Investment trends: Transition finance can help companies to go green
Transition finance can help companies to go green, suggests a new report. Image credit: 123rf.

International policy and financial advisory firm focused on the clean energy sector, GreenMax Capital Advisors, has released a briefing report on the market assessment conducted for the launch of the Green4Access (G4A) first loss facility aimed at bridging energy access financing gap.

The assessment covers 83 companies and 37 Financial Institutions (FIs) across 21 countries in sub-Saharan Africa.

The G4A first loss facility, developed in partnership with the UK NGO, Energy4Impact, will be primarily focused on supporting FIs to accelerate local currency lending to energy access enterprises in sub-Saharan Africa via its cash deposit product.

The G4A cash deposit product will provide first loss protection for up to 20% of losses in newly originated portfolios of energy access loans.

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Finding models
Off-grid market

The facility is planned to be launched in 2021 with an initial capitalisation of $50 million. The design and development of the G4A facility is being supported by seed funding from the multi-donor platform – Partnerships for Green Growth (P4G).

The main findings of the assessment are:

  • Local FIs in sub-Saharan Africa are willing to lend USD billions for energy access: It is estimated that the total projected lending volume indicated by the interviewed local FIs would translate to at least roughly $6 billion in lending by local FIs throughout sub-Saharan Africa. This is a significant contribution to the energy access financing gap.
  • Local FIs require credit support and technical assistance for off-grid lending: The vast majority of both FIs and locally owned off-grid companies identified high collateral requirements and collateral inadequacy as a key barrier hindering financing. A majority of locally-owned off-grid companies also pointed out local FIs’ lack of understanding of the off-grid sector, high cost of debt and lack of long-term funds as major funding challenges.
  • First loss cash reserve will lead to increased lending and reduction in collateral requirements: FIs indicated that a first loss cash reserve will result in a 53% increase in projected off-grid lending volumes and a 42% reduction in collateral requirements on average. A first loss facility can also to some extent increase the tenor of loans.
  • Locally-owned off-grid companies unable to access capital could be the main beneficiaries: 56 African-owned off-grid companies surveyed indicated an actionable deal pipeline of $269 million. Unlocking local currency lending from local commercial banks will be crucial to meet the needs of these locally-owned companies, which are well-positioned to serve last-mile customers but have been largely unsuccessful in accessing external capital from international sources.

Read the full report.