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Sustainability financing for SMEs set to take off

Most of DBS Bank’s SME loans come as digital loans and these come for both working capital and also for transition financing.Premium
Most of DBS Bank’s SME loans come as digital loans and these come for both working capital and also for transition financing.

  • Key challenges SMEs face in adoption of environment, sustainability and governance (ESG) initiatives include the cost of their deployment, access to experts and know how and difficulties in valuation of return on investments, DBS Bank India’s Sudarshan Chari said

NEW DELHI :

Lending to small and medium enterprises (SMEs) to finance their transition to less carbon intensive businesses is emerging as an opportunity for financial institutions and is set to become a key part of their loan books in the future, according to Sudarshan Chari, Executive Director and Head of Business Banking at DBS Bank India Ltd.

Chari said in an interview that this is clearly one of the agenda items for DBS Bank. Key challenges SMEs face in adoption of environment, sustainability and governance (ESG) initiatives include the cost of their deployment, access to experts and know how and difficulties in valuation of return on investments, he said. Chari said that lending to small businesses in their transition to sustainable enterprises is a viable lending option for banks.

Chari said that most of DBS Bank’s SME loans come as digital loans and these come for both working capital and also for transition financing. If there is a capacity to be put up to support sustainability, we support that transition, he said.

“I believe it will be a bigger share than it is today in terms of future requirement for financing as the adoption rate increases," he said.

“There is a lot of buzz in terms of carving out a special purpose vehicle within a bank and getting subject matter experts, to push the agenda (of sustainability financing) for them. As adoption rate goes up, every bank will have one," said Chari.

He said that some non-bank finance companies have come up with a focus on sustainability financing. “They will also try to get equity and debt capital to support sustainability financing. Some banks have already taken the lead and others will catch up," he said.

A statement from DBS Bank said quoting a survey conducted by the bank and Bloomberg Media Studios in August that SMEs in India led their regional counterparts in Asia, with more than nine in ten rating ESG as a high priority for their business. The survey found that SMEs in India contend that an ESG practice could increase their competitive edge and boost the company’s reputation. While ESG frameworks help businesses shape their sustainability decisions and transparently report progress, they also represent a commitment to making a company more socially responsible, the statement said.

The survey found that 92% of SMEs feel that environment issues concerning pollution monitoring, climate change, carbon footprint, depletion of natural resources, etc. are top priorities directly impacting their industries and as a result for their businesses.

ABOUT THE AUTHOR

Gireesh Chandra Prasad

Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
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