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Description

In March 2021, the AfDB, in partnership with CIF, commissioned the Coalition for Green Capital (CGC) to conduct a feasibility study to set up National Climate Change Funds and Green Banks, which can scale up climate finance in Africa. It assessed the country-specific market readiness, financing requirements and challenges to set up green banks and NCCFs and fund priority sectors like renewable energy and climate-smart agriculture in six countries: Ghana, Zambia, Tunisia, Mozambique and Benin. The work is intended to lead to a proposal to the GCF to fund green banks and NCCFs in Africa.

Green Banks (or Climate Finance Facilities) are national, country-driven, dedicated, catalytic financial institutions designed to address domestic market gaps, take ownership of climate finance and crowd-in private investments in low carbon and resilient projects. The study concluded that Green Banks in combination with NCCFs have a strong potential to mobilize private sector investments in all six countries, by creating innovative instruments to blend grants and commercial capital to suit the local market needs.

The Climate Finance Facility (CFF) of the Development Bank of Southern Africa (DBSA) is a specialized lending facility pioneering the green banking model in developing countries. It will address the challenge of increasing private investments in the Southern African Development Community (SADC) region i.e., South Africa and other Rand-based countries, including Namibia, Lesotho, and Eswatini. It will provide credit enhancement ($5M to $10M) focused on first loss or subordinated debt and tenor extensions (up to 15 years) to infrastructure projects that demonstrate climate mitigation and adaptation benefits, especially projects which are commercially viable but cannot attract market-rate capital due to specific financing barriers. The CFF raised an initial $110 million, with DBSA and the GCF as the two anchor funders. DBSA provided low-cost debt ($55 million). Both DBSA and GCF provided grant funding of USD 610,000. The CFF will invest local currency (Rand) into projects with the aim of attaining a leverage ratio of 1:5.

Another NCCF, the Rwanda Green Fund (FONERWA) already exists with seed capitalization commitments of USD 37 million from FCDO-UK, USD 8 million from KfW and USD 5 million from UNDP. This fund has invested around USD 40 million in 35 projects in Rwanda through several investment products, including grants, innovation investments, and credit lines. Another new facility which will use a green bank approach is the Rwanda Catalytic Green Investment Facility (RCGIF). RCGIF is under development by AFDB in partnership with the government of Rwanda. The initial support is being provided by the UNDP and Nordic Development Fund. It will utilize blended financing structures for not-yet-bankable projects through two windows: 1) within the Development Bank of Rwanda (BRD) to provide direct loans and lines of credits and 2) a project preparation facility (PPF) at the Rwanda’s Green Fund (FONERWA) to provide grants to increase the bankability of projects.

 Relatively high-risk appetite Risk Appetite

Relatively high-risk appetite.

 Regulatory/legal mandate to embed climate change in investment decisions Climate Mandate

Presence of legal/regulatory frameworks to embed climate change in investment decisions.

 Restricted funding sources and limited ability to leverage funds Ability to Raise Funds

Limited mandate to embed climate change strategy in investment decisions; climate harming investments prohibited.

 Ability to determine funding mandate, with some limits Flexibility to Deploy Funds

Ability to determine funding mandate and flexibility on types of vehicles, with some limits on one or both.
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This project has been developed in partnership with the Global Center on Adaptation

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