Acta Mechanica Malaysia (AMM) 6(1) (2023) 40-48

Acta Mechanica Malaysia (AMM)

DOI: http://doi.org/10.26480/amm.01.2023.40.48

ISSN: 2616-4302 (Online)

CODEN: AMMCFL

RESEARCH ARTICLE
FINANCING THE TRANSITION: A SYSTEMATIC REVIEW OF BANKING STRATEGIES
SUPPORTING SMES IN ADVANCING CLEANER VEHICLE ADOPTION
Kelechi Chidiebere Ihemerezea, Nsisong Louis Eyo-Udob, Blessed Afeyokalo Egbokhaebhoc, Chibuike Daraojimbad*, Ahmed Rajie
aCoscharis Motors Ltd, Nigeria
bIndependent Researcher, United Kingdom
cIndependent Researcher, United Kingdom
dGraduate School of Technology Management, University of Pretoria, South Africa
eGreenlight Planet (Sun King Solar), Nigeria

*Corresponding Author Email: [email protected]

This is an open access journal distributed under the Creative Commons Attribution License CC BY 4.0, which permits unrestricted use, distribution, and
reproduction in any medium, provided the original work is properly cited.

ARTICLE DETAILS ABSTRACT

Article History: This paper systematically reviews banking strategies that support Small and Medium-sized Enterprises
(SMEs) in advancing cleaner vehicle adoption. While cleaner vehicles are acknowledged as key in addressing
Received 14 June 2023 environmental concerns, their uptake among SMEs is often hindered by financial barriers. This study
Revised 20 July 2023
Accepted 29 August 2023
examines how the banking sector helps to bridge this gap through various financial products, services, and
Available online 01 September 2023 incentives. The study analyses multiple strategies including low-interest loans, green bonds, and carbon
credits, assessing their effectiveness in fostering SME-driven cleaner vehicle initiatives. Findings highlight
the significant role of banks in accelerating cleaner vehicle adoption among SMEs and underscore the need
for the continued evolution of these strategies to cater to SMEs' unique needs and constraints. Policymakers
are also found to play a crucial role in shaping an enabling environment for these banking strategies to thrive.
The study concludes with implications of these findings for SMEs, banks, and policymakers, and offers
recommendations for future banking strategies, policies, and research directions in cleaner vehicle financing.
By providing a comprehensive view of the financial dimensions of cleaner vehicle adoption among SMEs, this
research contributes to our understanding of sustainable transition processes in the business sector and the
critical role of financial institutions therein.
KEYWORDS
SMEs, Cleaner Vehicle Adoption, Banking Strategies, Financial Incentives, Sustainable Transition

1. BACKGROUND ON THE IMPORTANCE OF CLEANER VEHICLE widespread adoption of cleaner vehicles. One primary barrier is the high
initial cost, which can deter potential buyers despite the long-term cost
ADOPTION
savings . The high costs are often associated with the advanced technology
The global transition towards cleaner, more sustainable vehicles is a used in these vehicles, including the battery systems in EVs and hybrids.
central part of ongoing efforts to mitigate climate change and protect the This highlights the crucial role of financial mechanisms, such as loans,
planet (Lane and Potter, 2007). The transportation sector contributes a subsidies, and incentives, in supporting a broader shift towards cleaner
significant portion of greenhouse gas emissions worldwide, and the vehicle adoption (Lane and Potter, 2007; Chhikara et al., 2021; Khurana et
adoption of cleaner vehicles could substantially reduce this impact. al., 2020; DeShazo, 2016). The banking sector has a vital role to play in
Cleaner vehicles, such as electric vehicles (EVs), hybrids, and fuel cell providing the necessary financial support to encourage cleaner vehicle
vehicles, are engineered to have lower emissions and better fuel efficiency adoption. This research will explore the various strategies that banks can
than conventional combustion engine vehicles (Ankathi, 2022). The employ to facilitate this transition, particularly focusing on how they can
benefits of these cleaner alternatives extend beyond environmental support small and medium-sized enterprises (SMEs) in their initiatives to
conservation to include economic and health advantages. Lower emissions adopt cleaner vehicles.
can reduce air pollution-related disease burden, including respiratory
1.1 Role of SMEs in the Adoption of Cleaner Vehicles
conditions and cardiovascular disease (Niraj et al., 2023). Economic
benefits come from the potential for reduced reliance on fossil fuels, with Small and medium-sized enterprises (SMEs) represent a significant part of
the possibility of cost savings over the lifetime of the vehicle due to lower the global economy. According to Lukács, SMEs account for approximately
maintenance and fuel costs (Quaranta and Davies, 2020). 90% of all businesses and more than 50% of employment worldwide
(Lukács, 2005). Thus, their choices and actions have far-reaching
The International Energy Agency (IEA) has predicted an exponential surge
implications, particularly in terms of environmental impact. Given their
in the global demand for cleaner vehicles over the coming decade,
large numbers and cumulative environmental footprint, SMEs play a
reflecting a growing consumer preference for more sustainable modes of
critical role in the adoption of cleaner vehicles (Williams and Blyth, 2023).
transportation (Arogyaswamy, 2023). This projected growth emphasizes
If a substantial portion of SMEs transition to cleaner vehicles for their
the potential role of cleaner vehicles in shaping future sustainable
business operations – whether for goods delivery, employee
transport solutions. However, there are significant challenges to the

