Green Finance in Tier-2 Cities: How NBFCs Are Bridging the Climate Finance Gap

NBFCs are showing that India's green transition will not be driven only by large infrastructure projects or big corporations. It will also be built through thousands of smaller investments made by homeowners, entrepreneurs, farmers, and local businesses across the country.

August 24, 2026. By News Bureau

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India's climate journey is often associated with large solar parks, green bonds, and ambitious renewable energy targets. But if you look beyond the headlines, a different story is unfolding in India's tier-2 and tier-3 cities. In cities like Coimbatore, Indore, Jaipur, Nagpur, Surat, and many others, homeowners, small businesses, and local communities are making practical choices to reduce energy costs and adopt cleaner technologies. Rooftop solar panels, electric vehicles, energy-efficient machinery, and water-saving systems are becoming more common. What is making this shift possible is easier access to financing.

This is where Non-Banking Financial Companies (NBFCs) are making a real difference. For years, NBFCs have served customers that traditional banks often overlooked. Today, they are using that experience to make green financing more accessible, helping people and businesses invest in sustainable solutions while supporting India's climate goals.

The Climate Finance Gap

India has set ambitious climate targets. The country has committed to reducing the emissions intensity of its GDP by 45 percent from 2005 levels by 2030, while increasing the share of electricity generated from non-fossil fuel sources. The country has already crossed 52 percent non-fossil installed power capacity, showing strong progress. However, achieving these goals requires significant investment. Experts estimate that India needs more than USD 170 billion every year for climate-related projects, far more than current funding levels. This is where NBFCs can play an important role.

Why NBFCs Are Well Placed

NBFCs have built strong relationships with customers across India's towns and smaller cities. They understand local businesses, seasonal incomes, and regional market conditions better than many large financial institutions. This local understanding allows them to design loans that suit borrowers' needs and make lending decisions faster.

Many green projects are too small to attract funding from large banks. For example, a textile factory replacing old machinery with energy-efficient equipment or a farmer installing a solar-powered irrigation system may not qualify for traditional financing. NBFCs are filling this gap by offering flexible loan products that make these investments affordable. As more businesses adopt cleaner technologies, they not only reduce emissions but also lower operating costs and improve productivity.

Benefits Beyond the Environment

Green lending is not just a growing business opportunity for NBFCs; rather, it is about empowering tier-2 cities to build a cleaner future. Every rooftop solar installation reduces dependence on conventional electricity. Every electric vehicle financed helps improve air quality. Every energy-efficient factory lowers both costs and carbon emissions.

There is also a quieter, structural benefit. As NBFCs finance more green projects, they build valuable data on borrower performance. This creates confidence for larger banks, investors, and international climate funds to support these portfolios in the future. In this way, NBFCs become an important bridge between global climate finance and local borrowers.

Government policies are also moving in the right direction. Green finance guidelines are becoming clearer, and initiatives such as the Task Force on Sustainable Finance are helping create a stronger framework for sustainable lending. Combined with growing investor interest in green finance, these developments give NBFCs greater opportunities to expand their green lending responsibly.

The Road Ahead

India still has a long way to go in meeting its climate financing needs. Smaller cities continue to face challenges such as limited institutional capacity and a shortage of large, investment-ready projects. Even so, the progress is encouraging. NBFCs are showing that India's green transition will not be driven only by large infrastructure projects or big corporations. It will also be built through thousands of smaller investments made by homeowners, entrepreneurs, farmers, and local businesses across the country.

By combining local knowledge, flexible financing, and strong customer relationships, NBFCs are helping bring sustainable finance to communities that need it most. One rooftop solar system, one electric vehicle, and one energy-efficient business at a time – helping build a greener and more inclusive future for India.

- Shraboni Fernandes, Head – Marketing, Ecofy