Green Financefor Micro, Small and Medium Enterprises (Msmes)

Green Finance for Micro, Small and Medium Enterprises (MSMEs) in the Philippines

2013 Update with Proposals for the Promotion of Green Economic Development (ProGED) Project This publication is by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH through the Promotion of Green Economic Developmnet, funded by the German Federal Ministry for Economic Cooperation.

As a federally owned enterprise, GIZ supports the German Government in achieving its objectives in the field of international cooperation for sustainable development.

Published by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

Registered offices Bonn and Eschborn, Germany T +49 228 44 60-0 (Bonn) T +49 61 96 79-0 (Eschborn)

Responsible Dr. Volker Steigerwald Project Manager Promotion of Green Economic Development (ProGED) Project 6th Floor Department of Trade and Industry Building 361 Sen. Gil Puyat Ave., Makati CityT +63 2 897-8199 F +63 2 753-1441 E [email protected]

Author Dr. Wolfram Hiemann

Editors Fabian Barsky Vickie B. Antonio

Photo credits / Sources The photos in this publication are owned by GIZ unless otherwise indicated in the photo.

Layout / Design Mary Jane R. Alacapa

Printed and distributed by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

Place and date of publication Makati, Philippines October 2013 Green Finance for Micro, Small and Medium Enterprises (MSMEs) in the Philippines

2013 Update with Proposals for the Promotion of Green Economic Development (ProGED) Project

Contents

Acronyms i The Philippines – Selected Indicators iii Summary v 1 Introduction 7 1.1 Background 7 1.2 Terms of Reference 7 1.3 Methodology 7 1.4 Green Finance: Definition and Instruments 2 1.5 Micro, Small and Medium S Enterprises (MSMEs) 3 1.6 Green Entrepreneurs 4 1.7 Sparking False Hopes 4 1.8 Project and Equipment Green Finance 5 1.9 Demand for Green Finance, Obstacles and Challenges 6 1.10 Opportunities 9 2 Green Financing Facilities 10 2.1 International Financial Facilities 10 2.2 World Bank Group and ADB 14 2.3 Bilateral Initiatives 16 3 Banks 18 3.1 Government-owned Financial Institutions (GFI) 20 3.2 Participants of the Sustainable Energy Finance (SEF) Program 22 3.3 Selected Credit Institutions in the Pilot Regions Cebu and Bohol 28 3.4 Bohol-based NGOs 31 4 Loan Guarantees and Insurance as Collateral Substitutes 35 5 Developers and Promoters of Green Projects and Initiatives 37 5.1 Consultants 37 5.2 Programs and Projects 40 5.3 Business Member Organizations (BMOs) 42 5.4 Bankers Institute of the Philippines, Inc. (BAIPHIL) 44 5.5 Non-government Organizations 44 6 Government 46 7 Green Equipment Suppliers 48 8 Recommendations 50 8.1 Proposed Partner Institutions 51 8.1.1 Financial Institutions 51 8.1.2 Equipment and Appliance Providers 52 8.1.3 Consultants 53 8.2 Innovative Mechanisms for Facilitating MSME Access to Finance 54 8.3 Recommendations on Tools, Capacity Building Measures,Consultancy Arrangements 57 8.3.1 Tools 57 8.3.2 Capacity Building Measures 57 8.3.3 Other Support Activities 61 9 List of Annexes 63 9.1 Rural Power Project (RPP), DOE, 2008 64 9.2 Land Bank’s Carbon Finance Support Facility (CFSF) 67 9.3 Information about Plantersbank (PDB) 68 9.4 Plantersbank urges SMEs to go green 70 9.5 Plantersbank: From Double toTriple Bottom Line Banking 72 9.6 Plantersbank: From Double to Triple Bottom Line 72 9.7 PhilEXIM 75 9.8 SWITCH Asia Zero Carbon Resorts (ZCR) Project 77 9.9 Environmental Economics (EC) 78 9.10 Risks and Profits 79 9.10.1 Zero Carbon Hotels May Have to Look for New Clientele 79 9.10.2 PV-Powered Electric Transport and Battery Replacement Costs 80 9.10.3 Income From Sale of CERs Negligible 81 9.10.4 Achievements of Green Philippines Islands of Sustainability (GPIoS) Project 81 9.11 Citibank: Ready Credit (Fees and Charges) 82 9.12 Philippine Green Energy Tariffs due 2014 83 9.13 Development of the Philippine PV Market 83 9.14 National Budget for 2013 84 9.15 Small Business Guarantee Finance Corporation (SBC or SBGFC) 87 9.16 Credit Surety Fund (CSF) 88 9.17 PCFC Micro-Energy Credit Program General Policy Guidelines 89 9.18 List of Banks with Microfinance Functions in Region VII (Central Visayas) 90 9.19 SEF Promotion and BPI’s Experience 91 9.20 ECCP SMART Cebu 92 9.21 The Philippine Green Building Council (PHILGBC) 93 9.22 Philippine Energy Efficiency Project (PEEP) 96 Photo Documentation 97 Boxes Box 1: Inputs Required to Go Green iv Box 2: Why Are Loans Inaccessible for MSMEs? 3 Box 3: WB Plans to Buy Carbon Credits (CER) from Pig Farms 12 Box 4: Philippine Industrial Energy Efficiency Project (PIEEP), 2011 - 2017 13 Box 5: Climate Change (CC) Mitigation Programs and Projects in the Philippines 15 Box 6: CTF IMPACT: Jump-starting Private Sector Investment in Clean Transport 17 Box 7: Classification of Banks 20 Box 8: Microfinance Subsidiaries of Commercial Banks 21 Box 9: BPI’s SEF Activities 26 Box 10: BPI Extends ‘Green Loan’ for Waste-to-Energy Plant 26 Box 11: SEEDFINANCE Financing LPG Tricycles 31 Box 12: SEEDFINANCE Partners in Bohol and Cebu 31 Box 13: BPI Head Office has Commissioned an ESCO 38 Box 14: Green Bank Challenge 2013 45 Box 15: Department of Science and Technology (DOST) and its SET-UP Facility 47 Box 16: Model Calculation for Repossessing Equipment 55 Box 17: Posters for Creating Awareness 58 Tables Table 1: Recommendations overview vi Table 2: MSME Categories and Characteristic Bank Loan Size 3 Table 3: Rural Power Project, Financing Plan (five years) USD million 10 Table 4: Philippine Country Investment Plan for Clean Technology Fund (Proposal 2011) 15 Table 5: Top Banks in the Philippines (2012) 18 Table 6: ASENSO Program: SME Retail and Wholesale Loan Releases from GFIs, 2012 18 Table 7: Development of Bank Outlets 19 Table 8: BanKO’s SEF Model (Sample) 27 Table 9: Lending for Pico-Solar Systems for Fisher Folks 28 Table 10: SEEDFINANCE: Basic Facts and Figures 31 Green Finance for MSMEs in the Philippines i

Acronyms

AC Air conditioner unit ADB Asian Development Bank ASENSO Access of Small Enterprises to Sound Lending Opportunities ASKI Alalay Sa Kaunlaran, Inc., a leading MFI ASSIST Asia Society for Social Improvement and Sustainable Transformation, a local NGO BAHRR Bohol Association of Hotels, Resorts and Restaurants BDO Banco de Oro Unibank, a private owned universal bank BERDE Building for Ecologically Responsive Design Excellence BMO Business membership organization BPI Bank of the Philippines Islands, a private owned universal bank BPO Business Process Outsourcing BSP Bangko Sentral ng Pilipinas (Central Bank of the Philippines) CARD MRI Center for Agriculture and Rural Development - Mutually Reinforcing Institution CBC China Banking Corporation, known publicly as China Bank, a private owned universal bank CC, CCC Climate Change Commission CDM Clean Development Mechanism, flexibility mechanism under the Kyoto Protocol for emission-reduction projects in developing countries to earn CER credits Cebu-GTH Gifts, Toys and Housewares Foundation (Cebu-GTH), Inc. CEM Certified Energy Manager CER Certified Emission Reduction credits CEVI Community Economic Ventures, Inc. CFC chlorofluorocarbon CSF Credit Surety Fund CSR Corporate Social Responsibility CTF Clean Technology Fund DA Department of Agriculture DBP Development Bank of the Philippines DENR Department of Environment and Natural Resources DOE Department of Energy DOST Department of Science and Technology DOT Department of Tourism DOTC Department of Transportation and Communication DTI Department of Trade and Industry EC European Commission ECCP European Chamber of Commerce in the Philippines EE Energy Efficiency ii Green Finance for MSMEs in the Philippines

eff Effective (annual interest rate)

EMB Environmental Management Bureau, DENR ENPAP Energy Efficiency Practitioners Association of the Philippines, Inc. EU European Union FCB First Consolidated Bank, Tagbilaran, Bohol, a thrift bank FI Financial institution FIT Feed-in tariffs (for electricity generated from renewable resources) GDP Gross Domestic Product GEF Global Environment Facility GF Green finance, finance to reduce the environmental impact at preferential conditions GFI Government Financial Institution, including LBP and DBP GFP Green Finance Program, DBP’s umbrella program

GHG Greenhouse gas, measured in CO2 equivalents GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH GOCC Government owned or controlled corporations GOP Government of the Philippines GPIoS Green Philippine Islands of Sustainability/EcoSwitch project GTH Gifts, Toys and Housewares Foundation (Cebu-GTH), Inc. ICI International Climate Initiative, Germany IFC International Finance Corporation, a member of World Bank Group IGLF Industrial Guarantee and Loan Fund KfW Kreditanstalt für Wiederaufbau, German Bank of Reconstruction LBP Land Bank of the Philippines (Landbank), a GFI LGU Local Government Unit MFI Micro Finance Institution MSME Micro, Small and Medium Enterprises NCR National Capital Region NEDA National Economic Development Authority NGA National Government Agency NGO Non Governmental Organizations NPA/NPL Non Performing Assets, Non Performing Loan ODA Official Development Assistance pa Per annum PBE Philippine Business for the Environment PDB Planters Development Bank, publicly known as Plantersbank, a thrift bank, private development bank PGBh Provincial Government of Bohol PhilEXIM Philippine Export-Import Credit Agency Green Finance for MSMEs in the Philippines iii

PHP Philippine Peso ( ), currency exchange rate USD 1 = PHP 42, EUR 1 = PHP 53 pm per month ProGED Promotion of Green Economic Development PoA Program of Activities, a scheme for MSMEs to participate in CDM benefits PV Photovoltaic QUEDANCOR Quedan and Rural Credit Guarantee Corporation RA Republic Act REWARD Renewable Energy for Wiser and Accelerated Resources Development SBC SBGFC Small Business Guarantee Finance Corporation SEC Securities and Exchange Commission of the Philippines SEF Sustainable Energy Finance program SET-UP Small Enterprise Technology Upgrading Program, a DOST program SMART Cebu SMEs for Environmental Accountability, Responsibility and Transparency Cebu Project SMEDSEP Small and Medium Enterprise Development for Sustainable Employment Program SSS Social Security System TA Technical assistance TSKI Taytay Sa Kauswagan, Inc., development organization in Iloilo UNDP United Nations Development Programme UNEP United Nations Environment Program UNFCCC United Nations Framework Convention on Climate Change UNIDO United Nations Industrial Development Organization VC Value Chain WBG World Bank Group ZCR Zero Carbon Resorts, a SWITCH-Asia project to green resorts

The Philippines – Selected Indicators

Philippines Cebu Province Bohol Province

Land area 300,000 km2 (±7,000 islands) 4,943 km2 4,821 km2 Population ± 100 million 2.7 million 1.3 million Population density ± 330 per km2 ± 550 per km2 ± 270 per km2

Capital Manila/Metro Manila Cebu City ± Tagbilaran City Capital population ± 1,700,000/12,000,000 900,000 ±100,000 GDP per capita ± USD 2,500, based on PPP: USD 4,500

Regional GDP Metro Manila: PHP 288,000, ± USD 6,900 GDP growth 7.8% (Q1 2013) Region VII: PHP 87,000, ± USD 2,100 Inflation 2.6% (April 2013) Gov. budget PHP 2,006 billion, ± USD 48 billion

The economy is the Agriculture 12.3%, coconut, pineapples shipping, IT-hub, BPO, agriculture tourism 40th largest in the Industry 33.3% furniture, mining and plays an increasing world Services 54.4% quarrying, tourism role (IMF, 2012) agriculture (mango)

(Sources: Wikipedia, BSP, 2010 census data, some figures adjusted and rounded, as per 2012/13) iv Green Finance for MSMEs in the Philippines

Government

The Philippines is made up by three island groups: Luzon, Visayas, and Mindanao. These are further divided into 17 regions, 80 provinces, 138 cities, 1,496 municipalities, and 42,025 barangays.

Currency Philippine Peso, PHP, ( ) 52-week range: PHP/USD - 40.5150 - 43.5400; say 4252- Exchange rates week range: PHP/EUR - 50.6366 - 55.7868; say 53 03 June 2013

http://finance.yahoo.com

Disclaimer/Acknowledgement

The study was produced on behalf of the German Federal Ministry of Economic Cooperation and Development (BMZ) by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. The sector project ‘Innovative Approaches to Financial Systems Development’ and the project ‘Promotion of Green Economic Development (ProGED)’ partnered to bring this study into existence.

The Consultant prepared this report for the sole use of Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. The use of this report by unauthorized third parties shall be at their own risk. Any recommendations, opinions, or findings stated in this report are those of the consultant and based on circumstances and facts upon which this report is based as they existed at the time the consultant performed the work. The consultant has not independently verified information provided by others.

The information contained in this report was gathered from the sources mentioned in this report and at meetings with representatives from various national and provincial (Cebu and Bohol) government agencies, financial institutions (banks, MFI, insurance and guarantee providers), advocates supporting MSME development and environment protection, consultants concerned with environment projects and issues, and entrepreneurs who supply and use energy efficient = green equipment.

This report was prepared under the guidance of the Promotion for Green Economic Development (ProGED) project, headed by Dr Volker Steigerwald, partnering with the Department of Trade and Industry (DTI) Regional Operations and Development Group of the Republic of the Philippines, headed by Undersecretary Merly M. Cruz.

Mission team members were Victoria B. Antonio from the ProGED project, Olga Caday-Asana, working for GIZ and KfW in the Philippines, Jimmy Loro, a microinsurance specialist working for the Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI) Project, and Fabian Barsky, GIZ Eschborn, who supported the consultant during this mission and provided additional valuable advice and information. The consultant enjoyed the assistance of Manila ProGED team members Jasmin, Jennifer, and Othmar and Cebu and Bohol ProGED team members Miriam, Cherie, Nanda, and Baby.

The consultant wishes to thank everyone who contributed time and knowledge to this report.

Dr Wolfram Hiemann Green Finance for MSMEs in the Philippines v

Summary

In recent years the Philippine economy has emerged as one of the fastest growing economies in East Asia. GDP growth accelerated to 7.1% in the third quarter of 2012, reaching 6.6% for the full year. Economists attribute this trend to the country’s strong macroeconomic fundamentals, improved government finances and execution of public investments, expansion of the construction sector, buoyant private consumption, and high confidence in the Aquino government’s commitment to reform.1 According to data published by Bangko Sentral ng Pilipinas (BSP, the Central Bank of the Philippines), banks have expanded their network and commercial banks ventured increasingly into SME financing, reportedly with reduced collateral requirement and loan interest rates below 10% per annum. One respondent even mentioned ‘cut-throat competition’ for borrowers.

Environmental issues and concerns play an important role in a country that suffers increasingly from typhoons attributed to climate change (CC) resulting from increasing CO2 levels and global warming.2 The Renewable Energy Act of 2008 (RA 9513) mandated a ‘Feed-In Tariff System’ (FIT),3 which was approved in July 2012. Implementation regulations are still in progress, so investments are not expected until 2014.4 The country obtained financial assistance from multilateral and bilateral development partners in order to implement programs aimed at mitigating environmental hazards through green finance (GF).

There is no standard definition for GF, but for the purposes of this report the following statements apply: GF supports investments in energy efficiency (EE) and renewable energy (RE). GF also finances other measures that reduce or prevent negative impacts on the environment. The term GF is not limited to loans. Subsidies and other incentives such as tax breaks or financing training measures may also be regarded as GF. The term GF implies that green loans or other green financial instruments have advantages over ordinary commercial facilities due to, for example, lower interest rates, longer repayment periods, or accompanying technical assistance, depending on the bank and the scheme.5

Despite substantial international green funding, enterprises do not appear to enjoy or feel direct benefits.

