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learned from the SWITCH-Asia Programme
SWITCH-Asia Network Facility is funded by the European Union.
SWITCH-Asia Network Facility is implemented by the Collaborating Centre on Sustainable Consumption and Production and Wuppertal Institute for Climate, Environment and Energy.
Publisher SWITCH-Asia Network Facility Collaborating Centre on Sustainable Consumption and Production (CSCP) Hagenauer Straße 30 42107 Wuppertal | Germany Phone | +49.202.45 95 8.10 Fax | +49.202.45 95 8.31 www.switch-asia.eu mailto:firstname.lastname@example.org
Authors Susanne Müller and Burcu Tunçer with contributions from Julio Andres Roso Grizales, Wybe Grovestins and Remco van Stappershoef Supervision and Guidance Frans Verspeek (Team Leader, the Network Facility) Design Elmar Sander
Copyright The SWITCH-Asia Network Facility
This publication has been produced for the SWITCH-Asia Programme and the European Union. The contents of this publication are the sole responsibility of the Collaborating Centre on Sustainable Consumption and Production (CSCP) and can in no way be taken to reflect the views of the European Union.
CBP Capacity building programme CDM Clean Development Mechanism CER Certified emissions reductions EE Energy efficiency E&RE Energy and resource efficient EUM-BENP EU-Malaysia Biomass Entrepreneurs Nurturing Programme EU-PIC EU Project Incubation Centre ESCO Energy service companies FI Financial institutions GHG Greenhouse gas IEM Industrial equipment manufacturer IFC International Finance Cooperation MEET-BIS Mainstreaming Energy Efficiency Through Business Innovation Support Vietnam (MEET-BIS Vietnam) PDD Project design document R&D Research and Development SCP Sustainable consumption and production SME Small and medium-sized enterprises SSCM Sustainable supply chain management
SWITCH-Asia | ENGAGING with financing institutions for greening smes
table of contents
Table of Contents Foreword Summary of main findings 1. Introduction 1.1 Access to finance – a driver for economic development 1.2 Financing needs of SMEs 1.3 Financing solutions 1.4 The financing gap 2. Which strategies and tools do SWITCH-Asia projects implement to close the finance gap? 2.1 Strategy 1: Addressing the Enabling Environment for Access to Finance 2.2 Strategy 2: Promoting Financial Services 2.3 Strategy 3: Increasing Capacity of SMEs to Access Finance 2.3.1 Raising awareness on financial literacy Strategy 4: Addressing Banks – from Awareness to Technical Assistance 2.4 2.4.1 Building relations with the financial sector 2.4.2 Raising awareness on SCP 2.4.3 Explaining the Business Case of Energy Efficiency/ Resource Efficiency (EE/RE) 2.4.4 Show casing investment opportunities 2.5 Strategy 5: Enabling Investment Linkages 2.5.1 Creating dialogue between demand and supply 2.5.2 Creating joint platforms via Study Tours 2.5.3 Business Matchmaking 2.5.4 Forming institutional partnerships with financial institutions, banks and investors 3. What lessons have been learned by SWITCH-Asia projects? 3.1 Opportunities References
3 5 6 9 10 11 11 14
17 18 20 24 25 26 26 27 28 30 31 31 31 32 33 35 36 39
SWITCH-Asia | ENGAGING with financing institutions for greening smes
SWITCH-Asia projects addressing access to finance for greening SMEs Abbreviation China Motor Challenge Project title Projecet location China Improving the Operating Efficiency of Chinese Electric Motor Systems Electric Motor Systems Energy-Saving Challenge – Eco-friendly Bamboo Sustainable revival of livelihoods in post-disaster Sichuan: chains to support the reconstruction effort Enhancing eco-friendly pro-poor bamboo production supply China Biomass-SP Sustainable Production of the Biomass Industries in Towards Higher Value Chain Malaysia: Optimising Economic Potential and Moving Malaysia SCI-PAK Sustainable and Cleaner Production in the Manufacturing Industries of Pakistan Pakistan Green Philippines Islands Creating Green Philippines Islands of Sustainability Philippines SMART Cebu SMART CEBU: SMEs for Environmental Accountability. Responsibility and Transparency Philippines Automotive SSCM Greening Supply Chains in the Thai Auto and Automotive Parts Industries Thailand MEET-BIS Mainstreaming Energy Efficiency Through Business Innovation Support Vietnam Vietnam SWITCH-Asia | ENGAGING with financing institutions for greening smes 4 .
enlarge and spread existing good practices. this report presents insights based on project efforts towards enabling access to (green) finance schemes for SMEs. investment. to a critical portion of a sector.eu/ switch-info/publications. promote and process ‘access to finance’. To be able to present the strategies SWITCHAsia projects are using to access finance. scaling-up the manufacturing of and promoting the demand. Horizontal scaling-up (also referred as scaling-out) refers to the gradual roll-out of activities within a sector or to a wider geographic area.switch-asia. The projects funded under the programme should employ ‘scaling up mechanisms’ to multiply. and the switch to more efficient technology which demands knowledge. This study will be continued as the projects advance and as new ones come on-stream.FOREWORD A key challenge for any development programme is to scale-up successful approaches and methodologies to speed up the path to sustainable development. SWITCH-Asia projects might scale-up ‘horizontally’ and/or ‘vertically’. Some projects. Further research reports on scaling-up mechanisms are produced by the SWITCH-Asia Network Facility and are available under www.and middle-term commitments and investment plans. Vertical scaling-up focuses more on organisations and frameworks at local. the Network Facility launched a process of analysis. regard finance as a supporting instrument. This report is the first part in the analysis of SCP scaling-up mechanisms and identifies interesting areas that can make a difference. SMEs all over the world benefit when they implement SCP strategies. most of all. Many tar- A geted by the SWITCH-Asia programme focus on improving energy and resource efficiency. and to a large number of consumer groups.html. In 2010. In such cases access to finance is crucial for making green growth a reality. bringing lasting impact to a wider geographic area than originally addressed. for green products. regional and/or national levels. The lessons learned can provide current and future project and programme developers with enriching information and tips on how to improve their impact by enhancing activities in the development and execution of projects with more effective A2F. Many Asian SMEs are challenged by the limits of their liquidity to meet short. In the last decade. This report assumes that even supporting activities can enable learning in how to plan. Five major areas emerged: • Engaging with service providers • Building partnerships with supply chain actors • Linking with policy-makers • Engaging with consumers towards ethical purchase and use • Enabling access to finance This report focuses on access to finance (A2F) for scaling-up SCP. Most projects focus on raising the capacity for cleaner production but when it comes to implementation. Projects apply their own approach to scaling-up. By late 2012 only a small number of SWITCH-Asia projects had recognised the importance of providing access to finance and were using it to leverage a shift in production practices. which focused on how these scaling-up mechanisms contribute to the effective mainstreaming of sustainable consumption and production (SCP) in society. SWITCH-Asia | ENGAGING with financing institutions for greening smes 5 . The SWITCH-Asia programme aims to take this one step further. leadership and. access to finance has been found to be key. involving both the direct supply chain actors as well as enablers such as government and financial institutes. therefore. a vast array of good practices on sustainable production and consumption have been developed and demonstrated.
equity financing (e. venture capital). Several barriers could be identified on both sides including: • Lack of financial literacy.Summary of main findings F inancial resources might be essential for their adoption of environmentally friendly practices and technologies by Asian small and medium sized enterprises (SMEs). these are mainly available as bank loans for clean energy or energy efficiency solutions.g. • Lack of financial transparency. there is still a mismatch between the demand and supply sides. • Banks require SMEs transparency. Venture capital and start-up funds are also entering the market and awaiting entrepreneurs. • Banks do not consider SME lending as profitable business. Despite the easily identifiable financing needs and a wide range of financing solutions in the market. SMEs have a wide range of financing needs as they set to green their business. green finance is a very leverage point for the upscaling of sustainable production practices. • Lack of effective channels and modalities for communication with credit providers for funding purposes.g. capacity-building on financial services). at various stages of maturity of SMEs.g. and enabling investment linkages. carbon finance). • SMEs lack collateral. tailored financial instruments (e. SMEs require working capital. Indeed. and supporting non-financial services (e. addressing banks – from awareness to technical assistance. for example to purchase environmentally friendly raw materials.g. commercial loans). These include: addressing the enabling environment for Access to Finance. institutional funding (e. who like to make an impact through financing resource efficient products and services. in the SWITCH-Asia Programme. In the medium-term. SMEs can find a spectrum of financing solutions in the market. • Poor marketing and communication by financial institutions. public grants).g. These could be grouped in six categories: debt financing (e. the role of the SWITCH-Asia Programme is to address the barriers on both sides with specific strategies. Experience from SWITCH-Asia has confirmed that in Asia both credit and equity financing solutions are available. When it comes to green funds. So. promoting financial solutions. leasing and factoring. • Services of financing institutions perceived too costly. In response to these needs. SWITCH-Asia | ENGAGING with financing institutions for greening smes 6 . increasing capacity of SMEs to access finance. SMEs need access to adequate financing for investing in eco-efficient equipment and clean technologies. In the longterm green financing would be needed for scaling-up the green business model to other regions and sectors. In the shortterm.
the MEET-BIS project invites a representative of a loan guarantee fund. the BiomassSP project envisions developing policy recommendations for a Biomass Action Plan. SMART Cebu project applies individual coaching to SMEs for attending their financial needs. Depending on the project. Their evaluation of SMEs’ performance is done purely on the basis of economic risk. At the same time. especially through the facility of soft loans. the fact that SMEs’ accounting records and financial statements are often neither clear nor evident. teams incorporate information on financial options in road shows. For example. SWITCH-Asia projects take various steps to enable communication between SMEs and financiers. SWITCH-Asia | ENGAGING with financing institutions for greening smes 7 . Strategy 2: Promoting Financial Solutions Most SWITCH-Asia projects that are currently addressing the topic access to finance are including the topic in raising awareness activities. Financing institutions have great potential to improve their risk management systems and processes with regards to SME ’s environmental projects. Low levels of financial literacy can prevent SMEs from adequately assessing and understanding different financing options. based on inputs from multi-stakeholders. Lack of business knowledge and management ability can increase financial barriers for SMEs. a speaker from international financing institution and a representative of a SME bank to exchange on financial services to enhance SME access to energy efficient technology. Strategy 3: Increasing Capacity of SMEs to Access Finance To succeed in getting financial resources. A concrete measure could include relevant economic instruments to promote the commercialization of biomass. Biomass-SP project presents available financing assistance for existing manufacturing biomass companies. Strategy 5: Enabling Investment Linkages To promote investments investors require more information about target SMEs. Often they have very limited knowledge on understanding environmental risk and lack the diagnostic tools to evaluate SMEs’ loan requests for resource efficiency and cleaner manufacturing projects. Few SWITCHAsia projects such as SCI-Pak focus on identifying potential opportunities to improve existing policies and making recommendations for new policy instruments for enabling financial access towards sustainable production. Most often observed approach among the SWITCH-Asia projects has been the explanation of the business case of resource and energy efficiency to banks. For example. In workshops and project exhibitions. Study tours for investors and matchmaking events were identified as the most common activities. or credit guarantee during the Road Shows.Strategy 1: Addressing the Enabling Environment for Access to Finance The regulatory framework plays a critical role in improving the financing landscape for SMEs. SME s need to communicate the business case for SCP to financial institutions and investors by showing them the competitive advantages of implementing SCP strategies in their operations. A good legal framework and financial infrastructure can set the necessary pre-conditions for enabling SMEs to access finance. For example. Strategy 4: Addressing Banks – From Awareness To Technical Assistance Investors and financing institutions base their financing decision on the expectation that the investment will bring about regular incomes. Another approach observed was to focus on advocating a particular policy instrument. awareness forums or workshops.
