1. Guarantee schemes for green projects A new tool in the toolbox?

2. What’s our scope? What’s green?
Sustainable use of natural resources is often involved
Sustainable forestry
Renewable Energy
Biodiversity conservation
Sustainable economic growth is based on three pillars : economic, social and environmental
Green projects = projects promoting a sustainable economic growth
Objective is to ‘meet the needs of the present without compromising the ability of future generations to meet their own needs’
Energy Efficiency
Sustainable agri-practices
Sustainable use of water

3. Why are green projects different?
Because they involve a lot of ‘NEW’
New technologies
Ex. biodigestors, new motors, co-generation, solar energy, new irrigation technique
New financial models
Ex. savings must be included in the cash flows for energy efficiency projects
New counterparts
Ex. new technology providers, new groups of borrowers

4. Why are green projects difficult for lenders?
Because ‘NEW’ translate into ‘RISKS’
New technologies
High perceived (performance) risks
New financial models
Difficulty to price
New counterparts
High perceived (credit) risks or Low interest for some segments (too small, scaling up not easy)

5. Why are green projects difficult for borrowers?
High perceived (performance) risks
Difficulty to price
High perceived (credit) risks or Low interest for some segments (too small, scaling up not easy)
Credit is refused
Collateral requirement is too high
Price is too high

6. Can guarantee schemes help then?
In practical terms:
On the short term : guarantees will allow Financial Institutions to ‘start’ by allowing them to offer
better pricing
lower collateral requirement
or even just the loan to happen
On the long term : guarantees are supporting financial institutions over their ‘learning curve’ and should not be necessary on the long-term
Yes because one of the main issues is perceived risks
Interest Rate (r) Risk r0 S0
Loan Volume D r1 r* S1
SCG
rCG
Increased access
Guarantees will help close the gap between perceived risks and real risks without creating market distortion

7. Are green guarantees different?No
If they try to mitigate excessive perceived credit risks (e.g. excessive collateral requirements)
Yes
If the issue is the financial modeling
(Partial) Credit Guarantee Schemes
Performance Guarantee Schemes

8. One example of PCG NDB Commercial Bank Final beneficiary Guarantee
Risk assessed is the credit risk of the final beneficiary
This risk is known from both FIs
No need of other stakeholders
Risk is shared
Different versions: with or w/o ad hoc vehicle, single or portfolio guarantee
NDB
Commercial Bank
Final beneficiary
Guarantee
Loan
Collateral
Loan repayments
Claims

9. One example of Performance Guarantee
NDB
Commercial Bank
ESCO or EE project or EE beneficiary
Guarantee
Loan
Collateral
Loan repayments
Claims X
Technical verification
- Evaluates the claim
Technical performance validator
- Evaluate and approve EE project and MV plan
Risk assessed is performance of savings
This risk is unknown to the commercial Bank and to the NDB, that is why we need experts
The commercial Bank can integrate the savings into the project cash flows
The commercial Bank stays with the risk it knows well : credit risk (unless PF)

10. The use of green guarantees worldwide
Guarantee schemes have been widely used to support SMEs
2250 schemes in 100 countries
Green guarantees seem to be still at an early stage of development
So is green itself
But a couple of very interesting initiatives are worth mentioning
Carbon credits (performance guarantee)
Energy Efficiency guarantee schemes in very diverse countries such as China or Bulgaria (performance guarantee)
Guarantee schemes in support of the sustainable use of natural resources in agriculture (credit guarantees)

11. The use of green guarantees in LAC
In LAC too, credit guarantees are widely used.
15 countries boast public schemes for MSMEs
The volume in guaranteed loans has doubles between 2007 and 2010
We identified 10 schemes dedicated to green programs
Fonaga Verde, Fonagua and Fonafor (FIRA)
Fosefor (Financiera Rural)
Areca and Cambio (BCIE)
Fondo ABC (Banco do Brasil)
Smart Energy Fund (BID and Government of Barbados)
EEGM (BID and BNDES)
Dominican Republic……..

12. Can guarantees ‘solve it all’?
Our research shows that green projects face many different kind of barriers
Non friendly regulatory frameworks
Adverse market conditions (higher upfront payments and longer payback periods)
Lack of awareness or appetite from the banking sector (small beneficiaries, niche markets)
Lack of liquidity in some cases or lack of credit at appropriate terms
Weak level of structuration on the demand side
Prioritizing savings investment vs. expanding investment is not easy
Lack of awareness on the potential beneficiaries side, trust issues towards new technologies and technology providers
Lack of financial sophistication : few bankable projects, access to credit can be an issue

13. Guarantees can work if they are one brick of a well built program
Blending of financial resources
Guarantee scheme
Banking sector capacitation
TA for demand structuring

14. NDBs are strategically placed?
NDBs have key role to play in the implementation of National green strategies as they have access to all the tools
They can access and channel funding
to blend different source of funds
to provide technical assistance resources
They can execute in the best conditions
because they have a very deep knowledge and contact with the local private sectors to be involved
Guarantees are not new to NDBs and Green programs either
The next step is to combine both fields of expertise
NDBs in LAC have here a powerful community of practice
This workshop is one example
Green Guarantees could be one of our initiative

15.
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