Colombia , Peru , Vietnam

Strategy Review of the SECO Green Credit Trust Fund in Colombia, Peru and Vietnam

EXPERTISE : , Financing Mechanisms
SECTOR : , Industrial

client

SECO – State Secretariat for Economic Affairs

project description

The GCTF is a financing instrument for promoting SME investments into cleaner and more resource-efficient industrial production methods (industrial plant and equipment) in Colombia, Peru and Vietnam, with the objective of showing the financial attractiveness of such investments and raising awareness about green credit among local banks. On one hand, the GCTF facilitates access to finance for SMEs with insufficient collaterals by guaranteeing 50% of the credit. On the other hand, the GCTF reimburses the SME 25% of the investment costs, if it succeeds in cutting the environmental emissions by 50%. If the SME only succeeds to cut 30% it is reimbursed 15% The environmental improvements to be achieved as well as the indicators are determined and subsequently verified by the respective Cleaner Production Centers (CPC). The green credit is provided by local banks, which serve as creditors and direct implementing partners of the GCTF, and ideally as promoters of the GCTF. The CPCs play the role of promoters and environmental and technical advisors to the SMEs. The other player is the trust fund administrator, which issues standby letters of credit after having received the corresponding instructions from SECO and transfers the money to the banks, depending on the case. In Vietnam, if the credit exceeds USD 200, 000, a reference centre based in Switzerland will intervene in the approval process to offer a second opinion. In Peru and Colombia, such approval is needed for every project.

The GCTF was set up in 2003 and 2004 in Colombia and then in Peru and Vietnam in 2007. However, as of early 2016 only 59 credit-based loans were disbursed in Colombia; in Peru, the total number of implemented projects was 28 and in Vietnam, merely 14.

 

highlights

SECO commissioned Econoler to: (1) conduct a strategic review of the GCTF; (2) make a set of recommendations to SECO regarding the relevance of the project; and (3) if the project is still considered relevant based on the review findings, suggest 2 or 3 comprehensive country-specific design options. The assignment involved performing the following activities:
  • A detailed assessment of the energy efficiency and cleaner production (EE and CP) financing market in each country;
  • A critical review of GCTF in Colombia, Peru, and Vietnam, including the GCTF’s approval procedures, additionality, eligibility criteria, partners, and governance structure and performance;
  • Three one-week field trips each to each of the three countries to meet current and potential GCT project partners as well as other market players;

The following preliminary conclusions were arrived at:

  • The GCTF is relevant and there is a need for a targeted finance instrument promoting EE and CP investments in and by SMEs in all three markets.

On that basis, Econoler made the short and medium-term proposals for country-specific design:

  • In Colombia, the most mature market, Bancoldex, one of the country’s development banks would be the most suitable trust fund administrator. The fund should be opened up to all the banks, and an additional technical advisor (in addition to the CPC) should be introduced.
  • The review by the reference centre was considered unnecessary.
  • In Peru, a less mature market with a very number of green-financing options, the GCTF should be streamlined. In the medium term, the incentives should be limited to either the credit guarantee or reimbursement in one single operation. The reimbursement subsidy should be transformed into an interest-rate subsidy, and a list of eligible measures and equipment and a list of eligible suppliers that can be financed under the GCTF should be developed.
  • In Vietnam, the least mature market yet possibly the most crowded market of the three in terms of green-financing initiatives, Econoler recommended streamlining the process and introducing additional technical advisors. In the medium term, a list of eligible measures and equipment and a list of eligible suppliers that can be financed under the GCTF should be developed. The reimbursement subsidy should be transformed into an interest-rate subsidy.
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