GHANA: FINANCIAL INSTITUTIONS MUST EMBRACE DUE DILIGENCE TO BOOST GREEN CREDIT LINE
In an effort to promote sustainable development in Ghana, the German Development Bank (KfW) has partnered with the Ministry of Finance to establish a green credit line for refinancing renewable energy and energy-efficient investments. The project aims to support Micro, Small and Medium-sized Enterprises (MSMEs) and households in adopting environmentally friendly practices.
Designing a Green Credit Line Structure
As part of this initiative, IPC was contracted by KfW to design a potential green credit line structure based on Ghanaian market demand and supply. After identifying seven potential partner financial institutions, the Ministry of Finance and KfW engaged IPC to select three institutions as implementing partners for the RE/EE credit line.
Conducting Due Diligence
A crucial aspect of the project was conducting due diligence on each selected financial institution. IPC analyzed their strategy towards green finance, particularly in relation to MSME and household clients, as well as their portfolios, profitability, risk management, staffing, target clientele, competitiveness, and environmental, social, and governance (ESG) risk management.
Key Findings and Recommendations
The assessment revealed the importance of defining business models for the sustainable refinancing of RE/EE investments. IPC explored the benefits and potential return on investment for end-consumers, the availability of suitable technologies and equipment, standardizing loan eligibility criteria, capacity needs of partner financial institutions, and commercial viability of the proposed green credit line.
- The design of a loan scheme that included the structure of loans for each financial institution, interest rates, performance indicators, and acceptable subsidy levels.
- Identification of roles and responsibilities of stakeholders, including KfW, Ministry of Finance, Bank of Ghana, Energy Commission, and financial institutions, with regards to supervision and monitoring.
- Recommended accompanying measures, such as technical assistance needs tailored for each financial institution depending on their current market dynamics and internal capacities.
- A simplified approach to measure CO2 emission savings achieved through the credit line.
Conclusion
The project demonstrates Ghana’s commitment to promoting sustainable development and reducing carbon emissions. Financial institutions must now embrace due diligence to ensure that green credit lines are successfully implemented, benefiting both the environment and the economy.