Project

Climate Finance Innovation Facility

Welcome to the UNEP Climate Finance Innovation Facility

The Climate Finance Innovation Facility (CFIF) supports finance-industry engagement in the new climate sectors renewable energy (RE) and energy efficiency (EE). The Facility provides developing country financial institutions with technical assistance and funding for the development of climate focused financial products and services.

A broad range of activities are eligible for support, ranging from feasibility studies, to market assessments and legal reviews. The overall aim of CFIF is to help mobilise a scaling up of financial flows into climate change solutions. More broadly, by encouraging early action within the finance community, the facility helps cultivate on-the-ground leadership amongst financial actors that can have replication effects across markets and geographies.

Initiators of the facility are the United Nations Environment Programme and the Frankfurt School of Finance & Management. Investment Committee members come from ADB, BMU, KfW and UNEP.

Activities

CFIF supports product that are financial mechanism targeting low carbon infrastructure in countries
of asia. The support comes in the form of technical assistance support and associated grants for
cost-sharing incremental aspects of financial product development. The support covers up to 50% of
true costs, dispersed in milestone based tranches, with the remaining out of pockets expenses covered by the requesting financial institution.

Financial Product Development Activities eligible for Support:

Feasibility studies and market surveys
Financial Advisory Service to (large scale) projects
Financial modeling and risk analysis
Carbon finance
Political and regulatory analysis
Environmental risk analysis
Business planning
Staff training
Procedural development
Other activities also eligible

Application

Financial Institutions should make contact with the Facility to discuss a prospective application before submitting any documentation.

The formal request includes:

Completed application form
Brief description of the climate relevant financial product or programme under consideration
Preparatory activities requiring CFIF support
Proposed Terms of Reference and budget (can be developed in consultation with the Facility)
Short-list of consultants who could provide the required services (optional)
Background information on the requesting party, indicating related financial services and experience

Supported Projects

Programme	Promotion of Renewable Energy Technologies (RETs) in Pakistan through the establishment of Micro Green Energy Co. (MGEC) supported by micro financing facility
Location	Pakistan
Partner(s)	Tameer Microfinance Bank, Winrock International
Focus Area	Renewable Energy, Energy Efficiency

Programme Rationale and Innovation	The programme envisages facilitating lower income households with access to three alternative energy solutions comprising Solar Home Systems, Improved Cook Stoves and Biogas Digesters across rural areas of Pakistan. Tameer Microfinance bank having the micro finance experience as it's core business and Winrock International as it's advisory partner aim to disseminate the programme through establishing a new associate company called Micro Green Energy Company (MGEC). The lending strategy would be based on providing micro finance loans to the end users, where Tameer Bank would act as the lending arm of MGEC, refinance MGEC up to 90% of the product price, develop risk assessment and controlling strategy, provide MGEC with trainings on sales and loan collection techniques. MGEC would be dedicated for programme operation and marketing, provide installation and after sales & maintenance services, monthly loan collection services and basic product trainings to the households. Following the world acclaimed Grameen Shakti micro finance model, the project endeavors a business model to make it affordable to the rural households as well as self-sustainable by means of utilizing carbon benefits. Technology trainings, staff capacity building, after sales services, strong credit risk management and continuous monitoring are identified as the key components of this programme.
CFIF Support	Assessment of market opportunity and feasibility study Design and development of energy lending products, reference manual and promotional materials for renewable energy lending Development of business plan and support on regulatory arrangements for the creation of micro green organization 'MGEC'. Capacity building of staffs through trainings on renewable energy technologies, financing, marketing, carbon benefits and institutional processes. Design and conduct baseline study and develop appropriate strategies for exploiting carbon benefits for the project
Expected Results	Installation of about 11,600 alternative energy products (10,000 improved cook stoves, 1,000 solar home systems and 600 biogas digesters) during the 1 year project period (2011-12). Loan disbursement of USD 568,000 during 1 year project period which is expected to be increased at USD 4.6 million in the next 5 years. About 11,874 tons/annum CO2 emission reduction from the installed alternative energy products. Improvement of quality of life of the rural households by providing improved environment and promoting economic activities by mobilizing and employing locals.

