Financing RECP measures at SMEs - an overlooked opportunity

1. Financing RECP measures at SMEs
An overlooked opportunity
Tatiana Chernyavskaya
International Project Coordinator - UNIDO
Marko van Waveren Hogervorst
International Financial Expert - UNIDO

2. Table of contents
1. Introduction
2. The case for RECP
3. Needs based analysis
4. SME Finance in EaP countries
5. Non-bank financing alternatives
6. How to improve RECP Finance?
SMEs RECP
EaP

3. Donor: European Union
Countries: Armenia, Azerbaijan, Belarus, Georgia, Moldova & Ukraine
Implementing agencies: OECD, UNECE, UNIDO, UNEP
Duration: 2013 – December 2017
Budget: EUR 2,480,000
OVERALL OBJECTIVE
Assists six countries of the European Union Eastern Neighborhood Partnership
in moving towards a green economy framework.
www.green-economies-eap.org
1. EaP GREEN
Greening Economies in Eastern Neighborhood

4. 1. Division of work among Implementing Agencies
OECD:
green growth indicators,
environmental taxation and
subsidy reform, improving access
to finance and greening of SMEs
(Component 1)
UNECE:
strategic environmental
assessment,
environmental impact assessment
(Component 2)
UNEP:
strategic planning, sustainable
public procurement, organic
agriculture
(Component 1 and 3)
UNIDO:
resource efficient and cleaner
production in the manufacturing
sector
(Component 3)
Coordination and visibility
(OECD and EC)

5. Improve the resource productivity and environmental performance of businesses
and other organizations in the
 food,
 chemicals and
 construction materials sectors
and thereby contribute to sustainable industrial development and the generation
of employment and incomes
Implemented with additional co-funding from the
Government of Slovenia & the Development Bank of Austria
1. UNIDO - Component 3
Regional RECP Demonstration Project

6. 1. Resource Efficient and Cleaner Production (RECP)
Integrated and continued
application of preventive
environmental practices and
total productivity techniques
to processes, products and
services to increase
efficiency and reduce risks to
humans and environment
Resource
Efficiency
Waste
Minimi-
zation
People’s
Well Being

7. 2. The case for RECP

8. Project 1 - Financing with a Bank Loan
 Interest Rate – 9%;
 Loan Maturity – 5 years, 60
payments;
 Initial Investment (Loan) –
10,000 EUR;
 Exchange Rate – 2.60
GEL/EURO;
 Price of Natural Gas – 0.82
GEL/m3;
 Project Life Cycle – 10 years
Year 1 Year 2 Year 3 Year 4 Year 5 Sum
Cost Savings
Cost Saving of Natural Gases
after Recirculation of Waste
Gases
30,277 60,554 60,554 60,554 60,554 272,492
Cost Saving of Natural Gases
after Thermal Insulation
4,888 9,777 9,777 9,777 9,777 43,996
Total Cost Savings 35,165 70,331 70,331 70,331 70,331 316,488
Loan Payments
Loan Payments for
Installation of Extra Pipes
and Thermal Insulation of
Refining Furnace Surface
(Pincipal of 10 000 EURO)
-2,491 -2,491 -2,491 -2,491 -2,491 -12,455
Total Loan Payments -2,491 -2,491 -2,491 -2,491 -2,491 -12,455
Net Cost Savings 32,674 67,840 67,840 67,840 67,840 304,033
2. The case for RECP

9. Results of the RECP Project Proposal 1
• NPV for 5 Year Project – 231,611 EUR
• Payback Ratio – 3 months
2. The case for RECP

10. Project 2 - Financing with a Bank Loan
 Interest Rate – 9%;
 Loan Maturity – 5 years, 60
payments;
 Initial Investment (Loan) – 50,000
EUR;
 Price of Natural Gas – 0.82 GEL/m3;
 Project Life Cycle – 5 years;
 Operating Costs include salaries and
material costs, do not include natural
gas expenses
• NPV for 5 Year Project – 129,888 EUR
• Payback Ratio – 22 months
Year 1 Year 2 Year 3 Year 4 Year 5 Sum
Income
Income from Greenhouse
products Sale
0 78,000 78,000 78,000 78,000 312,000
Total Income 0 78,000 78,000 78,000 78,000 312,000
Expenses
Loan Payments on a Heat
Exchanger and Developing a
Greenhouse (Pincipal of
50,000 EUR)
-12,455 -12,455 -12,455 -12,455 -12,455 -62,275
Operating Costs 0 -18,000 -18,000 -18,000 -18,000 -72,000
Total Expenses -12,455 -30,455 -30,455 -30,455 -30,455 -134,275
Net Income / Loss -12,455 47,545 47,545 47,545 47,545 177,725
2. The case for RECP

