Making credits for energy efficiency more attractive - adelphi advises Sri Lankan banks

How can Sri Lankan banks integrate energy-related risks into their credit assessments and thus ensure more investment into energy efficiency? These were the questions discussed by adelphi's energy efficiency expert as part of a ten-day consultancy residency with representatives of selected banks.

Small and medium-sized enterprises (SME) don't just put their stamp on Sri Lanka's economy; they are also of central importance to energy use and the country's environmental balance. Up until now, however, only a few national banks have attempted to persuade energy-intensive businesses - who have huge potential to make energy savings - to invest in energy efficiency measures.

It was against this backdrop that Johannes Alexeew, an energy efficiency expert at adelphi, offered advice to representatives of various departments of both the DFCC Bank and the Hatton National Bank from 14 to 23 September 2015 over the course of several workshops in Colombo, Sri Lanka.

The ten-day residency served to aid credit institutes in the integration of the concept of energy-related credit risks into their business practices. By integrating the concept of energy risks into risk management processes and credit assessments, banks are better able to make financial calculations and thus have greater security. This in turn increases incentives for the banks to provide such credit for energy efficiency technologies more often than has been done in the past.

During the workshops, participants received an introduction into possible methods of assessing a business's energy requirements and comparing these with average energy use. In the discussion, bank employees made clear that instruments of this kind must be designed such that they make it possible for the banks to identify energy-intensive SMEs and simplify the goal of addressing financing opportunities for investment into energy efficiency.

Furthermore, there were discussions on various methods for the identification of energy risks and the integration of this into case-related credit assessments. Front and centre of the dialogue were a flagging tool for the identification of energy-intensive customers and the introduction of an appropriate benchmarking system. Participants also discussed which parameters for the risk assessment of energy efficiency credit should be adopted. The next step will be for the banks to decide which instruments and processes should be introduced in the future. It is on this basis that adelphi will subsequently support the banks during the actual implementation.

The residency was one element of a project on the integration of energy efficiency into Sri Lankan banks' risk management systems and took place as part of an SME development programme which was initiated by Sri Lanka's Ministry of Finance and Planning in cooperation with the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ).