The Two-Coloured Bicycle

I learned to ride a bicycle on my father’s large bicycle – one that I could only ride “half-paddle,” since I couldn’t sit on the seat. The bicycle was heavy and tall. My father had bought it second-hand in excellent condition from a Border Security Force (BSF) staff member who had just been transferred out of town. The “weight” of its paramilitary origins made it difficult for a young me to manage, but it also meant the bicycle survived the many falls it had to endure as I learned to ride.

My father accompanied me on the first day and explained how to learn cycling. After that, he let me figure things out on my own. That was his way letting me figure out if I really wanted something.

Whenever the bicycle was lying unused at home, I would take it out and walk it across to the playground diagonally opposite our quarters. For several days, possibly weeks, I kept trying to learn how to ride that big, heavy bicycle from the side, pedalling half-paddle, without being able to sit on the seat.

One day, after I had finally learned to ride it, my father saw me cycling half-paddle. I think he felt I had earned a bicycle of my own. He told me he would buy me a smaller one – brand new. We planned a trip to the only bicycle shop in our town. I was excited about having my own bicycle.

But, around that time, the first Gulf War had begun, when the United States went to war to free Kuwait from Iraq. Missiles were being fired several thousand miles away. And, much like today, long-distance transportation had slowed and stopped. When we visited the bicycle shop, the shopkeeper told us he had no bicycles in stock and that new deliveries had stopped. He placed the order anyway and asked us to return after a few days.

After two futile visits, he must have felt some sympathy for me. He told us that he wasn’t sure when the deliveries would start. He decided to assemble a bicycle for me using spare parts from two differently coloured bicycles that were lying in his shop.

And, so I ended up with a brand-new bicycle, with a frame made up of two different colours. I was simply thrilled to have my own bicycle. To me, the two colours looked like a special new design. I rode that bicycle for 9 years and sold it off in working condition when I moved out of town.

I was reminded of this recently because of the ongoing tensions involving the United States, Israel and Iran. Just like back then, there is a discussion about long-distance transportation and deliveries for non-essential goods being slowed down or stopped in some places. That war lasted around forty days but had a noticeable impact even in small towns like ours. Wars are not good. No matter where it happens. But, in the middle of adversity, odd incidents like the birth of my two-coloured bicycle happen.

Somewhere, perhaps, another child is waiting for a bicycle that might arrive in two colours. He just doesn’t know it yet.

The Wrong Charlie Chaplin Won

As a child, I was part of a local child/youth organization that brought together children from diverse financial backgrounds. It regularly organized cultural and recreational activities that we all looked forward to. One year, we had a fancy dress competition.

One of my senior friends, Sumit (name changed), was well known for his brilliant impersonation of Charlie Chaplin. In those days, Charlie Chaplin short films were starting to be shown on television and was widely loved. So, when the competition was announced, it surprised no one that Sumit declared he would dress as Charlie Chaplin. We all knew that if he did, he would almost certainly win.

As he began preparing, however, he ran into a problem: he didn’t have a coat like Chaplin’s. He checked with neighbors and friends, but no one had one to lend. In those days, in small towns like ours, owning a suit or coat was uncommon. After an exhausting search, he had to give up on the idea.

On the day of the event, one of the wealthier boys, Pritam (name changed), arrived dressed as Charlie Chaplin. Sumit, who was far better at performing Chaplin’s mannerisms, came instead in a torn jute sack, portraying a “mad” man. While Pritam tried his best, his performance as Charlie Chaplin was underwhelming. But, he won the first prize. Possibly because everyone loved Charlie Chaplin. Many of us quietly felt that Sumit would have done far better had he been able to dress the part.

I often think about that incident when I observe the impact finance ecosystem today.

Sometimes, those with financial resources can win recognition as “impact focussed” by investing heavily in marketing, public relations and expensive third-party auditors who effectively place an impact “coat” over otherwise ordinary work. And, people love it because people love impactful organisations. Meanwhile, organizations doing deeply meaningful, transformative work, but lacking the funds for branding, PR, or third party audits, often go unnoticed. 

Just as we missed out on witnessing Sumit’s true talent that day, the world sometimes misses out on recognizing genuine impact because it lacks the right costume.

The B2C Mirage: When Higher Gross Margins lead to Lower Net Profits

Many B2B companies, feeling the squeeze of thin gross margins or concentrated buyer power(and these days due to Venture Capital’s focus on “large markets”) look toward the retail consumer. The B2C promise is seductive – better gross margins, a massive addressable market and “control” over your own brand. But, there is a hidden tax that often makes the B2C journey a value-destroying one, particularly for those relying on digital channels.

