Equity plug for energy efficiency financing: Direct lending model for SMEs | Climate Finance, South Africa 2019
SEED Practitioner Labs Climate Finance in South Africa engaged financial institutions, funders, intermediaries and other SME ecosystem stakeholders over a multi-step process to co-create innovative climate finance products and mechanisms that extend access to long-term financing opportunities for “missing middle” small and growing climate-smart enterprises that struggle to advance beyond the start-up stage and multiply their contributions to climate-smart and socially inclusive economies.
The direct lending model for an equity plug for SME energy efficiency financing addresses the challenges with finding alternative routes to financing energy efficiency for SMEs. This solution secures the buy-in of financers by catalysing a paradigm shift and enlisting the support and financing of the commercial banks through a bespoke facility that will:
- Establish a highly efficient and tailored application review and applicant credit vetting process
- Offer 15,000 unsecured short-term loans over a 5 year period, at rates in the range of prime+1.25% (best case) to ±prime+3.5% p.a. for a range of standardised technological interventions from vetted suppliers
- Dynamically manage the lending criteria and vetting process, managing for risk and defaults
- Manage and bridge cash flow constraints which might arise from unforeseen defaults (>6% of portfolio)
This solution was developed by Carbon Trust with the Development Bank of Southern Africa.