Characteristics of green loan users and the green policy mix

We analyse the usage of government-sponsored green loans under a feed-in-tariffs scheme and document a positive link with borrower financial health. Green loan users have better credit ratings, higher sales growth, and lower leverage. The link remains stable in face of significantly changing conditions for green investments and heightened policy uncertainty. Green loan users exhibit better ex-post performance and lower default probability. Results are in line with the notion that the screening undertaken by the lender matters for efficient green loan provision and highlight the important role of public loan programs in the green policy mix. • Examines green loan usage of small/medium firms under Japan's feed-in-tariffs. • Leverages a large dataset with credit information for 96,000 SME borrowers. • Financially healthier SMEs exhibit greater propensity for green loan usage. • Ex-post, users have better risk ratings, lower likelihoods of deficit/bankruptcy. • Screening by the lender likely matters for efficient green loan provision.