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Guarantee schemes
for green projects
A new tool in the
toolbox?
What’s our scope? What’s green?
Why are green projects different?
Why are green projects difficult for lenders?
Why are green projects difficult for borrowers?
Can guarantee schemes help then?
 Yes because one of the main
issues is perceived risks

– On the short term : guarantees...
Are green guarantees different?
One example of PCG







Risk assessed is the credit risk of the
final beneficiary
This risk is known from both FIs
...
One example of Performance Guarantee
NDB
NDB
Technical
Technical
verification
Claims
verification
- -Evaluates the
Evaluat...
The use of green guarantees worldwide
 Guarantee schemes have been widely used to support SMEs
– 2250 schemes in 100 coun...
The use of green guarantees in LAC
 In LAC too, credit guarantees are widely used.
– 15 countries boast public schemes fo...
Can guarantees ‘solve it all’?
 Our research shows that green projects face many different
kind of barriers
– Non friendl...
Guarantees can work if they are one brick of
a well built program

Blending
of financial
resources
Guarantee
scheme

Banki...
NDBs are strategically placed?
 NDBs have key role to play in the implementation of National
green strategies as they hav...
http://www.iadb.org
The Inter-American Development Bank Discussion Papers and Presentations are documents prepared by both...
“Experiencias en el uso de mecanismos de garantías para la promoción de inversiones en programas ambientales en LAC”  – Is...
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“Experiencias en el uso de mecanismos de garantías para la promoción de inversiones en programas ambientales en LAC” – Isabelle Bral y - Cartillier, BID

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Taller Regional “El rol de las garantías en la estructuración del financiamiento ambiental y climático" | Cartagena de Indias, Colombia, 17-18 de octubre de 2013 | II sesión: El uso de mecanismos de garantías para la promoción de programas ambientales en Latinoamérica y el Caribe.

Published in: Economy & Finance, Business
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“Experiencias en el uso de mecanismos de garantías para la promoción de inversiones en programas ambientales en LAC” – Isabelle Bral y - Cartillier, BID

  1. 1. Guarantee schemes for green projects A new tool in the toolbox?
  2. 2. What’s our scope? What’s green?
  3. 3. Why are green projects different?
  4. 4. Why are green projects difficult for lenders?
  5. 5. Why are green projects difficult for borrowers?
  6. 6. Can guarantee schemes help then?  Yes because one of the main issues is perceived risks – On the short term : guarantees will allow Financial Institutions to ‘start’ by allowing them to offer S1 Interest Rate (r) Risk  In practical terms: SCG S0 – – – - r1 rCG r* r0 D Loan Volume Increased access  Guarantees will help close the gap between perceived risks and real risks without creating market distortion 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
  7. 7. Are green guarantees different?
  8. 8. One example of PCG      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 NDB Claims Guarantee Commercial Commercial Bank Bank Collateral Loan Final beneficiary Final beneficiary Loan repayments
  9. 9. One example of Performance Guarantee NDB NDB Technical Technical verification Claims verification - -Evaluates the Evaluates the Guarantee claim claim Commercial Commercial Bank Bank X Collateral     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) Loan ESCO or EE ESCO or EE project or EE project or EE beneficiary beneficiary Technical Technical performance performance validator validator - - Evaluate and Evaluate and approve EE approve EE project and MV project and MV plan plan Loan repayments
  10. 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. 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. 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. 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. 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. 15. http://www.iadb.org The Inter-American Development Bank Discussion Papers and Presentations are documents prepared by both Bank and non-Bank personnel as supporting materials for events and are often produced on an expedited publication schedule without formal editing or review. The information and opinions presented in these publications are entirely those of the author(s), and no endorsement by the Inter-American Development Bank, its Board of Executive Directors, or the countries they represent is expressed or implied. This presentation may be reproduced with prior written consent of the author.

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