Fiji Climate Friendly House Loan Programme Fiji Fiji Development Bank 31 August 2016
Project/Programme Title: Fiji Climate Friendly House Loan Programme Country/Region: Fiji Accredited Entity: Fiji Development Bank National Designated Authority: Climate Change Division, Ministry of Foreign Affairs
A. Project / Programme Information A.1. Project / programme title A.2. Project or programme A.3. Country (ies) / region A.4. National designated authority(ies) A.5. Accredited entity A.6. Executing entity / beneficiary PROJECT / PROGRAMME CONCEPT NOTE GREEN CLIMATE FUND PAGE 1 OF 5 Please submit the completed form to fundingproposal@gcfund.org 1 Fiji Climate Friendly House Loan Programme Programme Fiji Climate Change Division, Ministry of Foreign Affairs The Fiji Development Bank (FDB) Executing Entity: Fiji Development Bank Beneficiary: Citizens of Fiji A.7. Access modality Direct International A.8. Project size category (total investment, million USD) A.9. Mitigation / adaptation focus A.10. Public or private A.11. Results areas (mark all that apply) A.12. Project / programme life span A.13. Estimated implementation start and end date Micro ( 10) Small (10<x 50) Medium (50<x 250) Large (>250) Mitigation Adaptation Cross-cutting public Which of the following targeted results areas does the proposed project/programme address? Reduced emissions from: Energy access and power generation (E.g. on-grid, micro-grid or off-grid solar, wind, geothermal, etc.) Low emission transport (E.g. high-speed rail, rapid bus system, etc.) Buildings, cities, industries and appliances (E.g. new and retrofitted energy-efficient buildings, energy-efficient equipment for companies and supply chain management, etc.) Forestry and land use (E.g. forest conservation and management, agroforestry, agricultural irrigation, water treatment and management, etc.) Increased resilience of: Most vulnerable people and communities (E.g. mitigation of operational risk associated with climate change diversification of supply sources and supply chain management, relocation of manufacturing facilities and warehouses, etc.) Health and well-being, and food and water security (E.g. climate-resilient crops, efficient irrigation systems, etc.) Infrastructure and built environment (E.g. sea walls, resilient road networks, etc.) Ecosystems and ecosystem services (E.g. ecosystem conservation and management, ecotourism, etc.) 6 years or on-going if possible Start: 2016 End: 2022 or on-going if possible 1 Please use the following naming convention for the file name: [CN]-[Agency short name]-[date]-[serial number] (e.g. CN-ABC-20150101-1).
GREEN CLIMATE FUND PAGE 2 OF 5 B. Project/Programme Details The Fund requires the following preliminary information in order to promptly assess the eligibility of project/programme investment. These requirements may vary depending on the nature of the project/programme. The programme would involve the on-lending of funds for loans for new houses that incorporate energy and water efficient design and/or equipment, and climate proofing design principles. These measures may include insulation, solar hot water, solar PV, LED lighting, water saving devices, and ceiling fans, for example. One option is to have a prefabricated house manufacturer offer a few climate friendly designs that loan applicants can choose from. The houses would be modest in size so as to use resources more efficiently. Houses would have to be resistant to strong winds and rain, and located away from coastlines and known flood areas. An architect, engineer, or similar would be involved to ensure that the housing designs conform to the intent of the programme and may be involved in monitoring of the programme to ensure houses are constructed in accordance with the programme s rules. B.1. Project / programme description (including objectives) The objectives are to reduce emissions from energy use, use water more efficiently, as well as climate proof houses to adapt to climate change affected extreme weather events. The programme will raise awareness regarding energy and water efficient housing, climate proofing and stimulate investment and employment in building these types of houses. Currently new houses have no incentives to incorporate climate appropriate design, and there are no loans offered to encourage this investment. Success through this programme may influence changes to the building code and allow for these loans to be offered through the commercial banks as well. The FDB currently offers loans in sustainable energy (with World Bank support for businesses not residential), agriculture, import substitution and has in the past offered natural disaster rehabilitation loans. i The climate friendly loan programme could include, or be extended to include, these types of loans as well, e.g. climate smart agricultural loans, and even a small grants programme to provide a complete GCF supported climate change finance facility. The programme could also be expanded to include climate friendly house renovations or retrofits of existing houses. Whilst the FDB is applying for GCF support under the micro size category < USD 10 million, this can be increased depending on the success of the programme. Describe project/programme sponsor s operating experience in the host country or other developing countries. The programme would be undertaken by the FDB which has nearly 50 years of experience in providing development loans to the population of the Fiji. B.2. Background information on project/programme sponsor The FDB provides finance, financial and advisory services to assist in the development of agriculture, commerce and industry in Fiji. It does not come under the Banking Act and regulations but ensures compliance with the regulatory terms and conditions set by the Reserve Bank of Fiji. The RBF monitors the FDB s lending activities through regular reviews and issuance of monetary policy guidelines. The mandate of the FDB is derived from the FDB Act (Cap 214) of 1967 and is aimed towards developing the resource based sectors, manufacturing, communication, transport, wholesale, retail and professional services. The FDB is subject to requirements under various regulations including the Consumer Credit Amendment Act and the Fiji Revenue and Customs Authority requirements for businesses. As it is owned by the Government of Fiji, it is also subject to Government policy directives. In 1990, the FDB introduced a home loan product in an effort to diversify its portfolio and assist the construction sector by providing an additional source for financing for
