Kenya intends to establish an investment bank to promote commercial lending to green projects by sharing some of the risks involved in such endeavors.
The proposed bank, according to Treasury, is a component of attempts to guide Kenya’s economy toward a low-carbon, climate-resilient green development route. This is stated in the draft National Green Fiscal Incentives Policy Framework.
The green bank, which will be known as Kenya Green Investment Bank (KeGIB), will encourage private sector investments in environmentally friendly endeavors.
According to Treasury, “the government will establish a green investment bank that will offer a variety of funding mechanisms and related incentives to enable the public and private sector in removing obstacles to implementing green investments at scale.”
The bank’s operations would be similar to those of the Kenya Mortgage Refinance Company, which was established in 2019 with the goal of lowering the cost of mortgages by providing long-term capital to mortgage financiers.
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Credit guarantees, risk-reduction tools, debt, and equity are among the financial instruments the green bank is anticipated to offer.
According to the Treasury, the bank may also provide assistance, knowledge, and incentives to create novel financial products including green, blue, and resilience bonds and transactions utilizing carbon credits.
It states that the government will consult on the bank’s architecture, taking into account the industries to focus on and the extent to which it might offer capital at a discount.
The majority of green financing is now focused on topics like extending credit lines for energy efficiency projects like solar installations and wastewater treatment projects in the hospitality industry, as well as lending to renewable energy projects.
Due to the mismatch between risks and return, many financiers and investors have little taste for green ventures.
The Treasury thinks that the green bank will spark domestic institutions’ interest and encourage private sector involvement in green initiatives.
The perception and/or fact that the capital costs and hazards of green investments are too high and the returns are too low will be addressed in particular, according to the Treasury.
Against a total loan book of Sh2.49 trillion, Kenya’s banking sector channeled Sh27 billion in climate finance in 2018, demonstrating the sector’s risk aversion toward green initiatives.
The Treasury claims that in order to allocate funding toward goods and initiatives that have a positive influence on the environment, the government will establish the green investment register, a database of significant national green investment portfolios.
The database will provide information about available green investment possibilities in the nation to the business sector.
According to Treasury, the creation of this database, the information management system that would allow investors to access it, and intense resource mobilization might all be the first actions conducted by KeGIB.
The debut green bond, which piqued the eye of overseas institutional investors, hasn’t drawn much interest from Kenyan pension funds or other domestic institutional investors.
