International Financial Instruments

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1 International Financial Instruments To Support the Greening of Thai SMEs Collaborating Centre on Sustainable Consumption and Production (CSCP)

International Experience 4 Instrument Groups 10 Case

2 Which Financial Instruments Could Help to Improve Access to Green Finance for SMEs in Thailand? International Experience 4 Instrument Groups 10 Case Studies 8 Fields for Action Actor-Based Recommendaitons 2

3 This Presentations Provides First Ideas for More Details Please Refer to the Report The presentation answers four questions on access to finance for greening Thai SMEs. 1. What is the challenge? 2. Which groups of instruments do we have at hand to overcome it??3. How can this look like in practice? 4. What can we do to enable implementation? 3

4 1. THE CHALLENGE Closing the Access to Finance Gap for Thai SMEs 4

What can government do?... to close th gap.

5 SMEs Lack Access to Finance In Particular With Regard to Green Investments What can SMEs do? What can banks do? What can government do?... to close th gap. Source: Originated from IFC; ; Modified by Avantage Ventures

6 Understanding of Implementation Case Study Analysis Financial Instrument Strategies Need to Build on Theory and Practice Specific Actions on Green Finance for Emerging Markets Financial Instruments Discussion Understanding of Diverse Financial Instruments 6 6

7 2. FINANCIAL INSTRUMENTS Discussion and Categorization 7

8 Four Instrument Groups for Green Finance Each With Their Own Advantages and Disadvantages Debt Finance Instruments Equity Finance Instruments Other Financial Instruments Non-Financial Instruments The report introduces the four groups, explains their advantages for SME finance and related challenges, and outlines starting points for their utilization. 8

9 Debt Finance Relies on Formalization Framework and Market Actors Need to Ensure this Jointly Preconditions for debt finance The application of debt instruments demands a high degree of formalization. 9

Debt Finance a Fundamental Instrument for Continuous National and Local Economic Development Current Context in Emerging Markets: Debt finance is fundamental for continuous development but demands a

10 Debt Finance a Fundamental Instrument for Continuous National and Local Economic Development Current Context in Emerging Markets: Debt finance is fundamental for continuous development but demands a developed financial infrastructure. For a Change Towards More Green Finance: If different actors cooperate, they can apply special debt finance instruments also in semiformalised contexts. Specific Example for Green Finance: Factoring the trading of receivables for instance helps companies to provide their Businessto-Business customers with supplier credits and uphold their own liquidity at the same time. 10

11 Equity Finance Offers a Lot of Leeway for Flexibly Supporting the Greening of SMEs Current Context in Emerging Markets: In the absence of debt finance, SMEs rely on informal finance or equity finance. However, little equity financing is available to bridge the missing middle. For a Change Towards Green Finance: Different actors need to cooperate on reducing transaction costs and securing formalized equity markets with regular entry and exit options for investors. Specific Example for Green Finance: Strengthening of reporting standards and the formalization of specific equity instruments such as mezzanine finance that ranks between debt and full risk equity 11

12 Example: Innovative Equity Finance Brings About New Chances for the Local Economy Crowd Funding Website Links Local Savers/Investors with local SMEs 12

13 Customized Instruments for Enhancing Finance for Greening SMEs in Emerging Markets Current Context in Emerging Markets: The advantages of deregulation and the application of complex instruments need to be secured by a profound risk strategy. For a Change Towards Finance: Financial innovation and its regulators needs to take into account the legal and economic structure of Thailand and the sector. Specific Example for Green Finance: Energy contracting models represent a successful case of customized financial instruments. 13

14 Example: Derivative Markets Can Help to Materialize Sustainability and Increase Returns on Greening. Example for Green Finance Carbon markets turn emission reductions into a source of revenue Using less energy results in lower costs, but what about lower emissions? 14

15 Non-Financial Instruments Crucial Enablers of Green SME Finance Current Context in Emerging Markets: Financial support instruments can help developing liquid and functioning markets for certain financial product that enable the greening of SMEs. For a Change Towards Finance: Actors need to carefully analyze the status quo and identify concrete leverage points that need additional support. Specific Example for Green Finance: Loan guarantee schemes that help small enterprises without track record to enter the credit market. 15

16 Financial Instruments Need a Basis e.g. in the Form of Standards, Information and Capacity Non-financial instruments are vital for realizing of green investment potentials 16

17 3. CASE STUDIES 10 Examples from Asia and Beyond 17

18 Check the Report: 10 Case Studies That Show How Financial Instruments Can Work in Practice Descriptive Case Titles Specific Learnings by Case Study 18