GREEN CLIMATE FUND PAGE 3 OF 5 housing. This portfolio grew steadily until 1996 when rising interest rates and competition forced the Bank to reconsider this product as a viable revenue stream. In 2004 the Bank re-entered the home loan market by offering the Choice Home Loan product which allowed people to purchase a home for their family (residential owneroccupier) or purchase a home/flats as an investment property (residential investment or for rental). Included in this product also was a line of credit (LOC), which was an extension to the home loan facility which allowed the borrower to take a personal loan. In January 2008, a directive from the Minister of Finance saw the lending focus of the Bank change where lending to home buyers was suspended. However, as the Bank has vast experience in housing loans it is reviewing this market segment with the view of re-entering the housing loan market. Broadening its lending base would allow the FDB to further cushion the risks associated with lending to the high risk resource based agricultural sectors. The FDB does currently provide new housing loans as part of loans for farm estates. As at 15 September 2015, the FDB had 457 home loan accounts valued at FJD 19.39 million. In the past the per annum variable interest rates have ranged between 6.75% and 11.90% but are currently 7.75% for the residential owner occupier, 8.25% for residential investment or for rental, and 10% for the line of credit. A deposit required to receive a loan was optional depending on the qualification criteria. The total loan commitment was not to exceed 75% of the recipient s gross salary or income. The location of the property was not limited and the term was 50 years. Repayments were sourced from salary or rental income. Insurance cover included fire/cyclone and mortgage protection. Initially there was no debt discounting policy but this was introduced later, and is allowed on a case by case basis. Loan recipients were allowed seek refinancing elsewhere if so desired. Describe financial status and how the project/programme sponsor will support the project/programme in terms of equity, management, operations, production and marketing. Details of the financial status of the FDB can be found in its Annual Report 2013. Its Annual Report 2014 will soon be available from its website http://www.fdb.com.fj. The FDB currently holds the following loans: 2769 x Focus type 1 loans valued at FJD 123,975,258.04 522 x Focus type 2 loans valued at FJD 12,997,745.46 657 x Non focus type 1 loans valued at FJD 150,877,456.64 11 x Non focus type 2 loans valued at FJD 37,316,869.55 21 x Non categorised loans valued at FJD 43,696,682.53 3980 total loans valued at FJD 368,864,012.22 Focus sectors for the FDB loans are: agriculture including forestry and fishing, mining and quarrying, manufacturing, transport, communications and storage, SME and micro loans in wholesale, retail, hotels and restaurants, professional and business service sectors. Non focus sectors for the FDB loans are: building and construction, private Individuals, real estate, larger loans in wholesale, retails, hotels and restaurants, and professional and business service sectors. The FDB would be involved directly in the management, operations and marketing of the programme consistent with its approach for its other loan products. In this respect, the FDB has branches throughout Fiji to maximise its service and reach.
GREEN CLIMATE FUND PAGE 4 OF 5 In terms of equity, there are several options. The GCF could provide the entire funds to be on lent at a concessional interest rate including an administration fee to cover the costs of the FDB s management of the programme, so that the FDB has no equity in the programme. Or the GCF could provide the entire funds at a concessional rate less than the lending rate of the actual programme so that the FDB covers its cost through the interest rate spread. Or application charges could be levied to cover the FDB s costs for the programme. The GCF could provide financing of a concessional component of the lending rate so that FDB has the total equity in the fund less the concessional component provided by the GCF. The FDB would again have the option for receiving an administration fee for managing the programme, or using an interest spread, or levying application charges. Another option is that the GCF provides a grant subsidy that is deducted from the principal of the entire loan if the applicant satisfies the loan criteria. Funds for the cost of managing the programme would also have to be provided by the GCF or an application charge paid by the loan applicant. Describe the market for the product(s) or services including the historical data and forecasts. In Fiji, as at June 2015 there were 10,451 outstanding housing loans and advances with a total value of FJD 1,057,000,000. Provide the key competitors with market shares and customer base (if applicable). B.3. Market overview There are 6 commercial banks that offer housing loans as well as the Housing Authority of Fiji. Provide pricing structures, price controls, subsidies available and government involvement (if any). The Housing Authority of Fiji also provides housing loans (with a special focus on low income earners e.g. <FJD 50,000 per annum). B.4. Regulation, taxation and insurance Provide details of government licenses, or permits required for implementing and operating the project/programme, the issuing authority, and the date of issue or expected date of issue.