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Cite the Article: Kelechi Chidiebere Ihemereze, Nsisong Louis Eyo-Udo, Blessed Afeyokalo Egbokhaebho, Chibuike Daraojimba, Ahmed Raji (2023). Financing the
Transition: A Systematic Review of Banking Strategies Supporting SMES in Advancing Cleaner Vehicle Adoption. Acta Mechanica Malaysia, 6(1): 40-48.
 Acta Mechanica Malaysia (AMM) 6(1) (2023) 40-48

transportation, or company fleets – it could significantly reduce 2.1 Overview of Past Research on Cleaner Vehicle Adoption
greenhouse gas emissions and promote sustainable practices in the
business sector (Eisen and Brown, 2022). Cleaner vehicles, such as electric and hybrid cars, represent a vital strategy
in efforts to mitigate climate change. These vehicles can significantly
Yet, the adoption of cleaner vehicles among SMEs presents unique reduce CO2 emissions compared to conventional cars (Doucett and
challenges. Financial constraints are often more pronounced for SMEs McCulloch, 2011; Wolfram and Lutsey, 2016). Similarly, a group
compared to larger enterprises, and the high upfront costs of cleaner researcher underscore the potential of cleaner vehicles to curb our
vehicles can be a prohibitive barrier (Gunningham, 2002). In addition, reliance on fossil fuels, bringing about substantial long-term economic
SMEs might lack information on the benefits of cleaner vehicles or be benefits (Köhler et al., 2013). From a health perspective, cleaner vehicles
uncertain about the reliability and effectiveness of newer technologies can help mitigate the adverse effects of air pollution, including respiratory
(Ajith et al., 2022). Therefore, financial support from banks and other and cardiovascular diseases (Niraj et al., 2023).
financial institutions is crucial to help SMEs overcome these barriers. By
However, the transition to cleaner vehicles is not without challenges. One
providing targeted loans, incentives, or financial products, banks can
of the most significant barriers is the high upfront cost associated with
facilitate SMEs in the transition towards cleaner vehicle adoption and these vehicles (Lane and Potter, 2007). Advanced technologies, such as
contribute to wider sustainability goals. battery systems in electric and hybrid vehicles, often drive these high
costs. Thus, while cleaner vehicles can offer long-term savings, the initial
1.2 Importance of Financial Support from the Banking Sector
investment can be prohibitive, especially for SMEs. Despite the numerous
benefits of cleaner vehicle adoption, transitioning to such vehicles faces
The banking sector has a pivotal role in catalyzing SMEs' adoption of
several challenges. These high costs can be a significant barrier for small
cleaner vehicles. As financial intermediaries, banks can significantly
and medium-sized enterprises. SMEs often have limited financial
influence economic activities and contribute to shaping more sustainable
resources and face difficulty in accessing affordable financing options to
practices, such as cleaner vehicle adoption (Anderson and White, 2022). support their transition to cleaner vehicles and sustainable
Given the high upfront costs of cleaner vehicles, SMEs often require transportation.
external financial support to afford the initial investment (Sonntag-
O'Brien, 2012; Pardo-Bosch et al., 2021). Banks, with their ability to In summary, the transition to cleaner vehicles, such as electric and hybrid
provide loans, leases, and other financial products, are well-positioned to cars, presents numerous benefits, including reduced CO2 emissions, long-
offer this support (Asiedu, 2016). term economic benefits, and improved public health (Hawkins et al.,
2013). However, several challenges must be overcome for wider adoption
Moreover, the banking sector can develop innovative financing schemes of cleaner vehicles. One crucial strategy in mitigating climate change and
tailored to SMEs. These can include low-interest loans for cleaner vehicle promoting the adoption of cleaner vehicles is the provision of financial
purchases, green leasing options, or financial incentives linked to incentives and support for small and medium-sized enterprises
environmental performance. Such financial products can alleviate SMEs' (Thompson et al., 2023). This support could include financial assistance,
financial constraints and incentivize sustainable business practices. The such as grants or loans, to help SMEs cover the high upfront costs of
involvement of the banking sector is also crucial for risk mitigation. purchasing cleaner vehicles.
Cleaner vehicle technologies, while promising, still carry risks related to
technology maturity, market acceptance, and resale value. Banks can help Additionally, creating awareness and providing education about the
benefits of cleaner vehicles can help overcome the lack of understanding
manage these risks through their lending policies and risk assessment
among SMEs. Moreover, the development of charging infrastructure is
frameworks, thus providing assurance to SMEs considering an investment
essential in addressing concerns about range anxiety and facilitating the
in cleaner vehicles (Hang, 2022; Bernardelli et al., 2022). In summary, the
widespread adoption of electric vehicles. Furthermore, government
banking sector's financial support is crucial for facilitating SMEs' adoption policies and regulations can play a crucial role in promoting the adoption
of cleaner vehicles, thereby contributing to broader sustainability goals. of cleaner vehicles (Moeletsi, 2021). These policies could include tax
incentives for purchasing cleaner vehicles, stricter emissions standards,
1.3 Overview of the Paper's Purpose and Objectives
and implementing sustainable transportation initiatives. Furthermore,
policymakers and stakeholders need to address the lack of charging
This paper aims to provide a systematic review of the various strategies
infrastructure, as this can be a significant barrier to the adoption of electric
the banking sector employs to financially support SMEs in their initiatives
vehicles (Karolemeas et al., 2021).
to adopt cleaner vehicles. This research will generate actionable insights
for banks, policymakers, and SMEs, helping to drive the transition towards 2.2 Previous Studies on Banking Strategies to Support SMEs
cleaner vehicles and contribute to broader sustainability goals. Despite the
importance of the subject, there is a lack of comprehensive studies that Banks have long been vital players in providing financial support to SMEs.
examine the financial products, services, and incentives that banks offer Asiedu highlights the key role of banks in extending loans and other
and their effectiveness in fostering cleaner vehicle adoption among SMEs financial services to SMEs, which are often underserved by traditional
(Duong et al., 2023). This paper aims to address this gap in the literature. financing avenues (Asiedu, 2016). Moreover, banks can tailor their
services to the unique needs of SMEs, including those related to cleaner
The main objectives of this paper are as follows: vehicle adoption (Bolesnikov et al., 2019). Banks have the potential to
develop innovative financial products that specifically encourage the
I. To provide a detailed overview of the banking strategies used to adoption of cleaner vehicles. These products may include low-interest
support SMEs in cleaner vehicle adoption. loans for purchasing cleaner vehicles, green leasing options, or
performance-based incentives (Potter, 2007; Liao et al., 2019; Rai and
II. To assess the effectiveness of these strategies in facilitating cleaner
Sigrin, 2013). However, there is a lack of comprehensive studies
vehicle adoption among SMEs.
examining banks' specific financial products and services to facilitate
III. To identify successful case studies of SMEs that have adopted cleaner cleaner vehicle adoption among SMEs (Lane and Potter, 2007). Banks can
vehicles with the support of banking institutions. also help manage the risks associated with cleaner vehicle technologies
through appropriate risk assessment and lending policies, providing
IV. To offer insights and recommendations on how the banking sector can much-needed assurance for SMEs (Spedding and Rose, 2007; Choi et al.,
enhance its support for SMEs in the transition towards cleaner 2023).
vehicles.
2.3 Gap in the Literature and Justification for the Current Study
2. LITERATURE REVIEW
Despite the existing body of research on cleaner vehicle adoption and
The transition to cleaner vehicles is crucial in reducing greenhouse gas banking strategies to support SMEs, there is a significant gap in the
emissions globally (Patil, 2021). As substantial contributors to the global literature. There are few comprehensive studies examining the specific
economy, small and medium-sized enterprises (SMEs) have the potential financial products and services that banks offer to facilitate cleaner vehicle
to catalyze this shift, although they often face significant financial barriers adoption among SMEs. This gap suggests a need for a detailed examination
to cleaner vehicle adoption (Hillary, 2017). Banks are well-positioned to of how banks can leverage their resources and capabilities to support the
support SMEs in overcoming these hurdles, given their financial and risk transition towards cleaner vehicles in the SME sector. Therefore, the
management capabilities. This literature review will delve into the current current study aims to contribute to the literature by systematically
body of research surrounding cleaner vehicle adoption, the role of SMEs, reviewing banking strategies that support SMEs in adopting cleaner
and the banking sector's involvement. vehicles. The goal is to identify effective financial products and services,