Support macro conditions needed At the micro level. Utilization or creation of supporting macro level conditions is also needed. There is still a lot of potential for integrating sustainability issues into the banking operations from procurement to credit risk assessment. If national development plans do make reference to goals for financing of clean technologies and/or enabling green SME financing. SWITCH-Asia | ENGAGING with financing institutions for greening smes 8 . SWITCH-Asia projects reviewed for the study have showed that many of them can be addressed as part of the on-going SWITCH-Asia Programme. However. there are still untapped opportunities remaining: Scale-up green credit lines and bank loans Credit financing solutions with a consideration of environmental.and supply-side factors. Even Development Financing Institutions (DFIs) that have a mandate to provide finance to the private sector for investments that promote development have not yet strategically mainstreamed sustainability issues into their operations. Improve understanding and information Improvement of SMEs’ understanding behind resource efficiency opportunities and their reach-out to information on available funds still remains to be both a big challenge and a great opportunity. Having supporting policy goals and environment programmes in place indisputably contributes to effective use of green funds for SMEs. the development banks would design and implement relevant financing products to serve these goals. Initial advice on reducing information deficits about resource saving options and detailed consulting on resource saving measures and investment options are essential. DFIs including development banks and local development agencies need to develop innovative financing solutions in response to the development goals set at the national and regional level.€ The challenge of getting access to finance for greening SMEs’ operations might be due to both demand. For example. whose primary goal is delivering social and environmental good. These services can be included as technical assistance or via consulting components in special SME funds. social and governance criteria along traditional financial metrics are still small in size. Bring impact investing to light Credit financing solutions are till now the most frequently observed category of solutions covered by the SWITCH-Asia projects. working on the opportunities behind supply and demand side of financing is essential but it is not sufficient. whilst also delivering competitive market returns. But what about other financing instruments that could be relevant for greening of SMEs? Other categories especially impact investment pillar deserve attention as it offers excellent opportunities for scaling-up sustainable consumption and production. Impact investing solutions concentrate on companies.
The third chapter of the study deals with the strategies that the SWITCH-Asia projects are employing to address A2F. above all in emerging markets. Therefore. The specific objectives of this thematic study are: • To gather an overview of financing needs of SMEs – especially those targeted by the SWITCH-Asia programme. enhances project activities. access to finance (A2F) has become an important topic on the international development agenda. beneficiaries. and from banks on the other hand. initial lessons are presented and opportunities identified for the SWITCH-Asia programme in the area of enabling A2F. Having finance available can allow a faster and wider replication of resource-efficient solutions that have a positive cost benefit ratio. • To provide an overview of financial solutions for SMEs. The SWITCH-Asia programme recognises that enabling A2F can catalyse the uptake of SCP practices in greater numbers across Asia. This study collects lessons learned from the SWITCH-Asia projects operating during 2012 that had activities linked to A2F. SWITCH-Asia | ENGAGING with financing institutions for greening smes 9 . The SWITCHAsia Network Facility conducted extensive desk research and interviews with the projects. environmental and social impact and why it is important to join hands in order to enable it. In the final chapter. and • To collect and compile initial lessons learned and solutions to financial challenges as implemented by SWITCH-Asia projects. It hints at approaches and methods used by selected projects to engage with financial institutions and policy-makers from the financial sector. A2F for small and medium-sized enterprises (SMEs) usually encompasses the availability. The second chapter looks at A2F from the perspectives of SMEs on one hand. The first chapter highlights the relevance of green finance for sustainable development. the chapter characterises a mismatch between demand and supply. accessibility. affordability and effective distribution of financial services. in turn. The study is divided into five chapters. and policy-mak- S ers in order to draw out the lessons. financial institutions. Based on the overview. Financial resources might be key for their adoption of environmentally friendly practices and technologies.1 introduction MEs play a major part in green economic development. It explains the areas where SME access to green finance brings about positive economic. This information will provide current and future project developers with enriching information and tips on how to improve the impact of projects by incorporating more effective A2F which. This chapter also provides an overview regarding the financial needs of SMEs and the financial solutions available to them. • To analyse the gap between financial needs and financial solutions.
gpfi. Improving their performance. Figure 1: Percentage of firms viewing access to finance as a major obstacle by firm size and country income group (Source: World Bank Enterprise Surveys 2006-2009) 45 40 35 30 25 20 15 10 5 0 Small (<30) Low Income Middle Income High Income Percent (%) Medium (30-99) Large (100 and more) Note: The Enterprise Surveys define small firms as having fewer than 20 employees and medium-sized firms as having between 20 and 100 employees. The SME Banking Knowledge Guide 2009. many SMEs are part of local and global supply chains. Studies indicate that the role of SMEs in an economy appears to increase with a country’s average income level. ranging from 2003 to 2009.org/ifcext/gfm. and investing in. (2010).nsf/AttachmentsByTitle/SMEBankingGuide2010-E. SMEs in developing countries are more likely to report constraints in accessing finance than SMEs in developed countries2 (see Figure 1). leasing and factoring instruments are mainly interested in doing business with SMEs that can deliver transparent accounts and show operational and market consistency to lower the risk of defaulting of loans. SMEs lack the ability to expand their capacity. With limited resources. they are an important source of employment and income generation for low-income groups. SMEs access to financial services is a crucial factor for economic development. Available at: www. According to the World Bank Enterprise Survey. Statistics by country income group are simple averages of the countries in each group. From the banker’s perspective. In Asia. A small number of staff might mean limited management capacity. Scaling-up SME access to financial services in the developing world. This might indicate that SMEs are themselves a driver of economic growth1. As such. The economic relevance of SMEs is even greater when informal businesses are taken into account. Available at: www. can help increase business.1 Access to finance – a driver for economic development SMEs play a major role in the economic and social development of emerging markets. equity financing. 1 2 IFC. Adopting. up-to-date and resource-efficient technologies requires financial resources – but financing SMEs is risky for banks and other financial institutions.org/sites/default/files/documents/G20_Stocktaking_Report_0. Financial institutions and investors who offer debt financing.pdf 10 . They face tough competition especially from larger enterprises that might be able to offer better deals due to their lower production costs. as well as that of local entrepreneurs. SMEs remain vulnerable. In society. Their size can limit their market approach.1. (2010). Especially in emerging markets.pdf IFC. with evident weaknesses.pdf/$FILE/SMEBankingGuide2010-E. access to financial services for SMEs frequently remains a challenge. and employment. Data are for the most recent year available for each country.ifc.
capacity-building on financial services). rent. where the SME signs a contract with a bank to receive a certain amount of money with the compromise of paying the borrowed amount back to the bank with additional market interest rates for the time span of the contract. factoring. middle-. In the case of equity financing. carbon finance such as through the Clean Development Mechanism (CDM). access to green finance could lead to investment in efficient equipment and services as well as in clean technologies so the SMEs can stay competitive in the medium term. etc. or by a third party funding). • Tailored financial instruments for energy and resource efficiency: arrangements with the energy and service companies (ESCOs) (from ESCOs’ internal funds or by the customer.). long-term financing primarily refers to market expansion. it is useful to examine what suitable financial instruments (products and services) might be available in Asian markets. Bank financing generally remains the most important source of external finance to SMEs. long-term green financing might mean scaling-up the green business model itself to other regions or sectors. loan guarantees. or in capacity building for staff in cleaner production practices.g. trade credit. to expand and innovate. venture capital and SWITCH-Asia | ENGAGING with financing institutions for greening smes 11 . SMEs need access to adequate financing for equipment and machinery – for its purchase. insurance. venture capital. mezzanine finance. Concessional loans are subsidised by public credit lines known as ‘public’ or ‘soft’ loans or grants. Micro-credits are small-scale loans for micro-enterprises. or long-term. Debt financing includes a variety of types of loans. From a sustainable production perspective. Looking at environmental performance. long-term. Equity financing includes private equity investments. middleand long-term financial needs of SMEs (See Figure 2): • Debt financing: commercial loans. which reduce the cost of interest. the magnitude of such investments is high and the returns. With this picture of temporal financial needs in mind. Finally. for example payroll. 1. • Institutional funding: public grants. in most cases. concessional loans. leasing. payment facilities).1. Typically.2 Financing needs of SMEs One of the strengths of SMEs lies in their ability to respond quickly to opportunities and to offer new goods and services as markets change. guarantees. and to have a healthy cash flow (access to bank credit. and complementary services for production processes such as water and energy. tax incentives. private equity is capital provided by private and/or institutional investors who assume an ownership stake in a growing SME for a limited period of time (commonly 5 to 10 years). In the short-term. such as a specific property to be pledged as a security for the repayment of the loan.3 Financing solutions Financing instruments can be divided into six broad categories according to the short-. • Equity financing: private equity. Commercial loans usually demand collateral. and • Supporting non-financial services (e. Debt financing comprises lending activities to SMEs. SMEs might favour micro-loans since micro-lenders do not necessarily require physical collateral. The life span can be short-. SMEs require working capital to cover the daily production and administration costs associated with running the business. or to open new subsidiaries in other regions because of the attractiveness of new market opportunities. venture capital. But to upgrade their processes. Thus. maintenance and repair. • Other financial instruments: leasing. an enterprise might want to expand its facilities to increase its production volume. they need access to financial services (credit. financial resources are needed to efficiently upgrade existing facilities. A green approach for enabling access to the necessary finance could be in the provision of finance for environmentally friendly raw materials. microcredit. For instance. In the medium-term.
A loan guarantee is a financial product available to SMEs for a charge as a partial substitute for collateral and track records. Factoring differs from a loan in three main ways. It focuses on the lessee’s ability to generate SWITCH-Asia | ENGAGING with financing institutions for greening smes 12 . Mezzanine loans are usually of shorter duration and are more expensive for SMEs. Institutional funding includes public grants. factoring is not a loan – it is an advance on an SME’s outstanding invoices. Leasing is based on the proposition that profits are earned through the use of assets. equipment.e.Figure 2: The spectrum of financing solutions for SMEs For example: • Commercial loans • Consessional loans • Micro-credits For example: • Private equity • Venture capital • Mezzanine capital Debt Financing Equity Financing For example: • Receivables management to improve short-term cash flows of SMEs • Contracts between two parties where the lesson provides an asset for usage to another party for a period of time. Venture capital is a long-term financing instrument leveraged by management and business development support (‘incubation’) to unlisted. international development organisations and foundations. equally high rates of return. Thirdly. in exchange for immediate money with which to finance continued business. for example. innovative. development financial institutions. Mezzanine capital combines characteristics of debt and equity financing. Factoring Supporting nonfinancial services For example: • Capacity building on financial literacy Tailored financial instruments For example: • Arrangement with Energy and Service Companies (ESCOs) (from its internal funds or by the costumer. vehicles. Firstly. to promote SCP practices. Other financial instruments include factoring and leasing. in return for specified payments. Leasing is broadly defined as a contract between two parties where one party (the lessor) provides an asset (machinery. rather than from their ownership. a bank loan involves two parties whereas factoring involves three (borrower – buyer. and/or property) for usage to another party (the lessee) for a specified period of time. fully or partly. especially in countries where the collateral regime and the information infrastructure are weak. or by a third party funding • Carbon Finance (CDM) mezzanine capital. Secondly. The difference is that investors are not granted ownership in the SME.factor). The guarantor will. Grants are financial contributions provided by governments. Factoring is a form of receivables finance whereby a business sells. or assigns its account receivables (i. Tax incentives including tax deduction and tax reductions seek to give special conditions to SMEs for specific purposes. leasing appears as an important complementary source of investment finance. the emphasis is on the quality of the receivables and not only on the SME’s credit worthiness. Investments are characterised by a high risk of failure but. and potentially high growth enterprises in an early development stage. in return for specified payments For example: • Public grants • Tax incentives • Loan guarantees Institutional Funding Financing Solutions Leasing. in turn. assume the debtor’s loan obligation in the case of default and this provides se- curity to the bank. Likewise. tax incentives. invoices) to a finance company (called a factor) at a discount. Grants can be provided for any purpose that the grantor and the grantee agree on. and loan guarantees.
