EBRD and partners launch GEFF II in Cairo: Egypt will receive USD 175.5 mn for on-lending to the private sector from the European Bank for Reconstruction and Development (EBRD), the European Union (EU) and the Green Climate Fund (GCF)’s Green Economy Financing Facility program (GEFF), according to an EBRD statement issued yesterday. EBRD and its partners formally launched phase two of the GEFF program (GEFF II) at an event in Cairo yesterday, which Enterprise Climate attended.

The details: GEFF II will provide funds to Egyptian financial institutions for on-lending to private sector companies focusing on climate change adaptation and mitigation — with a particular focus on encouraging SMEs to invest in green tech promoting efficiency in water and resource use, sustainable land management, and the circular economy. GEFF II combines financing and technical assistance from the EBRD, financial incentives from the EU and concessional co-financing from the GCF. The first phase of GEFF raised EUR 140 mn for on-lending in 2017, followed by a EUR 150 mn extension in November 2020.

Private sector engagement and scaling green activity: “The role played by development partners in pushing private sector engagement is important,” Egypt’s International Cooperation Minister Rania Al Mashat said in an opening speech. The EBRD has helped boost private sector investment in and financing for Egypt by leading the energy pillar of Egypt’s Nexus on Water, Food and Energy (NWFE) initiative — which is expected to help bring USD bns of private sector inflows to Egypt’s renewables sector, Al Mashat noted. By supporting the uptake of new tech and practices, GEFF can help scale green activity in the Egyptian market, enhance economic competitiveness, and create a platform for policy dialogue in the energy sector, the EU’s Ambassador to Egypt Christian Berger said in an introductory speech.

And Egypt’s SMEs are hungry for more green finance: SMEs “perfectly understand” the market shift towards greenifying operations, the increased consumer demand for environmental action from businesses, and the growing demand for green finance, said Karim Kamal, head of Support Functions & Sustainability Division at National Bank of Kuwait (NBK) — one of several partner banks to offer on-lending through GEFF. While large corporates were NBK’s primary GEFF loan-seeking clients in the program’s first phase, GEFF II “is very focused on SMEs” and there’s a lot of demand, Kamal added.

GEFF isn’t just about financing — it also offers important technical support: Much of the value provided by the GEFF program comes from the technical assistance provided by the EBRD, banking sector representatives noted. This includes helping SMEs understand the importance of green investment and identify climate-friendly tech to invest in. “An integral part of these programs is to convince and educate. The technical assistance is the most valuable thing,” said Tarek Fayed, assistant CEO of QNB Al Ahli — another partner bank.

For banks, this helps to de-risk on-lending to SMEs: Banks take the same credit risk with SMEs as they do issuing any loans, but SMEs are particularly vulnerable because of their size, noted Fayed. “When an economic crisis hits, they are first — and possibly most — affected,” he added. SMEs are often perceived as risky by both banks and customers, but there are ways to boost their resilience and enhance their contribution to the economy, noted partner bank Ahli United Bank’s Senior Deputy CEO Mohamed Assem. These include expanding SMEs’ access to finance — especially green finance — while helping them put governance and risk management structures in place, and building technical and management capacity, he added.

Is there a wider role for DFIs? DFIs could contribute to building the pipeline of SMEs for on-lending, as banks still struggle to find bankable SME clients, Kamal said. There is also more room for capacity building by providing more internal guidance for banks and financial institutions to help them adapt to a more stringent green reporting environment, he added, as it is particularly important in regards to compliance when the Central Bank of Egypt’s climate framework — which outlines new reporting requirements for banks — becomes mandatory.