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 the 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.
The CRAF seeks to overcome these barriers through an integrated approach – by providing a credit risk guarantee to financiers and a targeted technical assistance programme to build capacity amongst SMEs, financiers and a variety of other market participants, including energy service companies.
Phase One of the project was undertaken by the consultants CAMCO and centred round an initial feasibility and design study, which focused on five Caribbean countries: Jamaica, Belize, Suriname, Barbados and Saint Lucia. The consultancy 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 the 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 Facility 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 has paved the way for the start of Phase Two of the project. This next phase will include detailed design, fundraising and inception work required for launching and operationalising the facility and a pilot roll-out to test these elements for a broad regional implementation.