Kenya, a leader in green finance innovation, has data available to steer informed decisions. However, the question is, how are we using it to build a sustainable future?
Take for instance, the Green Finance in Kenya Spotlight 2022 by FSD Kenya that showed that public expenditure on green projects averaged Shs108 billion in 2017/2018 and Sh120 billion in 2018/2019, with 60 percent of this funding sourced internationally.
Private sector investments are similarly reliant on foreign capital, with only 30 percent of the estimated Sh100 billion annual green finance coming from domestic sources.
Adaptation finance remains significantly underdeveloped as 79 percent of green funds are directed to mitigation, with just 12 percent allocated for adaptation measures such as crop, livestock, and weather insurance.
These figures highlight a significant opportunity for the insurance industry to support a population increasingly exposed to climate-related risks.
Likewise, the banking sector and capital markets must play a more substantial role in mobilising domestic capital to address these evolving financial needs.
Then there is the 2024 FinAccess Household Survey conducted by the Central Bank of Kenya, the Kenya National Bureau of Statistics and Financial Sector Deepening (FSD) Kenya, which further highlights the financial landscape shaping this green transition.
Mobile money adoption has surged from 27.9 percent in 2009 to 82.3 percent in 2024, while mobile banking now reaches 32.6 percent of adults.
The rise of digital financial services, including the Hustler Fund with 28.9 percent of adults taking loans, signals a dynamic shift in financial accessibility, creating avenues for innovative green finance solutions.
These reports provide invaluable insights for policymakers, development institutions, and private sector leaders looking to align Kenya’s financial system with its green transition.
How can green finance transform livelihoods and provide additional resilience to withstand external climatic shocks? The paradigm of providing market-based solutions to improve livelihoods through enhanced market systems is central to discussions on the transformative potential of green finance.
According to the 2024 FinAccess Household Survey, close to 35 percent of Kenyans confirmed participating in climate-friendly investments. Key among these are solar power equipment, tree planting, water conservation, clean cooking stoves, and biogas systems.
The gender statistics are also telling - men (37.7 percent) are more engaged in climate investments than women (32.3 percent). Although this gender gap is expected to close in the future, it highlights the challenges in resource access, land ownership, and decision-making power that women continue to face, particularly in rural areas in Kenya.
An important aspect from the 2024 FinAccess Household Survey is the insight into access to finance for green investments. It is evident that formal access to green finance remains low.
The report highlighted that the number one source of financing for green investments came from personal and business income at over 65 percent, with the majority of that investment directed toward energy-efficient solutions. This provides evidence that individuals are seeking cost-effective energy solutions and financing them themselves.
Bringing the conversation and focus down to the individual creates an opportunity to develop solutions that benefit, at scale, those in need of green finance and achieving a green and inclusive ecosystem.
The public sector has limited fiscal capacity in financing climate investments, and credit accessibility remains a significant barrier, particularly for high-cost green technologies that can improve lives and build financial resilience such as; solar, Battery Energy Storage Systems (Bess), and clean cook stoves.
Moreover, urban areas lag behind rural areas in climate investments, underscoring the necessity for tailored interventions for both urban and rural households. Through the 2024 FinAccess Household Survey key opportunities for addressing these challenges, have been identified.
These include expanding concessional financing and incentives for biogas, water conservation, and e-cooking solutions; enhancing gender-inclusive financing mechanisms; and strengthening formal credit institutions' role in green finance.
Additionally, leveraging carbon markets to fund community-based green projects at scale, encouraging financial institutions to integrate green finance products, and expanding public-private-philanthropic partnerships (PPPPs) in climate finance can drive further investment and accelerate sustainable development.
Clearly, going green is not only essential for sustainability but also presents significant economic opportunities when supported by targeted financial interventions.
Bringing the conversation and focus down to the individual creates an opportunity to develop solutions that benefit, at scale, those in need of green finance and green technological solutions achieving a green and inclusive ecosystem.
As Mwalimu Julius Nyerere once said, ‘If Africa is to see the development it deserves, the people must be involved."
The writer is Senior Green Finance Advisor at FSD Kenya. [email protected]