+ Risk Capital Loan Finance Public Stock Markets Most availability of green SME financing SME revenue Bank Loans & Guarantees Formal Venture Capital Funds Seed & Early Stage Venture Capital Funds Family & Friends Business Angels Seed phase Start-up phase Emerging Growth Development – Pre-seed phase SME development stage + Figure 3: Figure 3: Availability of green financing solutions along different maturity stages of a SME Source: http://ec. Venture capital and start-up funds are also entering the market and awaiting entrepreneurs. which is fostered by the coming together of experts and different stakeholders from inside and outside the network. The linkage of performance and payment is commonly defined as ‘performance contracting’. and other. these are mainly available as bank loans for clean energy or energy efficiency solutions. largescale companies and carbon funds to meet project investment costs or to enhance project revenues. Carbon projects have become increasingly important since the implementation of the Clean Development Mechanism (CDM) under the Kyoto Protocol. both successful and unsuccessful. Cooperation between network members is essential for sustainable learning. and implement energy efficient solutions for public and private clients. When it comes to green funds. design.europa. they may finance (‘shared savings’) or assist in arranging financing (‘guaranteed savings’) for the improved operation of a client’s energy system. Networks. projects has confirmed that in Asia both credit and equity financing solutions are available. especially in the early stages of business development.eu/enterprise/policies/finance/financing-environment/index_en. The CDM encourages energy conservation and the adoption of renewable energy by issuing certificates for verified and recorded emissions reductions (certified emissions reduc- tions) that can be sold to governments. the remuneration of the ESCO depends on the amount of savings that their improvements are able to generate for the customer. for example. Carbon finance provides a funding opportunity that helps to reduce pollution and greenhouse gas (GHG) emissions by investing in renewable energy or energy efficiency improvements.htm SWITCH-Asia | ENGAGING with financing institutions for greening smes 13 . Experience from SWITCH-Asia. rather than on the balance sheet or past credit history. who like to make an impact through financing resource efficient products and services. access to finance remains a challenge. Supporting non-financial services can be essential for improving access to finance. These are private companies with technical expertise which assess. and in response to their particular financing needs (see Figure 3). at various stages of maturity of SMEs. This includes technology innovation. Tailored financial services also include carbon finance.cash flow from business operations to service the lease payment. The figure shows that. help to find and understand solutions by engaging different members in discussions and encouraging the exchange of experiences. ESCOs offer tailored financial services. Depending on the ESCO’s business model. In most cases.
They lack capacity for planning and budgeting their operations. the project Jute: An Eco-Friendly Alternative for a Sustainable Future in Bangladesh. Even the SWITCH-Asia projects that are not directly addressing the issue of access to finance report such shortcomings. these factors can be classified into two main categories: supply-side and demand-side. SWITCH-Asia projects try to address one or more of these issues. which make it difficult for SMEs to access it. it then becomes feasible for SMEs to access bank loans. reported that most SMEs targeted by the project say they lack access to finance. and several factors are at play in developing countries.4 The financing gap There is still a mismatch between the demand and the supply for finance. Encouraging and Implementing Sustainable Production and Consumption of Eco-Friendly Batik in Indonesia and Malaysia. As can be seen in Figure 4.1. This is very common in SMEs targeted by the SWITCHAsia programme. also considers that capacity on SWITCH-Asia | ENGAGING with financing institutions for greening smes 14 . especially green finance. Another project. The project saw a need to first strengthen financial literacy and business planning. Taking a facilitating role. With such capacity. But when analysing their situation. the project found that SMEs lack knowledge on costing and pricing. For example. Figure 4: The role of the SWITCH-Asia Programme in addressing demand and supply side barriers The demand side What are the barriers faced by SMEs? • • • • Lack of financial literacy Lack of financial transparency Services of financing institutions perceived too costly Poor marketing and communication by financial institutions • • • • • The supply side What are the barriers faced by financing institutions? • • • • SMEs lack collateral Banks require SMEs transparency Lack of effective channels and modalities for communication with credit providers for funding purposes Banks do not consider SME lending as profitable business SWITCH-Asia’s role Addressing the legal framework for A2F Promoting financial solutions Increasing capacity of SMEs to access finance Addressing banks from awareness to technical assistance Enabling investment linkages The demand side – what barriers face SMEs? Lack of financial literacy SMEs with limited administrative capacity often do not keep financial records and many have no sound accounting system.
However. and the SMEs cannot access finance from the banks. Some SMEs operate on the basis of two books. a proprietor. After interest rates. The SMART Cebu entrepreneurs consider such demands too stringent. the SMEs need to cover the costs for feasibility studies and transaction costs charged by the banks. or land. the Sustainable Production of the Biomass Industries in Malaysia: Optimising Economic Potential and Moving Towards Higher Value Chain (Biomass-SP) project finds that most of their targeted SMEs do not keep proper records and lack a sound management system. The majority of small and micro-enterprises targeted by SWITCH-Asia projects. found that SMEs lack information on the benefits and conditions of a bank’s financial solutions. This is the case in Pakistan where the SWITCH-Asia project. machinery. 150% or more of the loan value. They might ask for high amounts of collateral. Ultimately. nor do they have the knowledge for assessing cleaner production investments. profits) their loan application does not match their financial records. Frequently. lack corporate governance. SMEs are often not able or willing to pay such high fees. The SMART Cebu project found that often an entrepreneur of a targeted SME tended to make little distinction between the finances related to their business activities and those of their own personal household transactions. Services of financing institutions are perceived as too costly Often financial institutions offer loans only at high fees or interest rates. Lack of effective channels and modalities for communication with credit providers for funding purposes SMEs are often not aware of financial solutions provided by the banks. or her or his family. usually operates one micro-enterprise. banks do not accept a personal guarantor like many micro-financing institutions do. They also require financial statements and records but such documentation is also frequently lacking. In Malaysia. and this is a major hurdle for the banks. This could be the case of a non-transparent banking system – as the SWITCH-Asia project Mainstreaming Energy Efficiency through Business Innovation Support Vietnam (MEET-BIS) reports. Banks require SME transparency Most financial institutions and banks lack information on SMEs and their likely cash flows or credit histories. these banks with such physical collateral requirements will not accept the SMEs as clients. especially in the area of green finance. The supply side – what barriers face financing institutions? SMEs lack collateral When banks grant loans or credit.e. Therefore. the interest rates for a bank loan reach 15%. when these SMEs apply for a loan on the basis of their actual business (i. For SMEs in Vietnam. The banks then doubt the SME’s capacity to repay a loan. SWITCH-Asia | ENGAGING with financing institutions for greening smes 15 . The SWITCH-Asia project Sustainable and Cleaner Production in the Manufacturing Industries of Pakistan (SCIPAK) found that banks do not have the capacity to engage and inform SMEs on accessible financial solutions. so that profits are recalculated downwards to evade taxes. their decisions are mostly based on the availability of fixed assets as collateral.costing and pricing is essential for an SME’s profitable operation. financial services found at the bank are perceived to be too cumbersome and too time-consuming by SMEs. and reviewed in this report. for example. Many SMEs cannot provide collateral as they cannot dispose of equipment. Poor marketing and communication by financial institutions Poor marketing and ineffective communication between banks and entrepreneurs are major obstacles for SMEs seeking bank finance. Such management and non-transparent practices have led to SMEs being seen as risky borrowers and making them less appealing to lenders. Responsibility and Transparency (SMART Cebu) often suffer from bank demands for collateral. Lack of financial transparency In Asia. nor of the procedures to follow to gain access to finance. SMEs in the SWITCH-Asia project SMEs for Environmental Accountability. Sustainable and Cleaner Production in the Manufacturing Industries of Pakistan (SCI-PAK). The project offers such sessions for targeted SMEs in its marketing component.
The SMART Cebu project believes that banks do not fully understand the environment surrounding SME lending. Financing problems faced by SMEs are due to both demand and supply factors. green business ideas – especially in the commercialisation of biomass. SWITCH-Asia | ENGAGING with financing institutions for greening smes 16 . they are likely to consider lending as high risk. Smaller companies in Vietnam that want to invest in energy efficiency upgrades. They also do not appear to have appropriate tools to help them assess the risk of lending to SMEs for particular investments. In Malaysia and Vietnam. most financial institutions do not offer tailor-made services for SMEs. or major.000 solar water heater system. despite charging a premium on the interest because of the high risk and transaction cost. Limited competition for tailored services targeting SMEs As larger companies and their needs for investment offer better business. there is a shortage of innovative financial products addressing the needs of SMEs. could face an increased financial risk as a lender in case of default. such as a US$ 15. The MEET-BIS project in Vietnam found that banks are often not interested in serving SME clients needing small loans to boost SCP or energy efficiency. at the same time. Where credit evaluators do not understand the biomass business. have more difficulties finding a bank that finances such investment.Banks do not consider SME lending as profitable business Due to their size SMEs are often only looking for a small investment but banks do not find such small transactions profitable. These factors can be addressed by the SWITCH-Asia programme as illustrated by the following case studies. Many financial institutions across Asia do not make enough profit with SMEs as their sole. debt clientele. The weak capacity inherent in SMEs for drawing up business plans and developing business projections mean that banks find it difficult to assess profitability and. such as cleaner production measures. The SWITCH-Asia Biomass-SP project sees a problem with the capacity of banks. Due to the low degree of competition among banks for SME clients. Bankers are not familiar with the green technology market compared with mature market products such as mortgage loans. banks tend to do better business than by addressing SMEs. High operating costs for SME lending and contract enforcement remain an obstacle even at low default rates. Banks consider SME lending high risk Loans responding to financial requests from SMEs are often considered high risk by the banks. the project found that the banks lack relevant skills to evaluate new. By targeting the financial needs of larger enterprises.