1. The Development Bank of the Philippines (DBP) offers a ‘Green Financing Program as an umbrella for the environment sector thrust designed primarily to assist industries and local government units (LGU) in adopting environment-friendly processes and technologies. Thanks to DBP’s wholesale lending, MSMEs have access to this program through private financial institutions, MFIs, cooperatives, and associations. Eligible projects include pollution reduction, liquid and solid waste management, green building construction and ‘greening’ buildings, and greening transport, including vehicle acquisition. DBP’s program explicitly mentions ecotourism projects, but does not refer to RE projects. The program offers long-term loans at slightly below market interest rates. It is not a feature that attracts hundreds of borrowers.

2. The Land Bank of the Philippines (LBP) was recently recognized as the ‘Green Bank Champion for Environmental Due Diligence’ by the Bankers Institute of the Philippines (BAIPHIL). Environment is one of its ten priority lending sectors. LBP offers a RE facility that finances

1 http://www.worldbank.org/en/news/press-release/2013/03/19/philippines-worldbank-approves-financing-accelerating-inclusive-growth 2 The Philippines reported 33 destructive natural disasters last year – the highest number worldwide. http://www.dbm.gov.ph/?page_id=3692 3 The FIT also guarantees small energy producers a kWh tariff for electricity fed into the grid. 4 http://phys.org/news/2013-03-philippine-energy-tariffs-year.html 5 GIZ’s working definition for GF is: concepts and instruments to incorporate the financial sector in the transformation process towards low-carbon and resource-efficient economies, and in the context of adaptation to climate change. vi Green Finance for MSMEs in the Philippines

primarily feasibility studies (REWARD). LBP’s Carbon Finance Support Facility (CFSF) provides its SME clients the opportunity to join the Clean Development Mechanism (CDM) Program of Activities (PoA) and generate additional income from the sale of the carbon credits, currently an almost negligible source of GF because certificate prices have nosedived.

3. The Bank of the Philippines Island’s (BPI) Sustainable Energy Finance (SEF) program, in cooperation with the International Finance Corporation (IFC), has reached fewer than fifty (estimated), mostly large enterprises since its inception in 2009. The BPI benefits from access to long-term finance and from IFC’s coverage of 50% of SEF credit risk. In 2012, two commercial banks joined the SEF program: Banco De Oro (BDO) and China Banking Corporation (CBC). The client’s advantage is access to technical assistance (TA) and a review of the loan proposal with regards to the appropriateness of investment costs and output, which, however, is not always free.6

4. The BPI Global BanKO, officially a savings bank, completes the SEF program partners. The bank operates as a ‘branchless bank’, using cell phone technology and banking partner outlets, existing businesses that offer the traditional bank’s face-to-face services of receiving applications and deposits in addition to their core business. It aims at low-income households (minimum income USD 2 per capita per day) and MSMEs. Lending is either direct or through channels in the banking partner outlets network. The interest rate for end-users can be prohibitive, about 30% effective pa. Nevertheless, this is distinctly less than the interest rates competitors charge for micro and small loans.

5. MSMEs do not find the import tax exemptions and similar benefits offered by the Board of Investments (BOI) worth the effort required.

In contrast to project financing (such as RE, investments in electricity generation for the grid, or entirely new construction of resorts), ‘greening’ existing facilities and the tourism value chain requires finance only for refurbishing or for equipment that normally constitutes only a fraction of total assets. In most cases, the energy savings made possible by these investments are not decisive for bank financing.7 However, many examples show that EE investments are profitable. They reduce fuel and electricity consumption and often lower maintenance costs. Furthermore, improved water and waste management can reduce expenses or even generate income. Assessments find payback periods of less than three years in most EE cases, as opposed to over six years for RE projects. It remains unclear, why EE investments should obtain incentives to decrease their financing costs.

In the Philippines, green private-sector investments, in particular those of MSMEs, are financed with equity or commercial loans, sometimes even with revolving (‘evergreen’) loans. In other words, green investments are financed with funds that are not considered GF.

Discussions with entrepreneurs and representatives from banks, government institutions, green programs and projects, business membership organizations (BMOs), consultants, and equipment vendors indicate that for most MSMEs lack of access to GF is not a bottleneck in greening their businesses. Banks compete for creditworthy SME clients and complement the investors’ equity. While there is a quite broad awareness of climate change (CC), most entrepreneurs do not really know what to do about it – apart from using the ubiquitous energy-saving lamps.

The ProGED project intends to promote greening the tourism sector and its value chain. This is a

6 The bank may charge a fee for processing the loan application and for external expertise. 7 Taking resorts as an example: water and electricity consumption savings are less important than increased occupancy or room rates. Banks do not make investment loans without considering the applicant’s credit worthiness and the overall viability of the business. A loss-making company might not get a loan, even if savings from a particular investment were greater than the cost of the relevant loan service. Even if the investment would reduce costs, savings might be used to reduce losses or cover other costs and would not necessarily be available for loan repayment. Overall income generates funds for loan repayment. In other instances, profitability suffices to repay a loan. Consequently, savings from increased energy efficiency may attract investors but are of minor relevance for a loan decision. Green Finance for MSMEs in the Philippines vii very ambitious task, because enterprises in the tourism sector range from micro to large and their value chains include most of the 16 sectors in the bank–BSP reporting scheme.

Activities should focus on enhancing awareness and information, organizing information flow, and networking, thus creating demand for measures, tools, and equipment to increase EE and produce RE. In most cases, the recommended EE equipment can be financed without a specifically green loan facility. However, the availability and promotion of green finance will accelerate the process by attracting attention and strengthening awareness.

Box 1: Inputs Required to Go Green

1. Awareness and individual responsibility in the environmental context 2. Knowledge of feasible options (research, information, consultancy) 3. Knowledge management (applying knowledge, no or little investment required: e.g. switching off electricity-consuming devices, using shadow and natural ventilation) 4. Availability and accessibility of equipment, after-sales service 5. Finance – last of all. Some may be commercial credit, some GF.

Credit granted for a project should not be considered a necessary and definitive indicator of the project’s scope or success. Uptake should not become a major indicator for the project’s achievements. Loans are an offer (and demand driven); no one should be obliged to accept it. It is a choice. “You can lead a horse to water, you can’t make him drink.” However, the denial of a loan by a finance provider should be questioned and reasons investigated, in particular if the denial prevents investment in protecting a common good, the environment.

The following presents a set of recommendations whose priority and feasibility must be determined by the ProGED project together with the Department of Trade and Industry (DTI). This will very much depend on how fast and how effectively partnerships can be developed, in particular partnerships with financial institutions. It will also depend on the human and financial resources that ProGED and DTI can mobilize among the partners and participants.

Recommendations

ProGED has two pilot areas, the provinces of Cebu and Bohol, with distinctly different environments and markets. The size of their population centers may serve as an indicator: Metro Cebu has 2.55 million inhabitants, Tagbilaran only 96,792.8 The role and economic impact of resorts and their value chains are much more significant in Bohol. To maximise impact, ProGED should start there, particularly with regards to cooperation with financial institutions (FI).

It is proposed that a ‘Green Alliance for Bohol’ be established with members of the Provincial Government of Bohol (PGBh), national government agencies, banks ready to finance greening, green equipment vendors, and green resorts as green equipment users. Banks, vendors, and users can be represented by their BMOs. If such an organisation already exists in Bohol, the ProGED can provide it with support and guidance.

The PGBh publishes an environmental policy statement on its website and on posters (see Annexes, Photo Documentation 5.2). The ProGED project might propose that the PGBh establish awards for environment protection efforts in line with its policy.

8 Based on 2010 census data; Metro Cebu comprises seven cities and six municipalities, see http://en.wikipedia.org/wiki/Metro_Cebu viii Green Finance for MSMEs in the Philippines

The project might provide the PGBh with comparative studies against other areas, such as Boracay, for learning and benchmarking purposes. This would be another measure to enhance awareness and seek support for Bohol MSMEs’ environmental endeavours.

The following financial institutions are proposed as partners:

• DBP, because of its Green Financing Program

• BPI, BDO, CBC, and BanKO, for their participation in the Sustainable Energy Finance (SEF) program

• First Consolidated Bank as a Bohol-based thrift bank with an extensive network beyond the Visayas

• Plantersbank as an SME bank with an environmental focus but no green product; the bank has branches in Cebu, but not in Bohol

• Community Economic Ventures Inc. (CEVI) as a Bohol-based NGO with microfinance activity.

Loan enhancement institutions, credit guarantee institutions, and insurers are bank partners and risk mitigators; they can positively influence a bank’s loan decision. Account officers and loan applicants should be encouraged to take them into consideration.

The following six instruments may stimulate green lending.

1 The ‘Flexi Loan’ combines flexible loan repayment, according to borrower capacity, with the repayment discipline that financial institutions demand and that is often regarded as best practice; for example, regular payments but irregular amounts.

2 The rental-purchase agreement introduces weekly or even daily instalments that the user pays from income to the cooperative or similar institution.

3 In a buy-back agreement, the buyer borrows money from a FI to purchase equipment; the vendor is required to buy back the equipment. If the buyer defaults, the vendor seizes the equipment and sells it. The vendor must balance the incentive of increased sales against the risk of default and loss.

4 Buyer-prefinancing for the procurement of organic food secures supply and provides an inexpensive financing alternative for farmers.

5 Collateral substitutes, such as insurance cover, give banks additional confidence; they may supplement insufficient conventional collateral.

6 Loans for EE measures repaid through the borrower’s electricity bill (on-bill financing): with repayments balanced against energy savings, the borrower does not feel the repayment burden; fear of being cut off ensures repayment compliance.

To ensure better judgment and qualified advice, loan officers, MSMEs, and employees of hardware shops should receive ‘Basic EE/RE Training’ in the fundamentals of electric power and green equipment. Financial institutions (FI) should get support in the development of the proposed ‘Flexi Loan’ and advice on how best to market new bank products.9 MSMEs would benefit from walkthroughs, technical and energy audits to identify opportunities for savings and recovery (water, solid waste).

9 Organizations providing assistance within the banking industry may be tapped, such as Bankers Association of the Philippines, FINEX (Financial Executives of the Philippines), and ADFIAP (Association of Development Financing Institutions in Asia and the Pacific). For rural banks, there is the Rural Bankers Association of the Philippines (RBAP) and the Chamber of Thrift Banks. Green Finance for MSMEs in the Philippines ix

Instead of demanding that banks better understand MSMEs, MSMEs should enhance their financial literacy to better understand banks, since active and growing MSMEs depend on loans to green their business and exploiting energy-saving opportunities.

Other recommended measures include the following

• exhibitions of EE green equipment and RE tools

• a new edition of the Green Technology Catalogue

• learning from experience (analysing failure to invest in greening and unprofitable investments) in order to develop and introduce counter-measures

• updating proposed partners’ websites to highlight green activities and link to related websites, such as the Green Technology Catalogue or FIs that finance green investments

• inexpensive flyers for investors and the public about green investment opportunities (‘How to Green Bohol’) made available in government offices, banks, and other places that MSMEs visit, such as the tax office, Bohol’s Business One-Stop-Shop (BOSS), etc.

Business membership organizations (BMOs) should be included in the organization and execution of the envisaged measures and serve as their conduit. Government agencies should support, monitor, and document the activities and make lessons learned available to others.

The ProGED project is not partnered with the Department of Finance or with the Bangko Sentral ng Pilipinas (BSP, the central bank). Therefore, if easier access to green financing or financing for green purposes is an objective, ProGED might wish to lobby for the following recommendations.

• The Green Credit Guarantee Fund shall be established and administered by the Small Business Guarantee Finance Corporation (SBC). All financial institutions registered with BSP should have easy (online) access with minimal documentation requirements and obtain cover without prior approval. Credit guarantees, in addition to conventional collateral, can influence loan decisions positively.

• In their monthly reports to BSP and in their annual reports, banks and other FIs shall publish data on their green lending. This will encourage them to engage in GF and alert the public to the banks most experienced in and favourable to green loans. x Green Finance for MSMEs in the Philippines

Table 1: Recommendations overview

Initially, emphasis on activities in Bohol

Provincial Bohol Government: Establishing/strengthening ‘Green Alliance for Bohol’, awards, benchmarking

1 Proposed Partner 2 Innovative Finance 3 Tools and Capacity Building 4 Other Support Institutions Mechanisms Activities

Financial Institution • Flexible Loan repayment Tools - Exhibition, fair (arrange and visit) Loan product ’Flexi Loan’ - DBP - Green Technology - SEF Participants • Rental-purchase Capacity Building Catalogue agreement FI - First Consol. Bank - Learning from - Development of a ‘Flexi Loan’ experience - Plantersbank - Greening websites • Buy-back agreement - Basic EE/RE training - CEVI - EE/RE loan proposal - Public promotion (Loan enhancement assessment • Procurement pre- Institutions: financing - Marketing: tools and strategy

- credit guarantee, MSMEs - insurance companies) • Collateral substitutes - Basic EE/RE training

- Walkthrough (energy, water, Technology Vendor sewage, solid waste) - CITIHARDWARE • Loans from electricity company - Financial literacy Consultancy Local CEMs Green Equipment Vendors IFC/SEF consultants - Basic EE/RE training TÜV Rheinland Phil . TÜV SÜD Phil.

Lobbying for Establishing a Green Credit Guarantee Fund Reporting green loans to BSP

Timeframe

Based on experience, it takes quite some time to convince banks to cooperate in the development and testing of a new product or a new administrative arrangement for a product. It may take perhaps six months until a cooperation decision is made (MoU or similar) and another six months to adjust or to issue new internal bank procedures for a new product. BSP may be required to approve the product. Some more months will possibly pass until the bank actually engages in a first loan based on the new arrangement. It will take several months of experience for the bank and its account officers to gain confidence and expand or roll out the model in a larger scale. A realistic scenario allows about two years until a full launch of a new loan product. For purposes of comparison, first-time borrowers can expect a delay of more than six months from application to disbursement of a standard loan. Green Finance for MSMEs in the Philippines 1

1 Introduction

1.1 Background

The Department of Trade and Industry (DTI) and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH agreed in 2013 to cooperate in implementing the Promotion for Green Economic Development (ProGED) project. ProGED looks at green economic development as a driver for competitiveness, innovation, new markets, and jobs, all of which will contribute to inclusive growth and poverty reduction.

The project objective is that MSMEs and government institutions relevant to economic development increasingly implement environment friendly, climate smart, and inclusive strategies and measures.

ProGED will be introduced in the tourism value chain of Bohol and Cebu, with the aim of upscaling outside the pilot areas on the second year.

It remains to be determined whether MSMEs have access to finance, in particular green finance (GF), allowing them to take advantage of green investment opportunities.

1.2 Terms of Reference

This report shall

• update the inventory of GF products available for MSMEs in the Philippines

• develop proposals for innovative mechanisms for facilitating MSME access to finance

• identify partner institutions and propose corresponding partnership arrangements to support innovative financing mechanisms

• provide recommendations on tools, capacity building measures, consultancy arrangements, and other support activities.

1.3 Methodology

This report is an outcome of interviews with representatives from banks, other financial institutions (insurance and guarantee providers), government agencies and institutions at national and provincial level, advocates supporting MSME development and environment protection, consultants concerned with environment issues, and entrepreneurs who supply and use green equipment. ProGED arranged the interviews, which were conducted by two ProGED/GIZ team members and two international consultants. They took place in Manila as well as in ProGED’s pilot region, Cebu and Bohol, from 15 April through 3 May 2013. Internet research provided additional information.

ProGED organized a Green Financing Forum and presented the findings of the mission in Tagbilaran City, Bohol, on 29 April 2013 to participants from banks and other financial institutions, development practitioners, potential investors, and government representatives. The participants used the Q&A sessions for lively discussions. 2 Green Finance for MSMEs in the Philippines

We believe that this report, though far from complete, fairly reflects GF in the Philippines and the access of MSMEs to finance for green purposes.

1.4 Green Finance: Definition and Instruments

Green Finance (GF) aims to support investment in renewable energy (RE) and energy efficiency (EE) as well as environment-friendly processes and systems such as cleaner production, waste minimization, resource conservation, and other activities which ultimately bring greenhouse gas (GHG) emissions under control.

