Financial Instruments for Eco-Friendly Projects of Businesses - Alfred Buhagiar

Green Investment Green Investments are normally of a long term nature and requires sustainable long term financing. Green Finance covers the financing of investments that generate environmental benefits as part of a broader strategy to achieve inclusive, resilient and viable development.

Green Investment A Green Investment by a business offers: a contribution towards improvement of the environment cost savings and improved profitability Cost savings may be used to partly or fully repay any credit acquired to finance the capital expenditure

Green Investment Locally, Green Loans as a specific product are more targeted for the consumer sector as opposed to the business sector. Such loans combined with Government Grants were instrumental to entice the domestic sector to invest in renewable energy through PV panels. Feed in tariff offers for large and commercial PV panels systems were used as the basis to obtain green finance by the business sector on a case by case basis.

BOV JAIME Though not specifically a Green Finance product, JAIME is an ideal financial instrument which offers advantageous terms for SMEs to undertake a Green Investment. It offers low cost financing and thus ensure that the green investment will be rendered more sustainable.

BOV JAIME A combined Loan / Guarantee Instrument Guarantee is made up from the blending of different EU Funds – European Investment Bank, Horizon 2020 and ERDF Funds Fund / Portfolio Volume of € 50 million Targeted Number of Assisted SMEs – 715

EU Criteria for SMEs The European Union uses the following criteria to determine whether a company is an SME: Number of employees; and either Turnover; or Balance sheet total Company Category Employees Turnover €m or Balance Sheet Total Medium-sized < 250 < 50 < 43 Small < 50 < 10 Micro < 10 < 2

BOV JAIME - Terms Maximum Amount: Up to €200,000 Purpose: To end finance Capital Investment including Green Investment Contribution: Minimum 20% of total investment as opposed to normal 30% Interest Rate: margin of 1.35% over base rate of 2.15% per annum as opposed to a margin of 3% + over base rate Repayments: Monthly. A moratorium of up to 6 months may be considered

BOV JAIME - Terms Maximum loan term: 10 years Charges: Normal processing fee of 0.3% waived and only the renewal fee of 0.1% is applicable Collateral: 25% of loan amount + EIB Guarantee for 75% of Loan Amount Eligible Sectors: All SMEs established and operating in Malta excluding agriculture and fisheries, gaming and pure real estate development sectors

BOV JAIME - Terms Bank of Valletta transfers the benefit of the EU guarantee in the form of: Interest Rate Reduction:  An interest rate reduction of more than 2% will be applicable on JAIME Loans when compared to normal market rates relating to such type of lending. Reduced collateral obligations: An average reduction of 75% in extendible security obligations on the BOV JAIME portfolio.  Under normal business lending the Bank seeks to fully secure its loans through extendible collateral. Under the JAIME financing package, the Bank will seek to secure only 25% of the total portfolio amount. 

Way Forward A higher demand for Green Investment by the commercial sector will entice banks to come out with tailor made products to finance investment in renewable energy. Banks will not shy away to offer more advantageous terms than normal in order to tap into the green business and also to do their part to contribute for a better and healthier environment.

Alfred Buhagiar Bank of Valletta www.bov.com alfred.buhagiar@bov.com