11. Summary of Company A
RECP Project Proposal 1 10,000 231,611 2.2
RECP Project Proposal 2 50,000 129,888 22
Payback Period
(months)
Company A
5-year Project
NPV (EURO)
Initial Investment
(EUR)
2. The case for RECP

12. Project Financing with a Bank Loan
 Interest Rate – 9%;
 Loan Maturity – 6 years, 72 payments;
 Initial Investment (Loan) – 11,790 EUR;
 Project Life Cycle – 10 years;
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Sum
Cost Savings
Natural Gas Savings
from Thermal Insulation
825 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 10,725
Natural Gas Savings
with New Boiler
1,800 2,400 2,400 2,400 2,400 2,400 2,400 2,400 2,400 2,400 23,400
Total Cost Savings 2,625 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 34,125
Loan Payments
Loan Payments of
Making the Thermal
Insulation and
Replacing an Old
Handicraft Boiler
(11,790 EUR)
-2,515 -2,515 -2,515 -2,515 -2,515 -2,515 -15,092
Total Loan Payments -2,515 -2,515 -2,515 -2,515 -2,515 -2,515 -15,092
Net Cost Savings 110 985 985 985 985 985 3,500 3,500 3,500 3,500 19,033
2. The case for RECP

13. Results of the RECP Project Proposal of Company B
• NPV for 10 Year Project – 10,219 EUR
• Payback Ratio – 4.4 year
2. The case for RECP

14. 3. Needs based analysis
UNIDO survey on RECP Financing
• Business card of an enterprise and a respondent
• Relation to RECP Demonstration component of the EaP GREEN
• Environment protection relevance
• Needs for resource efficiency
• Needs for and types of financing
• Section for RECP Demonstration beneficiaries:
– Satisfaction
– Further needs

15. Questionnaire for Small and Medium
Sized Companies
• Kiçik və Orta Sahibkarlar üçün Sorğu
• ՌԱՄԱ հարցաշար՝ ՓՄՁ ֆինանսական
հնարավորությունների և առկա խնդիրների
վերաբերյալ
• კითხვარი მცირე და საშუალო ზომის
კომპანიებისთვის
• Chestionar pentru întreprinderile mici și mijlocii
• Опитування для малих та середніх
підприємств
• Опрос для малых и средних предприятий

16. 106
20
4
Did you take part in the UNIDO RECP Demonstration Project?
Yes No, but would like to No and would not like to
UNIDO survey on RECP Financing

17. 0
10
20
30
40
50
60
Moldova Ukraine Georgia Belarus Azerbaijan
Large (more than 250 employees)
Medium (50-250 employees)
Small (10-50 employees)
Micro (up to 10 employees)
UNIDO survey on RECP Financing
Size of the company

18. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Moldova Ukraine Georgia Belarus Azerbaijan
Other
Municipal services
Food industry (including alcoholic
and non-alcoholic beverages)
Metallurgical industry
Chemical Industry
Production of construction
materials
UNIDO survey on RECP Financing
Participating sectors

19. 0
20
40
60
80
100
120
140
Yes No I cannot answer
Is the enterprise ready to work on the collection, analysis of indicators of
its resource efficiency, development and implementation of corresponding
activities on an ongoing basis?
Azerbaijan
Belarus
Georgia
Ukraine
Moldova
UNIDO survey on RECP Financing

20. 0
10
20
30
40
50
60
70
Staff Financing Knowledge Other I cannot answer
Please Indicate, what additional level of resourcing was / would be
needed to implement the project?
UNIDO survey on RECP Financing

21. 0
10
20
30
40
50
60
70
5 000 - 15 000
EURO
15 000 - 100 000
EURO
100 000 EURO
and above
If you are to take a loan to improve resource efficiency, kindly
specify which amount would be sufficient
Large (more than 250
employees)
Medium (50-250 employees)
Small (10-50 employees)
Micro (up to 10 employees)
0
10
20
30
40
50
60
70
80
Expansion of the
enterprise
Introduction of
new technology
Purchase pf raw
materials
Implementation
of a winning
business plan
To cover
company
liabilities
Other
Please indicate, what is the main motivation of you to take on a loan?
UNIDO survey on RECP Financing