Green finance or ‘environmental finance’10 encompasses a broad spectrum of funding mechanisms and sources for environment-oriented technologies, projects, industries, or businesses as well as financial products and services like green loans, bonds, insurance, etc.11 GF contributes to lower cost, in particular for investment and ancillary cost including finance, and higher income.

Green finance instruments include:

• subsidies, direct and indirect, such as tax exemptions

• regulations, such as feed-in tariffs (FIT)

• preferential, concessional, or soft loans, characterized by one or more of the following: - below market interest rate (if compared with loans of the same tenure) - longer grace periods - longer tenures or maturities - reduced or soft collateral requirement

• financial incentives such as additional income, for instance from sale of carbon rights/certified emission reductions (CERs)

• technical assistance (TA).

Other GF instruments are guarantees and insurance products mitigating risks connected to GF and serving as collateral substitutes.

GF is concessional financing and therefore restricted to financing specific green investments. Some GF products require an environmental impact calculation, such as amount of GHG reduction.

No central institution registers GF. The BSP requires banks to report loans according to a number of criteria,12 but GF is not among them. A common monitoring, reporting, and verification (MRV) system is not in place.

1.5 Micro, Small, and Medium Enterprises (MSMEs)

The Magna Carta for Micro, Small and Medium Enterprises (MSMEs) defines the national policy to promote, support, strengthen, and encourage the growth and development of MSMEs. It was first enacted in 1991 and last amended by Republic Act 9501 (RA 9501) in 2008.

10 ‘Environmental finance’ is part of a series of concepts in environmental economics. For more details see Annex 9.9 and http://en.wikipedia.org/wiki/Environmental_finance 11 http://www.antiessays.com/free-essays/402899.html: Green Finance: Towards a Sustainable Economy, Teodoro S. Ocampo, MBA, De La Salle Doctorate in Business Administration Program, De La Salle University, Manila, Philippines [email protected] 12 See Financial Reporting Package for Banks (updated as of 31 January 2013), pp. 20- 24, http://www.bsp.gov.ph/downloads/regulations/FRP/FRP_MoA.pdf Green Finance for MSMEs in the Philippines 3

MSMEs are defined as any business activity or enterprise engaged in industry, agribusiness, and/or services, whether single proprietorship, cooperative, partnership, or corporation, whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office, plant, and equipment are situated, must have value falling under the following asset categories:13

Table 2: MSME Categories and Characteristic Bank Loan Size

Category Assets*) up to Typical loan size Remark Micro PHP 3,000,000 PHP 100,000 – 500,000 Loan sizes can be distinctly higher, mostly depending on value of land and Small PHP 15,000,000 PHP 500,000 – 5,000,000 improvement as collateral Medium PHP 100,000,000 PHP 5,000,000–25,000,000

*) exclusive of the land on which the particular business entity’s office, plant, and equipment are situated

This classification may be used as a proxy for loan amounts, although they often depend more on the value of land, which is excluded in the figures above. Loans can help enterprises graduate to a higher category.

All lending institutions as defined under central bank (BSP) rules, whether public or private, shall set aside at least eight percent (8%) for micro and small enterprises.14 BSP collects information on these loans. In the absence of detailed BSP data and in view of the RA 9501 definitions it seems safe to assume that few MSME loans used for green purposes surpass PHP 30 million.

Box 2: Why Are Loans Inaccessible for MSMEs?

Depending on the individual bank’s policy, MSMEs have to attach various documents to their loan application. Informal MSMEs have easy access to small loans at MFIs; these carry higher interest rates than business loans from banks and the amounts are typically below PHP 50,000. MSMEs feel discriminated against and claim to have no access to bank loans. When larger SMEs ask a bank for a business loan, they need to submit tax declarations, audit statements, sometimes also their power and water consumption bills over a one year period, and a project proposal or even a feasibility study. These are up-front costs that add to the cost of a low-interest loan – if it is granted; otherwise the money was spent in vain. MSMEs that have to process these documents for the first time, in particular, regard the requirements as red tape and consider loans inaccessible.

1.6 Green Entrepreneurs

The impression gained from interviews with hotel and resort managers is that the primary purpose of green entrepreneurs among them is not to maximize their profits with this business model, but to set an example. They enjoy the smaller carbon footprint and lower electricity bills after investing in EE equipment. They invest when they think they can afford to. They do not calculate in advance whether the savings would really repay a loan. For instance, few hotel managers know whether lower electricity costs, when they occur, result from investment in EE equipment, enhanced guest consciousness and responsibility towards electricity consumption, or lower occupancy. On the other hand, MSMEs are apprehensive to take up a loan when the danger looms that the fixed installments might lead temporarily to financial stress. Their main problems relate to infrastructure: water supply, sewage, waste management, or road construction.

The entrepreneurs expressed common problems with banks – repeatedly heard from MSMEs – for example: ‘The value of my property is PHP 10 million. It is not fair to take it as collateral for a PHP 1 million loan.’ The demand for a special, concessional green loan facility – because otherwise the investment would not pay off – was never expressed.

13 The Republic Act No. 9178, otherwise known as the Barangay Micro Business Enterprise (BMBE) Act, 2002, also provides an employee-based operational definition of MSMEs (Micro: 1–9 employees , Small: 10–99 employees, Medium: 100–199 employees). 14 RA 9501, SEC. 18. Mandatory Allocation of Credit Resources to Micro, Small and Medium Enterprises 4 Green Finance for MSMEs in the Philippines

1.7 Sparking False Hopes

Financial benefits from going green, commonly used to promote green investments, are not always realized. Failures are seldom documented. Data that document success stories are unclear, incomplete, and seldom open to scrutiny. FIs therefore have good reasons to remain prudent and stay alert. A few examples are described below.15

• A conventional business hotel loses patrons when it changes its character and becomes a ‘Zero Carbon Resort’. With fewer guests, savings are easy to realize!

• Introducing LED bulbs will not easily pay off when they replace common energy-saving CFLs.

• Green transport with e-trikes sourced from a little-known foreign company with few spare parts on stock and uncertified batteries carries a high risk of technical and economic failure.

• Income from sales of Certified Emission Reduction (CER) credits, promoted by international donors, collapsed almost completely.

False hopes are also a result of a remarkable and continuous communication gap between engineers and financiers, particularly as regards new technologies, often leading to misleading results in feasibility studies. On the other hand, remarkable savings can be achieved, as documents from the GPIoS project show.16 It is also important to document and learn from failures, from investments that did not pay off.

1.8 Project and Equipment Green Finance

It is difficult to distinguish GF from general commercial finance when an investor performs a necessary general overhaul of a resort towards a low or zero carbon resort. Saving energy is a common byproduct of new equipment. Entrepreneurs may benefit from a GF facility that also finances associated expenditures. From a practitioner’s point of view, Deutsche Bank said in an interview that in their view entrepreneurs would always combine different purposes of investment and the majority of companies would not make an investment just for the sake of EE savings.17

GF can be used for

• Project or long term investment finance - Income generating projects, for example RE or electricity-generating projects - Non-income generating long term investments, such as wastewater treatment plants

• Equipment finance - durable goods that are listed and depreciated as assets but constitute a minor part of a business, such as minibuses, water heaters, and air conditioners (ACs) for hotels or resorts; they feature lower operating costs compared to conventional equipment; income is not (directly) contributable to these items

15 For details see Annex 9.10. 16 For more see Annex 9.10.4. 17 What Have We Learned From Energy Efficiency Financing Programs? “Sara Hayes, Steven Nadel, Chris Granda, and Kathryn Hottel, September 2011, Report Number U115 – ’Donor organizations want to develop a financial instrument that specifically targets and fosters EE savings. From this end, only investment with a clear EE-saving purpose would qualify as eligible, being based on some sort of standard EE auditing that is applicable to banking procedures.’ http://www.highmeadowsfund.org/storage/ research-and-learning-documents/energy-related-documents/ACEEE%20Financing%20Study_executive%20summary.pdf Green Finance for MSMEs in the Philippines 5

- expendable goods, those which are booked as costs and not listed as assets, such as EE bulbs.

EE savings can only be realized as long as the enterprise concerned serves a market. If the company stops operating for any reason, EE savings are nil and do not repay the EE loan. Therefore, there is no reason to separate loan assessment for EE loans from the underlying business. The difference in the appraisal is only reflected in assumed lower energy expenses. It is the task of the loan applicant to provide and explain the figures in the loan proposal or feasibility study.

The bank has to assess whether the failure of the RE project or the EE measure will increase the borrowers’ business risks and costs to an extent that potentially results in a loan default.

1.9 Demand for Green Finance, Obstacles and Challenges

The issues of GF demand and supply as presented in the following must be addressed in order to achieve a higher GF volume.

Demand for GF appears at the end of a long process, which includes several steps such as: • developing green consciousness • accepting responsibility towards environmental issues • acquiring knowledge • management decisions • assessing the availability or accessibility of suitable equipment (including after-sales service) • assessing and selecting finance options.

In general, green EE investments are financed with own funds or existing, often short-term credit lines. They remain undetected and unrecorded.

There are quite a number of reasons for lack of MSME demand for GF or finance for green purposes. The following examples are not exhaustive.

• Entrepreneur-related reasons - Green awareness, willingness, and commitment are lacking; environmental issues are increasingly central to some businesses, but in absolute terms still of low importance. - Most entrepreneurs focus on more crucial components, such as how to increase sales. - Daily problems prevent MSMEs from looking into bigger things such as greening the industry. - A wait-and-see attitude is widespread. Entrepreneurs notice failures immediately but it takes longer to convince them of benefits. Risk aversion is beneficial for the under-resourced; it prevents big losses that they cannot carry. To accelerate the conversion to green processes, there must be successful pioneers to inspire or government regulations and penalties to enforce compliance. - For most small entrepreneurs convenience seems paramount. They do not see a necessity for change or to reduce variable secondary costs, especially not if it means fixed costs or even recurring expenditures (depreciation, loan instalments).18

18 For example, compared to a new car, an old fuel-inefficient taxi has higher operating costs (when it runs) but much lower fixed costs (lower depreciation or loan installments). The owner of a new car is forced to earn more income to break even, i.e. to cover fixed and operating costs. He is less flexible and low demand will hurt more. 6 Green Finance for MSMEs in the Philippines

- MSMEs avoid attention and prefer remaining ‘under the radar’, perhaps for tax purposes. - MSMEs’ energy management system experts are technical employees with limited ability to convince top management, particularly in financial terms such as quantifying cost and benefit to the company.

• Bank/loan-related reasons - Banks offer GF facilities to selected clients, often LGUs. GF facilities are not publicised; if they are included on bank websites, they are hidden. - The financial market is very liquid; it offers low interest rates and flexible alternatives, such as working capital loans, which banks prefer to investment loans in general. - Reports that bank internal procedures and decision-making processes last more than ten months discourage potential borrowers. - Because of compound interest, EE/RE investment loans with interest rates exceeding 25% per annum are seldom viable when the repayment schedule exceeds 36 months.19 - Some banks lack the capacity to assess GF projects, leading them to delay their decision. Meanwhile, the investors find another lender or abandon the investment altogether.

• Technology-related reasons - Entrepreneurs lack knowledge about green technology, its cost and savings potential. - Outside big cities, entrepreneurs consider changes too expensive and too risky. The ‘critical mass’ for introducing new technologies is not yet achieved; goods are more expensive (transport and trade margin), spare parts not readily available, after-sales service inadequate and expensive.

• Supplier-related reasons: weak promotion - Suppliers rely on word-of-mouth recommendations (‘the Pinoy way of marketing’). - Many salespersons are incapable of quantifying and explaining the benefits of EE equipment. They cannot even explain the data on yellow labels (see pictures). - Beyond LED lamps, few hardware stores stock green equipment; it constitutes only an insignificant share of their offer.20

• Government-related reasons - Insufficient regulation of feed-in tariffs (FIT)21 and lax supervision, for example of piggeries, prevent a substantial increase in the demand for GF. - The government’s supervision capacity regarding compliance with environmental regulations is insufficient. - New government regulations or stricter regulations would also enhance lending for green investments. - There is still room to improve environmental awareness campaigns and promotion of investments in greening the economy.

Based on interviews, MSMEs in Cebu and Bohol (outside Manila) are mostly concerned that 1. The equipment is too expensive; they pay too much (lack of comparison).22

19 For interest and ancillary costs of small business loans see Annex 9.11. 20 At MC Home Depot in Taguig, Metro Manila, solar home systems were available in May 2011, but no longer available in April 2013. Surprisingly, one of Tagbilaran’s hardware shops features a solar heater at its entrance. The other vendors are not even aware of it. Buyers are mainly foreigners, for private and commercial (resort) purposes. 21 For more on feed-in tariffs see Annex 9.12. 22 The continuous price drop for electronic equipment, in particular PV panels, supports the impression that early investors paid too much. Green Finance for MSMEs in the Philippines 7

2. Basic assumptions are wrong, such as minimum hours of AC operation, sunlight, water flow. 3. Maintenance and after-sales service is not guaranteed. 4. It is not possible to claim warranty. 5. The terms of payment are not sufficiently flexible.

Buyers of green technologies are large enterprises and wealthy private households. Most of them do not require GF. In addition, MSMEs report that they could finance EE measures with equity and bank finance. Lack of equity and lack of access to bank loans are presently not the major obstacles.

Financial institutions have few reasons to develop a green loan. - The financial market is brisk and expanding in a strong economic environment. Typically, in developing countries, banks grow at least twice as fast as the economy. - Banks find it difficult to access in particular long term capital for RE at attractive conditions. - Banks have always financed EE/RE investments – even in the absence of GF facilities. - Financing new technologies is risky in the absence of regulation, experience, and in-house technical expertise. - The critical mass for EE/RE equipment is not achieved, so that after-sales service is poor. Broken equipment does not generate income or loan repayment capacity. - The market for green equipment is not transparent and subject to overcharging, jeopardizing the viability of the investment. - Electronic equipment, In particular, quickly becomes outdated and prices drop.23 - Electricity tariffs are flexible and may drop.24 - It is a challenge to develop a green loan without broadly accepted standards in place (for example, green tourism standards) that would allow assessment and comparison of individual MSME green performance.

Therefore banks provide short term working capital loans, which, as some respondents mentioned, clients use for green investment.

Some argue that financing EE/RE in SMEs is another ‘add on’ challenge for the already difficult SME market. Small and medium scale industries represent a fragmented market with less EE savings potential in absolute terms, forcing the creation of tailor made financial measures and downscaling to meet the individual SME situation.25 The ratio of income to effort and risk is low.

1.10 Opportunities

GF is available for MSMEs from DBP and LBP, either directly (through their lending centres) or as wholesale loans channelled through rural banks, MFIs, and other conduits for private households and micro entrepreneurs.

Electricity rates in the country, particularly in the capital region, are the second highest in Asia,

23 During recent years, prices for solar PV panels dropped fast so that the time-based depreciated book value is higher than the cost of new equipment. Extra depreciation resulted in losses and proves those right who pointed to the high risk of financing green equipment. 24 The Manila Electric Co. (Meralco) announced that the electricity rate in its franchise area this month will drop by PHP 0.12 per kilowatt hour (kWh).’ (May 2013) http://www.malaya.com. ph/index.php/business/business-news/30643-meralco-to-cut-may-charges 25 Financing Models and Energy Efficiency, GIZ. 8 Green Finance for MSMEs in the Philippines

next only to Japan, largely due to the high cost of power generation.26 Presumably, the price dive for solar PV panels is bottoming out. The cost of self generated electricity competes favourably with grid prices. PV electricity generation during daytime balances ACs’ peak consumption.27

Green growth is embedded in the Bohol investment code, in particular use of local design and resources. The PGBh’s ‘green code’ is an overarching framework.

The tourism sector grows unabated. In 2010, Bohol counted some 3,200 hotel rooms and added 1,000 more in the next two years. The opening of a new airport is expected to give another boost to the sector. The local environment is hardly sustainable without significant investments, particularly in water, sewage, and solid waste disposal.

Banks, including GFIs, offer loans to the tourism sector. Some FIs approach potential investors actively with competitive interest rates. Members of the Bohol Association of Hotels, Resorts and Restaurants (BAHRR) expressed that they are open to borrowing.

