The potential for renewable energy and energy efficiency investments in both Colombia and Peru continues to be substantial. Still, small and medium-sized enterprises (SMEs) face mainly regulatory and financial constraints for investments in energy-efficient technology. Generally, lending (supply of financing) to Colombian and Peruvian SMEs is still limited in terms of quantity and bound by quite unfavourable terms and conditions. There are various reasons for this: lack of credibility and creditworthiness (side of SMEs) and the inability of banks to forecast the development of their businesses, among others.
The demand for financing from SMEs in Colombia and Peru is strong, but it is focused on funding general-purpose (e.g. trade finance, working capital, general investment loans, etc.). There is little active demand for energy efficiency financing due to a general lack of knowledge among SMEs about the benefits of energy efficiency investments, and short-term management thinking and decision-making, further compounded by the premium pricing of efficient technologies.
Consequently, as banks are demand-driven businesses, the supply of financing for renewable energy and energy efficiency is also limited, driven by international financial institutions and donors, and mostly targeted to large and medium enterprises. Existing green credit lines are mostly targeting larger infrastructure projects, and there is so far no other green finance offer directed at SMEs.
This project aimed to develop a detailed design for a new program for Colombia and Peru that can mobilise investments of SMEs in more environmentally efficient technologies through the Swiss State Secretariat for Economic Affairs (SECO)‘s Green Credit Trust Fund (GCTF).
SECO took a pioneering role in supporting green investments through its GCTF in Colombia (2003) and Peru (2004). The GCTF’s purpose is to promote cleaner industrial production methods by encouraging SME investment into cleaner technology and production through a combined system of guarantees and partial reimbursement of capital. However, the dynamic of the GCTF was very uneven over time: it depended on partner’s regional focus, industry cluster dynamic and word of mouth, commitment and competition among banks.
The GCTF Colombia ended in 2016, and the GCTF Peru in 2018. While several adjustments were made throughout the course of the GCTF, today’s operational set up is outdated, the number of partner banks is limited. Thus, the project primarily focuses on the transaction/supply side but did not achieve sufficient scale.
BASE is developing a detailed design for a new program for each country that can mobilise investments of SMEs in more environmentally efficient technologies. The design is considering the discussions and recommendations of key partners, and an assessment of the financial conditions and exit strategy (long-term sustainability). BASE is also developing a green credit guarantee and a green payment guarantee that aims to mobilise and facilitate access finance.
