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Design of blended finance facility to de-risk lending and unlock financing for innovative climate-smart enterprises and their end customers in India

Convergence awarded a feasibility study grant to Villgro Innovations Foundation (Villgro) to bridge the financing gap faced by climate-focused social start-ups in India and help grow the creation of green jobs that economically empower women locally. The grant will support the design of the “Inclusive Climate Action Scaleup Facility” which offers a credit guarantee to local financial institutions to unlock financing for climate and gender-focused small and medium enterprises.

Social start-ups in India often face limited financing options due to factors such as being new to credit, lacking collateral, and operating in challenging demographics with emerging business models and technologies. Moreover, the targeted beneficiary group (women) lacks the capital and risk tolerance required for adopting green technologies. Existing financing options for end-beneficiaries, such as retail loans, come with high-interest rates and don’t always align with the promotion of green technologies. Villgro adopts a bottom-up approach to climate action in India. The foundation collaborates with a range of climate-focused start-ups with the potential to generate green jobs for women at the local level.

Villgro’s Impact Financing Facility will bridge the financing gaps for both start-ups and their end beneficiaries by creating scalable and replicable blended finance tools over the next few years. The facility aims to work with a spectrum of climate-smart start-ups whose business models and technologies are nascent but hold the potential to create green jobs and economically empower women.

Convergence’s grant will support Villgro finalizing the legal, capital and governance structure of the Facility and pilot robust and cost-effective repayment collection models for end-user financing.

Design Question and Learning Potential for the Market: How can a blended finance facility be designed to encourage the adoption of climate smart solutions such that it contributes to the creation of green jobs and women empowerment?

The blended finance facility provides access to finance to innovative start-ups and their women end-beneficiaries to ensure a closed loop of technology adoption, women empowerment and climate impact. Villgro will partner with local commercial debt providers to unlock financing for climate-focused enterprises new to credit or are considered too small for traditional lenders. Additionally, the facility will focus on the design of an alternative credit appraisal mechanism to enable collateral-free lending. Using blended finance, risks can be transferred from commercial capital providers to philanthropic capital. The facility will unlock working capital from non-banking financial corporations to social enterprises and guarantee backed loans to their end customers enabling creation of green jobs and enhancing women empowerment. The guarantee will be funded by philanthropic investors and is expected to grow to $10 million in size over the next few years.

    In progress
    Year and Quarter
    Gender Responsive Climate Finance Design Funding Window, 2023, Cycle 3
    Design Activity
    Feasibility Study
    Region Focus
    South Asia
    Sector Focus
    Financial Services