26 http://investvine.com/philippines-in-need-for-energy-investment/; considering the recent appreciation of the Peso and depreciation of the Yen it might be the highest in Asia. 27 For more details on the PV market see Annex 9.13. For DoE’s Rural Power Project suppliers see the Directory of Accredited Participating PV Companies, http://www.doe.gov.ph/microsites/rpp/directory_accredited_pcs.html Green Finance for MSMEs in the Philippines 9

2 Green Financing Facilities

2.1 International Financial Facilities

The United Nations Framework Convention on Climate Change (UNFCCC) provides various funds, such as the Adaptation Fund, Green Climate Fund, Special Climate Change Fund or Fast- Start Finance. The Philippines is part of the UNFCCC and benefits from several international financing facilities for Climate Change.28 It would require a separate in-depth study to find out how much of these funds is allocated, how much spent and disbursed, and how much is actually available as GF for enterprises.

Recipients of these programs are predominantly governments, their agencies, and large enterprises. External funds that will ultimately finance MSME green efforts appear in such forms as direct subsidy (chiller replacement), purchase of CERs, or soft loan.

The Global Environment Facility (GEF) unites 182 countries in partnership with international institutions, civil society organizations, and the private sector to address global environmental issues while supporting national sustainable development initiatives. Today, the GEF is the largest public funder of projects to improve the global environment. An independently operating financial organization, the GEF provides grants for projects related to biodiversity, climate change, international waters, land degradation, the ozone layer, and persistent organic pollutants.

Box 3: WB Plans to Buy Carbon Credits (CER) from Pig Farms

In August 2012, the World Bank said it plans to buy carbon credits from pig farms in the Philippines, helping farmers generate extra income by setting up environment friendly waste treatment facilities. Under the program it will finance the installation of waste treatment systems that will capture methane gas from pig manure. The gas could be used to generate electricity, thereby reducing dependence on fossil fuels. The WB’s Carbon Finance Unit will buy CERs from these systems thus helping farmers secure additional income. About 100,000 tons of CERs could be earned each year, without providing details on what price it would pay for credits. The project, supported by the WB and implemented by LBP, will be carried out under the UNFCCC that includes a program for extracting methane, a potent greenhouse gas, from pig farms.29

The GEF finances more than one third of the country’s Rural Power Project (RPP), the first phase of an Adaptable Program Loan (APL) by the World Bank to the Philippine Government, specifically Department of Energy (DOE). About USD 26.8 million out of USD 233 million are earmarked for the initial phase, five years. Financing a solar PV component for households and micro enterprises is part of the RPP. For more see Annex 9.1.29

Table 3: Rural Power Project, Financing Plan (five years) USD million

Components IBRD GEF: IBRD GEF: UNDP Government DBP Consumers/ Total Private Sector

Investment Component 9.6 1.1 1.0 2.2 0.0 3.1 16.9 Technical Assistance 0.2 7.9 - 1.3 0.2 - 9.6 Front-end Fees 0.2 - - - - - 0.2 GRAND TOTAL 10.0 9.0 1.0 3.4 0.2 3.1 26.7

28 For more details see the presentation ‘Philippine Climate Change Programs/Projects and Financing Facilities, NCCAP and LCCAP Strategy Formulation Workshop 22-23 March 2012’. 29 Read more at: http://phys.org/news/2012-08-world-bank-unveils-carbon-incentive.html#jCp 10 Green Finance for MSMEs in the Philippines

GEF is the primary donor of UNIDO’s Industrial Energy Efficiency (IEE) Programme. It is providing USD 3.166 million to support DOE’s Philippine Industrial Energy Efficiency Project (PIEEP).30 DOE is currently training qualified Filipino candidates to become national experts on energy systems optimization (steam boiler, compressed air, and pumping system).

Box 4: Philippine Industrial Energy Efficiency Project (PIEEP), 2011 - 2017

PIEEP, a joint initiative with DOE, and DTI-BPS is promoting industrial EE through adoption of an Energy Management System (EnMS/ISO50001) and Systems Optimization to make industrial operations more EE, reliable, and competitive. Prospective candidates will join the Project’s capacity-building program and be trained by UNIDO’s International experts on Systems Optimization. They will be able to assist hundreds of Philippine industries in optimizing systems operations. The project costs are planned to be financed as follows: USD 3.166 million from UNIDO-GEF, USD 20.0 million from National Commercial Banks (DBP, LBP, BPI), and USD 4.0 million contributed by the DOE.

A Multilateral Fund (MLF) for the implementation of the Montreal Protocol on substances that deplete the ozone layer supports the replacement of old refrigerators and chillers (see below).

The Clean Development Mechanism (CDM), which can earn entrepreneurs tradable Certified

Emission Reduction (CER) credits or units for reducing CO2, was earlier considered relevant for financing MSMEs. The sale of CERs can increase the income of piggery owners, micro-hydro power operators, and also investors in EE equipment, e.g. replacing old chillers with new EE chillers. (The investors benefit from CERs and from the MLF). CER prices dropped from about EUR 20 per ton in 2008 to below EUR 0.35 by the end of 2012.31 Today, the potential income that MSMEs can gain from sale of CERs is almost negligible. It will not contribute noteworthy amounts to GF unless prices recover substantially.32

The Philippine Energy Efficiency Project (PEEP) included the establishment of the Energy Efficiency Financing Facility. ADB’s data sheet, updated in 2013, does not report on it. A USD 1.5 million grant from the Clean Energy Facility–Asian Clean Energy Fund complements the project.

With regards to the Project for the Introduction of Clean Energy by Solar Electricity Generation System, Japan assists the installation of solar PV power generation systems in the compound of the Department of Energy (DOE) and the Philippine National Oil Company.33

Below is a table of CC mitigation programs and projects. They do not provide GF for MSMEs. MSMEs benefit as contractors (orders for supplies and work).

30 http://www.philippine-embassy.at/the-philippine-permanent-mission-/unido/197-philippines-secures- gef-co-financing-of-us3166-million-for-the-philippines-industrial-energy-efficiency-project.html 31 http://en.wikipedia.org/wiki/File:Cers-spot-prices-2012.svg 32 The price volatility is extremely high. Presumably, nowadays, banks would not finance a project that grounds its feasibility on income from sale of carbon credits. 33 http://www.gmanetwork.com/news/story/186183/news/nation/tokyo-s-loans- allow-manila-to-build-solar-panels-improve-weather-forecasts Green Finance for MSMEs in the Philippines 11

Box 5: Climate Change (CC) Mitigation Programs and Projects in the Philippines34

Title Implementing Agency/ Objectives and Components 1) Location and Donor 2) Sector Focus

The Philippine Energy DOE Efficient lighting (retrofitting 1) Philippines, Efficiency Project ADB of lighting systems in subprojects in (Loan) Loan: USD 31.1 government offices, selected regions million Counterpart: residences, buildings and USD 13.9 m Period: industries) 2) - Government 2009–2011 (Ongoing) - Retrofit 135 buildings offices Extended without - LED traffic lights and - national additional cost until others35 residences, 2014 - Communication and - public lighting Social Mobilization system - energy sector.

Project for the DOE Demonstrate and 1) NCR Introduction of Clean JICA evaluate the effectiveness Energy by Solar and efficiency of solar 2) Energy sector Electricity Generation photovoltaic (PV) power System Grant: JPY generation system through 600 million(about net-metering mechanism in USD 6 million) Period: the commercial, industrial, 2010–2012 and residential sectors of the country; contribute to further improvement of policies and guidelines on net-metering

The World Bank Group (WBG) plays a pivotal role in the allocation of resources, including those in the Clean Technology Fund (CTF) and Country Investment Plan (CIP).35

Like UNIDO, the multilateral UNEP agency does not provide direct funds to finance EE/RE measures of MSMEs in the Philippines. UNEP’s Climate Finance Innovation Facility (CFIF) supports finance-industry engagement in the new climate sectors RE and EE with consultation for the development of climate-focused financial products and services. Germany’s International Climate Initiative (ICI) funds this project with EUR 2 million for 12 countries in Asia, including India, China, and Indonesia. Investment Committee members come from ADB, Germany’s Ministry of Environment (BMU), KfW, and UNEP.

In the Philippines, ICI funds are spent in a project of the Frankfurt School and the UNEP Collaborating Centre for Climate & Sustainable Energy Finance. The financial institution partner is the Center for Agricultural and Rural Development Mutually Reinforcing Institutions (CARD MRI)36 in a program called Empowering the Poor through Increasing Access to Renewable/Efficient Energy. It focuses on distributing solar lamps to off-grid households.37 This facility complements DOE’s efforts to promote solar PV home systems as part of the Household Electrification Program (HEP).

34 http://www.climateadapt.asia/upload/events/files/4f7ab09c016c41_NEDA.pdf 35 For details see http://www.adb.org/projects/42001-013/details, and Annex 9.14. The project’s impact is: cost of energy production (and Philippine oil imports) reduced; this is planned to be achieved by reducing consumption, not by reducing the specific cost per kWh. 36 CARD MRI is a group of mutually reinforcing institutions with over 800 microfinance offices and 1.2 million microfinance beneficiaries across the Philippines. 37 http://climate-finance.org/#04 12 Green Finance for MSMEs in the Philippines

2.2 World Bank Group and ADB

The Philippine Chiller Energy Efficiency Project (PCEEP) is a World Bank–GEF–MLF-assisted project and is being undertaken by the Government of the Philippines (GOP) through the Department of Environment and Natural Resources (DENR) Environmental Management Bureau (EMB).

The PCEEP’s objective is to stimulate accelerated conversion of chlorofluorocarbon (CFC)-based chillers and other energy inefficient chillers to new and more EE-oriented technology through the provision of financial incentives and a robust policy framework, thereby addressing well- documented techno-economic barriers and overcoming market barriers to improved EE.38 It was projected to replace some 100 chillers under this scheme. The PCEEP failed to reach the target due to lack of demand despite provision of a range of market-based, technological, and economic incentives to chiller owners in order to lower opportunity costs and up-front capital costs.39

The World Bank administers the Climate Investment Fund (CIF),40 a multi-donor trust fund, of which the Clean Technology Fund (CTF) is a part.41 The Philippines is tapping USD 250 million in financing from the CTF to support investments in energy-efficient electric vehicles (e-trikes), industrial EE, and RE, with the intention of catalyze large-scale investments in low- carbon technologies.

ADB’s Clean Technology Fund (CTF) was initially earmarked to go to a major solar generation initiative but was allocated to the e-trike project instead. A USD 101-million tranche will help finance the 20,000 e-trikes that will be deployed in two years, also supposedly transparency measures. DOE said it has no authority to decide how to use money borrowed from this fund.

Table 4: Philippine Country Investment Plan for Clean Technology Fund (Proposal 2011)42

USD million Financing Source Renewable Urban Transport EE (ADB) E-trikes (ADB) Total Energy (WBG) (WBG) CTF 75 50 24 101 *) 250 GOP/DBP 180 50 46 99 375 IBRD loans 250 180 430 IFC Loans 250 250 ADB Loans 100 300 400 Private sector 750 750 Other co financing 20 20 Total 1,505 300 170 500 2,475 Source: Multilateral Development Bank (MDB) Teams; IBRD=International Bank for Reconstruction and Development http://www.climateinvestmentfunds.org/cif/sites/climateinvestmentfunds.org/files/CTF%205%20Philippines%20IP.pdf *) A CTF grant of USD 1 million is requested for fine-tuning of technology options, technology transfer, local industry support and capacity building; implementation support, including monitoring and evaluation activities will be financed by the ADB loan.

38 http://www.thegef.org/gef/sites/thegef.org/files/publication/Philippines%20-%20Fact%20Sheet%20-%20From%20Rawleston.pdf 39 The Philippine Chiller Energy Efficiency Project (PCEEP) conducted a Year End Assessment and System Design Validation for the Chiller Monitoring Information System, held at Tagaytay City in December 2012. Its main objective was assessment of project performance vis-à-vis the revised 2012 Work and Financial Plan, identification of gaps and challenges encountered, and development of strategies/solutions to address them. A survey with chiller vendors could find out, whether there were in fact few chiller replacements overall, or simply few replacements financed under the PCEEP. 40 Climate Investment Funds (CIFs) were designed by developed and developing countries and implemented with multilateral development banks (MDBs) to bridge the financing and learning gap between now and the next international climate change agreement. CIFs are two distinct funds: the Clean Technology Fund (CTF) and the Strategic Climate Fund (SCF). http://en.wikipedia.org/wiki/Climate_Investment_Funds). 41 The Clean Technology Fund (CTF) promotes scaled-up financing for demonstration, deployment, and transfer of low carbon technologies with a significant potential for long-term greenhouse gas emissions savings. Innovation and deployment of clean technologies at scale will be central to success. Investments are planned for RE and highly efficient technologies to reduce carbon intensity, for the transport sector, to address both efficiency and to promote modal shifts, and for EE in buildings, industry, and agriculture. 42 http://www.climateinvestmentfunds.org/cif/sites/climateinvestmentfunds.org/files/CTF%205%20Philippines%20IP.pdf Green Finance for MSMEs in the Philippines 13

Donors discussed controversially with GOP the proposal to introduce e-trikes on a large scale. Technical and financial viability issues were raised. The donors’ comments reflect how risky the introduction of a new technology can be.43, 44 Supposedly, the financial risk will remain with the e-trike owner, who would prefer the fuel powered model, and with the bank (provided the e-trike remains the only collateral).

Box 6: CTF IMPACT: Jump-starting Private Sector Investment in Clean Transport

Enabled by USD 125 million CTF financing, the Filipino government is implementing an integrated strategy to accelerate the transition to solar-powered electric vehicles in two of its largest cities. The CTF-backed investment will help deploy 100,000 e-trikes and provide initial financing to establish rooftop solar charging stations for the vehicles in Cebu City and Manila.

Source https://www.climateinvestmentfunds.org/cif/sites/climateinvestmentfunds.org/files/CTF_Philippines.pdf

The GOP supports the Philippine Energy Efficiency Project (PEEP) with USD 13.9 million, to which ADB contributes USD 31.1 million as a loan and USD 1.5 million as a grant. During the duration of PEEP, 2009 to 2013, the following was introduced: an Efficient Lightning Initiative (retrofitting lighting in government buildings and in public areas, lamp waste management), an Efficient Building Initiative (green building rating and concepts), and Communication and Social Mobilization. For more details on the PEEP’s activities see Annex 9.22.

USD 10 million from the WB-administered CIF finances the Philippine Sustainable Energy Finance (SEF) Program, which will comprise both an investment and advisory component to support the scaling-up of EE/RE projects in the Philippines’ large corporate, SME, commercial, residential, municipal, and microfinance sectors. The SEF addresses lack of collateral, lack of financial capacity, lack of SME access to skills, knowledge, and markets, and unavailability of financial products tailored to SME needs, as well as lack of institutional capacity of financial intermediaries. The specific sector focus will be tailored to meet the partner FIs’ strategic initiatives and portfolio concentration. Beneficiaries are clients of World Bank Group’s International Finance Corporation (IFC)-supported private commercial banks: BPI, BDO, CBC, and BPI Global BanKO, a ‘savings bank’ specialize in microfinance services.

The IFC has a separate risk-sharing facility with BPI and BDO,45 so that these two private banks have more incentive to enter into a new business. CBC plans to set up a stand-alone sustainable energy finance program IFC recommends that banks finance RE and EE projects, chiller replacement, and energy-rated refrigerators, ACs, light bulbs, and solar heaters.

2.3 Bilateral Initiatives

Bilateral assistance initiatives for financing measures to control climate change (CC) include - East Asia Climate Partnership (Korea), which addresses water shortages - Cool Earth Partnership (JICA, Japan)

43 Concerns relate to the cost of e-trikes (not solar-powered, but with solar battery-charging stations) and affordability to tricycle drivers. Initially, e-trikes were supposed to be submitted as a CDM project but there were questions on how to monitor the reduction in GHG emissions and if the UNFCC Executive Board approved an already existing methodology. The Project has implications for transport infrastructure such as securing long-term maintenance and service stations (spare part supply, installation, operation, manpower training); individual financial aspects (income, creditworthiness, and indebtedness of present drivers, dropping value of second-hand conventional tricycles); aspects that could jeopardize the project (competition, too much downtime for battery charging). 44 Initially e-trikes were supposed to be submitted as a CDM project but there were questions on how to monitor the reduction in GHG emissions and if there are already existing methodologies approved by the UNFCC Executive Board. This project is classified as EE. This is questionable; it is of course a RE project. See http://www.climateinvestmentfunds.org/cif/sites/climateinvestmentfunds.org/files/Comments_from_ Germany_on_Approval_by_Mail_Philippines_Revised_CTF_IP_and_EEEVs_Project_2_0.pdf 45 http://www1.ifc.org/wps/wcm/connect/region__ext_content/regions/ east+asia+and+the+pacific/news/philippine+bank+partners+step+up 14 Green Finance for MSMEs in the Philippines

- Initiative for Climate and Environmental Protection (IKLU), Germany.