22. 0
20
40
60
80
Did you implement the project/options proposed by the RECP experts?
Yes
Yes , partially
No
I cannot answer
0 10 20 30 40 50 60 70 80
Lack of financial resources required for
implementation of the proposed Project
There are other priority problems to be
resolved in the company which require…
Lack of time required for implementation of
the proposed Project
The project is being implemented
I cannot answer
Other
If you did not implement the project, indicate why?
UNIDO survey on RECP Financing

23. 4. SME Finance in EaP countries
Relevance of financing types
SMEs
EaP

24. 4. SME Finance in EaP countries
Example - Georgia
SMEs
EaP
Source: EIB, Neighbourhood SME Finance in Georgia
Observations
• Banks are the main source of external financing
• SMEs in agricultural sector have limited access to external financing
• IFI credit enhancement programs are primary utilised by larger companies
• Very few banks have made use of credit guarantee schemes developed by IFIs

25. 4. SME Finance in EaP countries
Finance facilities with a specific focus on EE and/or RECP
Finance
facility
Focus and sector Armenia Azerbaijan Belarus Georgia Moldova Ukraine
SME EE RECP
EBRD – SEFF x x x x x x x x
Green for
Growth Fund
x x x x x x x
NEFCO –
Cleaner
Production
x x x x
GAF Energy
Efficiency
Programme
x x x
SMEs RECP
EaP
Challenges
• Collateral requirements
• Interest rates
• Currency risk
• Awareness and financial literacy

26. 4. SME Finance in EaP countries
Finance facilities that potentially could be accessible
Finance facility Focus and sector Armenia Azerbaijan Belarus Georgia Moldova Ukraine
SME EE RECP
EIB – InnovFin x x x x x x x
EIB - DCFTA
Initiative East
x x x x
EBRD – FinTecc x x x x x x x
SMEs RECP
EaP

27. 4. SME Finance in EaP countries
How to improve the access to RECP finance?
Two actions:
1. Identify and tackle the main hurdles of the bank lending facilities
2. Investigate alternative finance sources and instruments
Source: IPA, Access to Finance for Small and Medium Enterprise
SMEs RECP
EaP

28. 5. Alternative sources of finance
Non-bank financing
Country Leasing Supply chain finance ESCO Microfinance Private Equity
Armenia x x x
Azerbaijan
Belarus ?
Georgia x
Moldova x ?
Ukraine x ?
SMEs RECP
EaP

29. 5. Alternative sources of Finance
Innovative green finance solutions – Sustainability bonds
Rabobank Sustainability Bonds
The net proceeds of the Sustainability Bonds will be allocated to a loan portfolio of
existing and/or future loans to small and medium-sized enterprises (SMEs) with selected
sustainability certifications on products, processes or buildings.
The aim of this lending programme is to increase lending to SMEs that commit to
sustainability certification on products, processes and buildings and therefore are
considered sustainable frontrunners in their sector/industry. Sustainability
certifications are considered to promote best practices for the relevant sector or activity.
SMEs Green

30. 5. Alternative sources of Finance
Innovative green finance solutions - Community Funds
Source: BAUM Zukunftsfonds, Frauenhofer
SMEs Green

31. 5. Alternative sources of Finance
Innovative green finance solutions - Crowdfunding
Source: BAUM Zukunftsfonds, Frauenhofer
SMEs Green

32. 6. How to improve RECP finance?
Food for thought – to be analysed further
What are the most efficient and effective ways to improve access to RECP finance?
Four categories:
1. Bank financing (credit, loans)
2. National/regional green finance programmes
3. Non-bank financing (leasing, supply chain financing and/or partnerships, microfinance)
4. New green finance solutions (sustainability bonds, community funds, crowdfunding)
Actions: Mapping, connecting & matching, enabling, raising awareness, embedding, sharing
Collaboration and partnerships will be key!
SMEs RECP
EaP

33. 6. How to improve (access to) RECP finance?
Final objective
Not only this ... ... but all of that

34. Thank You for Your Attention!
Tatiana Chernyavskaya
t.chernyavskaya@unido.org
Marko van Waveren Hogervorst
marko_van_waveren@yahoo.com
www.green-economies-eap.org
www.unido.org/eapgreen