Cite the Article: Kelechi Chidiebere Ihemereze, Nsisong Louis Eyo-Udo, Blessed Afeyokalo Egbokhaebho, Chibuike Daraojimba, Ahmed Raji (2023). Financing the
Transition: A Systematic Review of Banking Strategies Supporting SMES in Advancing Cleaner Vehicle Adoption. Acta Mechanica Malaysia, 6(1): 40-48.
 Acta Mechanica Malaysia (AMM) 6(1) (2023) 40-48

highlight successful case studies, and offer valuable insights and for the broader communal or societal implications, particularly when the
recommendations to banks, SMEs, and policymakers. immediate gains for the individual are evident. In the context of vehicular
transportation, the 'commons' can be metaphorically likened to the global
3. THEORETICAL FRAMEWORK environment – especially the air we breathe and the climatic conditions
we experience. With each fossil fuel-powered vehicle added to the roads,
The analysis in this study is guided by two fundamental theories: the a small yet cumulative toll is exacted on the environment. While a single
Diffusion of Innovations Theory and the Stakeholder Theory. These car's emissions might seem inconsequential, the aggregate impact
theoretical frameworks offer robust and complementary perspectives on becomes alarmingly significant when combined with millions of others. It
the research subject. Rogers' Diffusion of Innovations Theory serves as a leads to air quality deterioration, increased prevalence of respiratory
useful model for interpreting how new ideas or technologies, such as ailments, acid rain, and a substantial contribution to the mounting global
cleaner vehicles, are adopted within societies (Rogers', 2003). This theory climate change crisis.
sheds light on the factors affecting the rate of cleaner vehicle adoption
among SMEs, considering aspects such as perceived advantages, Cleaner vehicles, characterized by their reduced or zero-emission profiles,
compatibility, complexity, and trialability of the innovation. On the other offer a promising alternative to this challenge. Not only do they alleviate
hand, the Stakeholder Theory, initially posited by Freeman, allows a the direct environmental implications, but they also highlight a paradigm
comprehensive examination of different entities' responsibilities in the shift in how transportation can be perceived in the modern age. These
transition to cleaner vehicles (Freeman, 1984). It highlights the necessity vehicles embody the intersection of innovation and responsibility by
for banks and other stakeholders to consider the interests of all involved adopting electric, hybrid, or alternative fuel technologies. SMEs, as pivotal
parties in their decision-making processes. Both theories provide contributors to the global economy, are increasingly recognizing their role
significant insights into the ways SMEs adopt cleaner vehicles and how in this transition. Beyond the ethical motivations, there is an economic
banks can strategically support this transition. Furthermore, these rationale as well. As fossil fuel prices fluctuate and environmental
theories form the foundational framework guiding the subsequent regulations become more stringent, cleaner vehicles present an avenue for
research methodology and data analysis. long-term operational sustainability and reduced exposure to market
volatility (Verdolin et al., 2018; Huaide and Jingrong, 2011).
3.1 Explanation of Economic and Environmental Theories
Supporting Cleaner Vehicle Adoption However, the shift to cleaner vehicles is not without its challenges. Initial
investment costs, infrastructure requirements, and technological
The adoption of cleaner vehicles is underpinned by two fundamental adaptability are among the barriers SMEs might face. This is where the
theories: the Theory of Externalities from the field of economics and the banking sector can play a transformative role. Banks can alleviate the
Tragedy of the Commons from environmental science. financial burdens and uncertainties associated with the transition with
tailored financial products, advisory services, and incentives aligned with
3.1.1 The Theory of Externalities green initiatives. Such interventions not only further the cause of
environmental preservation but also pave the way for a symbiotic
The Theory of Externalities, as proposed by the economist Ronald Coase, relationship between finance and sustainability. Addressing the Tragedy
remains an instrumental framework in understanding market of the Commons in this domain requires a concerted effort from both
inefficiencies that arise from the unintended consequences of individual enterprises and the financial institutions that support them (Zhang and
or corporate actions. At the heart of this theory is the belief that not all Liu, 2009; Durst and Gerstlberger, 2020; Licastro and Sergi, 2021).
costs or benefits associated with economic activities are borne or reaped
by the primary parties involved in the transactions. Such spill-over costs 3.2 Role of Financial Institutions in Sustainable Economic
or benefits, not reflected in market prices, are termed externalities (Coase, Transitions
1960).
Financial institutions, particularly banks, can play a pivotal role in
Negative externalities are particularly pronounced in the realm of sustainable economic transitions, such as the shift to cleaner vehicles.
transportation and vehicle usage (Parry et al., 2007). Traditional fossil They can facilitate and accelerate this transition by offering financial
fuel-powered vehicles emit pollutants that degrade air quality, contribute products and services that encourage SMEs to adopt cleaner vehicles. In
to noise pollution, and release greenhouse gases leading to global line with the Theory of Externalities, banks can design financial products
warming. The true societal cost of these emissions is typically not borne that help internalize traditional vehicles' external costs and make cleaner
by vehicle manufacturers or their users but is instead dispersed among the vehicles more economically attractive (Zimm, 2020). For instance, they
general public in the form of respiratory illnesses, environmental can offer loans with lower interest rates for purchasing cleaner vehicles or
degradation, and more frequent extreme weather events. provide insurance products with premiums that reflect the reduced
environmental impact of these vehicles. Moreover, banks can play a
Cleaner vehicles, especially those leveraging renewable energy sources, significant role in addressing the Tragedy of the Commons. By supporting
stand as a potential solution to these challenges. Electric vehicles (EVs), cleaner vehicle adoption, banks can help to protect shared environmental
for instance, provide a compelling case. When powered by clean energy resources. They can also collaborate with government entities and
sources, these vehicles produce zero tailpipe emissions. This not only environmental organizations to develop and promote policies and
helps in significantly cutting down air pollutants but also contributes to a initiatives that incentivize cleaner vehicle adoption among SMEs
marked reduction in noise pollution, especially in urban settings (Hyoungkun and Jong, 2020). These theories and the role of financial
(Karolemeas, 2021; Kumar and Alok, 2020). The quieter operations of EVs institutions form the theoretical basis for understanding how banking
compared to their combustion-engine counterparts offer an additional strategies can support SMEs in adopting cleaner vehicles.
benefit of noise abatement, especially vital in densely populated cities.

