Barriers and Instruments of Green Financing for Small and Medium-Sized Enterprises: An Analytical Literature Review
DOI:
https://doi.org/10.54097/ek8tj443Keywords:
SME finance, green finance, sustainable finance, credit constraints, green credit, credit guarantees, energy efficiency, eco-innovation.Abstract
Small and medium-sized enterprises are the main sources of employment, production and local innovation, but they have been neglected by the sustainable finance system. This paper offers an analytical literature review of the barriers and instruments for SME green finance. It believes that the SME green finance gap is not only a lack of funds. Instead, it is the result of the interaction among general SME credit frictions, the special characteristics of green projects, weak internal capabilities, and the transaction costs of environmental verification. The four sources of the literature for this review are SME finance theory, eco-innovation, the energy-efficiency gap, and green finance policy. It builds a taxonomy of barriers, maps financial and non-financial instruments to these barriers, and compares selected cases from China, India, Colombia, Ireland and the European Union (EU), along with firm-level projects supported by the European Bank for Reconstruction and Development (EBRD). Therefore, stand-alone green loans are not suitable for small and medium-sized enterprises. Good designs combine finance and risk sharing, technical support, project preparation, performance guarantees and reasonable reporting systems. Finally, the paper points out research deficiencies in SME-specific causal evidence, green guarantee assessment, digital sustainable finance, and long-term firm-level effects.
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