A Credit Guarantee Scheme for Rooftop Solar in India

Abstract

This article examines the need for scaling up investments in rooftop solar projects in India’s micro, small, and medium enterprise (MSME) sector. In this context, the article identifies the third-party financing model as a key business model and notes two key barriers to financing these rooftop solar projects—payment delay and payment default. Arguably, these barriers can be addressed via a credit guarantee mechanism (CGM). Based on the methodology for expected loss sizing, a pilot CGM supporting installation of 400 MW of rooftop solar capacity would need a CGM sized at $22.36 million. The leverage for this CGM would be 8.94 and 13.77 for debt and total capital facilitation, respectively. The article recommends that the Indian government should launch a comprehensive CGM scheme as a public intervention, using suitable host financial institutions. The article also notes many avenues for improving on this work.

TOPICS: Emerging markets, credit risk management

Key Findings

• • Scaling investment in rooftop solar in the MSME sector in India would require addressing the twin barriers of payment delay and payment default.

• • In the near term these barriers can be addressed via a public funded credit guarantee mechanism (CGM).

• • An appropriately designed CGM can provide a leverage of 8.94 and 13.77 for debt and total capital, respectively.