Feasibility Study for ESCO development Envisioned training package on financial solutions Cooperation with ESCOs Cooperation with ESCOs Awareness Session with BMOs Awareness on resource and energy efficiency Addressing Banks – from Awareness to Technical Assistance SCP Awareness for banks (advocacy.2 Strategy Project SMART Cebu Biomass-SP Eco-friendly Bamboo SCI-PAK MEET-BIS Green Philippines Islands China Motor Challenge Which strategies and tools do SWITCH-Asia projects implement to close the finance gap? he SME finance gap is the outcome of a disparity between the needs of the SMEs and the supply of financial Institutions. a number of SWITCH-Asia projects are working towards closing the gap. exhibitions. Currently. Their activities can be categorized in the following strategies: Strategy 1: Addressing the Enabling Environment for Access to Finance T Strategy 2: Promoting Financial Solutions Strategy 3: Increasing Capacity of SMEs to Access Finance Strategy 4: Addressing Banks – from Awareness to Technical Assistance Strategy 5: Enabling Investment Linkages Table 2: SWITCH-Asia projects’ activities aiming at enabling access to finance for sustainable production in SMEs Addressing the Legal Framework for Access to Finance Promoting Financial Services Awareness raising among SMEs on financial options available Increasing Capacity of SMEs to Access Finance Providing financial literacy to the members of the BMOs and individual coaching Individual coaching for CDM project development. study tours. Reducing transactions cost for banks Inclusion of bank into training programme Institutional partnership with a SME bank SWITCH-Asia | ENGAGING with financing institutions for greening smes 17 . Multi-stakeholder dialogues Market-scan of financial institutions/solutions and integration of the info and financial institution representatives to the trainings. workshops) 1 2 3 4 Enabling Investment Linkages Match-Making by joint fora 5 Policy recommendations Promotion of Green for a Biomass Action Funds. Business Directories Round Table Building relationship with banks. Entrepreneurs Nurturing Programme (EUMBENP) Assisting to prepare Investment Plans Policy recommendations Promotion of CDM for enabling SMEs access to finance. Promotion of Plan including CDM economic instruments Match-Making online and offline platforms Match-Making: Investors Study Tour.
New financial mechanisms for SME implementation of efficiency measures should be established. Establishment of financial mechanisms suited for SMEs The SWITCH-Asia project Sustainable and Cleaner Production in the Manufacturing Industries of Pakistan (SCI-Pak) sets a focus on the enabling policy environment for promoting sustainable Production in the textile and tannery sector in Pakistan.2. and SMEs implementing innovative sustainability ventures. The SCI-Pak project conducted an assessment study to identify potential opportunities to improve existing policies under the framework of SCP. 2010). where borrowers provide accepted invoices (or receivables) as collateral to the commercial bank. A good legal framework and financial infrastructure can set the necessary pre-conditions for enabling SMEs to access finance. Options include venture capital funding for start-ups. In addition.1 Strategy 1 Addressing the Enabling Environment for Access to Finance The regulatory framework plays a critical role in improving the finance landscape for SMEs. SWITCH-Asia | ENGAGING with financing institutions for greening smes 18 . performance contracting is another alternative to promote energy and resource efficiency in Pakistan. From their analysis the SCI-Pak project concluded there are a great number of opportunities in the policy area increasing access to finance that would benefit SMEs to improve their production towards sustainable production. SME financing should be incorporated into the Annual Credit Plan of the State Bank of Pakistan. Financial institutions should be supported in designing and launching industry based program-lending schemes (SME Policy. 2007). In the study. This would enable risk sharing between the contractor. Programmes for credit guarantee and credit insurance agencies could provide the incentives as well as risk coverage for banks should be established. it was suggested that new financial mechanisms for SMEs undertaking the efficiency measures should be established. The study presented the existing legislation and identified opportunity areas that could benefit most from improvements on the goal of increasing sustainable production – with a focus on resource efficiency – in SMEs. that could be promoted by the State Bank as an alternative to collateral based lending (National Industrial Policy. transparent and competitive R&D grants should be provided and invoice based financing. According to the project partners. the bank.
Additionally. These activities were still at the planning stage when this study was written – so lesson learned will be obtained in 2013. With the “orientation session”. leading firms should sponsor a training unit within a public sector institute. 2010). The assessment study was used as background for an “orientation session” for policy makers on the Policy Framework for Sustainable Production (SP) in Pakistan. Policy Intervention via Economic Instruments The project Sustainable Production (SP) of the Biomass Industries in Malaysia: Optimising Economic Potential and Moving Towards Higher Value Chain (Biomass-SP) aims to develop the biomass industry based on the principle of sustainable consumption & production (SCP). biomass technologies and resource efficiency in Malaysia. SWITCH-Asia | ENGAGING with financing institutions for greening smes 19 . SMEs. Financial Institutions and Equipment Manufacturers. Such instruments will help policy makers to improve current fragmented government efforts in supporting the development of manufacturing of eco-friendly products. A concrete measure could include relevant economic instruments to promote the commercialisation of biomass. for instance. Firms should pay. seventy percent of the minimum wage to the worker with the remaining thirty per cent being paid by a government contribution payable through a training organisation directly to the worker.Another conclusion was that a wage subsidy programme should be established to support on the floor training of workers. the Biomass-SP project envisions developing policy recommendations for a Biomass Action Plan. The project intervenes with greater market access and green supply chain opportunities from the EU. the project sought to develop an agenda for the succeeding policy dialogue among different stakeholders from government. Participants will analyse case studies of the successful use of economic instruments addressing biomass and identify promising use of economic instruments in Malaysia. Malaysia has an abundance of biomass available and its full potential for commercialisation remains untapped. Business Associations. where trainees can be trained specifically on their machines and according to their requirements and standards (National Industrial Policy. To develop such instruments the project envisions conducting workshops which discuss the use of economic instruments in Europe addressing biomass issues. Ministry of National Disaster Management agreed to host and to lead the subsequent activities in policy arena. The project strategy includes the development and application of effective economic instruments that enhance SCP. Based on inputs from multi-stakeholders.
The project highlighted that bio-based companies are also exposed to incentives offered as well as venture capital opportunities. During the Road Shows the project presents the available funding mechanism.2. Depending on the project. The availability and accessibility of such information provides the basis for interaction between banks and SMEs. and also methodology to tap these opportunities in line with the 10th Malaysia Plan. Figure 5: Biomass-SP project interventions aiming to enable access to finance for SMEs Assumptions Strategy 1: Raise awareness of biomass SMEs Strategy 2: Link SMEs wit R&D Information on pricing and market is accessible and available SMEs are aware and know how to apply for access to finance SMEs innovate with local Research and Development knowledge Strategy 3: Address banks and financial institutions Access to finance for biomass ventures is accessible and available Strategy 4: Enable access to finance by coaching SMEs SMEs access private funds SMEs access Government funds and grants Strategy 5: Linking SMEs to EU Supply Chains Business models for biomass ventures are developed Local biomass R&D is commercialised Publicity on demo projects in media and internet SWITCH-Asia | ENGAGING with financing institutions for greening smes 20 . services and technologies. In its first year. Financial solutions for increasing biomass business were always part of the agenda of the road shows as according to the project’s analysis access to finance is a crucial bottleneck for the SMEs. teams incorporate information on financial options in road shows. especially through the facility of soft loans. The project seeks to invite Ministry of Science. To increase availability and accessibility of information on financial products most SWITCH-Asia projects that are currently addressing the topic access to finance are including the topic in raising awareness activities. The project also provides information on the various funding options and grant schemes by ministries under different agencies. awareness forums or workshops. the project conducts a series of road shows to raise awareness of the potential of commercialisation of biomass among hundreds of SMEs. Road shows create awareness in Malaysia At the heart of the Biomass-SP project is a complimentary training to strengthen SMEs’ financial. or credit guarantee. Technology & Innovation (MOSTI) / Ministry of Agriculture’s (MoA). Financial institutions present their available financing assistance for existing manufacturing biomass companies. technical and environmental compliance capacities to increase export competitiveness on biomass products.2 Strategy 2 Promoting Financial Services Banks need to provide information on the terms and conditions of their financial services to SMEs. The Biomass-SP project also provides SMEs with an overview of funding opportunities offered by the Malaysian Government Agencies.
grants offered by BiotechCorp for biotech projects status to present their financial solutions. the SCI-Pak project envisions establishing an “Energy and Resource Efficient (E&RE) Network” to address the financial needs of Small and Medium Enterprises. the purpose of this outreach exercise is to promote their training programme among biomass SMEs. To inform SMEs linked to the project about CDM. soft loans. With the seven Awareness Road Show Seminar. The workshops introduced technical presentation on writing the Project Design Document (PDD). the participants welcomed the appropriate momentum of the launch of the E&RE Network. Besides disseminating project information. there is a need to catch up with the world.536 and 1. The Biomass-SP project selects and coaches 50 SMEs to improve the business and environmental performance with various capacity building programmes and advisory advice. For that reason. Among the coaching services offered are: access to government grants. quick registration of the project with CDM executive board and on time completion of verification and issuance of CERs by the CDM executive board. Weak institutional capacity and a long project cycle are the reasons that have hindered the CDM penetration in local industry. and other project financing mechanisms (for more information see Strategy 3). The decision to develop such a network was taken together with the State Bank of Pakistan (SBP) and commercial banks at a round table. Pakistan is lagging behind the developing world to capture the carbon market. the SCI-Pak project presented case studies of different CDM projects in Textile and Tannery sectors in India. The SCI-Pak project organized three workshops to introduce business and industrial representatives to the opportunities of opting for Clean Development Mechanism (CDM). Green Technology Financing Scheme (soft loan for green technology projects). positive validation report. Pakistan has only 9 projects that have been registered by the CDM executive board while this number for China and India is 969 and 534 respectively. Pakistan has only 26 projects in pipeline for CDM while the same number for China and India is 2. The parties envision that E&RE network is based on a web platform that provides infor- SWITCH-Asia | ENGAGING with financing institutions for greening smes 21 . Malaysia Debt Ventures Bhd (debt financing based on project and non-collateral approach). the project managed to reach out to more than 800 stakeholders involved in the biomass supply chain. This scenario reflects the lack of awareness about CDM and scarcity of financial incentives.825 respectively. The CDM is an arrangement under the Kyoto Protocol which allows industrialized countries with a greenhouse gas reduction commitment to invest in initiatives that lessen emissions in developing countries as an alternative to more costly emission reduction measure. A quality PDD will ensure smooth validation. Info-Sessions on the Clean Development Mechanism in Pakistan Also the SWITCH-Asia project Sustainable and Cleaner Production in the manufacturing industries of Pakistan (SCI-Pak) promotes financial solutions. It was highlighted that Project Design Document serves as the basis for the CDM project evaluation by the CDM executive board. The round table concluded that the problem on access to finance in Pakistan was not the lack of financial resources but the lack of interaction tools and mechanisms to close the supply and demand of financial resources. Cradle Fund 500. which is the most important part of the CDM process. Malaysia Life Science Fund (VC Fund). Therefore. investment incentives.Development Corporation (MTDC)’s commercialisation of R & D funds. venture capital. SME Banks (soft loan for SMEs development). Network to increase access to information on financial solutions To promote financial solutions.