For Small and Medium-sized Enterprises (SMEs), the shift to cleaner

4. OVERVIEW OF BANKING STRATEGIES
vehicles offers dual benefits. Firstly, it allows them to reduce their carbon
Financial institutions, specifically banks, occupy a pivotal position in the
footprint, thereby signaling a commitment to sustainable practices.
broader push for cleaner vehicles by SMEs. Their strategic approaches and
Secondly, by aligning private costs (such as vehicle maintenance, fuel
financial products hold the potential to not only facilitate but accelerate
expenses, and health-related costs from polluted environments) with
this transition. Historically, the finance sector's primary objective was to
broader societal costs, SMEs can play a pivotal role in mitigating the
achieve monetary returns. Yet, the turn of the century marked a paradigm
negative externalities of traditional vehicle usage.
shift with sustainability, and environmental responsibility taking center
Understanding and addressing externalities in the broader economic stage (Moore and Manring, 2009; Mirza et al., 2023). The convergence of
context is crucial to ensure that market prices truly reflect societal costs sustainability goals with economic objectives has birthed innovative
and benefits. When businesses, including SMEs, internalize these external banking strategies. Banks have recognized that fostering cleaner vehicle
costs and act accordingly, society moves closer to a more efficient and adoption among SMEs aligns with global environmental objectives and can
sustainable economic equilibrium. simultaneously open avenues for new financial products and services
(Schoenmaker and Schramade, 2018). These strategies are not just limited
3.1.2 The Tragedy of the Commons to direct financing but extend to advisory roles, partnerships, and even
public advocacy for cleaner technologies.
Hardin's Tragedy of the Commons serves as a foundational concept that
delves into the complexities associated with shared resources (Hardin's, Furthermore, as regulatory landscapes evolve and governments
1968). At its core, the theory suggests that individuals, driven by their worldwide emphasize sustainability, banks are actively recalibrating their
inherent self-interest, will exploit communal resources to the point of strategies to be in tandem with these changes. They are positioning
depletion or degradation. Such actions often occur without much thought themselves as financiers and enablers of a broader movement towards a

Cite the Article: Kelechi Chidiebere Ihemereze, Nsisong Louis Eyo-Udo, Blessed Afeyokalo Egbokhaebho, Chibuike Daraojimba, Ahmed Raji (2023). Financing the
Transition: A Systematic Review of Banking Strategies Supporting SMES in Advancing Cleaner Vehicle Adoption. Acta Mechanica Malaysia, 6(1): 40-48.
 Acta Mechanica Malaysia (AMM) 6(1) (2023) 40-48