19 The Case of Network Enterprises An Approach to Pooling SME Investment Opportunities Network enterprises can make sectors investible by reducing transaction costs. 19

20 The Case of Receivable Exchanges Lowering Liquidity Risks Receivable exchanges help SMEs to lower their supplier related liquidity risk. 20

21 A Sharing Economy How B2B Sharing Can Reduce Invested Capital Buy one, use two B2B collaborative consumption reduces investment needs 21

22 4. CONCLUSIONS Combining Theory and Practice 22

23 Green Finance for SMEs Strongly Depends on Context Theory Assessment of Financial Instruments for Greening SMEs Cases 10 Case Studies to Link Instruments and Context Success Factors Success Factor Categories for Greening SMEs The report devotes an entire chapter to making the link from theory and practice to content-related success factors. 23

24 Framework Market 8 Success Factors Market and Framework Actors Need to Collaborate Risk Assessment Service Providers Sector-Level Cooperation Management Processes Access to Finance for Greening SMEs Legal Certainty Mergers & Acquisitions Legislation Derivative Markets Direct State Intervention 24

25 Summary 1: What Actors Can Do To Increase the Access to Green Finance for Thai SMEs The Report provides up to 9 specific approaches per actor group. 25

26 Summary 2: Three Simple Thoughts Major Take-Home Messages for Green Finance in Thailand When transferring international approaches, do not forget: 1. Financial instruments interact. The implementation of one of them might not work without the presence of others. 2. Financial instruments strongly relate to the context. Success factors categories need to be considered 3. Financial instruments relate to more than creditor and debtor, or investor and investee. In many cases other intermediaries play a crucial role for the implementation. 26

27 Thank you! Sebastian Philipps SCP Finance Expert Collaborating Centre on Sustainable Consumption and Production (CSCP) Hagenauer Str Wuppertal. Germany Tel Fax sebastian.philipps@scp-centre.org Wilasinee Poonuchaphai Project Manager German International Cooperation (GIZ) 193/63 Lake Rajada Office Complex (16th floor), New Ratchadapisek Road, Klongtoey, Bangkok 10110, Thailand Tel: Fax: wilasinee.poonuchaphai@giz.de

28 5. BACKUP SLIDES Combining Theory and Practice 28

29 Which Changes in the Market Can Help Improving the Access to Green Finance for SMEs? 29

30 Which Framework Changes Can Help Improving the Access to Green Finance for SMEs? 30

31 What Government Can do to Help Improving the Access to Green Finance for SMEs Think Long-Term 1. Assess long-term scenarios 2. Consider long-term competitiveness Actively Frame Markets 3. Dare to create new derivative markets but tie them closely to their physical environment 4. Utilize and steer foreign investment 5. Review government intervention programs Enhance Communication 6. Institutionalize communication 7. Give long term orientation for business 31

32 What Business Can do to Help Improving the Access to Green Finance for SMEs Value Services 1. Use specialized service providers for greening 2. Include external accountants in greening strategy 3. Develop new service models Revise Financial Management 3. Start carbon accounting 4. Include collaborative consumption models in asset management 5. Include resource, energy and pollution pricing trends in investment calculation Collaborate 6. Intensify value chain partnerships 7. Collaborate on sector level 8. Collaborate with stakeholders 32

33 What Financial Actors Can do to Help Improving the Access to Green Finance for SMEs Take Into Account Service Providers 1. Involve service providers in business development 2. Use service providers to reduce risks 3. Develop new service models Revise Evaluation Schemes 3. Include carbon accounting into long- term risk assessment 4. Consider collaborative consumption 5. Improve in- house capacity on green tech Enhance Intermediation 6. Establish markets for green derivatives 7. Establish receivables exchanges 8. Create group-financing products 9. Co-finance promising state programs 33

34 What External Stakeholders Can do to Help Improving the Access to Green Finance for SMEs Research 1. Come up with new service concepts 2. Work towards new evaluation methods 3. Develop new service models Lobby 3. Argue for the internalization of external effects 4. Ensure sound regulation of green derivative markets 5. Put forward the idea of collaborative consumption Engage 6. Drive sector approaches 7. Support supply- chain partnerships 8. Facilitate dialogue between business, finance and politics 34

Follow-up by the European Commission to the EU-ACP JPA on the resolution on private sector development strategy, including innovation, for sustainable

Follow-up by the European Commission to the EU-ACP JPA on the resolution on private sector development strategy, including innovation, for sustainable Development. The European External Action Service