Programme	Credit Financing of Green Homes and Solar Off-grid Equipment
Location	India
Partner(s)	ICICI Bank
Focus Area	Renewable Energy, Energy Efficiency

Programme Rationale and Innovation	The programme will design and implement two financial products: Green Home credit finance and Solar off-grid applications credit finance by ICICI Bank of India. ICICI, the second largest bank of India, has been quite instrumental since 1985 in supporting financing of innovative environmental friendly products besides it's wide range of banking services. The bank played a leading role in promoting the concept of energy efficiency, use of clean technologies and environment awareness across India. Leveraging the government subsidy schemes in clean energy technologies and using bank's strong presence in the environment financing programme, the proposed products aim to make clean energy products available at the out reach of specific target groups namely middle class and rural communities of India. The Green homes, a concept that tends to make energy efficient buildings at the design stage, would be incorporated within the bank's current housing finance scheme in order to mobilize the targeted middle class groups by giving them the benefits of reduced energy consumption, less environmental pollution and increased savings opportunities, whereas solar equipment financing scheme would harness the potential of solar power in the off-grid areas by extending credit facilities to the rural communities and farmers by providing solar home lighting system and solar water pump in order to boost up the power scenario, agriculture and rural economy.
CFIF Support	Feasibility study and market analysis Financial product design and risk analysis Technical assistance on the solar energy applications and green building technology Pilot programme monitoring and launching of the final product Staff training and awareness campaign through seminars and marketing
Expected Results	Initially, the programme will be launched on pilot basis in few states during 2011-2012 and will be replicated across India following successful implementation of the pilot.

Programme	Empowering the Poor through Increasing Access to Renewable/Efficient Energy
Location	Philippines
Partner(s)	Center for Agricultural and Rural Development Mutually Reinforcing Institutions (CARD MRI)
Focus Area	Renewable Energy

Programme Rationale and Innovation	The programme intends to provide technical assistance to the renewable energy project of CARD MRI, a group of mutually reinforcing institutions having over 800 microfinance offices and 1.2 million micro finance beneficiaries across Philippines. With a view to up lift the living standards of the underprivileged groups, the pilot project was launched in 2005 that already provided solar lighting systems in 600 households in the selected rural off-grid areas in collaboration with micro entrepreneurs and local suppliers. Having the strong rural banking experience, CARD MRI has now set the target to diversify and scale up the programme into two components: a. Scale up the off-grid solar lighting system project in eight new provinces involving 1,500 qualified micro retailers and providing them credit facility worth USD 190,000 for reselling to the end users b. Harness the potential of a new alternative energy product namely biogas technology for its existing micro finance clients through market assessment and business plan development. Within the framework of CFIF support, the programme would provide technical assistance for new product development and facilitate trainings to the staffs and retailers on solar lighting system marketing, after sales services, product technical issues in order to improve existing product value chain which would contribute to further up scaling and long term sustainability of the project.
CFIF Support	Capacity building and training of micro retailers and micro finance staffs Product value chain development ToT trainings on operation & maintenance and marketing of solar lighting products Assessment of biogas market potential and business plan development
Expected Results	50,000 households or 150,000 peoples to be equipped with renewable energy products by 2015 Disbursement of loan worth USD 190,000 in the first year with an portfolio increase of 15% to 20% per year

Programme	Taizhou Commercial Bank Energy Small Business Efficiency Lending Programme
Location	China
Partner(s)	Taizhou Commercial Bank
Focus Area	Renewable Energy, Energy Efficiency

Programme Rationale and Innovation

The programme intends to establish energy efficiency (EE) loan products for the micro SME entrepreneurs by the Taizhou Commercial Bank (TZB), a micro SME bank operating in Taizhou region of China. The lack of adequate environmental awareness, government legislation and shortage of capital lets the micro SMEs focuses on the immediate short term needs ignoring the economic and environmental benefits of the EE products. With a view to transforming business activities less harmful for the environment, the programme encourages practicing greener business among the Micro SMEs and creates a sustainable combination of value and profit into the predominantly underserved SME market segment by offering them the benefits of effective usage of energy, cost reduction, opportunities in new investments and a greener business environment. TZB intends to achieve its goal of greener and less harmful-to-the-climate business practices by offering a combination of finance facilities, environmental consultation and awareness building among its 20,000 clients base. Frankfurt School of Finance & Management acts as the lead consultant in facilitating CFIF supports for the programme.