greener economy. As a result, their support for SMEs in the realm of combination of keywords and phrases in line with the methodology
cleaner vehicle adoption becomes more than just a business decision; it's outlined by (Liberati et al., 2009).
a strategic imperative with socio-economic and environmental
ramifications. In essence, the multifaceted role of banks in supporting 5.2 Criteria for Inclusion and Exclusion of Studies
SMEs' transition to cleaner vehicles signifies a transformation in the
banking sector's outlook. It underscores a commitment to intertwining Criteria for inclusion and exclusion of studies, pivotal in any systematic
economic growth with environmental conservation, thereby paving the review process, were stringently defined (Moher et al., 2009). Our
way for a more sustainable future. inclusion criteria required studies to primarily focus on banking sector
strategies supporting SMEs towards cleaner vehicle adoption, providing
4.1 Description of Various Banking Strategies Used to Support SMEs substantial insights into their effectiveness and being published in English
within peer-reviewed journals from 2013 to 2023. Conversely, exclusion
Different banking strategies can be employed to support the adoption of criteria included studies not focusing on SMEs or cleaner vehicle adoption,
cleaner vehicles by SMEs. These strategies typically involve tailored or those not providing substantial insight into banking strategies and their
financial products, education and awareness campaigns, partnerships effectiveness. Studies not available in full text, not published in peer-
with vehicle manufacturers, and lobbying for favorable governmental reviewed journals, or not in English were also excluded (Methley et al.,
policies. Banks often develop and offer financial products specifically 2014).
designed for the purchase and lease of cleaner vehicles SMEs (Hyoungkun
and Jong 2020). These can include low-interest loans, green leases, and 5.3 Data Extraction and Analysis Methods
other types of asset financing. Such products aim to make cleaner vehicles
more affordable and accessible to SMEs. After defining the final portfolio of studies, data extraction ensued. We
gathered pertinent information from each study, including the types of
Additionally, banks often undertake education and awareness campaigns banking strategies, the specific financial products and services, and their
to inform SMEs about the benefits of cleaner vehicles and the availability effectiveness. The extracted data underwent thematic analysis, a
of supporting financial products (SMEs (Hyoungkun and Jong, 2020). qualitative analytical method that identifies, analyzes, and interprets
These campaigns can be crucial in overcoming information barriers and patterns or themes within the data (Braun and Clarke, 2006). The findings
misconceptions about cleaner vehicles. Partnerships between banks and from the thematic analysis were synthesized to offer a comprehensive
vehicle manufacturers can also be an effective strategy. These understanding of the banking strategies employed to facilitate SMEs in
partnerships can lead to offers such as bundled financing packages, where adopting cleaner vehicles.
SMEs get a financial plan directly linked with the purchase of cleaner
vehicles from the partner manufacturers (Özel et al, n.d; Liu et al, 2017). 6. FINDINGS AND ANALYSIS
Lastly, banks can actively lobby for governmental policies supporting This section presents the findings from the systematic review and offers a
cleaner vehicle adoption. This might involve advocating for tax breaks or detailed analysis of the effectiveness of various banking strategies in
subsidies for cleaner vehicles or pushing for stricter emission standards facilitating SMEs to adopt cleaner vehicles.
that would increase the comparative advantage of cleaner vehicles.
6.1 Presentation of Findings from the Systematic Review
4.2 Examination of Different Financial Products, Services, and
Incentives The systematic review has yielded crucial insights into the diverse range
of financial products, services, and incentives provided by banks, which
Financial products, services, and incentives are key tools that banks use to aim to foster SMEs towards adopting cleaner vehicles. These financial
support SMEs in adopting cleaner vehicles. The range of these offerings is offerings are broadly categorized as low-interest loans, green bonds,
broad and diverse, and their effectiveness can vary significantly. carbon credits, tax incentives, and consultancy services. Low-interest
Regarding financial products, some banks offer loans with preferential loans emerged as a significant banking strategy to incentivize cleaner
terms for purchasing cleaner vehicles. These "green loans" can have lower vehicle adoption (Wijana et al., 2021). These loans, often accompanied by
interest rates or longer repayment periods, making the upfront cost of extended repayment periods, cater specifically to SMEs aiming to invest in
cleaner vehicles more manageable for SMEs (SMEs (Hyoungkun and Jong, cleaner vehicles. They tend to have a lower interest rate compared to
2020). conventional auto loans, making them an attractive option for SMEs.

Green leases are another innovative financial product that some banks Leading banks such as HSBC, Barclays, and Bank of America have
offer. In a green lease, the bank purchases the cleaner vehicle and leases it implemented financial products that demonstrate their commitment to
to the SME. At the end of the lease term, the SME has the option to buy the promoting environmental sustainability. These banks have recognized the
vehicle at a reduced price. This arrangement can help SMEs overcome the importance of incorporating sustainability into their strategies and have
high initial cost barrier associated with cleaner vehicles (Zimm, 2020). developed initiatives to support environmentally friendly practices,
Banks can also provide services such as technical assistance and training including cleaner vehicle financing. By offering financial products that
related to the operation and maintenance of cleaner vehicles. These incentivize SMEs to invest in cleaner vehicles, these banks promote
services can be instrumental in reducing perceived complexity and environmental sustainability and reduce carbon emissions (Kolk and
increasing comfort with cleaner vehicle technology. Furthermore, some Pinkse, 2007).
banks offer incentives such as cash rebates or discounted insurance
premiums for cleaner vehicles. Such incentives can further increase the Green bonds, another financial instrument employed by banks, are
financial attractiveness of cleaner vehicles for SMEs (Rahmadyanti and designed to fund projects that have positive environmental benefits,
Andre, 2016; Tiwari, 2018). including cleaner vehicle adoption (Wang et al., 2022). As an example, the
World Bank issued a green bond in 2021 that raised $500 million for
5. METHODOLOGY projects related to cleaner vehicles among other environmental initiatives
(Sartzetakis, 2021). Many SMEs have leveraged such green bonds to
We have employed a systematic review as our methodological framework finance their transition towards cleaner vehicles. Similarly, carbon credits
in this research. A systematic review is considered a rigorous and are used as a financial incentive to reduce carbon emissions (Wang et al.,
replicable methodology that facilitates a comprehensive synthesis of 2022). By adopting cleaner vehicles, SMEs can earn carbon credits, which
extensive bodies of research into coherent overviews (Niraj et al., 2023). they can later sell or trade in the carbon market, providing an additional
It also ensures methodological transparency and reduces bias by financial incentive for cleaner vehicle adoption.
employing systematic methods (Munn et al., 2018).
Tax incentives also emerged as a prominent finding from the systematic
5.1 Explanation of the Systematic Review Process review. These incentives, often provided by the government but facilitated
by banks, offer tax breaks or deductions to SMEs that invest in cleaner
The process of our systematic review involves multiple stages, beginning vehicles (Bruce et al., 2023). For instance, under the Electric Drive Motor
with the definition of a specific research question that acts as a guiding Vehicle Credit, the US government provides a tax credit of up to $7,500 for
beacon for the entire review. Our question for this review was "What are every new purchased or leased electric vehicle, which banks help SMEs
the existing banking strategies aiding SMEs in adopting cleaner vehicles, leverage.
and how effective have these strategies been?". Once the research question
was defined, we developed an exhaustive search strategy to identify Lastly, some banks have taken a more holistic approach by offering
potential studies for inclusion in the review. The search strategy was consultancy services. These services aim to help SMEs understand the
designed to be inclusive, covering a range of databases like Scopus, potential benefits of cleaner vehicles, the available financial products, and
EBSCOhost, and Google Scholar. We identified relevant studies using a how to best utilize these offerings (Anil et al., 2020). These consultancy

