POLICY RECOMMENDATIONS FOR STATE INCENTIVES AND REGULATORY FRAMEWORKS TO EXPAND GREEN SME FINANCING

Small and medium-sized enterprises (SMEs) are expected to play a large part in the low-carbon transition, yet they often cannot finance the equipment and technologies that such a transition requires. Green investments usually involve high upfront costs and long payback periods, and commercial lenders tend to regard them as riskier than conventional loans. This paper reviews the academic literature and international policy guidance on three groups of instruments that can narrow this financing gap: tax incentives, public credit guarantee schemes, and institutional support for commercial banks and leasing companies. The review suggests that no single instrument is sufficient on its own. Fiscal incentives lower the cost of green investment for borrowers, risk-sharing instruments make lenders more willing to enter an unfamiliar market segment, and a national green taxonomy reduces uncertainty about which projects qualify as green. Taken together, these measures form a policy package that can help mobilise private capital for the green transition of SMEs.