GREEN CLIMATE FUND PAGE 5 OF 5 Approval from the Ministry of Finance is required before the FDB can commence the programme. Describe applicable taxes and foreign exchange regulations. There are no applicable taxes and foreign exchange regulations relevant to the introduction of this programme in Fiji. Provide details on insurance policies related to project/programme. The FDB is backed by the Government of Fiji. It is an agent for Sun Insurance. Applicants seeking a loan can apply for fire/cyclone and mortgage insurance from the FDB or the insurance company of their choosing. Describe construction and supervision methodology with key contractual agreements. B.5. Implementation arrangements Describe operational arrangements with key contractual agreements following the completion of construction. Provide a timetable showing major scheduled achievements and completion for each of the major components of the project/programme. The FDB needs a letter of no objection from the national designated authority (NDA). The FDB needs accreditation via the GCF on-line accreditation system (OAS) as a national implementing entity (NIE) prior to programme commencement. C. Financing / Cost Information C.1. Description of financial elements of the project / programme Please provide: a breakdown of cost estimates analysed according to major cost categories a financial model that includes projection covering the period from financial closing through final maturity of the proposed GCF financing with detailed assumptions and rationale a description of how the choice of financial instrument(s) will overcome barriers and achieve project objectives, and leverage public and/or private finance. C.2. Project financing information Total project financing (a) = (b) + (c) Financial Instrument Amount Currency Tenor Pricing million USD ($)
GREEN CLIMATE FUND PAGE 6 OF 5 (i) Senior Loans (ii) Subordinated Loans Options Options ( ) years ( ) years ( ) % ( ) % (iii) Equity Options ( ) % IRR (iv) Guarantees Options (b) (v) Reimbursable Options Requested grants * GCF amount Options (vi) Grants * * Please provide detailed economic and financial justification in the case of grants. Total Requested (i+ii+iii+iv+v+vi) Options Financial Instrument Amount Currency Name of Institution Seniority (c) Cofinancing Options Options Options Options Options Options Options Options Options Options Options Options Lead financing institution: Fiji Development Bank via the Reserve Bank of Fiji (d) Covenants (e) Conditions precedent to disbursement D. Expected Performance against Investment Criteria Please explain the potential of the Project/Programme to achieve the Fund s six investment criteria as listed below. D.1. Climate impact potential [Potential to achieve the GCF's objectives and results] Specify the climate mitigation and/or adaptation impact. Provide specific values for the below indicators and any other relevant indicators and values, including those from the Fund s Performance Measurement Frameworks. Total tonnes of CO2e to be avoided or reduced per annum Expected total number of direct and indirect beneficiaries and number of beneficiaries relative to total population (e.g. total lives to be saved from disruption due to climaterelated disasters) D.2. Paradigm shift potential [Potential to catalyze impact beyond a one-off project or programme investment] Provide the estimates and details of the below and specify other relevant factors. Potential for scaling-up and replication (e.g. multiples of initial impact size) If the programme is successful it could be scaled up by seeking further funding, by being offered by the commercial banks in Fiji, and/or by being replicated in other parts of the Pacific, and other countries elsewhere.
GREEN CLIMATE FUND PAGE 7 OF 5 Potential for knowledge and learning The programme provides a great opportunity for determining the climate friendly housing designs that are suitable for Fiji, and for knowledge transfer and learning regarding climate friendly design and technologies for industry employees and the general public. Contribution to the creation of an enabling environment The programme will raise awareness regarding climate friendly housing, build capacity in construction and design of climate friendly housing, and open up supply chains for climate friendly building products. Contribution to the regulatory framework and policies D.3. Sustainable development potential [Potential to provide wider development co-benefits] The programme could provide a stimulus to changes in Government policy and the building code in Fiji to encourage greater penetration of climate friendly design and construction. It could be that these changes could be enacted simultaneously with the introduction of the programme. Provide the estimates of economic, social and environmental co-benefits. Examples include the following: Economic co-benefits - Total number of jobs created - Amount of foreign currency savings - Amount of government s budget deficits reduced Social co-benefits - Improved access to education - Improved regulation or cultural preservation - Improved health and safety Environmental co-benefits - Improved air quality - Improved soil quality - Improved biodiversity Gender-sensitive development impact - Proportion of men and women in jobs created Describe the scale and intensity of vulnerability of the country and beneficiary groups and elaborate how the project/programme addresses the issues. Examples of the issues include the following: Level of exposure to climate risks for beneficiary country and groups Fiji is a Small Island Developing State located in the Pacific Ocean and extremely vulnerable to all climate related risks. D.4. Needs of recipient [Vulnerability to climate change and financing needs of the recipients] Does the country have a fiscal or balance of payment gap that prevents from addressing the needs? Fiji is a Small Island Developing State focused on addressing basic development needs and relies on overseas development assistance. Does the local capital market lack depth or history? The local capital mark is small and lacks depth. Needs for strengthening institutions and implementation capacity Fiji is in a continual process of improving and strengthening its institutional and implementation capacity with the assistance of its development partners. D.5. Country ownership [Beneficiary country ownership of project or programme and capacity to implement the proposed activities] Provide details of the below and specify other relevant factors. Coherence and alignment with the country s national climate strategy and priorities in mitigation or adaptation The proposed programme is entirely consistent with Fiji s national climate strategy and priorities in mitigation and adaptation.
