Can Microfinance Institutions Help in Reducing Carbon Emissions? International lessons

Kathmandu, 15. February 2010

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Jan G. AndreasInternational Advisory ServicesFrankfurt School of Finance & Management

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In 1957, Frankfurt School of Finance & Management was founded as Bankakademie e.V.

Frankfurt School: Origins / History

Since 1966 it has been funded by the regional associa-tions of the private banking sector, the Bundesverband der deutschen Volksbanken and Raiffeisenbanken e. V. and the Bankenfachverband e. V.

It was renamed Frankfurt School of Finance & Management on 17 January 2007.

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Organisation

Academic Programmes

Research

Corporate Programm

es & Seminars

Professional & Certificate Programmes

Executive and Professional Education

efiport AG

Media-House

Educational and professional programmes, Advisory, Research … etc.

Academic Programmes

ResearchCorporate Programm

es & Seminars

Professional & Certificate Programmes(Renewable

Energy Finance)

Executive and Professional Education

Frankfurt School of Finance & Management Stiftung

Board of Trustees

Frankfurt School of Finance & Management gGmbH

efiport AG Connective Capital

International

Advisory Services

Frankfurt School

Verlag GmbH

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About International Advisory Services (IAS)

TRAINING

CONSULTANCY

RESEARCH

Microbanking

Risk Management

Sustainable Energy Finance

Rural and Agri-culture

Finance

SME FinanceHousing Finance

Since the early nineties, IAS has been committed to provide consulting and training services globally.

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The centre was established through an agreement between the United Nations Environment Programme (UNEP) and Frankfurt School of Finance & Management.

Both partners recognize the challenge that climate protection will pose in the coming decades to the world economy and the financial industry in particular.

UNEP Collaborating Centre on Sustainable Energy & Climate Finance

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We are convinced that the financial industry has an important role to play in shaping the world’s response to climate change through investment decisions, appropriate risk assessments, awareness raising and development of know how, as well as contribution in shaping the policy agenda with a view to a more sustainable development path.

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Why Reduction of Carbon Emissions?

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Consequences of Global Warming

IPCC has identified developing countries as more vulnerable to climate change damages (IPCC 2001:

227)

Melting of polar ice and major glaciers will lead to a rise in sea level Heightened risk of coastal erosion

Glacier melt will cause upstream flooding followed by reduced river flowsDecrease of availability of water

Higher incidence and severity of natural disasters (floods, cyclones, droughts)Declining Agricultural Productivity

Increase of outbreaks of infectious and vector-borne diseases

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Why can/ should Microfinance Institutions help?

Promoting development is one of the most effective means of adapting climate change.

Reduction

in poverty of vulnerability of carbon emissions

Markets

new business segment new financing sources new partnerships

Reputation

Know-How

financial + technical

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Obtain information on environ-mental management techniques

Networking with government agencies and environmental groups

Partnership with renewable energy providers

Use of synergies

Voluntary market for carbon offset through (P)CDM

How can MFIs contribute to the Reduction of Carbon Emissions?

MFI OperationMFI Operation

Decrease or avoid environmental damage from own operation

Quick and low-cost environment audit to exam the use of resources

Look for ways to reduce inefficien-cies, re-use resources and recycle

Raise of environmental consciousness in MFI staff

MFI Management can create an environmental policy

Environmental Lending

Environmental Lending

Loan Application Analysis

Appropriate loan requirements

Incentives to adopt environmen-tal management techniques

Encourage eco-friendly microenterprises

Support microfinance clients’ use of renewable energy

PartneringPartnering

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International Lessons – SELCO India

SELCO is a Energy Service Company, reaching over 100,000 households so

far

Provides solar lighting , solar thermal, solar inverter and energy efficient

cook stoves

Partnership with local Financial Institutions that created a separate line of

credit for solar systems

Credit Terms:

Interest rates range from 5% to 14%, Up-front payment between 10-25%,

Repayment over 3 to 5 years.

Upfront payment as main (financial) barrier

Partnership with REEP to overcome financial barrier

Upfront payment was than adjusted towards the monthly payments

End users can afford solar despite its initial high costs, as channels were created to facilitate affordable financing and

not subsidize the product. [REEP/SELCO]

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International Lessons – UNEP Programme Solaire Tunisia (PROSOL)

Loan programme to help Tunisian banks provide low cost finance for solar hot water systems

Four Components: Finance, Capacity Building, Awareness Raising, Carbon Finance

FinanceAwareness

RaisingCapacityBuilding

Carbon Finance

5 year credit term

Repayment through utility bill

Capital cost subsidy by Tunisian Government

Discounted interest rate at the beginning

Definition of installers status

Training of qualified installers

Partnership with electricity and gas national company (STEG)

Promotion campaigns for solar hot water systems (SWH)

Programmatic CDM

PROSOL Result: 57,000 SWH installations

Equivalent to 481,000 tonnes of CO2

Worth $7.2 million at market prices

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Conclusions

Same financial mechanism and existing branch networks to deliver clean energy

Will allow rapidly expansion and economy of scale to reduce costs

Create synergy between traditional products

Act as intermediaries where farmers sell their by-products to the owner of biogas plants

Synergies

Reasonable down payment and instalment plan for higher investments (e.g. SWH)

Partnership with co-funders to cope with upfront-payments

Overcome financial barriers

Take advantage of carbon offsets to fund expansion of outreach and product lines

Partnership with Energy Services Companies Establish Networks

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UNEP Climate Finance Innovation Facility

The Climate Finance Innovation Facility (CFIF) supports finance-industry engagement in the new climate sectors such as renewable energy (RE), energy efficiency (EE) and sustainable forestry.

The Facility provides technical assistance and funding for the development of new financial products and programmes in developing country financial institutions.

A broad range of activities are eligible for support, ranging from feasibility studies, to market assessments and legal reviews. The Facility will directly lead to significant new investment in climate change solutions.

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UNEP Climate Finance Innovation Facility

Financial Product Development Activities eligible for Support:

Feasibility studies and market surveys

Financial modelling and risk analysis

Carbon finance (CDM)

Political and regulatory analysis

Environmental risk analysis

Business planning

Procedural development and staff training

Other activities also eligible

Frankfurt School/ UNEP

Financial Institution

CFIF

www.climate-finance.org

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Thank you for your attention!

Do you have further questions?

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Jan G. Andreas, International Banking ExpertFrankfurt School of Finance & Management, International Advisory Services

Professional Experience:

Contact Details:

1999 – 2003: BHW Bausparkasse AG (German Home Loan Bank) Banker with Focus on Energy Efficiency and Housing Finance

2004 – 2007: Landessparkasse zu Oldenburg (German Savings Bank) Banker with Focus on Renewable Energy Finance and SME-Lending

2007 – 2009: KfW IPEX-Bank GmbH (Commercial Division of KfW Bankengruppe) Banker with Focus on international Project Finance (Infrastructure)

Since 2009: Frankfurt School of Finance & Management, International Advisory Services International Banking Expert in the Competence Centre Sustainable Energy Finance

Member of UNEP Collaborating Centre on Sustainable Energy & Climate Finance

Lecturer in the Diploma Course “Renewable Energy Finance”

Address: Sonnemannstrasse 9-11, 60314 Frankfurt am Main

Phone: +49 69 154008 626

Mail: J.Andreas@frankfurt-school.de

Internet: www.frankfurt-school.de/ias 16