Cite the Article: Kelechi Chidiebere Ihemereze, Nsisong Louis Eyo-Udo, Blessed Afeyokalo Egbokhaebho, Chibuike Daraojimba, Ahmed Raji (2023). Financing the
Transition: A Systematic Review of Banking Strategies Supporting SMES in Advancing Cleaner Vehicle Adoption. Acta Mechanica Malaysia, 6(1): 40-48.
 Acta Mechanica Malaysia (AMM) 6(1) (2023) 40-48

services, often offered free of charge, have been pivotal in bridging the bonds, and incentives like carbon credits and tax deductions significantly
knowledge gap for SMEs and ensuring that they can make informed reduce SMEs' financial barriers when considering cleaner vehicle
financial decisions regarding cleaner vehicle adoption. adoption (Wang et al., 2022). Consultancy services provided by banks
supplement these offerings by equipping SMEs with essential knowledge
6.2 Detailed Analysis of the Effectiveness of Different Banking and guidance (Anil et al., 2020).
Strategies
However, while the banking sector's role in fostering cleaner vehicle
The systematic review revealed that the effectiveness of various banking adoption is of paramount importance, it is clear that a conducive
strategies in promoting cleaner vehicle adoption among SMEs is not regulatory environment, effective market mechanisms, and increased SME
uniform but is influenced by several factors. These factors include the type awareness are also crucial to the success of these strategies (Bruce et al.,
of financial product or service offered, the regulatory environment, and 2023). Consequently, the need for more comprehensive policies and
SMEs' awareness and understanding of these options (Ramsey and educational initiatives becomes apparent to optimize these banking
McCole, 2005; Triguero et al., 2013). Low-interest loans have shown high strategies and ensure a wider cleaner vehicle adoption. Future research
effectiveness due to their immediate impact on reducing the cost of could further explore the role of regulatory policies and market dynamics
cleaner vehicle acquisition However, their effectiveness can be in enhancing the effectiveness of these banking strategies' effectiveness
constrained by the stringent eligibility criteria that some SMEs may
struggle to meet (Jeong et al., 2021; Wijana et al., 2021). 7.1 Evaluation of the Success and Limitations of Different Banking
Strategies
Green bonds have proven effective in supporting large-scale projects, yet
their impact on individual SMEs can be indirect and less immediate (Wang While banking strategies have played a significant role in promoting
et al., 2022). Carbon credits have also demonstrated effectiveness, cleaner vehicle adoption among SMEs, it is crucial to acknowledge both
especially in a robust carbon market (Wang et al., 2022). Tax incentives their successes and limitations. Low-interest loans have shown high
have exhibited a high degree of effectiveness, largely due to their direct success, primarily due to their direct impact on reducing the upfront cost
impact on reducing the net cost of cleaner vehicles (O'Reilly, 2023). of cleaner vehicle acquisition (Djokic et al., 2022). However, their reach
Consultancy services provided by banks have proven essential in can be limited by stringent eligibility criteria, making them inaccessible for
enhancing the effectiveness of the above strategies. By bridging the some SMEs (Wattanapruttipaisa, 2002). Green bonds and carbon credits
knowledge gap and providing tailored advice, they ensure that SMEs can have also successfully incentivized cleaner vehicle adoption. Green bonds
make informed decisions and fully leverage available financial products have particularly proven effective for large-scale cleaner vehicle projects,
and incentives (Anil et al., 2020). while carbon credits have created an additional revenue stream for SMEs
(Wang et al., 2022).
6.3 Case Studies of Successful Cleaner Vehicle Initiatives Supported
by Banks However, the lack of a robust carbon market or investor interest in green
bonds may limit these initiatives' effectiveness. Tax incentives and
SMEs' adoption of cleaner vehicles is encouraged through the Carbon consultancy services have demonstrated significant success in supporting
Credit Program. This program offers carbon credits as a reward for cleaner vehicle adoption, offering both financial benefits and tailored
businesses that choose to use cleaner vehicles. Numerous case studies guidance for SMEs (Anil et al., 2020; O'Reilly, 2023). Yet, their
provide concrete examples of successful initiatives promoting cleaner effectiveness may be constrained by SMEs' lack of awareness or
vehicles through banking strategies. One notable case is HSBC's 'Green understanding of these offerings.
Vehicle Financing' scheme, which offers SMEs lower interest rates and
extended loan tenures when they invest in cleaner vehicles (Bansal et al., 7.2 Insights into How Banks Can Better Support SMEs in Cleaner
2015). HSBC's 'Green Vehicle Financing' scheme aims to incentivize SMEs Vehicle Adoption
to adopt cleaner vehicles by providing them with financial benefits. The
scheme offers lower interest rates, making it more affordable for To overcome these limitations and better support SMEs in cleaner vehicle
businesses to finance the purchase of cleaner vehicles. Additionally, adoption, several insights emerge. Banks could relax eligibility criteria for
extended loan tenures provide SMEs with more flexibility in repaying their low-interest loans or offer graded interest rates depending on the SMEs'
loans (Bansal et al., 2015). financial health, thus making such loans more accessible (Nassr and
Whinger, 2015). For green bonds and carbon credits to be more effective,
The effectiveness of HSBC's 'Green Vehicle Financing' scheme in banks could collaborate with government bodies and regulators to
promoting the adoption of cleaner vehicles has not been specifically establish and strengthen carbon markets or promote investor interest in
studied. However, research by examined the impact of various factors on green bonds (Wang et al., 2022). Banks could also enhance their
hybrid electric vehicle ownership and fuel economy across Texas (Bansal
consultancy services by offering webinars or workshops to educate SMEs
et al., 2015). The study investigated the influence of built environment and
about the benefits of cleaner vehicles and the financial offerings available.
demographic attributes on vehicle ownership levels. While not directly
related to HSBC's scheme, this study provides insights into the factors that To enhance their offerings, banks have the opportunity to collaborate with
influence the adoption of fuel-efficient vehicles (Bansal et al., 2015). This vehicle manufacturers or suppliers to offer SMEs all-inclusive packages
scheme has led to a significant increase in cleaner vehicle adoption among that encompass both environmentally friendly vehicles and the necessary
its SME clients. financial assistance.

