDBI introduced this scheme for projects that contribute to energy efficiency and cleaner production but are not covered by International or Bilateral Credit Lines issued by international or bilateral agencies. Therefore, the scope of this scheme includes all sustainable development projects such as renewable energy projects, greenhouses, green microfinance, Bureau of Energy Efficiency (BEE) star rating and eco-friendly marking, etc.