A new case study from Convergence Blended Finance showcases the Climate Finance Facility (CFF), a specialized lending facility designed on the “Green Bank” model, based in South Africa. Green Banks are public, quasi-public, or non-profit entities established specifically to facilitate private investment into low-carbon, climate-resilient infrastructure. Convergence is the global network for blended finance, generating data, intelligence, and deal flow to increase private sector investment in developing countries. Convergence, along with ClimateWorks Foundation, provided critical funding to CGC to support the DBSA with the design and launch of the CFF.
To scope, design, and raise capital for the CFF, the Coalition for Green Capital (CGC) worked closely with the Development Bank of Southern Africa (DBSA). This marks the first time the Green bank model has been applied to an emerging market, and offers significant proof-of-concept value to middle-and low-income countries seeking to scale up the private investment required to meet commitments laid out under the Paris Agreement.
The CFF, with an initial balance sheet of over $100 million USD, will deploy capital to fill market gaps and crowd in private investment, targeting projects that are commercially viable but currently struggle to attract market-rate capital from local commercial banks at scale without credit enhancement. The CFF will use its lending capital to catalyze significant private co-investment at the project level, with the goal that the equivalent of one dollar from the CFF mobilizes five dollars from private investors/banks (a leverage ratio of 1:5).
As the first Green Bank in an emerging market, the structuring of the CFF offers unique insights for other practitioners developing or investing in green banks, including:
- The importance of specialized partners when replicating existing models in new markets,
- Leveraging local institutional infrastructure,
- Early and continuous engagement with target co-investors, and
- Approaches to ensure additionality of financing activities.
Read the case study for more details on CGC’s approach to working with local partners to structure, design and raise capital for the CFF.