Carbon credits can be sold in the market, providing SMEs with an This approach is supported by the research of who discuss the promotion
additional source of revenue. The program aims to promote sustainable of cooperation in innovation ecosystems among SMEs in traditional
practices and reduce carbon emissions (Beresteanu and Li, 2011). The manufacturing industries (Radicic et al., 2018). They highlight the
effectiveness of the Carbon Credit Program in incentivizing cleaner vehicle importance of collaboration with external knowledge providers, which
adoption and generating revenue for SMEs has been studied. Research by can include partnerships with vehicle manufacturers or suppliers in the
analyzed the determinants of hybrid vehicle demand and found that the context of offering comprehensive packages to SMEs. In addition, discuss
federal income tax credit program significantly impacted hybrid vehicle the impact of external financing on the export intensity of SMEs (St-Pierre
sales (Beresteanu and Li, 2011). The study estimated that the program et al., 2018). While their focus is on export activities, their findings suggest
accounted for a 20% increase in hybrid vehicle sales in 2006. Additionally, that bank financing can significantly impact SMEs. This implies that banks
the study estimated that the cost of reducing gasoline consumption partnering with vehicle manufacturers or suppliers to offer all-inclusive
through the program was $75 per barrel in government revenue and the packages to SMEs can provide the necessary financial support for their
cost of CO2 emission reduction was $177 per ton (Beresteanu and Li,
sustainability initiatives.
2011). By offering expert advice and tailored solutions, this service has
empowered SMEs to understand the benefits of cleaner vehicles and to Overall, the collaboration between banks and vehicle manufacturers or
navigate available financial offerings effectively.
suppliers to offer all-inclusive packages to SMEs aligns with the principles
of innovation ecosystems, green supply chain management, and the
7. DISCUSSION importance of external financing for SMEs. By leveraging these
The findings of this research illuminate the multidimensional role of partnerships, banks can enhance their offerings and support SMEs in their
banking strategies in supporting SMEs towards cleaner vehicle adoption. sustainability initiatives. Furthermore, banks could harness digital
Notably, these strategies are not standalone solutions but often work platforms to disseminate information, process applications, and offer
synergistically to incentivize SMEs towards sustainable transitions financial products and services, making them more accessible to a wider
(Mclntyre, 2021). Financial products, such as low-interest loans , green range of SMEs (Anil et al., 2020).

Cite the Article: Kelechi Chidiebere Ihemereze, Nsisong Louis Eyo-Udo, Blessed Afeyokalo Egbokhaebho, Chibuike Daraojimba, Ahmed Raji (2023). Financing the
Transition: A Systematic Review of Banking Strategies Supporting SMES in Advancing Cleaner Vehicle Adoption. Acta Mechanica Malaysia, 6(1): 40-48.
 Acta Mechanica Malaysia (AMM) 6(1) (2023) 40-48

8. IMPLICATIONS AND RECOMMENDATIONS in establishing and overseeing these markets, ensuring transparency
and fairness. SMEs could earn carbon credits for their green
This study's findings offer critical insights into the interplay between initiatives, which they can then sell on these markets, offering an
banking strategies and cleaner vehicle adoption among SMEs, holding additional financial incentive.
significant implications for SMEs, banks, and policymakers alike. They also
highlight the necessity of considering these factors when formulating 3. Public-Private Partnerships: Governments could explore
future banking strategies and policies. collaborations with private banks to co-fund or guarantee loans for
cleaner vehicles. Such partnerships can reduce the perceived risk by
8.1 Implications of the Findings for SMEs, Banks, and Policymakers banks and motivate them to offer more competitive loan terms to
SMEs.
The current financial offerings from banks have proven instrumental in
aiding SMEs' transition to cleaner vehicles (Clift, 2013). For SMEs, it is 4. Regular Policy Reviews: The world of cleaner vehicle technology is
crucial to leverage banking strategies for their sustainability initiatives rapidly evolving. To ensure policies remain effective and relevant,
effectively. This is supported by who emphasize the importance of SMEs' regular reviews should be undertaken. Feedback mechanisms can be
access to adequate finance, particularly through bank loans, for their set up where SMEs and banks can share their experiences,
sustainability (Coetzee and Buys, 2017). Additionally, recommend that challenges, and successes, providing invaluable insights to
entrepreneurs enhance their efforts towards achieving genuine policymakers.
sustainability, highlighting the significance of sustainable practices for
SMEs (Isoh et al., 2020). On the other hand, banks need to continually 5. Awareness Campaigns: Government-driven campaigns highlighting
refine their financial offerings to address SMEs' unique needs and the benefits of cleaner vehicles, both from an environmental and
constraints. Lam and Burton discuss the importance of perceived service economic perspective, can play a significant role. By educating the
quality, such as the ability to accommodate and understand customer masses, the demand for cleaner vehicles could surge, compelling
needs and the efficiency and attitude of service delivery, as primary more SMEs to transition, and in turn, leading banks to design more
drivers of SME bank loyalty (Lam and Burton, 2006). suitable financial products.