GREEN CLIMATE FUND PAGE 8 OF 5 Brief description of executing entities (e.g. local developers, partners and service providers) along with the roles they will play The executing entity will be the Fiji Development Bank. A housing construction company and equipment installers will be selected through a competitive tender process. Stakeholder engagement process and feedback received from civil society organizations and other relevant stakeholders D.6. Effectiveness and efficiency [Economic and financial soundness and effectiveness of the proposed activities] Provide details of the below and specify other relevant factors (i.e. debt service coverage ratio), if available. Estimated cost per t CO2e (total investment cost/expected lifetime emission reductions) Co-financing ratio (total amount of the Fund s investment as percentage of project) Economic and financial rate of return - With the Fund s support - Without the Fund s support E. Brief Rationale for GCF Involvement and Exit Strategy Please specify why the GCF contribution is critical for the project/programme. Although climate friendly housing is likely to provide lower overall operating costs in terms of energy and water use, the design and technologies used may initially have higher up-front costs than traditional housing. Therefore funding from the GCF is required to provide an incentive and to lower the overall total investment costs for applicants. Please explain how the project/programme sustainability will be ensured in the long run, after the project/programme is implemented with support from the GCF and other sources. Having the processes established within the FDB and associated capacity building with the FDB employees, will allow for future continuation of the programme through traditional or other sources of financing. F. Risk Analysis Please describe the financial and operational risks and discuss mitigating measures. Please briefly specify the substantial environmental and social risks that the project/programme may face and the proposed risk mitigating measures. G. Multi-Stakeholder Engagement Please specify the plan for multi-stakeholder engagement, and what has been done so far in this regard. H. Status of Project/Programme 1) A pre-feasibility study is expected to be completed at this stage. Please provide the report in section J.
GREEN CLIMATE FUND PAGE 9 OF 5 2) Please indicate whether a feasibility study and/or environmental and social impact assessment has been conducted for the proposed project/programme: Yes No (If Yes, please provide them in section J.) 3) Will the proposed project/programme be developed as an extension of a previous project (e.g. subsequent phase), or based on a previous project/programme (e.g. scale up or replication)? Yes No (If yes, please provide an evaluation report of the previous project in section J, if available.) The FDB has in the past provided housing loans to citizens of Fiji. This programme would be a revival of that past programme but with added energy efficiency and climate proofing measures incorporated as lending criteria. I. Remarks J. Supporting Documents for Concept Note Map indicating the location of the project/programme (included above) Financial Model Pre-feasibility Study Feasibility Study (if applicable) Environmental and Social Impact Assessment (if applicable) Evaluation Report (if applicable) i The RBF s Natural Disaster Rehabilitation Facility (NDRF) was offered by the commercial banks, licensed credit institutions and the FDB up until 30 September 2013. It was formerly the Flood Rehabilitation Facility that commenced in April 2009 and ceased 31 December 2012. Under the NDRF, businesses sought funding for either production loss which may have included the replacement of stock or inventory damaged as a result of a natural disaster, or asset loss which may have included the repair of natural disaster related damages to business premises. Advances to businesses affected by a natural disaster were at the risk of the lender with no recourse to the RBF. The total amount available was FJD 40 million on a first-in basis with loans limited to FJD 500,000 per business. The granting of loans was at the discretion of the commercial banks, the FDB and licensed credit institutions, and the RBF reserved the right to award loan amounts greater than FJD 500,000 in special circumstances. The maximum loan term was six months and could be rolled over for five years. The interest rate was 1 per cent paid six-monthly but could be lent to businesses by the commercial banks, the FDB, and licensed credit institutions at a maximum of 5 per cent. Loans of shorter maturities were granted on a case by case basis. The lenders were responsible for verifying natural disaster damage, credit-screening, and calculating loan eligibility amounts.