Green bond as a boost for small and medium scale enterprises | Guest Post

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After 5 years of saving, Karisa started a charcoal briquette business in Mombasa that utilized locally available materials like charcoal dust and coconut husks. Within a span of two years, his products were in so much demand in Mombasa County. Unfortunately, the increase in demand of his quality charcoal briquettes superseded the supply due to his inability to supply the market. This is because he depended on a manual extruder which is used to compact carbonized waste and binder. His goal was to get at least 4 electrical machines which retailed at Ksh. 500,000 each to be able to produce enough products to cover Mombasa, Kilifi and Kwale counties. However, finding an entity that would loan him the capital at a low interest remained his biggest challenge. This frustrated him because of the missed opportunities.

In a country like Kenya where millions of its citizens dependent on small and micro-enterprises, stories of lack of capital for entrepreneurs like Karisa’s should be a thing of the past.  The Delloite Kenya Economic outlook 2016 notes that Small and Micro Enterprises (SMEs) are a key source of employment. However, the growth of this sector is hindered by inadequate capital, limited market access, poor infrastructure, inadequate knowledge and skills and rapid changes in technology. Karisa knew from the very start that his venture was part of the green economy because his products helped to reduce carbon emission into the atmosphere and would create jobs. This made him look out to the Nairobi Security Exchange  to check if they had a green economy investment segment. His expectation was that a green economy investment segment would enable his enterprise raise funds through the issuance of stock, get market exposure and indirectly market his products. Unfortunately, the NSE did not have such a facility though there are plans to have a green bond that will aim to finance climate smart agriculture, resource efficient manufacturing and affordable housing.

There are many green economy ventures across Kenya but do face a number of hurdles like lack of adequate capital, inadequate information about green technologies and integrating natural capital into economic growth. For example, in 2017, Kenya launched The green economy strategy and implementation plan (GESIP). The GESIP proposes support for rapid economic growth, infrastructure development, diversification and commercialization of agriculture, food security, better health and education, youth employment and improved water sources and sanitation.

The NSE can be part of the green economy by promoting the establishment of a green economy segment that would have both the green bond and green enterprises. The segment would list enterprises engaged in renewable energy, plastic recycling, carbon trade and sustainable tourism. Their listing would attract Impact investments and investors make green economy be part of the main stream economy, help in job creation and also give investors additional options to invest in.

Green bond has a number of benenefits such as; the potential to attract new investors and provide market for future issuances, it offers a  fixed income portfolio offering a relative safety to investors similar to treasury bonds. The fund is an exellen way to secure large amounts of capital to support environmental investments that may not be otherwise and lastly Green bond can be used to comabat climate change by investing in projects and companies that help to reduce Green House Gas emmisions.

In Africa, Johannesburg Stock Exchange (JSE) has a Green Bond Segment which provides a platform for companies and other institutions to raise funds ring-fenced for low carbon initiatives and investors to invest (Social Responsible Investment) SRI funds in securities that are truly green. The City of Cape Town  issued the first green bond in July 2017 in the Johannesburg Security exchange. The City was able to raise $70 Million from 8 allocated bidders having received bids of almost $ 354 Million from 31 different bidders. The bond has a 10-year term and was issued at a spread of 133 basis points over the $13 government bond. The projects to be funded by the green bond are a mix of adaptation and mitigation initiatives and include the procurement of electric buses, energy efficiency in buildings and water management initiatives like water meter installations and replacements, water pressure management, and the upgrade of reservoirs.

The JSE has aligned its JSE Green Bond listing requirements in line with international best practice but kept it in context of the South African economy to include specific rules pertaining to green bonds. This includes that institutions which issue a green bond appoint an independent reviewer to confirm that the bond can be classified as green according accepted industry standards. The JSE also requires green bond issuers to disclose the proceeds generated through issuing the bond as well as how these funds are applied throughout the lifetime of the bond. This ensures that the capital raised is applied to the green projects it is earmarked for, to give investors an assurance that the funds are applied in line with the issuer’s intentions of raising a green bond.

It would be prudent for the regional security exchanges and bourses to establish a green economy segment in the quest of diversifying investment options, make access to capital and impact investors easier and indirectly market and brand the green based ventures based in the region.

The Nairobi Security exchange should have a segment for Small and medium enterprises in the green bond segment giving investors a wider opportunity on which they could invest in and  offer and opportuniy to Small and Medium scale enterprises to access capital and join the main stream economy

This will be a win win for – entrepreneurs like Karisa who will get much needed capital investment into their businesses and potential green economy investors will have a means of accessing sustainable investments in the fixed income market and provide an opportunity for Private Public Partnerships in accelerating Research and development.

Written by Sam Dindi

Sam is a holder of diploma in Tourism and Wildlife management and works in the field of climate change, Tourism and Wildlife. He is also the founder of Mazingira Yetu magazine. You can connect with him on LinkedIn, Twitter and Facebook.

Image credit: pexels.com

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Vicki Wangui
Vicki Wangui
Vicki Wangui is a believer in all things beautiful. A believer in spreading information in regards to environmental awareness. A believer in sharing all that is good in Kenya's natural world. A believer in speaking truth with no boundaries. Do you have a story, photo, experience or message you need to share? Send your work to vicki@nyikasilika.org or vickiwangui26@gmail.com.

1 Comment

  1. […] is the next economy – green bonds. An economy that realizes we are moving towards sustainable ways of living. We can turn food waste […]

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