This suggests that banks should focus on developing sustained In conclusion, intertwining efficient banking strategies and proactive
relationships with SME customers to maximize their share-of-wallet. governmental policies can create a conducive environment for SMEs to
Furthermore, highlight the causal relationship between SME sustainability transition to cleaner vehicles. The recommendations provided are both
and banks' risk, indicating that increasing credit to SMEs can decrease practical and actionable, aiming to foster a greener, more sustainable
non-performing loans and contribute to overall development future.
sustainability (Shihadeh et al., 2019). Policymakers also have a crucial role
to play, particularly in shaping a regulatory environment that encourages 8.3 Suggestions for Future Research on Cleaner Vehicle Financing
cleaner vehicle adoption. Establishing and strengthening carbon markets
Future research holds immense potential in unravelling the multifaceted
or promoting investor interest in green bonds are areas where policy
relationship between cleaner vehicle financing, SMEs, and the overarching
intervention can significantly enhance the effectiveness of banking
environment. Delving into the specific challenges faced by SMEs
strategies (Wang et al., 2022).
depending on their regional and sectoral positioning could be
8.2 Recommendations for Future Banking Strategies and Policies instrumental. For instance, an SME in the logistics sector in Southeast Asia
might have unique challenges compared to a European SME in the food
In light of these findings, several recommendations emerge as follows: delivery business. Deep-diving into these intricacies can allow for the
formulation of more bespoke banking solutions. Understanding the long-
Banking Strategies: term implications of cleaner vehicle financing is vital. Longitudinal studies,
spanning multiple years or even decades, can chart the trajectory of SMEs
1. Simplified Loan Approval Processes: Banks could consider that have availed such financing. Such studies can shed light on the
streamlining their loan approval processes to make them more SME- sustainability of these vehicles, their actual impact on reducing emissions,
friendly. The existing processes can sometimes be lengthy and and the long-term financial health of the SMEs that adopted them.
complex, deterring SMEs from seeking financial assistance. By
simplifying the processes, banks can reduce the operational barriers It would also be insightful to contrast the experiences of SMEs with larger
faced by these enterprises and expedite their transition to cleaner corporations in the realm of cleaner vehicle financing. Understanding the
vehicles. privileges or challenges that large corporations might face can set a
benchmark and help refine the offerings for SMEs. The financial world is
2. Relaxed Eligibility Criteria: While stringent eligibility criteria are ever-evolving, and future research can explore emerging financial tools
crucial for risk management, banks could explore ways to make their and instruments that banks might introduce in the realm of cleaner vehicle
criteria more flexible. This includes potentially considering an SME's financing. The horizon is vast and ripe for exploration, from green bonds
environmental commitment as a favourable factor during loan to sustainability-linked loans. Evaluating the perceptions of different
evaluations. Such a change could help broaden the reach to more stakeholders, from SME employees to customers to investors, could add
SMEs, especially those actively striving for sustainability. another layer of depth to the research. How do they view the transition to
cleaner vehicles, and how much weight do they accord to cleaner vehicle
3. Expansion of Consultancy Services: The current suite of consultancy financing in their decision-making processes? After acquiring the
services offered by most banks focuses on core financial matters. financing and purchasing cleaner vehicles, understanding the operational
However, there is room to diversify these services to include expert challenges SMEs face could provide further insights. This might
advice on cleaner vehicle technologies, environmental benefits, and encompass aspects like maintenance costs, the availability of parts, or the
return on investments from such transitions. By doing so, banks can training required for employees to operate these vehicles.
fill a knowledge gap and assist SMEs in making informed decisions.
While the present study has delved into the strategies of banks, the impact
4. Enhanced Digital Platforms: Embracing the digital revolution can be of various regulations on cleaner vehicle financing remains a domain ripe
instrumental. By developing intuitive online platforms, banks can for exploration. Do stringent environmental regulations propel more
offer virtual workshops, webinars, and tools that SMEs can access banks to offer favorable terms? Or do they deter SMEs due to increased
remotely. These platforms could provide insights into the benefits of compliance costs? Detailed case studies of SMEs that have successfully
cleaner vehicles, available financial tools, and even success stories of transitioned to cleaner vehicles with the help of bank financing can offer
other SMEs that have transitioned. granular insights. They can serve as blueprints for other SMEs and provide
banks with real-world evidence of the efficacy of their financing products.
Policy Recommendations:
An often-overlooked aspect is the potential job creation or displacement
1. Tax Incentives for Banks: As previously mentioned, governments with the adoption of cleaner vehicles. Does transitioning to cleaner
could roll out tax incentives for banks that offer low-interest loans vehicles demand new skill sets, leading to hiring more specialized
for cleaner vehicle adoption. This fiscal incentive can significantly personnel? Or does it lead to job losses due to automation or decreased
motivate more banks to craft loan products tailored to the needs of dependency on traditional vehicle mechanics? Lastly, undertaking a
SMEs seeking to purchase cleaner vehicles. rigorous cost-benefit analysis of cleaner vehicle adoption by SMEs would
be invaluable (Bruce et al., 2023; Wang et al., 2022). Beyond the evident
2. Establishment of Robust Carbon Markets: A well-functioning carbon
environmental benefits, understanding if these vehicles offer tangible cost
market can be a game-changer. Governments can play a pivotal role
savings in the long run and how these savings compare to the initial

Cite the Article: Kelechi Chidiebere Ihemereze, Nsisong Louis Eyo-Udo, Blessed Afeyokalo Egbokhaebho, Chibuike Daraojimba, Ahmed Raji (2023). Financing the
Transition: A Systematic Review of Banking Strategies Supporting SMES in Advancing Cleaner Vehicle Adoption. Acta Mechanica Malaysia, 6(1): 40-48.
 Acta Mechanica Malaysia (AMM) 6(1) (2023) 40-48

investment and the financing costs can provide a comprehensive picture. Their strategies, sculpted with an eye on the future and grounded in the
realities of today, can significantly smoothen this transition. However, the
9. CONCLUSION effectiveness of these strategies is amplified manifold when crafted in
harmony with policymakers. On the other side of the coin, SMEs also have
This research has presented a systematic review of the various banking a proactive role. By embracing competition and collaboration, they can
strategies in place to financially support SMEs in their efforts to increase ensure their survival and thrive in this new green era. The road ahead
cleaner vehicle adoption. It has explored these strategies, their might be long and winding, but with the combined efforts of banks,
effectiveness, and the resulting implications and recommendations, policymakers, and SMEs, it is undoubtedly leading to a cleaner, greener
providing a holistic understanding of the financial dimensions of cleaner future.
vehicle adoption among SMEs.
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Cite the Article: Kelechi Chidiebere Ihemereze, Nsisong Louis Eyo-Udo, Blessed Afeyokalo Egbokhaebho, Chibuike Daraojimba, Ahmed Raji (2023). Financing the
Transition: A Systematic Review of Banking Strategies Supporting SMES in Advancing Cleaner Vehicle Adoption. Acta Mechanica Malaysia, 6(1): 40-48.
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Transition: A Systematic Review of Banking Strategies Supporting SMES in Advancing Cleaner Vehicle Adoption. Acta Mechanica Malaysia, 6(1): 40-48.
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Cite the Article: Kelechi Chidiebere Ihemereze, Nsisong Louis Eyo-Udo, Blessed Afeyokalo Egbokhaebho, Chibuike Daraojimba, Ahmed Raji (2023). Financing the
Transition: A Systematic Review of Banking Strategies Supporting SMES in Advancing Cleaner Vehicle Adoption. Acta Mechanica Malaysia, 6(1): 40-48.