The “Digital Platform Tax” is the New Cost of Goods:
In the digital world, Facebook ads and e-commerce placement fees have replaced the traditional distribution costs. My (limited) observation, particularly in sectors like food, hardware products and education, is that sales often become a direct function of daily spend on these platforms. You stop spending, the sales vanish. These digital platforms are incredibly efficient at using your own data to price their services. The moment your product starts doing well, the algorithm finds a way to capture that extra margin, or worse, the platform launches a private label to undercut you. (Luckily, Facebook doesn’t sell products! Or we would have Facebook Trail Mix Bar?)

The Myth of “Brand Building” as an Investment:
We are often told that high marketing spend on online platforms is an “investment” in brand building that will eventually lower customer acquisition costs. In practice, this is rarely the case for physical products or non software products. Instead of building a brand, many companies find themselves in a loop: spending more than their margins just to maintain volume. As volumes grow, platforms quietly raise rents. Algorithms optimise for volume, not seller profitability. Direct demand never really shows up. Sellers become dependent on the platform and, if a product does well enough, the platform may launch its own competing version.

Rocky Way Back to the Past:
When the B2C experiment fails, returning to B2B becomes a struggle because the cost structures and core expertise of the team have fundamentally shifted.

The Narrative Gap:
Most of the online literature on profitable online growth is dominated by SaaS and software where marginal costs are near zero. Or the narrative is dominated by VC backed companies who are yet to see profits.

But for those selling physical products or services without the cushion of VC-funded “burn,” the path and the conversation is scarce.
-Are there successful, profitable models for B2C growth that don’t involve becoming a slave to the platform’s algorithm?
-How are companies successfully controlling their distribution channels rather than being controlled by them?
– Beyond the “splurge and pray” approach, what combination of marketing and distribution actually builds a sustainable bottom line?

I’d love to hear from people (or sources) who have seen (or built) “B2C machines” that prioritize unit economics over vanity metrics.

Will relaxing ECB regulations lead to more robust NBFCs and better inclusive finance?

Over the past decade or so, NBFCs have increasingly adopted a “growth at all costs” strategy, particularly in newer as well as in relatively riskier credit segments such as microfinance and unsecured MSME lending, EV financing, and rooftop solar financing. These are segments that are still evolving, have limited historical data, and inherently higher execution and credit risks.

A key driver of this behaviour is the funding constraint faced by early-stage and smaller NBFCs. Bank debt is typically unavailable to NBFCs operating at a small scale or with lower credit ratings. As a result, such NBFCs are forced to rely on a narrow set of high-cost NBFC or alternative lenders. This, in turn, pushes them toward credit segments that can absorb higher lending rates, reinforcing concentration in riskier asset classes.

To access lower-cost funding from banks or from development finance institutions, NBFCs generally need to reach a minimum scale of around INR 1,000–1,500 crore in assets or alternatively maintain very low leverage supported by substantial equity (often INR 500 crore or more). Credit rating upgrades, which are critical for funding access, are themselves contingent on achieving this scale or equity depth.

Consequently, NBFCs are incentivised to raise large amounts of equity early in their lifecycle to reach a “fundable” size quickly. However, higher equity raises come with heightened growth expectations. Equity investors require attractive IRRs, which translates into pressure on management to deploy capital rapidly. This creates a structural bias toward rapid balance sheet expansion. This has led to situations where NBFCs publicly articulate aggressive growth targets-such as scaling to INR 500 crore in assets within six months-backed primarily by equity capital.

History shows that such premature scaling has repeatedly resulted in asset quality stress and significant portfolio delinquencies. Look around. In newer credit models and while lending to weaker borrower segments, sustainable outcomes require cautious, measured growth, strong underwriting feedback loops, and time to learn from portfolio behaviour. The current funding environment, however, makes such measured growth difficult: early-stage debt is scarce and expensive, while equity funding implicitly demands speed.

This raises a fundamental question: how can prudent, phased growth be achieved in new and riskier lending segments when access to borrowings is constrained in the early stages and equity capital pushes NBFCs toward premature scale?

Recently proposed draft changes in ECB guidelines – particularly the removal of interest rate caps- could help address this mismatch. These changes may enable a greater inflow of foreign capital with “mezzanine-like” characteristics, sitting between pure equity and senior debt. Such capital can partially substitute for equity, reduce immediate growth pressure, and allow NBFCs to scale more gradually while building robust credit models.

