On 1 February 2018, the CARICOM Development Fund (CDF) in collaboration with the Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (GIZ) and the CARICOM Secretariat Energy Unit started a consultancy with CAMCO Clean Energy to develop a Credit Risk Abatement Facility (CRAF).
The goal of the Credit Risk Abatement Facility (CRAF) is to incentivise more lending to Small and Medium-Size Enterprises (SMEs) to fund renewable energy and energy efficiency (RE and EE) projects. Achieving this goal effectively and efficiently will mean that the following key elements of supply and demand will need to change in the market:• Financiers will need to increase their appetite to fund this asset class in SMEs; and
• SMEs will need to demonstrate increased demand for this type of lending
For financiers, the supply of funding may be constrained (a reduced risk appetite) through a real or perceived inability of SME businesses to demonstrate that they have free cashflow available to service new loans. Another equally important barrier is an inability from SMEs to provide adequate amounts of security to collateralise those loans.
For SMEs, the demand for such loans may be constrained, in part through a lack of understanding of the potential cost savings from RE and EE interventions and an inability to demonstrate reliable cost savings estimates to lenders.
The development of the CRAF will be executed in two phases.
Phase 1 focused on the development of the model and technical assistance package, as well as, the implementation plan to operationalize the CRAF. As part of Phase 1 of the consultancy, the team undertook scoping missions to 5 countries (Barbados, Belize, St. Lucia, Suriname, Trinidad and Tobago) to get an overview of the current state of affairs within the CARICOM Region with respect to any efforts aimed at de-risking Small and Medium Size Enterprises (SMEs), including the gaps and barriers hindering investment by SMEs in the energy space and possible solutions to bridging those gaps.
The design recommendations for CRAF were validated and endorsed during a stakeholder workshop held in Paramaribo, Suriname, between 25 and 26 July 2018. Participants in the workshop refined and approved the key elements of the design of the CRAF.