Why India’s Climate Startups Struggle to Raise Debt, and What Can Change
India’s climate startup eco system has come a long way since early 2020, with the equity funding increasing many folds to over 1 billion USD per annum. Additionally, several companies have raised capital through public markets including Ather energy, Waree energy, Vikram solar etc. However, debt availability remains minimal, for every $10 of equity raised at the Series A/B level, barely $ 3 of debt is being secured. The shortage of debt capital is especially felt by younger early-stage enterprises seeking smaller loan sizes.
There is some optimism though, driven by emergence of climate focused debt funds and a number of green NBFCs that offer credit to retail borrowers. This trend is especially benefitting entities in sectors such as rooftop solar, solar pumps and EV logistics, which are seeing strong policy tailwinds. However, for funding to really scale, two things have to happen-
- lenders should be able to profitably lend
- climate companies must be able to access debt at a cost and speed that works for their business models.
Why climate debt matters
Climate tech companies play a key role in helping the economy transition to a low-carbon future by rewiring how we produce power, move goods and people, grow food, build houses and manage waste. As per Tracxn, there are over 1,000 such companies in India, with cumulative equity funding of ₹48 bn These companies are broadly built around one or more of the following :
- Product innovation, like solid state batteries, green hydrogen electrolyzes or biomass pellets. Additionally, they also include companies selling traditional products such as water treatment systems, bio fertilizers, and battery packs among others.
- Process innovation includes substituting existing processes such as cooling, heating, treating, transport with less energy intensive processes
- Business-model innovation, from EV-as-a-service and battery swapping to water as a service or energy savings as a service
Most of these businesses need debt for scaling up, once the first plant, fleet or platform is running: EV OEMs seek working capital and inventory lines; cold-storage startups need warehouse and equipment finance; agri-climate platforms look for receivables financing against B2B contracts. Be it building EV charging networks, setting up compressed biogas (CBG) plants, or re-engineering industrial boilers, these are capital-intensive projects where equity is too expensive to use for buying every battery or steel beam. In other words, while equity provides the initial “risk-seeking” spark, debt is the fuel required for the long haul. In the hierarchy of capital, debt is the largest quantum required to scale, yet for most Indian climate startups, it remains hard to secure.
Who is supplying climate debt today?
On paper, the supply side looks busy.
- Climate-focused NBFCs such as Ecofy Finance, Revfin Services, Mufin Green Finance, UC Inclusive and Caspian Debt (now part of Black Soil) are building loan books in rooftop solar, distributed renewables, EVs and other green assets.
- Venture debt players such as Alteria Capital, Trifecta Capital and Stride Ventures back VC-funded climate tech companies, positioning themselves as providers of non-dilutive growth capital.
- Thematic climate or sustainability-focused debt funds, usually structured as AIFs, have mandates to lend to energy, mobility, waste and agriculture. Examples include Mirova Energy Transition Fund, Kuali Fund by Gawa Capital and the climate debt fund by Northern Arc.
- Sector-agnostic performing credit funds increasingly cite “climate tech” and “sustainable infrastructure” as focus verticals, especially in solar, EV.
Add to these mainstream banks and NBFCs such as Electronica Finance and Namdev Finvest, and the ecosystem appears well populated. However, in practice, most of these institutions are serving climate fintechs or a narrow set of sectors such as solar and electric mobility, while several other climate segments continue to remain underserved.
Why lenders hesitate
Equity flows for climate tech in India show that investor appetite exists. From 2022 onwards climate startups are raising at least over 1 billion annually, with sustainable mobility, climate-smart agriculture, waste and energy as the main themes. By contrast, debt flows into these same startups during their Series A–B years are much leaner at less than 30% of equity. Several frictions keep this gap wide, chief among them being:
- Cashflow uncertainty: Debt availability remains low across all startups, not just those in climate, due to lack of profitability and certainty of cashflows. While venture capital can have a 10X upside and can afford to have one home run, Lenders, who don’t get the upside of VCs, find this “downside risk” unpalatable.
- Pricing expectation mismatch: Startups, especially those who have just closed a high-valuation equity round, may expect debt at 10-12%, viewing it as a cheaper alternative to equity, while a credit fund may want to price the climate debt at a much higher 14-18% range, commensurate with technology and market risk. Add to that the covenant package and quite often there is no meeting ground between the lender and the borrower.
- Deal size mismatch: Most climate startups need between ₹5 crore and ₹20 crore ($600k – $2.5M), pilots, fleets, capex or long-term working capital. This is too large for micro-lenders and too small for the institutional “performing credit” funds that prefer ₹50 crore+ tickets to justify their due diligence, legal and audit costs.
- Governance discomfort: Investors and lenders surveyed in early-stage climate tech consistently flag weak formal governance, patchy reporting and non-standard climate metrics as barriers to capital at scale.
- Regulatory structuring limits: Foreign lenders, often the ones with most appetite for green risk—face constraints under the prevailing regulations, which restrict the use of convertible debt or warrant and blended finance structures, that could otherwise have been suitable.
Further, the lack of equity investors at the Series A stage also affects debt availability. Startups can often raise seed capital, and capital becomes available again once they scale, but companies that are three to four years old and yet to reach meaningful revenues fall into a funding gap. Since debt investors rely on visibility of future equity infusion, this uncertainty makes them cautious.
Where the opportunity potentially sits
In the climate space, for now, more debt has flowed to financiers who on-lend to end consumers in sectors that are positively impacted by GOI schemes such as PM Kusum (solar pumps), PM SuryaGhar (rooftop solar) and FAME subsidies (EVs). Since many of these loans are similar in nature, they can be securitised, enabling lenders to recycle capital faster and redeploy it. This trend has already started, with Ecofy, a green-only NBFC, securitising a pool of 2,400 loans for residential rooftop solar installations in June 2025.
As more credit flows into financing retail assets (EVs, solar panels, solar pumps), this is likely to boost the sales and credit profile of the manufacturers of these products and improve their ability to access debt. Loans to such manufacturers could also be pooled and supported with partial credit guarantees, a structure used extensively by the MFI sector in the past, which has the potential to overcome two key challenges: small ticket sizes (addressed through aggregation) and weaker credit profiles (addressed through credit enhancement). Pilot transactions using this structure have already been executed, by Villgro, a social enterprise incubator, with funding support from Caspian.
Beyond these retail-led segments, several climate sub-sectors such as battery storage, waste management, are beginning to mature. A number of companies in these segments are either close to profitability or already EBITDA positive, making them increasingly suitable for debt financing. While lenders will need to invest time in understanding technology risks, unit economics, and building robust climate impact measurement frameworks, these sectors represent the next wave of opportunities for climate-focused debt capital.
India’s early-stage climate ecosystem has already shown that capital, technology and entrepreneurship can move fast when the incentives line up. The next phase can well involve debt doing the heavy lifting aided by policy support and rising equity inflows to the sector.
This article was co-authored with Kalpesh Gada, Advisor, Climate Policy Initiative, and was originally published on LinkedIn.
