Kenya is planning to set up an investment bank to increase commercial lending to environmentally friendly projects by absorbing part of the risks associated with such ventures.
Treasury says in the draft National Green Fiscal Incentives Policy Framework, that the planned bank is part of efforts to steer Kenya’s economy onto a low-carbon climate-resilient green development pathway.
The green bank—to be referred to as Kenya Green Investment Bank (KeGIB) —will incentivise private sector investments in green projects.
“The government will develop a green investment bank that will provide a range of funding instruments and associated incentives to support the public and private sector in overcoming barriers to making green investments at scale,” says Treasury.
The operations of the bank will mirror that of Kenya Mortgage Refinance Company, which was started in 2019 to offer long-term funds to mortgage financiers so as to bring down the cost of mortgages.
The green bank is expected to provide a range of financial instruments including credit guarantees, risk-reduction facilities, debt and equity.
The bank could also offer support and expertise and provide incentives to develop innovative financial instruments such as green bonds, blue bonds, resilience bonds and transactions using carbon credits, according to the Treasury.
It says government will consult on the design of the bank including consideration about which sectors to focus on and the extent to which it might provide concessional-priced capital.
Green financing is currently concentrated in areas such as lending to renewable energy projects and providing credit lines for energy efficiency projects such as solar installations and wastewater management projects in the hospitality industry.
Many investors and financiers have a low appetite for green projects due to the mismatch between risks and return.
The Treasury hopes the green bank will arouse the interest of domestic institutions and attract private sector participation in green investments.
“The institution will particularly focus on addressing the perception and/or reality that the capital costs and risks of green investments are too high, and the returns too low,” says the Treasury.
Kenya’s banking sector in 2018 channelled Sh27 billion in climate finance against the total loan book of Sh2.49 trillion, highlighting the sector’s risk averseness towards green projects.
The Treasury says the government will set up the green investment register— a database of key national green investments portfolio— to direct investment to products and projects that have a positive environmental impact.
The database will inform the private sector of existing green investment opportunities in the country.
“Establishing this database, and the information management system enabling investors to access it and intensive resources mobilisation, could potentially be early activities taken forward by KeGIB,” says Treasury.
Kenyan pension funds and other domestic institutional investors have been hesitant to invest in green products such as the debut green bond that attracted interest from foreign institutional investors.