None of these programs was identified as directly supporting MSMEs in their EE/RE efforts. The IKLU is presently not relevant because Germany’s Financial Cooperation with the Philippines was suspended in mid-2009.

KfW supports GFIs (DBP, LBP) with interest-reduced loans, a maturity of up to 12 years, fixed interest rate, and a grace period of three years. The GFIs forward these facilities (after blending with own funds) to enterprises, including MSMEs. The Government takes over the currency risk and charges a fee, which increases the banks’ refinancing costs and decreases the attractiveness of these funds for investors. ODA-financed facilities have been observed to be more expensive due to the government pass-on fees to the GFIs and because they are compared with flexible interest loans.

Germany’s International Climate Initiative (ICI) is financed from the sale of CERs. The ICI, through KfW and reinforced by KfW own funds, offered LBP a reduced-interest loan amounting to EUR 20 million (about PHP 1,060 million) with accompanying TA measure of EUR 0.5 million (about PHP 2.7 million). It promotes a Credit Line for Energy Efficiency and Climate Protection (CLEECP). It is currently being redesigned to suit market needs and demands.

In September 2012, the German Federal Environment Ministry (BMU) announced that, as part of its ICI, it has provided an additional EUR 3 million in support of the Philippines’ climate policies, bringing the current total to over EUR 30 million. 46

46 http://www.international-climate-initiative.com/en/media-centre/news-archive/news-detail/ article/germany-and-the-philippines-enhance-cooperation-on-climate-change-mitigation- and-renewable-energies/?cHash=d496d071fab857e7a52a46c135e1f2e0 Green Finance for MSMEs in the Philippines 15

3 Banks

Box 7: Classification of Banks

1. Universal banks or Unibanks (19) a. Government-owned: DBP, LBP, Al-Amanah Islamic Investment Bank of the Philippines b. Private-owned (16) incl. BPI, BDO, CBC 2. Commercial banks (19) 3. Thrift banks (73) a. Savings and mortgage banks b. Stock savings and loan associations c. Private development banks (Plantersbank, in Bohol: First Consolidated Bank) 4. Rural banks (595), 16 in Cebu, 4 in Bohol

As of 31 March 2011, there were 19 universal banks, 19 commercial banks, 73 thrift banks, 595 rural banks, 40 credit unions, and 15 non-banks with quasi-banking functions (NBQB), all licensed with the BSP (Central Bank) under Republic Act No. 8791, also known as the General Banking Act of 2000. The classification expresses the banks’ power or range of activities.

The market is liquid as indicated by interest rates of below 1% per annum for 1-month term deposits and lower rates for passbook savings.

Table 5: Top Banks in the Philippines (2012) Assets Rank Bank PHP million USD million 1 BDO 1,153,777 27,471 BDO 1153777 2 METROBANK 758,791 18,066 METROBANK 758791 3 BPI 698,901 16,641 BPI 698901 4 LANDBANK 629,258 14,982 LANDBANK 629258 5 DBP 313,863 7,473 DBP 313863 PNB 312172 6 PNB 312,172 7,433 CHINABANK 304961 7 CHINABANK 304,961 7,261 RCBC 303067 8 RCBC 303,067 7,216 PLANTERSBANK 54000 Plantersbank 54,000 1,286 FCB 10000 FCB 10,000 238 PHP million 0 500000 1000000 1500000

Table 6: ASENSO Program: SME Retail and Wholesale Loan Releases from GFIs, 201247 Institution PHP million USD million LBP 23,300 554.8 Plantersbank 22,140 527.1 LBP 23300 Plantersbank 22140 First Cons.Bk. (est.) 5,000 119.0 First Consolidated 5000

DBP 3,300 78.6 DBP 3300

SBC 2,000 47.6 SBC 2000 NLDC 736 17.5 NLDC 736 QUEDANCOR 385 9.2 Quedancor 385 Social Security 354 SSS 354 8.4 PhilEXIM 346 PhilEXIM 346 8.2 PHP million 0 10000 20000 30000

47 http://pia.gov.ph/news/index.php?article=1781362965891 16 Green Finance for MSMEs in the Philippines

The GOP revitalized a government-led SME financing program under the name Access of Small Enterprises to Sound Lending Opportunities (ASENSO). It builds on the gains of the previous SME Unified Lending Opportunities for National Growth (SULONG) initiative. Nine GFIs and three line agencies aim to create an SME-friendly lending environment. These agencies are the Department of Trade and Industry (DTI), Department of Social Welfare and Development (DSWD), Land Bank of the Philippines (LBP), Development Bank of the Philippines (DBP), Small Business Corporation (SBC), People’s Credit and Finance Corporation (PCFC), National Livelihood Development Corporation (NLDC), Philippine Export–Import Credit Agency (PhilEXIM), Government Service Insurance System (GSIS), Social Security System (SSS), Quedan and Rural Credit Guarantee Corporation (QUEDANCOR). For comparison the table also presents SME lending of First Consolidated Bank (FCB), Bohol, and Plantersbank.

The ADB reported that the Philippines is one of the countries in Asia with a relatively developed microfinance industry that provides financial services to the low-income48 sector. Several commercial banks have established their own savings, rural, or thrift banks that are wholly engaged in microfinance operations.

Box 8: Microfinance Subsidiaries of Commercial Banks

The Bank of the Philippine Islands (BPI) established BPI Family Savings Bank and BPI Globe BanKO, a thrift bank (‘Savings Bank’) that utilizes Globe’s mobile phone technology to extend MF. The Philippine Savings Bank (PSBank or PSB), the second largest savings bank, is a subsidiary of Metropolitan Bank and Trust Company (Metrobank). The Rizal Commercial Banking Corp. (RCBC) operates its own MF-oriented thrift bank, the Rizal Microbank and the RCBC Savings Bank. East West Banking Corp. acquired Green Bank, a Mindanao-based rural bank, to establish a MF platform.

Access to financial institutions, in particular physical access in pilot Region VII (Central Visayas, which includes ProGED’s pilot regions Cebu and Bohol), has constantly improved (see table below). In 2013, 30 banks operate in Tagbilaran, the capital of Bohol province, with a population of about 100,000; three new institutions opened from January to April 2013. For a list of Banks with Microfinance Functions in Region VII see Annex 9.18.

Table 7: Development of Bank Outlets

Type March 2012 December 2012 Growth pa Nationwide Universal and Commercial Banks 9 186 9 410 3.3% Thrift Banks 1 545 1 619 6.4% Rural and Cooperative Banks 2 737 2 646 -4.4% Pawnshops 16 936 17 335 3.1% Region VII (Central Visayas) Universal and Commercial Banks 315 337 9.3% Thrift Banks 117 122 5.7% Rural and Cooperative Banks 163 168 4.1%

Source: Computed based on data published by BSP (http://www.bsp.gov.ph)

Banks process loan applications based on the assessment of the project income or total income of the proponent. They would not just look into the economy of new EE appliances and base their loan approval on these savings. The example of banks financing a wastewater treatment plant shows that it is irrelevant, whether the particular GF investment is viable per se or not. The general assumption is wrong that, if the investment is made purely from an energy savings point

48 http://phildevfinance.blogspot.de/2013/04/200-banks-join-microfinance-bandwagon.html Green Finance for MSMEs in the Philippines 17 of view, the money available for repayment comes from the energy saved. Savings increase the loan repayment capacity but they do not repay a loan. First, the company must show a satisfying positive cash flow.

MSMEs choose their bank based on convenience considerations such as parking space, ATM, or vicinity. Few have a preference. They are often loyal to the branch manager rather than the bank, and follow him or her even to another bank.

Regarding loan financing (borrowing behavior), the following observations were reported.

• Retailers offer ‘interest-free’ financing through credit card companies, but give a discount for cash payment.

• Credit card financing is more convenient than bank loans, despite higher interest rates.

• Vendors also accept post-dated cheques.

• Lack of documentation prevents banks from assessing loan applications; they turn them down.

• Low taxation is a priority for MSMEs; their officially stated income is sometimes so low that banks hesitate to finance the enterprise.

• Insufficient or lack of collateral closes the necessary ‘second way out’.

• MSMEs react negatively to bank requirements (‘red tape, discrimination’).

Some MSME take on multiple loans without any control, particularly if these loans are not collateralized with mortgages. This increases the default risk. The country lacks a credit reporting system which allows access also to credit cooperatives and business member organizations (BMO) with lending activities.

Money is available, including money to finance going green, but only a few specifically GF products, featuring advantages over common business loans, are offered.

3.1 Government-owned Financial Institutions (GFI)

Government-owned DBP and LBP are the conduits of Official Development Assistance (ODA). Both banks provide green loans as long-term facilities at interest rates of about eight to nine percent (8%–9%) per annum (about 1%–3% below market interest rates) to LGUs and corporations. The outstanding feature of loans from DBP’s ‘Green Financing Program (GFP) is their repayment term of up to 15 years including up to five years grace period. However, borrowers prefer midterm commercial loans that the bank offers at interest rates below 8% per annum. Typically, SME loans from these banks amount from PHP 4 million to PHP 40 million (about USD 100,000 to USD 1,000,000).

Development Bank of the Philippines (DBP) The DBP has allotted almost PHP 19 billion (about USD 450 million) for its ‘Green Financing Program’ (GFP),49 the bank’s umbrella program for the environment sector, in which, among others, KfW’s Industrial Pollution Control Loan Project Phases I and II (IPCLP) and Credit Line for Solid Waste Management are incorporated.

49 http://www.philstar.com/business/2012/09/29/854008/dbp-allots-p19b-green-financing-program; in April 2012, DBP together with ASSIST, ECCP, ADFIAP, and EMB-DENR signed a memorandum of agreement for a Green Financing project, for which DBP earmarked PHP 20.6 billion for industries and local government units (LGU) to use on green initiatives. http://assistasia.wordpress.com/2012/04/24/assist-dbp-eccp-emb-denr-and-adfiap-sign-partnership-agreement/ 18 Green Finance for MSMEs in the Philippines

The program assists industries and LGUs in the integration of environment-friendly processes and technologies such as cleaner production, water conservation, proper waste management, energy efficiency, air quality improvement, and pollution prevention and control. DBP’s GFP pipeline projects include the acquisition of e-trikes, the construction of a bio-ethanol distillery, power and wastewater treatment plants, construction of a green charcoal plant, a ferro-nickel smelting plant, and construction of a sanitary landfill. In Bohol, DBP finances a 2.5 MW mini-hydropower station, an investment of well over PHP 100 million (about USD 2.5 million) and beyond the financing capacity of an SME. Further projects eligible for GFP financing include green building construction (also hotels, resorts, and restaurants), as well as environment-friendly initiatives like EE lighting, urban greening, rehabilitation of water bodies and endangered ecosystems, and ecotourism.

Eligible borrowers also include government-owned and government-controlled corporations, government agencies, cooperatives, and participating FIs, including MFIs (wholesale lending) that channel the funds as subloans to micro and small businesses.

On its website, the NGO Philippine Business for the Environment (PBE), Inc., features DBP as a bank with a green agenda, but does not mention any specific green product.50

Land Bank of the Philippines (LBP) The LBP was recently recognized as the ‘Green Bank Champion for Environmental Due Diligence’ by the Bankers Institute of the Philippines (BAIPHIL). Of total approved loans, RE sources such as geothermal, hydropower, and biomass received PHP 3.7 billion (about USD 88 million) while biofuel projects accounted for PHP 226.2 million (about USD 5.4 million).

LBP offers two green facilities: - Renewable Energy for Wiser and Accelerated Resources Development (REWARD) program loans - Carbon Finance Support Facility (CFSF).

The bank offers REWARD program loans with a market rate and ‘special financing rate’ mix. They may be used by entrepreneurs (whether sole proprietor, partnership, or corporation), cooperatives, LGUs, and NGOs to help them undertake project feasibility studies or provide working capital and fixed asset investment for RE projects. The LBP demands minimum 25% equity financing and tangible collateral and/or “acceptable guarantee”. The validation/independent review of the feasibility study, engineering design, and environmental assessment is free. Uptake from potential borrowers is ‘slow’,51 despite some flexibility on the requirement for hard collateral, and with repayment terms according to project life – even with LBP using its own internal funds.

The LBP established a Carbon Finance Support Facility (CFSF) to offer Clean Development Mechanism (CDM) services for Climate Change Mitigation projects.52 The CFSF provides clients the opportunity to join the CDM program and generate additional income from the sale of their carbon credits, while also ensuring that their operations comply with environmental rules and regulations. SMEs benefit from the CDM Program of Activities (PoA) for piggeries and mini- hydropower units. LGUs have access to CFSF for sanitary landfills that recover the gas and use it as RE. For more details see Annex 9.2.

50 http://www.thepbe.org/greenfeatures/view/product/Development+Financing; PBE is an NGO with environmental concerns but not active in financing green investments. 51 One reason could be that the product REWARD is insufficiently promoted. It is not on LBP’s website. 52 https://www.landbank.com/products_carbon_finance.asp Green Finance for MSMEs in the Philippines 19

The LBP failed to market the Credit Line for Energy Efficiency and Climate Protection (CLEECP) facility. Its target was chiller replacements and general EE investments including RE projects for enterprises, LGUs, national government agencies (NGAs) and government-owned and government- controlled corporations (GOCCs). Most projects in the pipeline were RE investments waiting for FIT regulations.53 A respondent mentioned a lack of active marketing. ‘The bank has other priorities and clients that take up the loans.’54

For its Environmental Program and Management Department (EPMD), the LBP employed qualified staff to assess green projects.

The bank recognizes the efforts and cooperation of clients with outstanding environmental programs through various awards, such as the Best in Environmental Protection Award (‘Gawad’) under the Gawad sa Pinakatanging Kooperatiba (Gawad PITAK) and the SME Makakalikasan Award under the Gawad Entrepreneur annual award program.

3.2 Participants in the Sustainable Energy Finance (SEF) Program

The SEF program is supported by a technical assistance (TA) component and a risk-sharing facility (RSF) provided by the IFC and partially funded by the Global Environment Facility (GEF). SEF focuses on EE and RE. The TA component includes advisory services such as market identification, deal origination and evaluation, risk evaluation, capacity building, EE and RE calculators, market research, relationship brokering, and marketing support.55

The Bank of Philippine Islands (BPI) was the first to implement the SEF program in 2009. After Banco de Oro (BDO) joined as second participant, two banks followed in 2012, namely China Banking Corporation (CBC, Chinabank), and BPI Globe BanKO, a thrift bank for MSMEs.

Bank of Philippine Islands (BPI) The BPI, a top three commercial bank, is not only the most experienced SEF participant, it also releases more information about its SEF activities than the other SEF promoters. IFC expanded a risk sharing facility (RSF) with BPI, which guarantees 50% of every loan under the bank’s SEF window, for up to PHP 5 billion (USD 119 million) of its total portfolio of such loans. BPI states that the cooperation allows leveraging on IFC’s international experience in EE/RE financing. The TA (engaging technical consultants, conducting walkthroughs) gives confidence in handling very technical projects, and the RSF helps to expand the energy loan portfolio, enhances credit of small energy players and mitigates the risk of lending to the perceived high risk energy market. The marketing officers are trained to identify ‘SEFable’ loans.

BPI explains that technical experts are available for clients’ consultation so they can make sound decisions about their investments. A representative from ENPAP mentioned that despite training bank officers, the bank would still rely on energy consultants. Officers cannot adequately evaluate buildings and technologies, which is quite understandable because they are bankers. LBP, for its part, hires engineers as technical staff to evaluate proposals.