CFIF Support

Detailed market study on EE lending opportunities
Product design and business planning
Staff trainings
Advisory services during roll out phase

Expected Results

Based on the market study conducted by Frankfurt School of Finance & Management, the programme shows following expected results:

Total potential demand of EE loans among existing TZB clients is estimated at USD 43 million
About 4,000 micro SME clients could opt for loans to implement EE projects
Design of medium and long term financial products for EE projects

Programme	Credit Financing of Solar Home Systems (SHS) for Deprived Communities in Rural Nepal
Location	Nepal
Partner(s)	Ace Development Bank Limited, Winrock International
Focus Area	Renewable Energy

Programme Rationale and Innovation

The programme intends to provide access to Solar Home Systems (SHSs) through creating a viable micro credit financing mechanism for SHS lending in order to improve energy access and rural lives in Nepal. About 2.4 million households in Nepal do not have access to grid electricity and SHS is one of the available alternatives to provide household lighting in off-grid rural areas. However, Access to micro credit is vital to reach households because poor households in rural areas cannot afford SHS even with existing government subsidies.

The programme approach would be to leverage commercial/development bank resources and government subsidy, increase affordability of the poor to purchase SHS on credit through channeling microfinance loans to the local MFIs, build capacities of local MFIs to deliver sustainable SHS financing and enhance rural livelihoods through locally based small and medium enterprises. Ace Development Bank Limited (ACE), a public limited company, acts as the lending arm of the programme, provides refinance facility to the local MFIs for SHS installation. The programme involves intermediately implementing partners that are responsible for managing the project at the local level and providing marketing and credit financing trainings to the local MFIs. Winrock International serves as the technical advisor to help implementing project activities through coordination with the implementing partners, local MFIs, rural communities, equipment suppliers as well as government and non government stakeholders.

CFIF Support

Technical Assistance to ACE on credit financing of SHS through LFI networks
Building capacities of LFIs to finance SHS as loan product
Assist ACE for energy financing and linkage with prospective new business
Enhance rural livelihoods by establishing rural enterprises using energy generated

Expected Results

Facilitate installation of at least 3,500 SHSs through credit financing of at least 3,500 loans over a thirty month programme implementation period
Facilitate installation of additional 1,500 SHSs without programme support within two years following project completion

Programme	Feasibility Study on Access to Financing for RE Appliance for Rural Poor
Location	Cambodia
Partner(s)	VisionFund (Cambodia) Ltd.
Focus Area	Renewable Energy

Programme Rationale and Innovation

The programme aims to introduce renewable energy financing by facilitating better access to appropriate financial services for rural poor households of Cambodia in a social responsible manner. Within the framework of CFIF support, Frankfurt School of Finance & Management (FSFM) acted as the lead consultant in facilitating CFIF supports for the programme implementing agency, VisionFund (Cambodia) Ltd., a licensed microfinance institution operating in Cambodia. FSFM executed a detailed feasibility study to determine the potential for financing renewable energy technologies for rural poor households. The study was carried based on internationally adopted practices, systematic assessment of respective business segments and surrounding market conditions by means of on-site visits, statistical review and structured surveys at the seventeen provinces of Cambodia. Field work consisted of meetings with market players to estimate the supply. In combination with demographic data and best practices in RE lending, the undertaken market analysis has led to recommendations for forming the RE loan products and relevant operational guidelines directing VisionFund Cambodia's social mission about extending its operations to the underserved market segments.

CFIF Support

Financial support and technical assistance for the feasibility study
Technical assistance to operation division for setting up product operation procedures
Development of technical and financial proposals for RE lending products

Expected Results

Based on the market study conducted by Frankfurt School of Finance & Management, the programme shows following results:

Solar technology has been identified as the most potential RE appliance in the poor rural households
Potential partner supplier institutions have been identified
RE lending mechanisms and programme action plan have been recommended
A loan portfolio ranging USD 200,000-300,0000 for 1,000 solar technology systems in first three months of the programme implementation period has been envisaged.

Programme	XacBank Enhanced Growth- Development of Carbon Finance Mechanism
Location	Mongolia
Partner(s)	XacBank, Micro Energy Credits
Focus Area	Micro Finance, Energy Efficiency

Programme Rationale and Innovation

The programme intends to scale up the Eco Loan project of XacBank through development of carbon finance mechanism. The Eco Loan project was launched in 2009 to support local demand for energy efficient products namely ‘Energy Efficient Stove’ and ‘Highly Insulated Ger (Yurt) Covering’ at Ulaanbaatar, the capital of Mongolia which is known to be one of highly polluted cities in the world. Both products, yurt covering and energy efficient stove, have 50% more energy saving potential over the traditional ones and potentially can tap substantial amount of carbon revenues for the programme.

The project implementing agency XacBank has identified carbon revenues to be the major instrument for further expansion and long term sustainability of the project. With this view, XacBank has partnered with MicroEnergy Credits (MEC) where MEC would deliver carbon emission reduction credits to XacBank for a fixed price and upon delivery and provide support for the development of carbon finance methodology. Within the framework of CFIF support, the programme intends to streamline all the procedural activities associated with the carbon finance methodology by bringing automation at the product selling centers in the process of data capture, approvals and reporting, improving individual customer monitoring system through GPS locators, establishing online Help Center to improve customer sales service and minimizing disbursement request processing time to accelerate carbon revenues into the project.

CFIF Support

Development of carbon finance mechanism
Strengthen procedural development
Staff training on system automation and procedural activities

Expected Results

Financing of over 30,000 highly insulated yurt coverings and 22,000 energy efficient stoves worth over USD 21 million during 2011-2013.
Estimated CO2 emission reduction of 5 tons over five years from each installed product.

Programme	Universal Energy Access for Microfinance Clients
Location	Indonesia
Partner(s)	MBK Ventura, Barefoot Power Pty Ltd.
Focus Area	Micro Finance, Renewable Energy

Programme Rationale and Innovation	The programme aims to assist communities in Java lacking electricity to gain access to reliable and affordable renewable energy lighting technologies. In Indonesia, especially in Java mostly the richer segments have access to the grid. Kerosene and candles are still widely used in the households for lighting purposes. Only in the Java Island, USD 800 million worth kerosene is burnt every year - money that could be invested in assets from reliable and affordable lighting technologies. In this backdrop, the programme implementing agency MBK Ventura, a non bank financial institution operating in the whole Java Island and Barefoot power, an Australian based company known for its innovative alternative energy product design, together have come up with a new energy lending concept to introduce it among the existing 300,000 micro finance clients of MBK Ventura. Two types of lending strategy would investigate on providing microfinance energy loans for individual household/small group share systems and business energy loans for solar energy entrepreneurs that would be trained on selling and repair energy products in Java. Barefoot Power and MBK Ventura will jointly invest resources into the project design, while Barefoot Power would also refinance the energy loans by selling them to MBK Ventura and/or other investors. MBK Ventura will assist in energy lending product design while Barefoot Power will be the technical and field implementer of the project as well as the project leader at the field level and project design level.
CFIF Support	Market research and analysis Support the financial modelling and design of new loan product Training of loan officers Prepare simple guides to energy lending for financial institutions
Expected Results	The project will result in approximately 6,500 households gaining access to electricity 30,000 peoples are expected to enjoy cleaner and safer lighting During the project period app. 1,800 energy loans will be issued The project will be the first 2 years in a 6 year plan that aims to deliver electricity access to 100% of MBK Ventura clients

Programme	Introducing Biogas for Business
Location	Nepal
Partner(s)	Bank of Kathmandu, SNV Netherlands (Nepal)
Focus Area	Renewable Energy

Programme Rationale and Innovation

The programme aims to introduce project finance lending mechanism in combination with carbon finance for financing construction of biogas units. In the prevailing energy crisis situation for the business enterprises of Nepal, there is seemingly a demand for installing biogas plants in some specific sectors namely in the poultry farms, diary farms, food or herb processing factories, etc. across the country. Realizing this potential, the programme partners, The Bank of Kathmandu, a commercial bank operating in Nepal in 19 districts with a customer base of 150,000 and SNV Nepal, experienced in the biogas sector for the last 20 years, intend to extend their energy services for different industries that are willing to install biogas plants either for own consumption or sale of gas or electricity for income generation activities. The programme partners envisage that hundreds of such biogas projects can be implemented in Nepal provided that the entrepreneurs get technical support for design, estimate, construction supervision services and credit from the commercial banks.

By providing a financial platform, the proposed programme is expected to give a financial boost to the business enterprises to install large scale biogas units as well as provide annual repair and maintenance services of the installed units. The proposed project is packaged into 4 elements: 1) pilot emission reduction project for biogas units, 2) credit financing to the business enterprises as the unit owners, 3) insurance for major repair or maintenance or for full replacement and 4) technical support for design, standardisation, quality assurance, promotion, etc. The opportunity of tapping carbon finance revenues will be considered in the bank’s credit financing mechanism. The Bank of Kathmandu will identify bankable proposals for biogas units at enterprise level and provide project loans to the enterprises for the establishing biogas plants, whereas, SNV Nepal will bring it’s rich experiences in the biogas sector giving technical supports and developing carbon finance mechanisms for this project.

