SUMMARY
The scheme will offer attractive financing terms for the sale of 2W, 3W and 4W EVs through direct and indirect lending
The initiative will focus on emerging NBFCs by increasing the exposure to funds and reducing landing costs for such players
As per a report, the homegrown EV financing market is projected to soar to $4.37 Bn by 2028
The Small Industries Development Bank of India (SIDBI) has reportedly launched a pilot financing scheme for purchase of electric vehicles (EVs).
Called the Mission 50K-EV4ECO, the initiative will fund the purchase of 50,000 EVs in the country to spur the local ecosystem. Under the scheme, SIDBI will offer attractive financing terms for sale of two-wheeler, three-wheeler and four-wheeler EVs through direct and indirect lending.
“We intend to promote the entire EV value chain. This pilot shall be followed by scaling up support to (the) ecosystem from multilaterals support. MSMEs, aggregators and other crucial actors of EV value chain have been facing challenges in convincing financial institutions to lend them,” said SIDBI chief managing director (CMD) Sivasubramanian Ramann.
The two-tier scheme will directly cater to micro, small and medium enterprises (MSMEs) and non-banking financing companies (NBFCs) to spruce up the ecosystem. Under direct lending, the state-backed institution will directly offer loans to eligible MSMEs, including aggregators, fleet operators and EV leasing companies, to buy EVs and develop local charging infrastructure.
On the other hand, indirect lending will focus on small, unrated and emerging NBFCs working actively in the EV financing domain by increasing the exposure to funds and reducing landing costs for such players.
The move is in line with the union government’s larger focus on the EV30@30 initiative which targets reaching 30% sales share for electric vehicles by 2030. SIDBI said that it has adopted EV as a priority area and aims to promote the entire value chain through the pilot financing scheme.
Noting that transition to EVs is a critical cornerstone for transport sector decarbonisation, Sudhendu Sinha, advisor at NITI Aayog for infra and e-mobility sectors, said that the government think tank is looking at SIDBI to prioritise the three-wheeler segment. He added that through the scheme, SIDBI will be able to further leverage multilateral support for these NBFCs and MSMEs to ensure quick replicability and scalability on ground zero.
EV Financing Under Spotlight
Elaborating on what prompted the pilot scheme, Ramann noted that many crucial actors of the EV value chain including channelising agencies, MSMEs and aggregators are facing challenges in availing and offering lending services owing to high risk perceived by banks in EV financing.
He also said that such EV-focused NBFCs are not able to cater to the EV financing demands of MSMEs for day-to-day operations or commercial use.
“NBFCs are playing an important role in the enterprise growth strategy of SIDBI. They have shown willingness and ability to reach the bottom of the pyramid businesses, especially in credit deficient geographies, adoption of innovative and nimble credit delivery models and understanding of the local ecosystem,” added Ramann.
This has prompted SIDBI to introduce the scheme to give a ‘fillip to the national agenda’ of a carbon-neutral nation.
Overall, financing options for EVs continue to be scarce owing to risks associated with EV business models such as lower resale value and a smaller secondary market for such vehicles. The space also attracts higher interest rates, largely 150-200 bps higher than traditional internal combustion (ICE) vehicles.
Another major challenge that impacts EV financing is the battery aspect which needs to be changed every 2-4 years depending on the wear and tear unlike ICE vehicles which do not require any significant change at the outset.
With the overall infrastructure such as charging points and swapping networks yet to scale, banks and other financial institutions largely shy away from offering competitive interest rates on these vehicles making it difficult to avail loans.
Then, there is the major issue of credit-worthiness of MSMEs, especially in rural areas and Tier-III towns, who still operate outside the ambit of the traditional banking system, complicating the underwriting process.
However, the space has seen rapid strides in recent years. With an uptick in EV sales, a slew of platforms have emerged that offer EV financing especially to businesses and SMEs. This has captured the eye of investors who have also pumped in big investments in many such platforms.
In February, EV fintech startup Turno raised $13.8 Mn in a Series A funding round led by B Capital and Quona Capital. Prior to that, commercial EV financing platform Vidyut bagged $4 Mn in a mix of equity and debt in its seed funding round.
In October, EV financing startup RevFin secured $10 Mn in a mix of equity and debt financing from Green Frontier Capital and LC Nueva Investment Partners.
As per a report, the homegrown EV financing market is projected to soar to $4.37 Bn by 2028.
