Govt involvement required to unlock green financing - African Guarantee Fund

The United Nations Environment Programme has recognized Kenya as a leader in green finance, but the country still faces challenges in financial sector regulation, particularly in promoting environmentally conscious investments among small and medium enterprises (SMEs) in the region. To address this issue and enable the success of green investments, the African Guarantee Fund (AGF) is exploring various initiatives to fund climate change mitigation and adaptation. David Akabuma, the Head of Business Development at AGF, recently joined CNBC Africa to discuss the organization's efforts. Akabuma highlighted the importance of SMEs in driving economic growth on the continent and emphasized the need for financial institutions to provide support for climate-friendly investments. AGF aims to foster economic growth by providing financial guarantees to institutions investing in SMEs, encouraging them to allocate more loans for climate-friendly projects. Despite the profitability of SMEs engaged in climate-friendly ventures, financial institutions sometimes hesitate to lend to these businesses. Akabuma pointed out that SMEs represent an untapped market, offering lucrative opportunities for commercial banks to expand their portfolios. The AGF facilitates financing ranging from one to two million dollars for SMEs involved in green investments, with a 50% guarantee to mitigate risks for partner banks. Regulation plays a crucial role in shaping the climate finance landscape, creating a conducive environment for investment and providing stability for financial institutions. Akabuma cited a law in Kenya mandating the use of solar power and water systems as an example of regulatory incentives that spur innovation and entrepreneurship in the green sector, ultimately driving the need for financing to scale up operations. During a recent conference in Nairobi, the key challenge identified in advancing green financing in East Africa was the lack of knowledge and the resulting high perceived risk associated with climate finance. AGF is committed to bridging this knowledge gap to help banks better understand the risks and challenges faced by SMEs, thereby unlocking the necessary financing. Despite these challenges, there are promising developments in East Africa, particularly in Kenya. The Kenyan government has established a robust regulatory framework for green investments, paving the way for successful projects that serve as models for future ventures. AGF believes that these success stories make it easier for SMEs to approach banks for financing, demonstrating the viability and profitability of climate-friendly initiatives. By leveraging existing projects and regulations, AGF aims to build on the momentum in East Africa to drive sustainable development and address the urgent need for climate action. As David Akabuma and AGF continue their efforts to support SMEs in accessing green financing, the organization remains optimistic about the potential for sustainable growth and positive environmental impact in the region.