Will the Indian financial services industry now learn to adopt a changed mindset to look at mezzanine as a replacement of equity and not for debt?

The traditional Indian financing hierarchy is still very binary:

  • Equity = permanent capital, growth risk, IRR expectations
  • Debt = fixed obligations, ratings-driven, asset-backed

Mezzanine capital sits uncomfortably in between and is treated as “expensive debt. But in reality, especially for early- to mid-stage NBFCs, mezzanine behaves far more like equity than debt:

  • It absorbs risk before senior lenders
  • It allows time for seasoning of portfolios
  • It reduces pressure for premature balance sheet expansion
  • It aligns better with measured growth in new credit models

Without recognising this, the industry will keep repeating the same boom–bust cycle driven by equity-fuelled hypergrowth.

So, what do you think? Will relaxing ECB regulations lead to more robust NBFCs and better inclusive finance?

A Milestone in Rooftop Solar Financing: Ecofy’s Securitisation Deal

Ecofy has recently completed what appears to be a pioneering securitisation transaction in the residential rooftop solar space. Based on publicly available information, the deal involved the securitisation of 2,400 non-overdue residential rooftop solar loans. This is as per rating document on the ICRA webiste. Tata Capital is reported to have invested in the senior tranche of pass-through certificates (PTCs). This is as per an announcement by Wadia Ghandy who seem to have acted as the legal advisor for the transaction. While modest in size, this deal is significant -possibly the first of its kind in India’s distributed renewable energy landscape.

This is a promising development. If such transactions become more common, they could open the doors to lower-cost capital for financing small-scale rooftop solar projects – an essential step toward accelerating clean energy adoption at a deeper level. Hopefully, we’ll see similar financial innovation extend to other distributed renewable energy assets or energy efficiency assets in the future. So, congratulations to the Ecofy team on this milestone!

Key Features of the Transaction

The structure appears to follow a typical two-tranche securitisation model, supported by cash collateral. The senior Series A PTCs are backed by about 30% credit enhancement leading to an A+ [So] rating:

  • 10% from cash collateral
  • 10% from a subordinated tranche, which Ecofy seems to have retained
  • ~9% from excess interest spread

ICRA has estimated the loss rate for this asset class at around 5%, which adds some context to the credit enhancement cushion. It’s worth noting that residential rooftop solar is still a relatively new lending product in India, lacking a long-term performance track record. Moreover, Ecofy itself is a young institution but has scaled quickly-reaching INR 1,000 crore in assets, backed by strong equity support.

What Stood Out to Me

One particularly interesting aspect is the choice of asset: residential rooftop solar loans, rather than commercial ones. I had assumed the commercial segment, especially among MSMEs, would be larger available pool. This deal suggests one of three things:

  1. My assumption about market size may be off;
  2. Residential loans are performing better than commercial ones;
  3. Greater granularity in the residential segment may have made the asset pool more attractive to investors.

I don’t know what is behind the choice of the pool. It might be that they will soon do another transaction with a commercial rooftop only pool.

Given that residential power tariffs are typically subsidised and lower than commercial rates, I had assumed stronger solar adoption in the commercial space. Additionally, metering and other policy frameworks tend to favor commercial installations.

Focus on Borrower Quality

The borrowers in this transaction reportedly had credit bureau scores above 700, indicating that repayment behaviour was a key underwriting criterion. This makes sense, given the lack of asset-specific performance data for residential solar loans.

It would be valuable to know whether the asset pool is being monitored by factors such as:

  • Rating or size of the rooftop solar unit
  • Brand or make of components

If such monitoring is in place, it could provide early signals of risk, although practical constraints may limit feasibility.

Recovery Considerations

Another angle worth exploring is whether Ecofy has buyback or performance contracts with EPC (Engineering, Procurement, and Construction) partners. In case of default, especially due to equipment failure, such contracts could significantly improve recoveries. It’s unclear whether this factor was considered during the credit rating process, but it could be a meaningful lever for de-risking.

A Familiar Credit Enhancement Pattern

The 30% credit enhancement, for senior Series A PTCs, feels familiar. It is similar to the structure of early microfinance and small business loan securitisation transactions that I encountered during my time at IFMR Capital. Does this suggest that the market sees similar risk profiles across these asset classes? Or, is it simply a market norm for first-of-a-kind (FOAK) transactions? (Yes, I said FOAK – aligning with the climate finance lingo!)

