Financial institutions are key private sector actors. They can play a crucial role in financing the transition towards a less resource-intensive green economy. Despite its clear potential, the financing of these investments by local banks still continues to be limited due to a number of technical barriers (national regulatory frameworks, lack of local expertise) and financial barriers (small businesses perceived as being more risky, limited capital, skills remain weak in banks). However, there is an intermediate market between the large corporates that are already regularly financed by local banks and companies that would not be in a position to benefit from a loan.
The objective of the SUNREF (Sustainable Use of Natural Resources and Energy Finance) initiative developed by Agence Française de Développement (AFD) is to support financial institutions and their clients in order to boost financing for projects for sustainable natural resources management, with a focus on clean energy. AFD’s action firstly involves offering long-term financial instruments and, secondly, contributing to building the technical capacities of banks and their client companies. The capacity building programs specifically involve helping banks to identify innovative green projects and appraising the corresponding loan applications. These programs also attach particular importance to raising companies’ awareness and to supporting them in the design of their green investments. Since 2007, AFD has committed EUR 1.5bn for the SUNREF program in its various countries of operation, in partnership with over 35 local banks. Over EUR 800m have already been disbursed to finance green projects, some of which are presented in the “Projects implemented” column of this website.
Investing in “green” projects that save resources increases the competitiveness of companies, which are consequently perceived as being less risky by banks. These projects allow banks to diversify their sectors of operation towards high growth markets and position themselves as pioneers. The funded projects have very significant potential for replication and satisfactory rates of return. This financing also gives partner banks visibility in terms of image: nationally, with local authorities, and internationally, which can give them access to other international financing.
Financial intermediaries play a structuring role in the economies of AFD’s countries of operation. They are powerful drivers in implementing local public policies with operators which AFD cannot reach directly (SMEs for example). The financing of small-scale infrastructure or the SME base in countries (which often accounts for the bulk of the national private sector) depends on the debt contribution, particularly long-term debt, made by these operators.
The objective is to bring the partner bank to finance more innovative private development projects than those usually financed. This involves moving from a “risk averse” approach to a “business opportunity” approach. The appraisal aims to identify what the partner bank spontaneously finances in the country of operation and what it could finance more on the basis of the SUNREF eligibility criteria. SUNREF credit lines are situated at a stage well ahead of market maturity.
There are many actors involved in the program and it is this which creates the wealth of banking intermediation projects. AFD – Agence Française de Développement Donor for credit lines and investment premiums Partner bank Appraises and finances eligible projects Technical assistance team Provides support to partner banks, project initiators and national partners for the operational implementation of the program Consultant Auditor Verifies the eligibility of projects and their implementation Project initiator Submits a project to be assessed and financed