Targeting concessional finance to ensure it does not crowd-out other finance providers, and does mobilize new sources of green finance is a key challenge (Jones, 2012; Amin et al,. 2014). Public finance may be used to subsidize the interest rates and/or can provide partial debt relief for energy efficiency loans.
From the case studies, the role of existing institutions, such as KfW and World Bank, or new specially created structures, such as MASEN and IDCOL, have been important in helping align different sources of finance, domestic and international, including concessional resources, towards green investment goals. Here differing approaches towards tailoring of concessional finance are provided as illustrations of how this may be achieved in diverse policy contexts.
Germany’s energy efficiency housing program links the amount of public subsidization and size of any low interest loan to the level of the improvement in energy performance due to the energy efficient retrofit. In this respect, concessional resources are ‘targeted’ to encourage home owners to undertake more comprehensive refurbishment.
In Bangladesh, the Infrastructure Development Company (IDCOL) financing entity has channeled international finance, including from the Global Environment Facility, to provide grants subsidizing the cost of Solar Home Systems (SHS), or small photovoltaic systems and soft loans to financial intermediaries. It also provides technical assistance and support for capacity development. Creation of this new, dedicated financial intermediary has been an important way of allowing international sources of finance to be combined and tailored to the local context (Islamic Development Bank, 2012).
In South Africa, the diverse range of financial instruments available through the Green Fund, can help tailor instruments to overcome specific barriers and identified risks.