53 CLEECP aims to lower annual carbon dioxide emissions by the equivalent of 24 million tons by using alternative sources of energy. Most of the projects in the pipeline are mini-hydro and biomass projects that require a long process of project study, permitting, and implementation. 54 The priority of LBP is classified as the Mandated Sector, which covers small farmers (including agrarian reform beneficiaries) and small fisher folk and their associations. The second classification is ‘Support for Agriculture and Fisheries’, which includes agri-business, aqua-business, and agri/aqua-related projects of LGUs and GOCCs. Sectors classified as Support for National Government Priority Programs are MSMEs, communications, transportation, housing, education, health care, environment-related projects, renewable energy, and tourism. 55 http://www.eefphilippines.com/cms_cebu/medrep/_uploads/f_20110728- 031320_16PEEF2011Cebu_SEF_BDO_AgnesSantos_Preesentation.pdf 20 Green Finance for MSMEs in the Philippines

BPI’s SEF promotion brochure ‘Turning your Business GREEN to GOLD’ addresses corporate banking but also explicitly mentions SMEs.56 The range of turnover in target firms is USD 1–5 million (average about USD 2 million) and the average number of employees in these companies is more than 150. The loans usually range from USD 300,000 to 4,000,000 for EE projects and from USD 540,000 to 6,000,000 for RE projects.57 Interest rates vary, roughly, from 5% to 8% per annum, depending on the firm’s rating, risk assessment, collateral, loan maturity, and fixed interest terms. Most probably, less than 50 loans have been extended since the first SEF loan in 2010. BPI expects to reach more than 70 firms within the next two years. For more on BPI’s achievements with SEF see Annex 9.19.

Box 9: BPI’s SEF Activities

1. 39 presentations under ‘Market Awareness and Education of Stakeholders’(client presentations/road shows/event participation) 2. 95 entities assisted under TA provided to clients (preliminary energy audits/site visits/evaluations) 3. 39 individuals trained under ‘Capacity Building for Bank Staff’ 4. Financing: Loan Approvals – USD 49 million 5. Outstanding loans with Risk Sharing – USD 12 million

Source: https://www.changemakers.com/SME-Finance/entries/bpi-sustainable-energy-finance-program-smes

Box 10: BPI Extends ‘Green Loan’ for Waste-to-Energy Plant

The BPI has extended a ‘green loan’, part of its SEF program, for the construction of the first refuse- derived fuel (RDF) plant in the Philippines. RDF is a substitute for coal and fossil fuel created by converting solid waste to energy. Combustible components of municipal wastes such as plastic and biodegradable materials will be shredded and dehydrated via a waste converter technology to produce energy. Green Alternative Technology Specialist Inc. (GATSI) will operate a waste management, reduction, and utilization plant at the Rodriguez sanitary landfill in Montalban, Rizal. GATSI is a joint venture company producing and supplying RDF to Solid Cement Corp. for 10 years, thus saving 50% of its coal requirements.

Source: http://www.philstar.com/business/2012/06/24/820664/bpi-extends-green-loan-waste-energy-plant

China Banking Corporation (CBC, Chinabank) The CBC, a top ten bank, aims to develop a stand alone sustainable energy lending program. IFC will provide assistance in strategy development, market awareness, monitoring and evaluation, training, deal origination, and other areas. ‘We see the value to our clients of increasing lending in this area as the rising cost of electricity dampens the competitiveness of local businesses’, says Ricardo Chua, CBC Senior Executive Vice President and COO.58 The bank’s website does not refer to SEF loans.

Banco de Oro Unibank (BDO) BDO is the country’s largest bank in terms of assets. IFC provides advisory services.59 The project entails a risk sharing facility (‘the Facility’) of up to $44 million equivalent to Banco de Oro Unibank, Inc. (‘BDO’ or the ‘Bank’).60 BDO’s website gives no hint of a special environmental facility. No information could be obtained as to why the bank prefers to remain silent about this engagement.

56 BPI has not changed the program since May 2011 and distributed the same brochure in 2013. 57 http://www.changemakers.com/SME-Finance/entries/bpi-sustainable-energy-finance-program-smes 58 http://www.ifc.org/IFCExt%5CPressroom%5CIFCPressRoom.nsf%5C0%5C82BE4F6D4E7F9F3085257A10002FF4B6 59 http://www.eefphilippines.com/cms_cebu/medrep/_uploads/f_20110728- 031320_16PEEF2011Cebu_SEF_BDO_AgnesSantos_Preesentation.pdf 60 http://ifcext.ifc.org/ifcext/spiwebsite1.nsf/ProjectDisplay/SPI_DP29151 Green Finance for MSMEs in the Philippines 21

BPI Globe BanKO (BanKO)

This bank offers SEF as a wholesale product addressing households and micro entrepreneurs as members of associations, cooperatives, etc.

BPI, providing banking knowledge, and Globe Telecom, a top provider of mobile products and services in the Philippines, responsible for the technology, are the major investors in BPI Globe BanKO, the first mobile-based bank in the Philippines. The institution has been in operation since December 2011. BanKO, by its license a savings bank, developed a cellphone-based branchless network, which offers physical services through ‘partner outlets’. These are pawnshops, drugstores, grocery stores, internet cafes, gasoline stations, and the like. The partners are selected, trained, and accredited to accept BanKO account applications and perform cash transactions. The bank’s clients are those with ’a daily income starting at USD 2 per day’. It is indispensable to keep transaction costs low.

The bank also partners with MFIs, i.e. rural banks, NGOs, and cooperatives, offering Wholesale Institutional Loans to fund MFIs’ on-lending to their client base, and Capability Building Developmental Loans in the form of technical assistance and financial training for MFIs and their clients. Over the past two years, BanKO has extended PHP 1.8 billion (about USD 43 million) in loans to MFIs, reaching over 340,000 microenterprises. BanKO has diversified its product range and sells micro insurance policies. GIZ supported the bank in this initiative as a partner institution.

BanKO is the first microfinance focused bank in the country to partner with IFC and its SEF program. The BanKO–IFC partnership aims to make SEF products accessible to micro and small enterprises as well as ordinary homeowners. To this end, IFC will also conduct a market study to gain deeper knowledge of the demand for potential SEF projects.61

BanKO offers retail loan programs for micro entrepreneurs designed to provide additional capital for their businesses at ‘low interest rates and flexible payment terms’. The retail loan programs are offered to prequalified retailers with good credit history in partnership with corporations and MFIs.

Several models (see sample below) were developed for financing purchase of equipment from technology vendors, which include suppliers (for example BanKO negotiates with the supplier and pays directly for the goods) and NGOs (as partner institutions, which collect the instalments).

Table 8: BanKO’s SEF Model (Sample)

EE/ER Technology Vendors/ Step Bank Investor Consultants

1 Identifies investment opportunity Identifies investment opportunity 2 Proposes project to investor 3 Loan application with bank 4 Project assessment 5 Offering investment (not funds!) 6 Project implementation 7 Payment to vendor/consultant 8 Investment repayment to bank

61 http://ayalanews.com/sites/default/files/downloads/Ayala%20Now%20%28May%20June%202012%29%20FINAL.pdf 22 Green Finance for MSMEs in the Philippines

The interest rate for BanKO’s individual loans is 2.5% per month (pm) declining (on actual outstanding amount), equivalent to about 30% effective pa. This is lower than the charges of most MFIs. Commonly, cooperatives and NGOs request at least 2.0% pm flat (on the initial loan amount, i.e., interest payments remain constant despite a decreasing loan balance), which is equivalent to about 40% effective pa. The effective interest rate is even higher, when interest payments are deducted up-front.

BanKO’s retail loans start as low as PHP 1,500 (about USD 35) with maximum of PHP 300,000 (about USD 7,100) to be repaid within 3 to 24 months. The borrower has to contribute 10% equity to the project cost. The amounts are too small for proper mortgage documentation. Comparatively high interest income balances anticipated higher default rates.

Institutional loans range from PHP 100,000 (USD 2,400) to PHP 30 million (USD 710,000) with maturities from 6 to 36 months, monthly repayments, and interest rates starting at 8.5% effective pa. Institutions are cooperatives or other member organizations such as ASKI, an NGO with more than 70,000 borrowers. The interest rate charged for the retail loans for individual borrowers is at least 1% pm higher.

The scheme’s maximum loan amount of PHP 30 million allows project financing, e.g. rural micro hydropower units. The maximum maturity of three years is sufficient when the investors come up with substantial equity, as RE projects typically require a much longer loan period.

On average, the individual sub-loan balance is about PHP 15,000 (about USD 360).62 These loans can finance a 20-Wp solar home system (sufficient for lights and LED TV) or other EE equipment. Below is a model calculation for a micro investment, a pico solar light system for fisherfolk that replaces kerosene lanterns. The figures prove that the smallest RE investments can pay off very fast.

Table 9: Lending for Pico-Solar Systems for Fisher Folk

Investment/loan: 4 systems x PHP 6,500 PHP 26,000

Repayment: 52 weeks x PHP 651 PHP 33,852

Principal repayment: 52 weeks x PHP 500 PHP 26,000

Interest payment: 52 weeks x PHP 151 PHP 7,852, equivalent to > 50% pa63

Fuel savings: PHP 150/day x 6 days/week x 52 weeks PHP 46,800/year

Break-even point: PHP 651/PHP 150 = 4.3: fuel savings of + four days/week repay the loan in one year.

Source: BanKO Presentation The calculation seems to be optimistic. It assumes that fishermen go to the sea on 312 days per year and that they can always charge the lamps, even when it is cloudy. It does not consider costs for periodic battery replacements, which are more expensive than periodic maintenance and repair of the kerosene lanterns. However, these considerations do not jeopardize the overall viability of this investment.63

The still expanding BanKO has six branches nationwide, including those in Cebu City and Tagbilaran, Bohol’s capital. BanKO partners in Bohol province are Prime Asia Pawn and Jewellery Shop Inc. (with its nine branches also offering Western Union transfer services) and two other agents.

62 http://www.mixmarket.org/mfi/aski 63 Interest PHP 151 x 52 weeks = PHP 7,852; average outstanding amount: PHP 26,000/2 + 651 = PHP 13,651; PHP 7,852/PHP 13,651 = 57.5 % Green Finance for MSMEs in the Philippines 23

3.3 Selected Credit Institutions in the Pilot Regions Cebu and Bohol

Apart from the GFIs and SEF participants described above, no other bank could be identified that offers a specific green product. Thrift banks, rural banks, cooperative banks, or NGOs offer loans, which can be used to purchase green equipment; however, the green purpose does not ease the loan conditions. The branch network of most of these institutions is regionally limited, and so would be the management capacity and impact of introducing a green facility. The ProGED project should consider these restrictions when it expands beyond the pilot regions Cebu and Bohol.

For the promotion of green loans, one might consider cooperation with the following financial institutions, either because they are based in the pilot region, because they are familiar with micro loans, or because the branch networks allow a fast transfer of the experience to other locations.

Planters Development Bank (PDB, Plantersbank) Plantersbank does not offer a specific green loan facility. However, PDB urges SMEs togo green.64

The Plantersbank,65 a thrift bank, is the largest privately owned and managed development bank in the Philippines, with total assets of over PHP 50 billion (USD 1,200 million), offering banking products, services, and business solutions geared towards promoting SMEs. Its 70 online branches cover Cebu City (2) and Mandaue City, but there is no office in Bohol.

Bank management is especially committed to environmental issues. The bank is well-connected to organizations that promote greening. It is an active partner under the SWITCH-Asia Green Philippines Islands on Sustainability (GPIoS)66 project that conducts environmental audits of SMEs (EcoSwitch program). IFC plans to create a ‘special purpose vehicle’ for PDB.67 In contrast to other banks, the management informs the public not only about a long list of its products but also on job opportunities in shop windows. For more details see Annexes 9.3-9.6.

First Agro Industrial Rural Bank (Fairbank)68 Fairbank has no specific green loan product. This rural bank is headquartered in Bogo, Cebu, with ten branches in various locations in the northern part of Cebu Island. It is not present in Bohol. Fairbank staff participated in training measures organized by the GIZ-supported Private Sector Promotion (PSP SMEDSEP) a couple of years ago. This training measure prompted the management to introduce two special features for SME lending: a) cashflow-based lending and b) extending the maximum loan term from three to five years.69

The bank provides commercial bank loans (PHP 1 million to PHP 5 million, USD 24,000 to USD 120,000) to about 300 enterprises and lends to some 15,000 micro entrepreneurs, who use the facilities not only for their businesses but also for private household purposes.70 Fairbank has developed several loan products but a green loan is not among them. Presently, financing green equipment could be handled as an agricultural, micro finance, SME business, or consumer loan.

64 http://www.philstar.com/business-usual/2012/09/03/844724/plantersbank-urges-smes-go-green; for more see Annex 9.4. 65 The Plantersbank must not be confused with the United Coconut Planters Bank (UCPB), a private Universal Bank. 66 http://greenphilippines.com.ph/newgpios/?page_id=2/ 67 http://investvine.com/ifc-steps-up-philippines-investment/ 68 For more see http://www.fairbank.com.ph/ 69 http://www.fairbank.com.ph/MenuDetails.aspx?MenuId=4 70 According to Fairbank’s account officers. 24 Green Finance for MSMEs in the Philippines

Cooperative Bank of Bohol This bank was the only one of four banks registered in the Bohol chapter of rural banks that responded to the request to discuss green financing. The management had not yet heard about green finance. The institution has no network.

The Cooperative Bank has 104 cooperative members, who obtain loans for on-lending with the ultimate purpose remaining unknown to this bank. The minimum loan size is PHP 100,000 (about USD 2,400). The bank offers various loan products: salary loans, commercial loans, housing loans, vehicle loans, agricultural loans, corporate loans, ‘allottee’ loans, and ‘other loans’. Loans for non- members are collateralized with real estate. The bank does not accept chattel mortgage (a mortgage of moveable personal property, the chattel).

First Consolidated Bank (FCB) This Bohol based FCB has no specific green loan product.

The FCB is a private, independent development savings bank (thrift bank) resulting from the consolidation of 14 independent rural banks in the province of Bohol. The FCB now has 60 branches all over the Philippines with 12 branches in Luzon, 33 in the Visayas (22 in Bohol and 1 in Mandaue City/Cebu), and 15 in Mindanao. The bank operates 23 Marketing and Liaison Offices in the Visayas and Mindanao and a Liaison Office in Malate, Manila. Most branches are near the countryside and growth centers.

FCB is expanding its market outreach geographically, allowing customers different options to satisfy their banking needs. The website presents several loan products, but no green loan.71

FCB is designated as the depository bank of the Bohol Credit Surety Fund.72

The bank’s CSR program is focused on the fields of health, education, livelihood, and the environment. It is involved in various community projects, including promotion of local tourism. For more information, see FCB foundation below.

Green Bank According to its website, the Green Bank has no green finance facility. The bank’s name is not related to environmental issues.

The bank, also known as the Rural Green Bank of Caraga, is headquartered in Butuan City, Agusan del Norte. It is now a subsidiary of East West Banking Corporation (EastWest [Bank]), a universal bank. The Green Bank is the largest rural bank in the Caraga region in terms of assets. It has 46 branches scattered across the Visayas and Mindanao. It is present in Regions III through VIII and X through XIII. It has six branches in several places in Cebu and one in Tagbilaran, Bohol. Green Bank claims USAID as one of its business partners.

People’s Credit Finance Corporation (PCFC) The PCFC is the lead government entity specifically tasked to mobilize resources for microfinance services for the exclusive use of the poor. Among its government partners are DTI, and as FIs the LBP, DBP, and QUEDANCOR, a credit guarantee provider.

71 http://www.fcb.com.ph/about-us.php, http://www.fcb.com.ph/ 72 For more on Credit Surety Funds see Chapter 4: Loan Guarantees and Annex 9.16. Green Finance for MSMEs in the Philippines 25

Describing the PCFC as ‘the government’s MFI to provide affordable credit to the marginalized sector aiming at social reform and poverty alleviation’73 may be misleading. The corporation is a wholesale FI for 114 ‘accredited MFI partners’, namely rural banks (38%), cooperatives (26.5%), NGOs (25.6%), and cooperative banks (9.4%).74 These 114 MFIs claim to serve more than 2.6 million active clients. PCFC has 20 conduits in Region VII. Conduits in Bohol include five branches of the Philippines largest MFI, Taytay sa Kauswagan, Inc. (TSKI),75 rural banks, six branches of the Center for Agriculture & Rural Development, Inc. (CARD), and in Tagbilaran the FCB Foundation and the Green Bank.76

PCFC has a green product, the PCFC Micro Energy Credit Program, supported by the World Bank and being implemented under the Investment Support Component of the DOE’s Rural Power Project.77 It supports the provision of adequate, affordable and reliable energy services, specifically the small-scale renewable energy solar home system and solar lanterns. For MSMEs there is a limited accessibility to this source of green funds.

