Best Practice Report



Transparency of public financial incentives

Transparency in the deployment of public financial instruments is important to make all potential beneficiaries understand their likelihood of accessing these de-risking instruments, and to provide certainty for investors (as the risks and so costs of investment decline) in the planned phase-out of public support. Transparency also ensures lessons can be captured to strengthen relevant capacity of the public sector in how to best use public resources for building local green markets. Greater attention to balancing transparency and necessary confidentiality is critical for increased understanding of how risks are being priced and how public finance is currently used to mitigate these in different countries, markets, and sectors.

The low interest loans for energy efficiency in housing provided by KfW are distributed via German commercial banks through an ‘on-lending-system’ where KfW commits a refinancing loan to the commercial bank. To ensure that the commercial bank passes on the low interest rate to the investor, the KfW establishes and publishes a maximum interest rate, including the commercial bank’s margin that can be applied. This level of transparency of the terms of public finance provided is considered as an innovative way of ensuring benefits passed on through financial intermediaries.

Transparency is important on several levels within the Bangladesh case: 1) IDCOL as a non-government financial entity provides a vehicle for transparently combining differing international sources of finance with domestic budget; 2) transparency at the micro-credit level as developed through the Grameen Shakti program has been essential to harness social pressure for repayment of loans, reducing the credit risks often associated with micro-finance; and 3) constant monitoring and evaluation of the program through after sales services has helped to foster continuous improvement of the program, and issues/problems are solved immediately which is sustaining the solar PV industry in Bangladesh.

MASEN, as a vehicle for blending international and domestic resources, including concessional finance from the Clean Technology Fund, can allow greater measure of transparency in how and to whom public financial support is channeled. In facilitating project origination and as equity holder in the solar power company (SPC), MASEN has helped balance risks and align interests across the public and private sector in a relatively transparent and streamlined way.