Barriers to the Adoption of Green Finance in India with Special Reference to Small & Medium Enterprises (SMEs)

Abstract

Importance: Green finance has become a critical policy instrument for promoting sustainable development by directing financial resources toward environmentally responsible activities and supporting the transition to a low-carbon economy. In India, one of the essential pillars of economic growth is SME, their engagement with green finance remains finite. Hitherto, multiple green finance initiatives and supportive policy tools have been implemented; however, SMEs encounter various impediments that restricts its effective adoption. Available studies and research underscore the need for better empirical evidence to elucidate how policy and institutional mechanisms affect green finance uptake among SMEs.Objective: This study focuses on key policy, institutional, and financial barriers affecting green finance adoption among Indian SMEs and examines whether the understanding of these barriers varies across enterprise characteristics.Methods: The study of primary data was collected from 90 SMEs units and their administration holders using a structured, self-administered questionnaire. Data were analysed using SPSS version 25. Descriptive statistics, Exploratory Factor Analysis (EFA), reliability analysis, and Analysis of Variance (ANOVA) were employed to identify major barriers and assess variations across industry type, enterprise size, and years of operation.Results: The findings illuminate that the most critical constraint to green finance adoption is policy and regulatory barriers, in line accompanied by institutional and financial barriers. Factor analysis pinpointed three dominant dimensions moulding adoption behaviour. There are no significant differences in perception across SME characteristics as per ANOVA results, spotlighting the fact that barriers are systemic and not enterprise-specific. There is a strong preference for subsidised loans, tax incentives, and simplified eligibility criteria, as highlighted by descriptive results. Most of the SMEs respondents inclined interest in adoption if policy and procedural barriers are surge-down, and underscore that green finance is vital for long-term sustainability.