The PCFC was named as the ‘microfinance arm of LBP’. LBP is probably the largest lender to PCFC. PCFC is directly under LBP’s administrative supervision. Rural banks know that PCFC provides their MFI competitors with low interest loans (below 10%), one of the cheapest sources for microloans.

SEEDFINANCE Corporation SEEDFINANCE started as a microfinance assistance programme (MAP) of CARE International UK.78 In 2007 it was registered with the Securities and Exchange Commission (SEC) as a stock entity engaging in financing activities. SEEDFINANCE is another source for wholesale lending. Cebu Island is the place for major lending operations. The Lamac Multi-Purpose Cooperative (LMPC), with about 40,000 members, is located in Pinamungajan and the First Consolidated Cooperative Along Tanon Seaboards (FCCT), now with 16 offices serving about 10,000 members, has its head office in the town of Asturias.

Table 10: SEEDFINANCE: Basic Facts and Figures

Average size fund placement: USD 72,604 Total number of MFI partners: 110 Number of active MFI partners: 77 Number of supported micro businesses: 1.2 million Proportion of loans given to women’s micro businesses: 73.7%

73 PCFC mission: PCFC shall be the viable and sustainable leader in the provision of financial products and services to generate income opportunities and improve the lives of the poor. It shall assist in the development of microfinance institutions and the microfinance industry. 74 For more see http://www.pcfc.ph/dnn/ 75 Presently, TSKI is the largest MFI in the Philippines, with services ranging from group and individual loans, micro insurance, and business development services. For more see: www.tski.com.ph 76 http://www.greenbank.com.ph/ 77 For more details on the loan see Annex 9.17 and http://www.pcfc.ph/dnn/ ProductsandServices/MicroEnergyCreditProgram/tabid/60/Default.aspx 78 CARE (relief agency), originally ‘Cooperative for American Remittances to Europe’, international organization 26 Green Finance for MSMEs in the Philippines

Box 11: SEEDFINANCE Financing LPG Tricycles

The local council of Mandaluyong City in Manila has enacted legislation requiring all tricycles to switch over from two-stroke petrol and diesel powered engines (highly pollutant) to cleaner liquefied petroleum gas (LPG). Lendwithcare (backed by one of the world’s leading aid agencies, CARE International UK) helps tricycle taxi drivers to acquire cleaner engines with financial support from SEEDFINANCE and technical support from Clean Engines Incorporated (CEI). The 18-month PHP 20,000 (about USD 480) loans are to be provided through a local financial cooperative called ‘The Rizal Technological University Employees Multi-Purpose Cooperative’ (RTU-KMPC).79

Box 12: SEEDFINANCE partners in Bohol and Cebu79

SEEDFINANCE partners in Bohol (sampling) - Bohol Vendors Multi-Purpose Cooperative (BOVEMCO) - Aguipo Coconut Farmers Multi-Purpose Cooperative (ACFMPC) - Talibon Credit Cooperative (TALCRECO) SEEDFINANCE partners in Cebu (sampling) - Alima Development Cooperative (ADC) - Bacayan Multi-Purpose Cooperative (BMPC) - Catmon Community Multi-Purpose Cooperative (CCMPC) - Sta. Catalina Multi-Purpose Agricultural Cooperative (SCAMPACI) - Lamac Multi-Purpose Cooperative (LMPC)

3.4 Bohol-based NGOs

Several NGOs act as conduits for financing very small green investments for people with low and irregular income in locations far from other FIs. Solar home systems, including presumably those sponsored under the DOE’s Rural Power Project, were NGO or MFI financed. The following presents details on a sampling of NGOs with credit activities (MFIs) in Bohol. The list of NGOs with microfinance activities in Cebu will almost certainly be longer. Some NGOs were used as a conduit for green finance.

The Center for Agriculture and Rural Development (CARD), Inc. was founded as a social development organization in December 1986. CARD has evolved into an outstanding MFI with more than 800,000 clients. It operates nationwide. CARD80 MRI is pioneering financing green equipment: solar home systems. It has four branches in Bohol, all outside Tagbilaran.81

Taytay Sa Kauswagan, Inc. (TSKI),82 a nonstock and nonprofit Christian development organization based in Iloilo, was the ‘Most Outstanding NGO’ 2012. With 96 branches nationwide, its 2,300 employees serve over 300,000 clients. One branch is in Candajec, Clarin, on the northwestern coast of Bohol.

The Bohol Local Development Foundation, Inc. (BLDF) supports ecotourism and sustainable agriculture, among others. Its microfinance facility is part of the Poverty Reduction Programs. Nonperforming loans are a problem.83,84

79 See more: http://lendwithcare.blogspot.de/2013/04/lendwithcareorg-supports-important.html 80 http://cardbankph.com/wp_cardbankph/ngo/ 81 http://cardbankph.com/wp_cardbankph/ngo/?page_id=50 82 http://www.tski.com.ph/index.html 83 http://www.eco-web.com/reg/05841.html; http://bldf.blogspot.de/p/about-bldf.html 84 http://bldf.blogspot.de/p/blog-page.html Green Finance for MSMEs in the Philippines 27

Community Economic Ventures, Inc. (CEVI) was founded in 1998 in Bohol and has since established microfinance services in 13 provinces and cities across the Philippines, for a total of 30 branches as of June 2011.85 CEVI is a KIVA86 partner and its borrowers and performance are described with transparency and detail. CEVI seems a suitable partner to promote EE tools for rural people.

As the corporate social development arm of the First Consolidated Bank (FCB), Bohol, it is the vision of FCB Foundation, Inc. (FCBI)87 to be a viable and self-reliant development institution. In 1989, FCBFI was registered with the SEC as the bank’s response to the poverty alleviation needs of the province. Today, the FCB Foundation has evolved into a strong microfinance institution in the province, having reached 42 municipalities of Bohol and the City of Tagbilaran. It also has branches in Dumaguete, Dipolog, Siquijor, and Palawan.

Another NGO engaged in local tourism and promoting locally produced souvenirs is SEC registered PROCESS-Bohol, Inc., in 1998. It is certified by the Philippine Council for NGO Certification (PCNC) for excellence in governance and as a donee institution. It promotes a Community Based Sustainable Tourism Project and launched the Abatan River Community Life Tour as a new eco- cultural tourism destination.

85 http://cevi.org.ph; http://www.kiva.org/partners/125 86 Kiva is a micro lending institution headquartered in the USA and with clients all over the world. http://www.kiva.org/ 87 http://www.fcbfoundation.org/a>; http://www.microfinancecouncil.org/fcb-foundation-inc 28 Green Finance for MSMEs in the Philippines

4 Loan Guarantees and Insurance as Collateral Substitutes

Loan guarantee funds share default risks with the lender. Banks consider loan guarantees collateral substitutes and also, in addition to hard collateral, a quick and uncomplicated ‘second way out’. Mortgages are safe collateral, but it takes time to liquidate collateral and remove non-performing loans or assets (NPL, NPA) from the balance sheet. Several guarantee corporations also act as direct lenders for MSMEs. Loan guarantees enhance lending for green purposes.

Loan guarantee providers include the following:88

• Small Business Guarantee Finance Corporation (SBC or SBGFC) for MSMEs, including wholesale and direct lending89

• Philippine Export-Import Credit Agency (PhilEXIM), providing guarantees but also wholesale and direct lending (for more see Annex 9.15)

• Credit Surety Fund (CSF), sponsored by BSP, for small cooperatives (see Annex 9.16)

• Agricultural Guarantee Fund, for farmers

• Quedan Rural Credit and Guarantee Corporation (QUEDANCOR), for agriculture

• Industrial Guarantee and Loan Fund (IGLF).

One guarantee scheme not included in the list above explicitly supports green lending: IFC’s SEF, with a 50% risk-sharing agreement. Other corporations and funds offer guarantees or manage guarantee funds for other specific or more general purposes. These facilities also cover loans for green purposes, such as the Agricultural Guarantee Fund for organic farming or the SBC when SMEs finance their EE equipment with a loan.

Loan guarantees support lending for mega projects. The National Power Corporation (NPC) raised around USD 1,300 million in project finance for the Leyte-Luzon geothermal power plant project. The World Bank provided a USD 30 million grant from GEF, which was used as partial credit guarantee to expand the loan tenure from 10 to 15 years.90

Guarantees can cost up to 5% pa of the outstanding loan amount. They come with different conditions and features, which are normally not GF-specific. PhilEXIM states that its sovereign guarantee reduces banks’ equity requirement and may result in lending ‘hopefully with better terms’, e.g. reduced interest rate, as the guarantee reduces bank risk. For more details on PhilEXIM’s products see Annex 9.7.

Insurance models such as those offered by the Philippine Crop Insurance Corporation also serve as credit enhancement facilities.91 Specific insurance policies for storm and hail damage to solar panels and similar green equipment may be in place but have not been identified.

88 http://www.afdc.org.cn/afdc/UploadFile/201062333751581.pdf 89 Lagua, Benel P., Enhancing the Philippine Credit Guarantee Program for MSMEs http://www.afdc.org.cn/afdc/UploadFile/201062333751581.pdf 90 http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/03/21/00033 3037_20130321144334/Rendered/PDF/761520BRI0P00400Box374367B00PUBLIC0.pdf 91 For example, see GIZ project ‘Effective insurance coverage for the poor’; http://www.giz.de/themen/en/33984.htm Green Finance for MSMEs in the Philippines 29

5 Developers and Promoters of Green Projects and Initiatives

Green project developers and promoters are potential partner institutions for ProGED. At present, most MSMEs are insufficiently informed about their potential to increase the EE of their equipment or benefit from RE technologies such as using gas from manure to propel electricity generator sets. The following presents some details on different organizations, programs, and initiatives that push greening the Philippines and contribute to increasing demand for green tools and appliances, which may consequently result in uptake of green loans. The choice of institutions presented here is neither complete nor representative, but reflects the diversity of the offer.

5.1 Consultants

Penwood Corporation Penwood Corporation is a professional project development and management group composed of project developers and technical experts with experience in RE and biofuels project development. Penwood is member of the Biomass Renewable Energy Alliance,92 due to the company’s contribution to increasing combustion efficiency. Penwood mentions facilitation of debt financing as one of its services. Presumably, the volume of typical Penwood projects exceeds USD 5 million, which is beyond the capacity of MSMEs.

Hydronet Consultants, Inc. Hydronet is a specialist in water management and cooperates with LGUs. Water resources and supply as well as wastewater treatment are pressing problems for resorts in Panglao, Bohol. The firm also has experience with solid waste management. The investment volume of hydropower projects (1 MW, investment volume above PHP 100 million, or about USD 2.4 million) and other investments handled by Hydronet are mostly beyond the capacity of MSMEs. Hydronet partnered with GIZ in the Tacloban Urban Development and Environmental Management Project (TUDEM).

Energy service company or energy savings company (ESCO) ESCOs serve a relatively new market segment in the Philippines. IFC claims that its SEF helps develop the market for these companies. They provide end users both simple and complex sustainable energy solutions and open up additional financing avenues for SMEs. They could also provide guarantees for savings that could improve cashflow and substitute for loan payments on investments in energy projects.93 The Philippine National Oil Company (PNOC) was proposed to become the implementing agency of a Super ESCO, an ESCO that provides financing to other

92 www.giz.de/Themen/de/dokumente/2012-en-dalusung-pep-informationswork-philippinen-biomasse.pdf 93 www.giz.de/Themen/de/dokumente/2012-en-dalusung-pep-informationswork-philippinen-biomasse.pdf 30 Green Finance for MSMEs in the Philippines

ESCOs.94 However, the Super ESCO project was formally cancelled in April 2011 due to a decision taken by the PNOC not to implement the project.95

Presently, 12 ESCOs are registered. 10 ESCOs are specialized as consultancies. Two ESCOs follow the holistic approach. They offer equipment selection advice, purchase, finance, implementation, and equipment servicing. For a number of years, agreed upon mutually by both parties, the entrepreneur pays a monthly fee approximately equivalent to the amount saved from reduced energy bills. Engaging ESCOs would be appropriate only if annual savings significantly greater than PHP 1 million (about USD 24,000) could be generated. The contract volume for ESCOs starts at about PHP 500,000 (about USD 12,000).

Box 13: BPI Head Office has Commissioned an ESCO

With the goal of ‘practicing what we preach’, we have also undertaken our own energy project. The BPI Head Office has commissioned an ESCO to manage the replacement of our inefficient chiller system. Under the guaranteed savings arrangement, a total of USD 133,000 in energy cost savings per year can be realized; this is equivalent to a 28% reduction in the total air-conditioning expenses of the building. Switching to this more efficient system will enable BPI to cut its carbon emissions by 300 tons annually.96

All ESCOs are located in Manila. Transportation costs could be excessively high for SME-sized resorts in Bohol and Cebu.96

Asia Society for Social Improvement and Sustainable Transformation (ASSIST) ASSIST is an international capacity building organization focusing on energy, environment and water, and SMEs and industry competitiveness. ASSIST is engaged in a number of other countries in Asia and Africa and executes tasks on behalf of various international and domestic agencies. ASSIST has worked with major international funding agencies that are involved in EE and RE projects.97 In the framework of Green Philippine Island of Sustainability (GPIoS), an ECO Switch project financed by EU, 500 SMEs were advised how to reduce resource consumption and 30 resorts obtained assistance to become more carbon neutral. ASSIST developed the design of the walkthrough energy audit for ConservePhil, a project aiming at increasing EE of retailer shops.

ASSIST’s GPIoS initiative forged a partnership with Plantersbank and the Philippine Center for Environmental Protection and Sustainable Development, Inc. (PCEPSDI),98 the secretariat for the National Eco-labelling Program ‘GreenChoice’. This is just one of several arrangements in which promoters of green investment are affiliated with each other. Cooperation arrangements also

94 Philippine Energy Efficiency Project; http://www.adb.org/projects/42001-013/details 95 ‘The Efficiency Initiative in Buildings and Industries (under the Philippine Energy Efficiency Project) aimed to set up a Super ESCO as a subsidiary of the Philippine National Oil Company (PNOC). With a budget of USD 8 million, the Super ESCO would target the revitalization of the ESCO market in the Philippines, both by developing public sector energy efficiency projects on its own and by supporting the development of other ESCOs that can then target energy efficiency projects in the private sector. The support to private sector ESCOs would consist primarily of financial support in the form of low-interest loans, with a revolving fund created so that loan repayments from ESCO projects supported in the past can be channelled towards funding new ESCO projects. It was also envisaged that the Super ESCO would provide technical advisory support to other ESCOs in the form of training materials, best practices, accreditation, etc. (Asian Development Bank, 2009). However, the Super ESCO project was formally cancelled in April 2011 due to a decision taken by the PNOC not to implement the project (Anunciacion, 2012), and there are as yet no indications that any other projects to set up a Super ESCO will be launched in the near future.’ See page 112 in http://www.google.com/url?sa=t&rct=j&q=super%20esco%20philippine%20national%20 oil%20company%20pnoc&source=web&cd=1&cad=rja&ved=0CCwQFjAA&url=http%3A%2F%2Fpublications.apec.org%2Ffile- download.php%3Ffilename%3D2013_psu_Regulatory_2.3-HseholdAppliances_Japan_Philippines.pdf%26id%3D1397_t oc&ei=kYrdUYOuHomztAaavoCwDQ&usg=AFQjCNFJHOBO37LF1p1Qur5xg6V69i4X6A&bvm=bv.48705608,d.Yms 96 http://www.changemakers.com/SME-Finance/entries/bpi-sustainable-energy-finance-program-smes 97 http://www.assistasia.org/ 98 To name a few: DEG EU, ECCP, GIZ IFC JICA, Philippine Green Building Council, STENUM, TÜV Rheinland, UNEP, UNIDO, USAID http://assistasia.wordpress.com/tag/srinivas-narayanan/ Green Finance for MSMEs in the Philippines 31 include FIs. For example, in 2012 ASSIST, DBP, ECCP, EMB-DENR, and the ADFIAP99 signed a partnership agreement. 100 They do not package bank finance; they promote capacity building and ask banks (most often mentioned are DBP and LBP) to come in.

