Rwanda Country Climate Development Report (CCDR), by The World Bank Group, indicated that private sector can play an essential role in stabilising climate-change affected countries, such as Rwanda, by using the "Blended Finance” approach.
Blended finance is the use of catalytic capital to increase private sector investment in sustainable development in developing countries.
Blended finance, experts say, attracts commercial capital towards projects that contribute to sustainable development, while providing financial returns to investors.
"There is increasing recognition that the private sector can play an essential role in stabilising countries such as Rwanda affected by climate change. Blended concessional finance is designed to address the issues of high risk and potential low profitability found in many private sector projects in fragile states by offering below-market terms for finance and risk-mitigation products,” the report presented last week made the case.
Blended finance, experts have insisted, can help lessen risks that would otherwise make it impossible or unaffordable to invest.
"With a maturing small and medium enterprise (SME) sector, small businesses in Rwanda could benefit greatly from both flexible capital and technical assistance to help them achieve scale and create employment,” reads the report.
This, the World Bank says, could be possible using Blended-Finance Facility to mitigate various financial risks by providing loans, equity, and guarantees.
"Blended finance can help reduce perceived risks, by investors and financiers looking to enter new markets, and eventually demonstrate the business case for sustainable private sector investment.
"Concessional finance can allow the provision of much needed long-term capital during the riskier stages of a first-of-its-kind project, providing financial support until the business is fully developed and, eventually, operating on a fully commercial basis,” recommends the report.
Rwanda to launch Blended Finance Facility
The Rwanda Green Fund (FONERWA) is working with the Rwanda Development Bank (BRD) to set up a facility to spur the country’s ability to meet the growing opportunities for climate finance in the private sector.
The facility dubbed "Rwanda Green Investment Facility (RGIF)” is modelled on the "green bank” idea.
The facility will use a ‘blended finance approach’ to leverage private investment where the blended finance approach includes debt, credit enhancements such as subdebt, tenor (length of time remaining before a financial contract expires) extension and collateral support to commercially viable projects in the green sector.
Credit enhancement is a strategy for improving the credit risk profile of a business, usually to obtain better terms for repaying debt.
The Rwanda Green Investment Facility, which will use a blended finance approach for the private sector, is seeking $100 million to start operations according to statistics from officials.
The fund is to be launched at a time Rwanda plans to reduce carbon emissions by 38 percent in 2030, with $11 billion investment that seeks private sector engagement.
Kampeta Pitchette Sayinzoga, CEO of BRD, said that Rwanda Green Investment Facility (RGIF), being established to use a blended finance approach, will be launched soon.
"It will be an integrated green finance initiative. We are working closely with FONERWA to see how we can grow the pipeline. We are looking at what is eligible for such green finance,” she said.
She added that green bonds can also be used to attract private sector investments in the green sector.
Green bonds are debt securities designated to raise money to finance climate and environmentally friendly projects.
"Very few African countries have actually issued green bonds because the capital and verification of green bonds are not suitable for the private sector,” she said.