government organisations (Industrial equipment manufacturer) IEMS SMEs Consumers / Retailers Increased Energy and Resource Efficiency Figure 6: SCI-Pak project strategy on how to create a network to increase access to information on financial solutions mation on relevant E&RE policy intervention and additional financing opportunities directly tailored to SMEs willing to increase their energy and resource efficiency should also be a goal of the network. The commercial SME bank Plantersbank is a project partner and a project beneficiary at the same time. The project aims to transfer know-how through training workshops and coaching. the SWITCH-Asia project Mainstreaming Energy Efficiency through Business Innovation Support (MEET-BIS) promotes energy and water efficiency for SMEs by building the marketing and sales capacity of technical product suppliers. As project partner Plantersbank has the venue during the GPIoS training programme to promote their financing programme to the participating companies. Financial solutions as part of trainings. combined with a system of quality assurance and monitoring. In workshops and project exhibitions the project invited a representative of a loan guarantee fund.Provide information and knowledge IEMs provide technical solutions for SMEs Offer their products Educational and financial institutes. Whereas the focus of the awareness programme lies on energy efficient solutions. which are urgently needed to increase energy and resource efficiency of SMEs. sales training sessions. attracting more than 700 participants so far. Finally. the network should facilitate the transfer and development of technologies. The project has built capacity with the technology suppliers to serve the SME energy and water efficiency market through market research. The SWITCH-Asia project Green Philippines Islands of Sustainability (GPIoS) aims to minimise the environmental impact of SMEs in Metro Manila and the CALABARZON region. As project beneficiary Plantersbank is taking part of the training and is undergoing cleaner production audits together with many other SMEs from diverse sectors. Besides building capacity in the product supply chain. SWITCH-Asia | ENGAGING with financing institutions for greening smes 22 . a speaker of IFC and a representative of a bank to exchange on financial services to enhance SME access to energy efficient technology. (booths on) exhibitions. workshops and business club meetings. awareness programmes and exhibitions In Vietnam. seminars. financial solutions have also been part of the agenda. The project centres on workshops in cleaner production and individual consulting by experienced consultants. MEET-BIS aims to enhance SME access to finance for investment in energy efficiency by working with local financial institutions.
and introduces obligatory labelling standards for energy consumption of products The Law has also encourages the development of energy service companies (ESCOs). as well as monitoring and validation. Energy Service Companies (ESCOs) are a relatively new type of Service Company in China. Their aim is to improve the energy efficiency solutions. the SWITCH-Asia project China Motor Challenge facilitates improvement of the operating efficiency of electric motors in cooperation with ESCOs.Promotion of funds via Energy service companies For the green investment market to perform better. Energy service companies (ESCOs) are private companies with technical expertise. Over 400 major industrial users of electric motor systems have upgraded motors their systems. The MEET-BIS project in Vietnam targets technology suppliers. conducts cost benefit analysis or good feasibility studies. Upgrading of such electric Motors is financed by ESCO. SWITCH-Asia | ENGAGING with financing institutions for greening smes 23 . Although this provides a convenient mechanism for motor users to save energy and cost. energy service structures are still developing. financial and accounting. advising companies how to improve their energy efficiency. The Law on Energy Efficiency and Conservation came into effect only on January 1. who can supply know-how. Next to develop and design energy efficient. project and contract management. energy-savings and process optimization technologies. until a strong energy service structure is developed. ESCOs facilitate financing of energy efficiency project. In China. Currently several hundred ESCOs are operating country-wide. However. the concept of ESCO services is new so that in many sectors they have yet to gain trust. The law encourages the development of energy conservation technology and the production of energy efficient products. barriers and challenges need to overcome as technology supplier might underestimate the function of an ESCO especially when it comes to financing and the financial risk. and is paid a proportion of the energy savings achieved. For energy service providers to operate successfully in the market manifold skills are required including: business development and marketing. By training and building capacity of ESCOs. MEETBIS is currently assisting one of her partner companies with a pre-feasibility study for an ESCO. engineering. which assess. The typical arrangement in China is that the ESCO takes on all up-front costs of the energy audit and equipment purchase. equipment and financing to realize the upgrade. design and implement energy efficiency improvements for public and private clients. A number of these technology suppliers are interested in turning into Energy Service Companies to provide full service solutions to medium and large sized companies. the project links motor system users with ESCOs. the project China Motor Challenge project contributes to further electricity savings of industrial motor system users beyond the direct project impacts. To encourage motor user to upgrade to more efficient motors. agencies or institution that have knowledge and technical capacity on the technology and cost-saving potential need to help identify opportunities. 2011. In Vietnam. This contracting method is known as ‘Energy Performance Contracting’ and effectively reduces the risk for the customer.
the project aims to support companies with their business plans. which can lead to financial losses for many SMEs. the project aims to attend to the actual financial needs of the SMEs. In a second step. Recognizing the fact that Pakistani SMEs lack capacities for the reliable proper delivery of information to banks. In Pakistan. Philippines.2. In the first stage. SMEs need to communicate the business case for SCP to financial institutions and investors by showing them the competitive advantages of implementing SCP strategies in their operations. constituting about 30% of GDP.3 Strategy 3 Increasing capacity of SMEs to access finance To succeed in getting financial resources. the project has taken to two tier strategy. The project decided that providing detailed financial literacy input at the beginning of the project would be too abstract and only confuse the SME partners. The capacity building of SMEs can include providing technical and business support services such as training. SMEs constitute 90 per cent of businesses. Lack of business knowledge and management ability can increase financial barriers for SMEs. Low levels of financial literacy can prevent SMEs from adequately assessing and understanding different financing options. SWITCH-Asia projects can help SMEs overcome this burden by providing support and/ or capacity building. and loan application preparation. assistance in formalising financial statements. the project focused the workshops on to answer the following questions: How can BMOs support SMEs to deliver quality and relievable information for financial institutions? What are the capacities and technologies needed to ensure the collection and preparation of reliable data? The project developed guiding materials to show business membership organisation and SMEs how to identify the best financial instruments in order to reduce administrative costs related to the production process and to develop an effective and quality financial reporting through the elaboration of sustainable-oriented business plans. their business projection and application to the banks.aspx?fileticket=FOIowy5R2M4%3d&tabid=76 24 .sci-pak. the fact that SMEs’ accounting records and financial statements are often neither clear nor evident. which were identified in the cleaner production audits by the project. Lack of such financial literacy often results in poor planning. Pakistani SMEs lack of access to financial resources to support the implementation of E&RE-oriented strategies and achieve the appropriate upgrade of environmentalsound technologies. accessed under www. This understanding initially includes knowledge to take personal decision on finance and extends to questions of corporate governance. the project provided an overview on financial literacy topic including corporate governance and operational management to the members of the BMOs. Especially among small and emerging businesses the deficiency of the financial literacy is a challenge. In order to increase financial literacy. and generating one-fourth of the sector’s export earnings3. The project selected 50 small and medium enterprises (SMEs) to receive complimentary environmental and business coaching facilities related to biomass 3 SCI-Pak: Business Industrial Associations fostering the Access to Finances for Energy and Resource Efficiency Conceptual Material. In order to address SME the SCI-Pak project developed and disseminated in July 2011 two workshops on A2F in Karachi and Feisalabad with Business Member Organisations. With individual coaching. or chambers of commerce. business development services. SME associations. In this study financial literacy generally refers to the ability to understand finance. and/or inadequate accounting. Such services could be potentially provided by appropriate associations such as SME development agencies. Raising awareness on financial literacy The inadequate level of financial literacy constitutes a major constraint to the economic growth of SMEs in developing countries. playing a critical role in the manufacturing sector by providing 80 per cent of industrial employment. At the same time.org/LinkClick. The SWITCH-Asia SMART Cebu project aims to increase the competitiveness and sustainability of SMEs in three exporting sectors in Cebu in Southern. underestimating market volatility. The Entrepreneurs Nurturing Programme – coaching by Biomass-SP Also the Biomass-SP offers support to SMEs in its flagship initiatives the Entrepreneurs Nurturing Programme (EUMBENP). while medium and large enterprises are less likely to struggle with it.
the Biomass-SP project conducts a capacity building programme for SMEs to expose them to financing avenues available for biomass commercialisation. This capacity building programme is running parallel with EUM-BENP’s coaching activities. The Nurturing Programme is one of the core elements of the project. The coaching is provided at zero cost with expert consultancy services for the development of CDM projects from Project Idea Note (PIN) stage up to Project Design Document (PDD) stage. the SMEs could attend the needed awareness programmes or coaching on financial mechanisms. SMEs lack knowledge of financial solutions. EU green market access opportunities and pelleting/briquetting technologies and market opportunities. For businesses and SMEs. palm oil mill effluent (POME) methane capturing. biogas. The project was able to identify the type of biomass utilisation taking place. In this way.Obstacles identified SMEs are intimidated by banks. From the effort of constant outreach exercise and awareness of project branding. grant application opportunities. SMART Cebu conducts CP audits and provides recommendation to increase environmental performance including the specifi-cation of necessary investments. SMART Cebu partner ADFIAP conducted overview of financial literacy to the members of targeted business membership organisation that are part of the projects. As part of the Nurturing Programme. as well as to identify the type of assistance required from Biomass-SP. Biomass-SP has captured the attention of CDM investors.g. the SME’s capacity. The project knew from the start how the SMEs aimed to develop and what kind of financial investment were envision. The programme consists of a series of nine Capacity Building Programmes (CBPs) on subjects relevant to biomass commercialisation e. consultants and technology providers involving in co-financing or equity participation of Green Projects. economic benchmarking of biomass and biomass products. which implies that the project must demonstrate that it is additional to market activity that would have occurred anyway. The CBPs have been running parallel with EUM-BENP’s coaching activities. emissions reduction projects have to be registered in advance in the CDM Designated National Authority. SMART Cebu actions SMART Cebu partner ADFIAP conducts meeting and workshop to prepare dialogue sessions with banks. One important factor in realizing carbon value is the requirement of “additionally”. location and feedstock availability. The project BiomassSP offers direct coaching to projects that seek to tap the Clean Development Mechanism (CDM). SMEs do not know what technical upgrades are necessary and under. Table 3: The actions identified by the SWITCHAsia project SMART Cebu to address the challenges that SMEs have for access to finance supply and utilisation activities. The Biomass-SP project offers a coaching programme for SMEs who have business ideas to exploit the local biomass resources. The Biomass-SP project can facilitate CDM project owners by matching them with the available CDM project investors. CDM offers an alternative means of revenue for ‘green’ projects that includes biomass utilisation of renewable power generation. Clean Development Mechanism (CDM). SWITCH-Asia | ENGAGING with financing institutions for greening smes 25 .or overestimate investments. SMEs are confused with the different financial options on offer. In order to be eligible for certification. fuelswitching projects. and a application to get a loan for the required technical upgrade. Next to written applications the SMEs had to undergo interview processes. carbon footprint and sustainable consumption and production (SCP). Based on the technical recommendation after the CP audits SMART Cebu partner ADFIAP provide coaching for each individual SMEs how to prepare a business plan. Entrepreneurs tend to opt for zero interest solution offered by the local government even though these options funds equipment not required. The project has been selecting the SMEs in a detailed process. as well as bio-composting projects.
