The International Finance Corporation, the private sector arm of the World Bank Group, has signed an agreement to provide Industrial Bank with risk-sharing coverage of RMB 200 million.
This will help Industrial Bank establish a loan portfolio of RMB 460 million of energy efficiency equipment loans to small and midsize energy users in China. The risk coverage will be provided under IFC's China Utility-Based Energy Efficiency Finance Program (CHUEE).
The program is expected to have a significant developmental impact in promoting energy efficiency, reducing pollution and greenhouse gas emissions, and expanding lending to small and medium enterprises in China. The program is also supported by grant funding from the Global Environmental Facility and Finland's Ministry of Trade and Industry.
"IFC's energy efficiency program in China provides a great opportunity to develop market-based solutions that address environmental issues," said IFC Executive Vice President Lars Thunell, who signed today's agreement. "IFC is proud to partner with Industrial Bank and to help the Chinese government achieve a key policy objective–reducing energy consumption through energy efficiency and conservation measures."
The International Finance Corporation is the private sector arm of the World Bank Group and is headquartered in Washington, D.C. IFC coordinates its activities with the other institutions of the World Bank Group but is legally and financially independent. Its 178 member countries provide its share capital and collectively determine its policies.
IFC's program brings together, for the first time, three key players–utility companies, suppliers of energy efficiency equipment, and commercial banks – to create a new financing model for the promotion of energy efficiency.
Industrial Bank will provide commercial lending, while utility partners and equipment suppliers will act as marketing agents and service providers. Overall, IFC's program will support over $150 million in energy efficiency projects and equipment investment, which in turn are expected to achieve greenhouse gas reductions of about 5 to 10 million tons.
Industrial Bank's President Li Renjie stated, "Industrial Bank has been focusing on financial innovation. The new program is a successful example of partnership to create a new financing model for energy efficiency. This model is a win for all of us, and Industrial Bank can use the market-based financing model to leverage IFC's risk-sharing facility on a more scalable basis. It not only solves the problem of SME energy financing, but also supports China's energy conservation business. It achieves both social and economic benefits."
The new financing model is a result IFC's energy efficiency experience in other countries and its experience in China's financial sector. IFC found that utilities, such as gas or electricity distributors, can be effective agents for marketing and delivering energy efficiency projects. Utilities can act as a "one-stop shop," offering advice on reducing energy consumption and pollution, and providing equipment, such as gas boilers and heating systems, to realize these improvements. At the same time, utilities can partner with commercial banks that provide loans for the equipment.
