Enhancing India’s Readiness to Climate Finance

Enhancing India’s readiness to access and deliver international climate finance
improvement in industrial motors, boilers, super-efficient fans, water pumps, A/Cs, etc.). India
could pilot a Challenge Fund for implementing a programme from this list, to fund the critical
R&D, demonstration, deployment, diffusion phases – using this experience to highlight the
potential for scale-up to attract future investors.
Readiness Gap 4
DFIs in India have limited capacity to implement climate-related projects beyond a narrow range of
themes, sectors, and geographies. India therefore faces challenges in developing a pipeline of
bankable projects, which could help remove barriers for project financers and increase climaterelated
investment in the country.
A number of recent reports and initiatives have highlighted the primary role for DFIs to play in
delivering climate finance in developing countries. 56 Specifically, DFIs play two important roles in the
national climate change response. First, they can serve as primary agencies delivering climate
finance on the ground. Second, they can act as secondary lending agencies to other banks and
private investors – using their own market knowledge, management capacity, and financial collateral
to encourage new investment. As project developers, and as agents that support project developers,
they are therefore ideally placed institutions to develop a pipeline of bankable projects that will attract
scaled-up investment for climate activities in new sectors and geographies.
Recommendation #4
India should strengthen the capacity of DFIs to design, select, and fund national and state-level
climate change projects or programmes, in order to increase the coverage of climate-related
activities and to develop bankable projects to attract further investment.
Actions:
In order to strengthen DFIs’ capacity to assist in the delivery of national climate change plans, India
should:
Provide DFIs that are already delivering climate-related projects (e.g. SIDBI, NABARD), with
formal mandates to allocate funds for climate-related activities under the NAPCC and
SAPCCs. These mandates should build on DFIs existing project management 57 and risk
management capabilities to scale-up the design, selection, and funding of climate projects and
programmes. For example individual line Ministries could give specific DFIs formal mandates
to finance their development plans and NAPCC Mission objectives. MNRE is already using
IREDA to finance their national policies and Solar Mission objectives, and this model could be
scaled out further.
Explore how other financial institutions like SBI, IDFC, IL&FS, etc. can also allocate climate
finance. Many institutions in India have valuable experience in channelling private and public
funds to finance large development projects, as well experience of dealing with variety of
financing instruments and foreign capital. All of these competencies could be useful to scaleup
climate-related projects.
Consider creating new domain-specific DFIs for carbon intensive sectors, such as transport,
energy intensive industries, forestry, waste, and water management.
Create a climate finance working group (within each DFI) that has a clear mandate to develop
investment criteria for climate-related projects. Representatives from each DFI could then
meet regularly to share ideas and to develop common allocation, disbursement, and MRV
processes. (For example, creating an agreement for individual DFIs to focus on
56 IDB Report – The Role of National Development Banks in Catalysing International Climate Finance,
2013; International Development Finance Club (IDFC) - Comprised of 19 national/regional development
banks which have a total asset base of over $2 trillion; Association of Development Financing Institutions
(DFIs) in Asia and Pacific (ADFIAP) - 131 member-institutions in 45 countries and territories.
57 Approving activities, channelling grants and/or loans, etc.
Ref: Ricardo-AEA/R/ED59216/Final Report
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