CFIF Support

Undertake preliminary market research
Design a product prototype
Conduct pilot test to refine the prototype and determine product feasibility
Develop marketing strategy and internal systems
Assist in product development

Expected Results

The Bank will finance approximately 50-100 units of biogas units at enterprise level
Financed units will be bundled under a single Clean Development Mechanism (CDM) project.

Programme	Mitigating and Adapting to Climate Change
Location	Singapore
Partner(s)	Impact Investment Exchange Asia, Impact Investment Shujog
Focus Area	Energy Efficiency

Programme Rationale and Innovation

The programme aims to establish Impact Guarantee Fund (IGF) to catalyze carbon reduction investments by the social enterprises across Asia. Climate change is considered to be one of the major economic challenges for Asia. The Global Climate Risk Index 2011 places 6 of the 10 countries (Bangladesh, India, Indonesia, Malaysia, Philippines and Thailand) most affected by the extreme weather events in Asia. One of the most promising developments to combat against climate change is the emergence of wide verity of social enterprises that employ market oriented approaches to address environmental and social issues. However, lack of information and access to impact investment opportunities, high due diligence costs, the perceived riskiness of impact investments in Asia and lack of liquidity are the major setbacks for the growth of social enterprises across Asia. With support from Rockefeller Foundation and ADB, the programme partners Impact Investment Exchange Asia (IIX) and Impact Investment Shujog (Shujog) have conducted research on market needs in these countries as well as buy-side and sell-side market mapping exercises. IIX, a Singapore based social enterprise, currently operates Impact Partners-Asia’s first socially and environmentally oriented private placement platform and is expected to launch Impact Exchange in 2012, Asia’s first social and environmental stock exchange. IIX has over 100 social enterprises in its pipeline and has listed over USD 68 million in investment opportunities.

Under the proposed programme, IIX aims to establish Impact Guarantee Fund (IGF) which will guarantee a portion of selected debt investments in order to reduce the investment risks by the impact investors. The IGF is designed to facilitate impact investments in social enterprises focusing on specific sectors, such as low carbon infrastructure and deforestation reduction. The IGF will be able to guarantee investments during an investment period which is expected to run for three years from the time of the first closing in December 2011. IIX will structure and manage the guarantee fund ‘IGF’ to be sourced from the private sectors, whereas, Shujog with its institutional experiences on Impact Assessment will provide technical supports for the construction of IGF.

CFIF Support

Create and Implement IGF ( identify guarantee eligibility and triggers)
Structuring of IGF
Marketing and piloting of IGF ( find guarantors, link to Impact Partners)

Expected Results

IGF is expected to back investments in 20 social enterprises in six Asian countries
The pilot project will guarantee USD 50 million of debt investment instruments
Facilitate impact investing capital flow of 5 to 10 times the size of the fund

About us

UNEP is working to create the policy and economic framework whereby low carbon technologies can increasingly meet the global climate challenge. The UNEP approach to sustainable banking is based on the need to enhance the linkages between environmental sustainability and economic decision-making which is emerging as a key nexus for public policymaking and market development. Changing attitudes and helping mainstream financiers to consider sustainable energy and low carbon investments are key components of this work and the starting point for its cooperation with the Frankfurt School of Finance and Management.

Frankfurt School is a leading private business school and implements consulting and training projects in emerging markets and developing countries via its International Advisory Services. It offers a broad range of services in the fields of consulting and training to build up and strengthen institutional capacities in the financial sector. Within the competence centre ‘Sustainable Energy Finance’ Frankfurt School has implemented energy efficiency and renewable energy projects worldwide. In Asia Frankfurt School has undertaken a rage of studies and activities regarding the promotion of energy efficiency and cooperated with the Indian Renewable Energy Development Agency.

Frankfurt School UNEP Collaborating Centre is committed to facilitating the necessary structural change of energy supply and use around the globe by helping to catalyse private sector capital flow towards investments in sustainable energy and climate change mitigation and adaptation. Located at Frankfurt School, the Centre combines research of the highest calibre with an orientation towards practical application all the way to the final implementation. By implementing findings and instruments in the field where they will be most effective, the Centre will maximize its knowledge base and grow into a leading think tank on this topic.

Links

Frankfurt School UNEP Centre	http://www.fs-unep-centre.org
UNEP	http://www.unep.fr/energy/finance
Frankfurt School of Finance & Management	http://www.fs.de/
BMU International Climate Initiative (ICI)	http://http://www.bmu-klimaschutzinitiative.de/en/news