Vietnamese financial institutions such as TechComBank. as well as in terms of efficiency and management practices. there is little incentive for a bank to invest in something new. Financing institutions have great potential to improve their risk management systems and processes with regards to SME’s environmental projects. The market for financing EE projects perceived as small. Often they have very limited knowledge on understanding environmental risk and lack the diagnostic tools to evaluate SMEs’ loan requests for resource efficiency and cleaner manufacturing projects. the Swiss Development Cooperation (SECO) and Table 4: SWITCH-Asia project MEET-BIS' actionsaiming at enabling access to finance for sustainable production in SMEs MEET-BIS actions Obstacles identified MEET-BIS actions Energy Efficiency is beyond their normal business. how can the bank and the client be sure that the identified savings are realised? Explore possibilities of reducing transaction costs with a credit scoring tool. SME finance is often referred to as the “missing middle” in the financial services markets in emerging economies. Their evaluation of SMEs’ performance is done purely on the basis of economic risk. The sector is still underdeveloped in terms of its service offering to the population of Vietnam.4 Strategy 4 Addressing banks – from awareness to technical assistance Investors and financing institutions base their financing decision on the expectation that the investment will bring about regular incomes.2. or by grouping transactions • • • Support development of the Banks’s network of energy audit companies who can provide a second opinion Training bank staff on energy efficiency equipment and related quality standards Explore possibility of Energy Service Companies (ESCOs) targeting the SME segment SWITCH-Asia | ENGAGING with financing institutions for greening smes 26 . If the “business as usual” scenario offers profits and growth. Difficulties include lack of collateral and inadequate financial records. Market development requires an up-front investment. Banks prefer to lend to state-owned /large enterprises. Market research to build / explain the “business case” to the Bank. Building relations with the financial sector The Vietnamese financial sector consists of about a hundred banks – either state-owned. VietInBank and others have received capacity building support on energy efficiency finance and operate international energy efficiency credit lines extended by International Finance Cooperation (IFC). SME lending is not profitable because of high transaction costs Banks expressed their concern with the quality of energy efficient installations. private or foreign bank branches. There are several energy efficiency credit lines operational in Vietnam. which the commercial banks were not willing to make. it is not worthwhile for banks to develop a particular financial product. The problem that SMEs in Vietnam have in accessing financing for energy efficiency investments seem to be similar to SMEs in many other countries.
and limited capacity in the private sector to deliver turn-key solutions. the SMART Cebu project has already established Goals of financial institutions Adding value to their shareholders and increasing profits One alternative: Integral Systems for Environmental Management Recognition of sustainableoriented SMEs as a business driver Increase of internal resource and energy efficiency Integration of environmental risks management instruments The business case for E&RE Access to finance (A2F) strategies and instruments Figure 7: The structure of the SWITCH-Asia SCI-Pak project training targeting financing institutions SWITCH-Asia | ENGAGING with financing institutions for greening smes 27 . Raising awareness on SCP As Asia’s growing economies are putting pressure on natural resources. The MEET-BIS project works towards building relations and potentially partnerships with these financial institutions and the local private sector supply energy efficiency equipment. banks’ ability to adequately understand and appraise energy efficiency projects were very limited. reasons for under performance included unclear and/or very extensive application procedures.others. no performance incentive for the Vietnamese banks. On the one hand. During the workshop. In the SMART Cebu project. banks prefer larger projects than the smaller energy efficiency projects (energy efficiency product finance) that SMEs would need. banks and other financial institutions should take the environmental performance of SMEs into account when they take investment decisions. To increase the understanding of financial institution of SCP. ADFIAP provides support to SMEs and advocate with banks to green their financial services and adapt them to the needs of SMEs. When MEET-BIS kicked off. On the other hand. the project conducted a high level workshop in partnership with IFC. The MEET-BIS experts contacted banks and exchanged with them to explore how the project could contribute to building a pipeline of potential energy efficiency investment projects for the banks. As a second step. several SWITCH-Asia projects conduct activities to increase awareness of banks. Furthermore. Vietnamese technology suppliers and bank management discussed the barriers for SMEs to access finance and together looked for solutions to overcome the barriers (see Table 4). where technology suppliers had the chance to meet with key partner financial institutions. The SMART Cebu project consortium includes the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP). ADFIAP is offering expertise on sustainable financing mechanisms. The Landbank of the Philippines and the Development Bank of the Philippines are members of ADFIAP: Through their membership in the association. energy efficiency credit lines in Vietnam were highly underutilised.
With the training materials SCI-Pak also highlights the reputational/image benefits of EE/RE. The assumption is – once the development banks have adapted their services to green SMEs other banks will follow. On the other hand. Senior representatives of the project partners together with selected policy-makers and representatives of banks visited the Netherlands and Germany to familiarise themselves with how SCP is implemented in Europe. Explaining the Business Case of Energy Efficiency/Resource Efficiency (EE/RE) Banks are used to dealing with risks as all bank lending decisions are usually exposed to some degree of risk. SMART Cebu creates awareness with the banks on SMEs’ difficulties ranging from financial statement to providing collateral. According to the project both banks as development banks have a leading role in the market of financial institution in the Philippines. Learning from seeing – Study tours on SCP SMART Cebu promotes the benefits of sustainable production practices among SMEs to banks. Programmes promoting EE/RE offer better recognition in society and public in general. financial institutions also depend on the quality of the financial performance of their partners to achieve their goals. and trade show trends. The two banks targeted by the project joint a study tour to Europe in order to understand how environmental performance improvements can be quantified into economic savings. The project identifies these two banks as the entry point into the market of financial institution in the Philippines. It takes a twofold advocacy strategy: On the one hand. To reach out to additional financial institutions. As in every business. lower future compliance costs and better business opportunities with sustainability-oriented clients. SWITCH-Asia | ENGAGING with financing institutions for greening smes 28 . Banks face the challenge to price loans accordingly. cost-consciousness among employees. EE/Re attracts and retains customers and partners and attracts and retains good employees.contacts and relationship with the two banks. it promotes understanding of the banks on the issue of SMEs lending. The trainings package seeks to present the new business atmosphere for financial institutions and to introduce Integral System for Environmental Management as a strategy to rethink business model in financial institutions. green product design and innovations. The project built up close relationship with the two banks. Next to the proper treatment and use of natural resources in the SMEs the training points to banks to direct financial gains including cost savings. the SMART Cebu invited 28 participants from financing institutions including public and commercial banks and the Coalition of Socially Responsible SMEs in Asia (CSRSME) attended an executive briefing on sustainable consumption and production (SCP). The SCIPak project in Pakistan develops training materials for banks to increase banks understanding of the benefits of EE/RE. The consultation during the tour focused particularly on standards. Thus explaining the business case SCP is an important entry point to interest banks in financing green investments of SMEs. latest developments in the area of cleaner production. the outmost goal of this advocacy is to develop financial tools that are adapted to the needs’ of SMEs.
Optimally. the bankers showed keen interest in SCP and potential business opportunities. Sales agents deal with SMES on regular basis. The project envisions that if sustainability thinking is integrated into both SMEs’ and banks’ operations. knowledge and information being shared. According to the project. which balances economic. social and environmental dimensions provides banks and financial institutions the leverage to promote green principles and practices to existing and potential SME clients. Difficulties like lack of collateral or inadequate financial records. Financial Institutions are environmental conscious. and 3) assist eligible SMEs completing the loan application. 2) perform a first assessment of the creditworthiness of the firm. The project realized that there should also be a two-way communication between the SMEs and the financiers so that both will have a mutual understanding on the issues and risks involved. The project aimed to show that green technology may very well be the new driver for future economic growth. the project reported that more capacity building programmes need to be conducted for FIs and DFIs to improve their technical knowledge for funding feasible green technology projects. However. The project currently builds on partnerships between the technical suppliers and the banks. Participants also said that sustainable development issues like SCP. Understanding green technology The SWITCH-Asia project Biomass SP conducted a briefing session for financial institutions (FIs) and development financial institutions (DFIs) on green technology. the Technical Supplier submits ‘batches’ of e. During the SMART Cebu session. but also address the SMEs. SMEs need to know the risks involved when they venture into the biomass industry. which is later hoped to lead to a win-win agreement: Additionally. Reducing transaction costs The problem that SMEs in Vietnam have in accessing financing for energy efficiency investments seem to be similar to SMEs in many other countries. the MEET-BIS project cannot tackle in the current project set-up in a comprehensive manner. the session was a stepping stone and a good way to disseminate financial needs of SMES and SME’s potential growth. the project concluded that it is important to educate not only the FIs and DFIs on what they can do to help the green businesses to grow. It served as a platform for business opportunities to be made. and networks as well as friendships being formed. and the profitability of the energy efficiency investment.Banks in the Philippines require their borrowers to submit an environmental compliance certificate to show that they comply with the current legal framework. the project increase awareness of financial institutions and development financial institutions on the growing biomass industry in Malaysia and the increasing demand in the global market for biomass-based products. 10 completed loan applications of SMEs. and could in principle 1) provide information on existing SME energy efficiency credit lines.g. From the briefing session. economic growth would in itself become more sustainable. and arranges for sales agents to be trained in the credit application procedure MEET-Bis envisions sales agents to disseminate information on financial options SWITCH-Asia | ENGAGING with financing institutions for greening smes 29 . according to the project they lack understanding on how to effectively integrate sustainable consumption and production (SCP) thinking into their daily processes. At the event. To still support individual SMEs the project is currently exploring the option whether sales agents of technology suppliers can provide additional support to SMEs. and therewith make SME EE finance much more attractive to the bank.
China. the GPIoS project aims to build a series shining showcases of the participating companies within the network of the Planters Bank – on of the banks attached to the project with a memorandum of understanding. Meetings were also held with representatives from the construction and furniture sectors from within and without the province in order to assess potential sector-driven investment. weaknesses. The Investment Plan was widely disseminated to relevant policy-makers. with investment in semi-processing SMEs non-existent. the factsheets which contain the actual quantified environmental and economic savings are shared to the bank as shining showcases of the participating companies. legal restriction on timber favouring bamboo and available technical support. which provided a picture of current situation of Sichuan bamboo industry and provided useful information to investors for taking investment decision. With the investment plan the project strives to provide information to potential investors about the opportunities and risks of bamboo investments in Sichuan. sales staff is mostly technical experts with no background in business finance.by the local bank. To inform investors and banks about the sector the SWITCH-Asia project Sustainable revival of livelihoods in post-disaster Sichuan: Enhancing eco-friendly pro-poor bamboo production supply chains to support the reconstruction effort developed an investment plan for the Sichuan SME bamboo sector. Currently. MEET-BIS is also developing a set of tools that help the sales agent assess the costs and benefits of standardised SME energy efficiency products. but also of the investment flow whether a bank loan for energy efficiency will outweigh the credit costs (15% interest rate). The high-earning measures documented in their environmental reports serve as showcases for the benefits of cleaner production as well as to explain to banks and investors the potential of efficiency possible by implementing sustainable production practises. with quantified results including the Return of Investment. The show case series documents how companies participating in the ECO-SWITCH training have improved their environmental performance. The Investment plan highlights the factors that make Sichuan and the bamboo industry attractive for investments such as policy support (including tax deductions and exemptions. Additionally. The investment overview gathered basic information about the possibilities of bamboo including existing bamboo product specifications. The plan was developed upon consultation with local banks that helped to identify financing mechanisms. entrepreneurs of bamboo enterprises and investors. This serves as a business case for recommendations provided by the project. SWITCH-Asia | ENGAGING with financing institutions for greening smes 30 . which can be accessed by bamboo target SMEs. opportunities and threats. bank managers will get an in-depth understanding on what the ECOSWITCH approach is about. Show casing investment opportunities Lack of investment often a major factor responsible for SMEs slow growth. the plan assesses the current domestic investment climate for the sector and identifies strengths. Moreover. Therefore. This is also true for the bamboo sector in Sichuan. As the bank is also one of the beneficiaries of the project’s cleaner production programme. Delivering show cases to highlight the business case of SCP to banks The project Green Philippines Island of Sustainability (GPIoS) takes great care to document the success of the project’s intervention with company reports. At present. This tool will allow technical sales staff to assess the creditworthiness of the firm. However. only 10% of Bamboo SMEs in Sichuan receive any form of investment.