The Investor

The Investor in the transaction is Tata Capital and not a bank. Tata Capital wouldnt have priority sector considerations like a bank to invest in such a transaction. Their yield expectations would be higher than a bank as well. So, the transaction may not be commercially very lucrative for Ecofy but they would have done it to establish a track record. In fact, back in time, when Microfinance and Small Business Loan PTC transactions were introduced, NBFCs were the first to invest followed by small private banks. In all possibility, we will see a similar trend here. Access to priority sector funding from banks, in future, will improve the pricing of such transactions significantly reducing costs.

Legal and Structural Considerations

The other question I had was: are residential rooftop solar units considered movable or immovable assets? This matters because securitisation involves transferring both the loan and its underlying security to the Special Purpose Vehicle (SPV). Fixed assets (like homes) incur high stamp duties during such transfers, often making deals unviable unless the originator retains the security interest – something we’ve seen in HDFC-to-HDFC Bank or LIC Housing-to-LIC transactions. This is an iffy transaction structure but works in practice. I am not a legal expert to comment on the validity.

However, given the nature of solar installations, they might be classified as movable. Even if not, the transfer of solar equipment may not trigger significant stamp duties, which helps the viability of such structures.

A Note on Asset Quality Trends

Not directly related to this transaction, but worth mentioning: Ecofy’s gross Stage 3 (non-performing) assets have shot up from 0.03% in FY24 to 1.3% in FY25, even as the portfolio doubled. This suggests that as growth stabilises, the Stage 3 aseets % could be significantly higher than 1.3%. Of course, Ecofy’s portfolio is a mix of electric vehicle loans and rooftop solar loans and I am not sure where the increase in defaults is.

If ICRA’s 5% loss assumption is accurate, and if loan yields are in the 16–18% range, a sustained increase in defaults could create problems for the balance sheet, especially in a steady-state growth environment.

Final Thoughts

This deal marks a small but important step in bringing structured finance to India’s green finance sector. It offers lessons in credit structuring, asset selection, and investor appetite for climate-aligned financial instruments. As the ecosystem evolves, better data, smarter structures, and more diversified funding sources will be key to scaling sustainable finance.

Are there Series B climate tech companies in India?

As India’s climate tech ecosystem matures, a new kind of funding gap is becoming evident – lack of series B and later stage funding for climate technology companies outside the electric vehicles and solar sector. While equity investments are actively flowing into early-stage climate startups (accept this with a pinch of salt), there’s noticeably less traction for companies that have moved beyond proof of concept and are generating revenues, say above INR 150 Mn. This is particularly true for companies outside EV and solar.

This table below shows the data of funds raised by climate technology companies. Source: Indian Impact Investors Council’s Climate Bulletin. You will notice the number of deals drop dramatically between Series A and B.

Apr-Jun FY25Jul-Sep FY25Oct – Mar FY25
#USD Mn#USD Mn#USD Mn
Seed224317203955
Series A1061119118111
Series B5843544100
Later stages472316271157
191729

This situation presents a puzzle: many investors report that there simply aren’t enough mid-sized climate companies in the market do series B. At the same time, entrepreneurs and intermediaries highlight many professionally run businesses in areas like waste management, circular economy, energy efficiency, sustainable cooling, materials innovation, and climate-smart agriculture.  In fact, multiple people operating in the space have confirmed that across all non-EV and non-solar sectors, there are likely over 80+ such enterprises with revenues above INR 150 Mn that are suitable for series A+/B equivalent equity funding.

So why aren’t they getting funded?

Variety fatigue:

In my view, one contributing factor is variety fatigue. Climate solutions outside of EV and solar are extremely diverse in terms of technology, business models, and end markets. For investors, particularly impact funds or those with tight sector theses, this diversity creates a steep diligence curve. Many funds are optimized for pattern recognition: they prefer to back models they understand and can replicate across 10–15 deals, as seen in sectors like microfinance, MSME lending, or EV fleet businesses. The cognitive and operational load of evaluating multiple different models often becomes a practical barrier.

This also leads to another odd problem. As the ticket sizes of series A have ballooned, early stage investments in non-EV sectors also seemed to have starting to suffer. For those wanting to raise between USD 1-5 Mn, there seems to be few interested investors. I hope to write about this in another post.

