Credit Risk Abatement Facility,
Technology: Renewable energy (various); Energy efficiency
Camco involvement: Consulting
The Credit Risk Abatement Facility (CRAF) is an initiative being developed by the CARICOM Development Fund (CDF) in collaboration with the CARICOM Secretariat, the Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (GIZ), and other key implementing and strategic partners. The primary objective of CRAF is to provide an incentive for additional lending to small and medium-size enterprises (SMEs) for renewable energy and energy efficiency projects in the Caribbean.
The current financing of renewable energy and energy efficiency projects is hampered by several factors: a perceived lack of demand from SMEs; limited understanding of the technology and potential cost savings that can be achieved through such interventions (from financiers and SME business owners alike); a relatively under-developed local market, including energy service companies; lack of collateral and/or cash flow resources from SMEs; and a limited risk appetite among financers to extend credit for such interventions to SMEs.
CRAF seeks to overcome these barriers through an integrated approach – by providing a credit risk guarantee to financiers and targeted technical assistance to build capacity amongst SMEs, financiers and a variety of other market participants, including energy service companies.
Phase 1 of the project was undertaken by Camco Clean Energy (Camco) and provided an initial feasibility and design study, which focused on five Caribbean countries: Jamaica, Belize, Suriname, Barbados and Saint Lucia. Acting as a consultancy, Camco reviewed the region’s low-carbon energy marketplace and looked at what forms of intervention would work to encourage the uptake of renewable energy and energy efficiency in the SME sector.
The key outcome from Phase 1, which was conducted between February and July 2018, was a proposed design for CRAF made up of three main components:
- A Credit Risk Instrument (CRI) to stimulate additional lending – by underwriting up to 80% of a loan for renewable energy and energy efficiency projects, the CRI would mitigate the risk of loss if and/or when a borrower defaults;
- A Technical Assistance Programme to grow the market by helping local participants such as SMEs, energy service companies and financiers to build capacity. and;
- A programme of monitoring, evaluation and incremental improvement.
In July 2018, key regional stakeholders validated and approved these core design elements at a workshop held in Suriname, which paved the way for the start of Phase 2 of the project.
In September 2019, Camco was contracted to assist the CDF in Phase 2 of CRAF implementation. Phase 2 sought to finalise the institutional design, governance and corporate structure for CRAF, including drafting of all associated policies and procedures and documenting all relevant business processes. Camco also assisted with initial fundraising for the facility. An initial transaction pipeline has also been prepared and the first CRAF Financing Partners and energy service providers are being onboarded.
Phase 2 has also involved Camco assisting the CDF in preparation for the launch of an operational and capitalised CRAF pilot in two CARICOM countries (initially) – Belize and Saint Lucia.
The CRAF pilot was launched in November 2020 and is expected to continue for 12 months.