purchasers. Main topics of the meeting were: establishment of Credit Guarantee Scheme for SMEs and concessionary refinance scheme for modernization of SMEs. as well as larger semi-processing SMEs. which invited high-level representatives of around 12 local banks. The SWITCH-Asia project Sustainable and Cleaner Production in the manufacturing industries of Pakistan (SCI-Pak) brought banks and SMEs together to identify strategies to foster the communication and interaction between financial institutions and SMEs. financial institutions and Small & Medium Enterprises (SMEs) in facilitating SMEs access to finance (A2F) to undertake energy and resource efficient (E&RE) production. Next to business records such visits add another layer of information for investors to assess their risk and make decisions on conditions for investments.2. SCI-Pak started their roundtable by highlighting the business benefits of energy and resource efficiency for SMEs and financial institutions as they are measures to reduce the consumption of energy and resources and minimize waste and Greenhouse Gas emissions. and construction). the event was useful to inform banks about the different financial instruments developed by SBP for the modernisation of SMEs. flooring. The bilingual directory. The participants decided that awareness campaigns for SMEs should be launched at the grass root level to educate the masses regarding different financial instruments developed by State Bank of Pakistan for the modernisation of SMEs. Various projects have taken measures to bring them together. Creating joint platforms via Study Tours Study tours increase awareness of participants on SCP as shown earlier. The directory aims at increasing contact between target SMEs and potential investors from industry. The study tour is one part of action aiming at improving the investment climate for lenders. The cooperation was traduced in a workshop.5 Strategy 5 Enabling Investment Linkages To promote investments investors require more information about target SMEs. The SWITCH-Asia project Sustainable revival of livelihoods in post-disaster Sichuan: Enhancing eco-friendly pro-poor bamboo production supply chains to support the reconstruction effort invited over 40 investors. The SWITCH-Asia project Sustainable revival of livelihoods in post-disaster Sichuan: Enhancing eco-friendly pro-poor bamboo production supply chains to support the reconstruction effort produced a business directory. furniture. But study tours also enable investors to examine SME’s performance on operational level and inform investors whether to incorporate target SMEs into their own investment portfolios. in Chinese and English. Likewise. With the study tour the project increased the visibility of the sector and thereby improves investment conditions. Efficiency measures at the same time strengthen the economic performance and competitiveness of SME’s through cost reductions. The directory is divided into sections on different bamboo industries. The tour offered 7 bamboo SWITCH-Asia | ENGAGING with financing institutions for greening smes 31 . Creating dialogue between demand and supply One strategy to reduce the mismatch between supply and demand is to create stronger relationships between financial institutions and SMEs is to enable dialogue. and 4 directors of business member organisations and the representative of the International Finance Corporation. investors can experience SME’s management capacity and potential for innovation. SWITCH-Asia projects take various steps to enable communication between SMEs and financiers. with a focus on the main industries target by the action (board. financial institutions and Government. entrepreneurs and bankers to an Investor Tour to Sichuan province. The SCI-Pak project cooperated with the State Bank of Pakistan (SBP) to identify strategies to foster the communication and interaction between SBP. revision of regulatory framework for SME financing. conducting SME cluster surveys and financial awareness programs for SMEs. By visiting companies. collected information on contact details for SMEs along with their product range.
information dissemination on potential private and government lenders. Matchmaking between SMEs and investors is also part of the SMART Cebu project. a seminar on investment. and matchmaking activities between the participants and local bamboo-companies. The SWITCH-Asia project Sustainable revival of livelihoods in post-disaster Sichuan: Enhancing eco-friendly pro-poor bamboo production supply chains to support the reconstruction effort seeks to improve access to capital for processors. The tour provided a platform of external communication for Sichuan bamboo industry and drew more attention to industry. The first edition contains 60 profiles of Malaysian biomass companies and it is being updated progressively with further registration coming in (See figure 8). This Catalogue is circulated to various target groups via the network of the Supporting Organisations across Europe and Asia. The effort was a success: study tour participants reached a range of agreements of intent with Sichuan bamboo companies. biomass trading. The Business Matchmaking is open to 500 participants. technical assistance. The forms of interested received are fed into a matchmaking software and timetables for matchmaking meetings are formed. follow-ups are done. management contract. A prominent example is a session at the EU-Asia Biomass Best Practices & Business Partnering Conference 2012 organized by the project The Business Match-Making Session at the conference aims to establish business and technology partnership by arranging one-to-one business meetings between participating biomass companies from the EU and Asia regions to formalise long-term business partnership such as collaboration in public procurement. The process of matching investors with SMEs is one of the main features of matchmaking events as organized by various SWITCH-Asia projects. venture capital investment. During the tour participants gained a better knowledge of successful investment policies implemented to develop the Counties’ bamboo sectors. The project is aimed at increasing the competitiveness and Online Company registration Online Catalogue Set Meeting Meeting Schedule Figure 8: Online and OffLine Match-making as facilitated by the Biomass-SP project (Graphic adapted from Biomass-SP) SWITCH-Asia | ENGAGING with financing institutions for greening smes 32 . technology licensing.company-visits. After that. R&D joint venture. The EU Project Incubation Centre in Chengdu sends the profiles of the Chinese companies to the European companies about half a year before the Fair. As one of their activities the project partners provide matchmaking opportunities. 8 theme workshops. Business MatchMaking For investors identifying healthy investment opportunities can be a challenging process. The Biomass-SP project also uses matchmaking events to connect SMEs with investors. and across Asia and Europe. supply chain management in the bamboo sector and monitoring of environmental standards. financial institutions or other business partners in the supply chain. The matchmaking meetings are done at the EU-China Fair. manufacturing investment and contract manufacturing within the key priority areas of the Conference. over 20 industries from Malaysia. A complimentary softcopy of the Business Collaboration Profiles Catalogue is available on request. Project experts and potential investors got the chance to meet the Sichuan Forestry Department and local government officers.
The objective of this two-step strategy is to foster understanding of their respective roles and responsibilities. renewable energy and other environmental loans.Project activities with banks Project activities with banks to promote SMEs lending Project activities with SMEs Activities to increase SMEs financial literacy/corporate governance Awareness activities with banks on SCP Identification of Investments and coaching to prepare financial application Matchmaking Figure 9: SMART Cebu strategy for match-making productivity of Cebu SMEs. GPIoS will serve as a tool to increase profitability while being environmentally friendly. This partnership bridges the gap of the lack of SMEs to approach financial institutions and effectively access resources. making SMEs more bankable. energy efficiency. both parties need to increase their understanding of each other roles and needs. the project recognized there were still many obstacles for good communication. However. The goal of the forum was to SMEs of the lending facilities of both Bank of the Philippines (DBP) and Land Bank of the Philippines (Land Bank) for cleaner production. Before match-making between banks and SMEs takes place. it makes sense to meet at bank and request finance. Forming institutional partnerships with financial institutions. SMEs Matchmaking during Biomass-SP conference need to identify their investment needs and prepare business plan and business projections. The collaboration includes promoting awareness and compliance of Filipino Entrepreneurs on local and national legislation and policies involving sustainable production and consumption. GPIoS and Plantersbank share a common goal of promoting sustainable development. SMART Cebu organized a “Green Finance Forum”. Only when they reach this point. The project therefore adapted its strategy (see figure 9). SWITCH-Asia | ENGAGING with financing institutions for greening smes 33 . It involves heightened use of technology-based assessment and environmental trainings for participating SMEs. The forum offered the option for one-on-one (bank-to-SME) meetings on the specific financing needs as well as the loan terms and requirements. The banks need to realize the business case of SCP and to understand how SMEs operate and how banks can support them. Over 30 participants attended the forum. banks did not understand the intricacies of SMEs lending. Plantersbank with the GPIoS implementing partners will attract more pro-environmental investors and transactions and a well-founded public-private partnership. banks and investors Partnerships with banks and investors The SWITCH-Asia project Green Philippines Islands of Sustainability (GPIoS) signed a partnership agreement with Plantersbank. SMEs were intimidated by banks demands.
developing new financial products and offering special financial package e. The scheme aims to create new textile parks of international standards at potential growth centres by engaging a panel of professional agencies for project identification and execution. The SusTex project provides research. for example. The project partner SME Bank will involve as the main coordinator in analysing existing loans. SWITCH-Asia | ENGAGING with financing institutions for greening smes 34 . the Government launched the Scheme for integrated Textile Parks (SITP). A public-private partnership between the Government of India and textiles manufacturers organized in the Jaipur Integrated Texcraft Park Private Ltd (JIPPTL) provides funding for the infrastructure. The project that only started with a kick off meeting at the time of writing of this study. Under the project. The SWITCH-Asia project Sustainable Textiles for Sustainable Development (SusTex) made use of the Scheme for integrated Textile Parks.g. Banks can for example be involved as associate partners in SWITCH-Asia projects. envisions developing financial products SMEs that invest in the environmental friendly production. The project includes issue of access to finance has in a work packages that aims to harmonize and implement SAME specific financial support packages. the Association of Development Financing Institutions in Asia and the Pacific. Engaging in Public Private Partnerships Public private partnerships are a funding option that can be utilized in times of economic uncertainty and in periods of prosperity. The SITP targets industrial clusters and locations with high growth potential that require strategic interventions to improve their competitiveness. ADFIAP. Manila function in the project as the focal point of all development banks and other financial institutions engaged in the financing of development in the Asia-Pacific region. ADFIAP is active in the ‘greening’ of the financial sector and is a good advocate for organizing financial support to the Cebu Home and Lifestyle sector. The SWITCH-Asia project Greening Supply Chains in the Thai Auto and Automotive Parts Industries includes a bank as partner in the project consortium. The SMART Cebu project linked the financial sector to the project by involving ADFIAP in the project consortium. Project costs cover common infrastructure and buildings for production and other support activities. a model eco-friendly textile park is being established which will set an example to the other approved textile parks across India. low interest rate. The key project strength is the buy-in of the JIPPTL members.Financial players as project partners Projects can already make the link to financial institutions already during the project design stage. In India. knowledge and capacity to entrepreneurs and workers. The public-private partnership ensures the acceptance of the eco-park model. defining qualified SME to loans offered.