Need for financing beyond equity and debt:

Another critical issue is structural. I have discussed this in my previous article as well. The financing needs of climate technology companies fall into a grey area between equity and debt. They are asset heavy and their growth prospects might not yet justify high-valuation equity raises but they may lack proven/established assets for conventional debt. But they do have hard assets in most cases which makes debt type financing a better option that equity. As a result,  both standard VC or bank financing unsuitable.

What these companies often need are mezzanine or structured capital solutions – instruments that combine features of both debt and equity. This could include revenue-based financing, convertible notes with performance-linked upside, or hybrid instruments. In some sectors, innovative models such as sale-and-leaseback, build-own-operate, or pay-as-you-go financing (popular in distributed solar and energy services) may offer more appropriate risk/return profiles for investors, while also supporting scale.

What is clear is that the financing ecosystem must evolve to match the heterogeneity and complexity of climate solutions. One possible approach is to develop investment cohorts – grouping companies not by sub-sector, but by business model type (e.g., recurring revenue models, service-based platforms, asset deployment businesses). This could reduce friction in due diligence and underwriting, while also allowing funds to specialize in operating model structures and financial structures rather than narrowly defined sectors.

Supporting the climate companies with the right instruments and frameworks would create a strong pipeline of scalable solutions, ready to contribute meaningfully to our climate goals.

The “Metrics Trap” in impact investing

Recently, Climate Farmers decided to shut down their carbon-market-focused initiative in regenerative agriculture. Their founders announced this on Linkedin. (Link)

Their reason? Carbon markets demand simplicity and regenerative agriculture is anything but simple. Carbon markets expects linear progress and regenerative agriculture non-linear.

This sounds very similar to what many from the original set of impact investors have long discussed- “measurement reductionism” – to reduce impact created by a venture to a simple metric. The obsession with easily quantifiable outcomes can drive capital to what is measurable, not what’s meaningful. Think “number of women borrowers” instead of true financial empowerment.

Deep impact, in regenerative agriculture or social equity or climate resilience, lives in complexity. It is messy, non-linear and often expensive to measure. Moreover, the emphasis on third party verification, over the past few years, have led to further increase in costs of measurement.

Simple metrics are necessary to attract mainstream market based commercial capital because that form of capital thrives on scale and scale doesn’t allow for complexity. So, for business models that have demonstrated scale and identified simple metrics, it is understandable for investors in such opportunities, to be rooting for simplicity.

Investors who claim to drive positive impact must, however, lean into the complexity, not run from it. And those managing such capital must ask: are we funding what matters most, or what’s easiest to measure?

Who will bring pioneering blended finance structures to market?

I read a wonderful report on blended finance recently published by British International Investment and Boston Consulting Group (BCG). It is a rare report by an entity that has invested in quite a few blended finance transactions and so the report is quite practical. It is the type of a report that I can use for a teaching session. [Report]

One key takeaway from the report was: Development finance institutions (DFI) are not the pioneers – they are the scalers.

The report indicates that the role of the DFI is to bring in commercial capital after other investors have created several decades of track record of funding and de-risking a sector. Think microfinance, affordable housing – areas with a solid track record among impact investors and specialised investors but still considered risky by commercial players like international banks, insurance companies and pension funds, etc. DFIs step in to crowd in commercial capital once the model is proven.

But what about blended finance structures designed for newer areas like climate-smart agriculture or rooftop solar for MSMEs or debt for climate tech startups? These “pioneering” structures are too risky even for DFIs. They need patient, loss-tolerant, and concessional capital to get off the ground. Characteristics that philanthropic capital has. In fact, DFIs may also be able to support such structures but only after the concessional capital is ready to derisk the DFI, just like the DFI does for the commercial investor in case of the proven models.

The only problem – such loss-tolerant concessional capital is limited. Also, such sources of capital face the dilemma and the scrutiny of supporting quasi-commercial opportunities like these.

So here’s a humble suggestion to those planning to spend money on another report, study, conference, or panel discussion on blended finance:
– Skip the event or study budget and fund a pioneering structure instead.

We’ve got enough reports and discussions. What we need now is capital backing real innovation.

You might wonder, what would a piddly amount of USD 50-120k, that you plan to spend on a report, could do for a blended finance structure. I can tell you that this amount can unlock 10-30 times additional funding. We did this back when I was in Caspian Debt, across atleast 3 different transaction types. We had 10+ years of track record with such structures and with close to zero losses. And yet, we couldn’t find capital to scale these structures because most investors considered these too risky or not enough “risk adjusted returns” even after 10 years of track record. It is time to change that. We will do fine with one less report on blended finance.