Green Schemes etc. business angels. World Bank. Most projects are raising awareness on SCP and/or SME lending with banks. However. The majority of projects reviewed for the study disseminate financial solutions – from green government funds.3 Project SMART Cebu Biomass-SP What lessons have been learned by SWITCH-Asia projects? ctivities implemented by SWITCH-Asia projects range from addressing the legal framework of Access to Finance to addressing banks or SMEs respectively. the majority target state banks. ADB) Micro-Credit State Banks Other FIs Retailers . In all cases it has shown that building relationship with financial institutions is crucial to be able to draw the attention of bank credit officers. Engagement with other possible sources of finance such as local (governmental) funds. All projects addressing access to finance matter envision to create financial tools in one way or the other. none of the project addresses the topic of risk assessment A and criteria of credit evaluation. Out of the 8 projects reviewed for this study. Only a minority of the projects started from 2009 and 2010 are addressing the issue of access to finance. to funds available under the Clean Development Mechanism. Some projects add individual coaching for SMEs to their awareness activities. Table 2 gives an overview of enabling access to finance activities of SWITCH-Asia projects. In most cases they informed banks on the business case of SCP and energy efficiency. Where projects did have the opportunities to build bankers’ capacity on the benefits of green technologies. venture capital funds and value chain financing solutions are underutilized at the current state of the programme (Figure 10). 35 Market Mechanism (CDM) Commercial Bank Financial Service Providers Venture Capital Eco-friendly Bamboo SCI-PAK MEET-BIS Green Philippines Islands China Motor Challenge SWITCH-Asia | ENGAGING with financing institutions for greening smes (including IFC. venture capital. to bank loans. the projects also mentioned this has been a gigantic task requiring time and has had Table 5: Summary of financial Institutions targeted by SWITCH-Asia projects in 2011 Technology Funds.
case-by-case training does not enhance scaling up of SCP. Impact invest- SWITCH-Asia | ENGAGING with financing institutions for greening smes 36 . understanding of sustainability in SMEs. In this way. however. This finding points to the fact that banks need further technical assistance in the field of environmental risk assessment.g. water supply and sanitation). Supply side: Bring impact investing to light In the SWITCH-Asia Programme. Impact investing solutions concentrate on companies. In order to diversify financial products and enhance effectiveness of the distribution channels. there are still untapped opportunities remaining. Availability of information is key for credit financing. 2012). But what about other financing instruments that could be relevant for greening of SMEs? Other categories (see Figure 10) especially impact investment pillar deserve attention as it offers excellent opportunities for scaling-up sustainable consumption and production. capacity building efforts targeted at financing institutions could include greater reliance on credit information systems. There is still a lot of potential for integrating sustainability issues into the banking operations from procurement to credit risk assessment. A success factor in many project activities was that they took a catalyser role and acted as an intermediary.3. renewables. These could be targeted more at short-term working capital needs. waste. Individual coaching is often necessary. SWITCH-Asia projects reviewed for the study have showed that many of them can be addressed as part of the on-going SWITCH-Asia Programme. DFIs have also a coaching role for industries (often SMEs) and retail banks (distributing funds) as they run technical assistance programmes to enhance the effectiveness of their financial products.and supply-side factors. Activities addressing SMEs vary according to the capacity and size of SMEs targeted by the projects. whose primary goal is delivering social and environmental good. There is still a lot of potential for greening DFIs’ funds targeted at SMEs in manufacturing and service sectors. social and governance criteria along traditional financial metrics are still small in size.1 the initial requirement of awareness raising on the business case of sustainable production financing for SMEs. capacity building among financing institutions on green technologies and sustainable production approaches remains essential. and upgrading facilities in the long-term. But these funds are often for large and medium sized green technology infrastructure projects (e. Even Development Financing Institutions (DFIs) that have a mandate to provide finance to the private sector for investments that promote development have not yet strategically mainstreamed sustainability issues into their operations. credit financing solutions are till now the most frequently observed category of solutions. Opportunities The challenge of getting access to finance for greening SMEs’ operations might be due to both demand. Many project provided the linkage or bridge between the entrepreneurs and the financial institutions. None of the financial institutions targeted by the project reviewed for this study actually offers a financial solution that is driven and shaped by the needs of SMEs. However. Hence. and SME risk scoring and competitiveness benchmarking. etc. these technical assistance programmes are ideal mediums to set-up capacity building programmes on sustainable production. whilst also delivering competitive market returns (Avantage Ventures. Supply side: Scale-up green credit lines and bank loans Credit financing solutions with a consideration of environmental. equipment and machinery finances in the middle-term. Many DFIs have clean energy infrastructure financing schemes.
Business angels. Indeed.g. governance metrics • Sustainability thematic products as defined by the Megatrends Sustainability theme Profit (Only financial return) Charity (Only social return) ments aim to generate reasonable financial returns while solving social and environmental problems. Create industry-defining funds that can serve as beacons for how to address social and environmental issues.Figure 10: Categories of financing solutions for SMEs: Philanthropy Services. private equity impact investors are not effectively spotted by the SWITCH-Asia projects (except few such as Bamboo in China and Biomass-SP in Malaysia) despite their potential to invest in set-up of green equipment by SMEs. sustainable design processes within companies and integrating social enterprises into global supply chains. Business membership organisations and Chambers of Commerce having an intermediary position and service provider role could deliberately target impact investors and draw their attention to sustainable production efforts of SMEs and their financing needs. which is called as the ‘missing middle’. So far. These solutions have been a result of gradual merging to the middle from purely socially driven activities as well as from purely profit-driven investments. social venture capital funds. Impact investment has become a recognisable area in development in the Asia-Pacific region. Impact Investments and Sustainability Investments (Adapted from: Credit Suisse. Lobby for specific policy/regulatory change (Monitor Institute. Develop impact investment networks. This type of financing could potentially respond to the financing needs of SMEs from USD 500 000 to USD 3 million. In addition. identification and evaluation of target enterprises is one of the identified the challenges for the growth of impact investing (see Figure). Trust and Foundations) impact investments Objectives: Social/environmental support and change combined with moderate financial return Solutions: • Microfinance • Investment in sustainable enterprises • Values-based investment green investments Objectives: Maximize risk-adjusted financial return via sustainability trends Solutions: • Limiting investments to companies performing against environmental. social. Avantage Ventures (2011) report estimates an investment opportunity of between $52 billion and $158 billion within Asia-Pacific. Launch and grow dedicated impact investment banking capabilities. impact investors might not always be aware of the SCP tools and instruments. so SWITCH-Asia | ENGAGING with financing institutions for greening smes 37 . some foundations and specialized impact investment funds are part of this growing market. Monitor In- stitute (2009) suggests a range of actions to accelerate impact investing including: Set industry standards for social and environmental impact measurement (metrics). 2012) philanthropy services Objectives: Social/environmental support and change through charitable donation Solutions: • Philanthropy Donations • Venture philanthropy • Programme related investing (e. 2009).
e. other innovation solutions such as crowd funding are approaching at this end. Therefore. below market interest rates) SWITCH-Asia | ENGAGING with financing institutions for greening smes 38 . Solutions on the charity end of the financing spectrum could also be relevant for scaling-up the activities of small enterprises in Asia. A customer who is investing up front into a product is also most likely to talk about his investment. crowd funding also includes communication about the product (Start Green Ventures. 2012a) Main restrictions for the implementation of corporate energy savings measures Financial constrains and Lack of information “Special Fund for Energy Efficiency in SMEs” Component “Consulting” (grant for energy efficiency advice) Component “Consulting” (grant for energy efficiency advice) Initial advice Reducing information deficits about energy saving options Detailed consulting In-depth energy analysis of energy saving measures and investments. savings potential and cost effectiveness Broad-scale financing scheme with a special focus on SMEs Confirmation by independent energy efficiency consultant and risk adjusted interest rates (i. Initial advice on reducing Figure 12: Increasing awareness and access to information necessary on the demand side: The Case of Energy Efficiency Funds of KfW (Source: KfW. Demand side: Improve understanding and information Improvement of SMEs’ understanding behind resource efficiency opportunities and their reachout to information on available funds still remains to be both a big challenge and a great opportunity (KfW. He pointed out that crowd funding is not only a new way for investors it also already established close relation with the customers who is already investing into a product. Besides grants and sponsorships. family size businesses in the handicraft sectors could benefit from financial solutions at this side of the spectrum. Especially small. 2012a). 2012). 2011) capital fundraising investment deal sourcing Difficulty Identifying and Evaluating Target Enterprises • Unclear understanding of “social enterprises” • Lack of data • Language barriers • Disconnect between social enterprises and investors post-investment portfolio management Challenges in Managing Portfolio Management • Difficulty in benchmarking social and environmental impact • Weaker management capabilities and talent Weak Social Infrastructure • Lack of social engagement • Weak government support • Fragmentation of players there is still awareness raising to be done on the environmental and social improvements and financial value SMEs could create by utilizing them. Set-up and coordination of common language platforms would be needed as well.Figure 11: Challenges faced by impact investors in the investment process (Source: Avantage Ventures.
com/impactinvesting Start Green Ventures. informational. new technologies.com/sitedocs/av_report_final_full_screen_version. Financial and Private Sector Asia at the Workshop ‘How to finance greening of SMEs?’ Available at www. Having supporting policy goals and environment programmes in place indisputably contributes to effective use of green funds for SMEs (KfW. 2012. 2012a. Investing for Impact. Service providers could play a critical role in the development and management of technical assistance and consulting components of SME funds. the development banks would design and implement relevant financing products to serve these goals. tutorials and glossaries that could help their members to grasp savings potentials. “Green Equity Financing Solutions for SMEs” presented by Coenraad de Vries. SWITCH-Asia Programme can play a role. These services can be included as technical assistance or via consulting components in special funds for SMEs (see Figure 12) (KfW. 2010. Avantage Ventures. The SME Banking Knowledge Guide. 2009. 2012b). the technical assistance components could easily make references to those. ‘Finanzielle Zusammenarbeit zur Förderung von Effizienztechnologien in Entwicklungsländern’ presented by Felicitas Birckenbach at the Workshop ‘Ressourceneffizienz in der Wirtschaft – Aktuelle und künftige Rolle der EZ’ Monitor Institute. 2012b.html SWITCH-Asia | ENGAGING with financing institutions for greening smes 39 . Investing for Social and Environment Impact. A design for Catalyzing an Emerging Industry. Accessed under www. Business membership organisations could be partner with these funds and help to develop trainings. 2009.) do make reference to goals for financing of clean technologies and/or enabling green SME financing. Poverty Reduction Strategy Papers.eu/switch-info/event-announcements/switch-asia-networking-events/financing-is-a-key lever-for-change/session-i-taking-stock-latest-trends-financing-solutions. Yvonne Li’s Presentation. www. Scaling-Up SME Access to Financial Services in the Developing World. “Scaling-up: Efforts and Lessons Learned till Now” presented by Barbara Schnell. 2012. voluntary. 2012a). Especially the SWITCH-Asia Policy Support Component can pay attention to this link.credit-suisse. Beyond the Margin Executive Summary. If national development plans (National Action Plans.html KfW.eu/switch-info/event-announcements/switch-asia-networking-events/ financing-is-a-key-lever-for-change/session-i-taking-stock-latest-trends-financing-solutions. DFIs including development banks and local development agencies need to develop innovative financing solutions in response to the development goals set at the national and regional level. Beyond the Margin: Redirecting Asia’s Capitalism.avantageventures. etc. https://infocus. Managing Partner. Division Chief.pdf/$FILE/SMEBankingGuide2010-E.monitorinstitute. How Social Entrepreneurship is Redefining the Meaning of Return.information deficits about resource saving options and detailed consulting on resource saving measures and investment options are essential.org/ifcext/gfm. references Avantage Ventures. Support macro conditions needed: Regulatory infrastructure and multi-stakeholder support At the micro level. 2011.pdf IFC.pdf Credit Suisse.switch-asia.com/data/_product_documents/_shop/336096/investing_for_impact. working on the opportunities behind supply and demand side of financing is essential but it is not sufficient. 25th April 2012. IFC. etc.nsf/AttachmentsBy Title/SMEBankingGuide2010-ByTitle/SMEBankingGuide2010-E.pdf KfW.ifc. investment options and most importantly financial terminology. For example. 35th ADFIAP Annual Meeting. A package of resource efficiency enhancing policy instruments (regulatory.switch-asia. if standards on best available technology are in place. For example.) can also provide an excellent framework for effective functioning of SME funds. Utilization or creation of supporting macro level conditions is also needed. Start Green Venture Capital at the Workshop ‘How to finance greening of SMEs?’ Available at www. www. 2012.
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