Energy Efficiency Practitioners Association of the Philippines, Inc. (ENPAP) Founded almost three decades ago, ENPAP is the pioneer professional energy management organization. It advocates and promotes utilization of EE technologies, judicious management of energy resources, and the significance of sustainable development in combating the adverse impacts of CC and environmental degradation. Recent cooperation partners include DOE, SWITCH- Asia, Zero Carbon Resort (ZCR) project, DENR, IFC, and BPI.

ENPAP members work as energy managers, energy engineers, and technical consultants for their respective companies. Auditors under ENPAP are swamped with their other priorities, one reason they are expensive. Energy consultants often work only overtime on weekends. Reportedly their honorarium is a minimum PHP 15,000/day and may reach PHP 50,000/day (about USD 360 to USD 1,200). This is at least twice as much as small entrepreneurs are willing to pay. More intensive energy audits can cost PHP 500,000 (about USD 12,000), for example for malls and high-rise buildings. A two-day seminar on Economic and Financial Analyses of EE Projects was offered at PHP 4,500 for non-members.

ENPAP’s services encompass • seminars and trainings • policy advocacy • energy management, consultancy services • energy audit and assessment services • energy management studies and feasibility studies.

5.2 Programs and Projects

ASEAN Energy Management Scheme (AEMAS) AEMAS is the world’s first regional certification system for energy managers and energy end-users. It is funded by the EU under the SWITCH-Asia Programme and implemented simultaneously in all ASEAN countries by the ASEAN Center for Energy (ACE) through February 2014. Certified trainers from ENPAP implement 20 Energy Manager Training Courses and upgrade about 500

99 Based in the Philippines, the Association (of Development Financing Institutions in Asia and the Pacific (ADFIAP) is now the largest aggrupation of development financing institutions in Asia and the Pacific. ADFIAB is environment-conscious. Institutions that this report presents elsewhere are underlined. Their Philippine members are listed below (underlined are those institutions discussed in this report) 1. Al-Amanah Islamic Investment Bank of the Philippines 2. Asian Development Bank 3. Coalition of Socially Responsible SMEs In Asia, Inc. 4. Development Bank of the Philippines 5. Esquire International Financing Inc. 6. Landbank of the Philippines 7. Local Water Utilities Administration 8. Planters Development Bank 9. People’s Credit and Finance Corporation 10. Philippine Export-Import Credit Agency 11. Philippine Postal Savings Bank 12. Queen City Development Bank 13. RCBC Savings Bank 14. World Trade And Development Institute 100 http://assistasia.wordpress.com/tag/adfiap/ 32 Green Finance for MSMEs in the Philippines

participants to become Certified Energy Managers (CEM). Presumably, some of these CEMs work in Cebu and could advise MSMEs in ProGED’s pilot regions, Cebu and Bohol. The cost and availability of local CEMs are probably more appropriate for MSMEs than other options. It has not been explored whether the training courses include a component that concerns financing EE/ RE measures and economic viability calculations.

SWITCH-Asia The regional environment program SWITCH-Asia, an EU initiative, promotes the adoption of Sustainable Consumption and Production (SCP) among SMEs and consumer groups in Asia. The program does not provide or promote GF, but it promotes green investments for which companies may need finance.

In the Philippines, SWITCH-Asia supports four measures, namely

1. creating Green Philippines Islands of Sustainability (GPIoS).101

2. SMART Cebu: The project aims at increasing the competitiveness of SMEs in the home and lifestyle industries and thus to develop a cleaner environment on Cebu.102 This measure is scheduled to terminate in August 2014.

3. Zero Carbon Resorts (ZCR) – Building Energy Autonomous Resorts and Creating Appropriate Technology Solutions;103 the ZCR project uses the 3R approach: reduce energy consumption, replace inefficient technologies, redesign buildings and systems. CO2 neutral resources and green technologies are implemented in small and medium-sized hotels and resorts, and added value will be created through establishing best practice showcases. Through a series of training courses, local production and use of renewable resources will be stimulated and the capabilities of local engineers, managers, architects, and consultants improved.

4. Policy Advice on Sustainable Consumption and Production – managed by GFA, a Hamburg/ Germany based consultant.

None of these four measures includes a green financing component. For more on ZCR see Annex 9.8.

Energy Smart Programme The European Chamber of Commerce of the Philippines (ECCP) launched the Energy Smart program in 2010104 with the view that the country’s competitiveness is strongly linked to the pursuit of energy efficiency and sustainability. The program is a private sector-led initiative to encourage like-minded organizations to identify, implement, and share best practice energy management programs for EE and sustainability. It is supported by leading companies in the energy sector, international organizations such as IFC, and other key players in the field of energy management. Since 2010, the program has organized the annual Philippine Energy Efficiency Forum (PEEF) in Manila.105

101 For more see Annex 9.10.4. 102 For more see Annex 9.20; http://www.smartcebuproject.com/ 103 http://www.zerocarbonresorts.eu 104 http://www.eccp.com/project-page.php?catalog_id=53#details 105 The fourth Forum will take place July 9, 2013; http://www.eccp.com/calendar-page.php?cal_id=123&category=4 Green Finance for MSMEs in the Philippines 33

ConservePhil (Energy Efficiency for Retailers in the Philippines) ConservePhil is a two-year public–private partnership (PPP) that seeks to help retailers achieve EE benchmarking international standards and best practices. It is jointly implemented by ASSIST, TUV Rheinland Philippines, and the Philippine Retail Association in cooperation with GIZ, on behalf of German Federal Ministry for Economic Cooperation and Development.

The objective of ConservePhil is: enhanced access to resource and energy management services; selected retailers have improved their EE.

First Phase: Inform Adapted materials and awareness-raising for SMEs and local institutions

Second Phase: Involve Development of institutions’ local capacities to increase energy and resource efficiency; local trainers will be selected jointly with GTZ from local partner associations (large retail establishments, other energy service providers, industry associations and chambers) already working in the field so as to create a multiplier effect after the end of the project

Third Phase: Implement Technical Assistance and coaching for at least 30 selected enterprises (retailers) to implement energy efficiency measures

The project will prepare and present the results and outputs of the three phases in a closing event with participation of all relevant stakeholders. Whether the presentations will touch the question of how MSMEs financed their improvements – GF is not a project component – remains to be seen.

5.3 Business Member Organizations (BMOs)

‘Becoming green can be one step to make SMEs bankable.’ Corazon Conde106 sees several advantages for SMEs when they go green: enhanced resource and energy efficiency, improved productivity, and reduced carbon footprint, leading to global competitiveness in the market. ‘All these factors lead to access to finance.’ In order to gain access to finance, she recommends SMEs join industrial associations or business organizations.

BMOs are conduits, facilitators, and catalysts to support the matchmaking between FIs and SMEs. Some BMOs are recipients of wholesale loans, which they forward to their members, including entrepreneurs who would find it difficult (or at least inconvenient) to access bank loans for green purposes. The procedure, benefits, and problems of loans to BMOs are similar to those of group loans to micro entrepreneurs.

For example, Cebu’s Gift, Toys and Housewares exporters association (GTH) is the first organization in the Philippines to work with PhilEXIM’s credit programs. GTH serves 45 members, who can obtain loans with a PHP 2 million (about USD 48,000) ceiling. The association is responsible for repayment and carries the risk of defaulting members. Defaulting members reduce the profit of the BMO and the range of services the BMO can provide for their members.

Relevant tourism-oriented BMOs for Bohol are the Bohol Association of Hotels, Resorts and Restaurants (BAHRR, about 70 members), and the Bohol Provincial Tourism Council (Bohol

106 Corazon Conde, Consulting Head, ADFIAP (Association of Development Financing Institutions in Asia and the Pacific); ADFIAP advocates for financing sustainable development focusing on four key areas: environment, social, economic, and governance. ADFIAP is project partner in the SWITCH-Asia project SMART CEBU. http://www.switch-asia.eu/switch-info/ events/switch-asia-networking-events/sub-regional-events-2011/switch-event-jakarta/jakarta-access-to-finance.html 34 Green Finance for MSMEs in the Philippines

PTC) that promotes the province as an ‘eco-cultural tourism zone’. Four BMOs for transport are listed:

1. Bohol Island Operators and Drivers Multipurpose Cooperative (BIODMPC).

2. City tourist port-based Association of Bohol United Transport Services, Inc. (ABUTSI).

3. Bohol Tours Services Multipurpose Cooperative (BTSMPC).

4. Dao terminal-based Jagna Van Operators & Drivers Association (JAVODA).

Members of transport organizations complain about the non-issuance of franchises to their units by the Land Transportation Franchising and Regulatory Board (LTFRB) based on the year of vehicle manufacture.107 Eco-friendliness or greening transport (as on Boracay Island) is not an issue. Reportedly, not all members are in good standing/eligible for a loan from their BMO.

Bohol’s Chamber of Commerce and Industry (BCCI) has 16 members from the banking industry, including DBP and LBP. BPI, its affiliate BanKO, and other top-ten banks have branches in Bohol but are not listed as BCCI members. Other members in the tourism value chain are YY Home Builders Depot and A-Z Hardware (potential suppliers for EE equipment), 34 hotels, resorts, and inns, 3 agri-businesses, and 3 transport enterprises.108

The Bohol branch of the Rural Bankers Association (RBA) has only four members because several years ago 14 rural banks consolidated to become the First Consolidated Bank, a private, independent development savings bank (thrift bank). The four rural banks are 1. Rural Bank of Loon, Cogon Norte Loon, Bohol 2. Cooperative Bank of Bohol, Tagbilaran City, Bohol 3. RNG Coastal Bank, Inc., Talamban, Cebu City 4. RB of Loboc, Inc., Loboc, Bohol.

5.4 Bankers Institute of the Philippines, Inc. (BAIPHIL)

Citibank was hailed as the first ‘Green Bank Champion’ – without offering any green product. It was rewarded for its efforts to green its own business. Other finalists for the award include Rizal Commercial Banking Corp., Banco de Oro, and the Bank of the Philippine Islands.109 Reasons for selecting these finalists were not exposed.110 It is recognized that banks should be a good example first before they discuss EE with their clients. The reasons for awarding Citibank show that banks think of greening their own businesses – but not yet the businesses of their clients. A competition based on marketing green products would make the choice of a ‘Green Bank Champion’ easier and more transparent.

107 A recent memo issued by the Department of Tourism (DOT) requires that all tourism-accredited vehicles be manufactured in 2012 or 2013, regardless of the care and maintenance of the vehicle. Although LTFRB issues the license to operate on the basis of vehicle appearance and roadworthiness, they will only issue the renewal of the franchise if the transport operator has secured an endorsement from the DOT. As a result, a number of transport operators are unable to renew their franchises due to the costs of a new vehicle to comply with the DOT requirement. Those who bought their car before 2012 and still have a loan outstanding suffer particularly from this regulation. 108 http://www.boholchamber.org/ 109 http://www.citigroup.com/citi/news/2013/130510c.htm 110 According to its website, http://www.citibank.com.ph/portal/citiph_home.htm Green Finance for MSMEs in the Philippines 35

Box 14: Green Bank Challenge 2013

BAIPHIL organized a ‘Green Bank Challenge’ Citi was hailed as a Green Bank Champion to encourage the banking community to and was cited for its Smart Branch in Makati, adopt environment friendly practices in which boasts best-in-class technological their day-to-day operations as well as to solutions. The branch also offers such earth- contribute to environmental causes. Citi friendly features as energy efficient interior Philippines was voted Best in Technology and exterior lighting systems and carpets Innovation by BAIPHIL during its first Green made from 70% recycled materials. Bank Challenge.

5.5 Non-Government Organizations

Aside from NGOs with an environment-oriented agenda that provide loans, other nonprofit organizations with the same environmental concerns are active in fields outside financing, for example as intermediaries between business and government, with an educative mission, or providing data. None of the respondents named an apex organization that oversees all these activities, or a central register.

Active and retired managers and businessmen are ‘proud members’ of such organizations.111 They can influence and persuade enterprises to support going green with corporate social responsibility (CSR) funds, from which micro and small entrepreneurs often benefit.

PBE is a non-profit organization established in 1992 by business leaders to address environmental issues and concerns. PBE is committed to the principle of sustainable development. It believes that the business community has a corporate responsibility to protect the environment and to ensure sustainability of resources on which it depends. PBE is a partner of GPIoS.

111 For example: Financial Executives Institute of the Philippines (FINEX); http://www.finex.org.ph 36 Green Finance for MSMEs in the Philippines

6 Government

At least as early as 1993, the GOP issued Orders on power conservation and power efficiency. Today the Energy Efficiency and Conservation Act of 2012 (Senate Bill 3321) institutionalizes enhanced energy efficiency and conservation by granting incentives to energy efficiency and conservation projects. The DOE has an Energy and Conservation Roadmap for 2011–2030.

The GOP contributes to donor programs. For example, GOP contributed USD 3.4 million to the Rural Power Project’s total USD 26.7 million, in which a PV sub-component for home systems is included. The systems, however, are distributed and serviced on commercial basis. The President’s 2013 Budget Message112 contains the following:

• distribution of 20,000 e-trikes

• 7,500 solar home systems for rural electrification

• six programs under the National Energy Efficiency and Conservation Program.

The Budget Message provides the GOP’s allocation but does not explain financing mechanisms. GOP channels funds through its GFIs and sets the interest rate for lender and borrower. Financing programs appear as particular credit lines or project financing of the relevant GFI.

Any tax break or subsidy or discounted local levy113 increases the attractiveness of EE/RE investments. The Government provides green finance indirectly, for example by reducing import tax on equipment and materials for RE generation and green buildings. Some regard these discounts as the GOP’s contribution to financing going green. The introduction of FIT is another financial support on which the GOP decided. It provides green finance to its investors (by allowing them to sell electricity at an above-market price) with consumers footing the bill. Small enterprises can benefit from GOP support for RE investments, but they have to supply documents, often regarded as too costly and inconvenient in view of the unpredictability of processing time and actual financial advantage. The LGU can decide about its share in the property tax and may grant tax reductions, e.g. for organic farming (Bohol: 35% for up to five years).

No GF facility could be identified within the departments involved in greening hotels and resorts and the associated value chain: the Departments of Agriculture (DA), Trade and Industry (DTI), Transport and Communication (DOTC), Tourism (DOT), Energy (DOE), and Environment and Natural Resources (DENR).

The Department of Science and Technology (DOST) and its Small Enterprise Technology Upgrading Program (SET-UP) finance MSMEs. The interest free three-year loan is not green (preferential conditions, but not exclusively for green purposes), but it can be used for green purposes, as long as innovation is involved. DOST also arranges training courses on EE at moderate cost: PHP 25,000 (about USD 600) for two days, including equipment. As early as 2008 DOST Region VII (Central Visayas) established a 20-person team to provide energy management training, services (walkthroughs, energy audits), energy audit equipment rental, and assistance networking and linking with venture capitalists.

112 See Annex 9.14. 113 A riverboat owner and river cruise operator proposed that the LGU decrease local tax contribution for riverboat cruises on the Loboc River (Bohol) from PHP 100 to PHP 50 per passenger should the boat be environment- friendly/solar PV powered – as an appreciation and to co-finance the substantial investment. Green Finance for MSMEs in the Philippines 37

Box 15: Department of Science and Technology (DOST) and its SET-UP Facility

DOST introduced nationwide the ‘SET-UP identifying candidates. Entrepreneurs Innovation support system’, a loan-in-kind must submit their proposals with (DOST acquires the technology innovation and business documents proving tax related tools) at 0% interest, three year tenure, compliance. This facility can be regarded maximum individual amount PHP 2 million as GF when the innovation contributes to (about USD 40,000). The budget for DOST lower energy consumption. Cebu (Region VII) amounted to PHP 25 million Under the SET-UP program, DOST also (about USD 600,000) in 2012 and increased to offers free walkthroughs and low-cost PHP 30 million (about USD 710,000) for 2013. technology management trainings. Annually, about 15 to 20 entrepreneurs have the This was an incentive for ConservePhil opportunity to benefit from this facility. to cooperate with DOST: to avoid high DOST representatives mentioned the problem of ENPAP consultant fees. 38 Green Finance for MSMEs in the Philippines

7 Green Equipment Suppliers

Equipment vendors sell their EE products without providing a comprehensive company or household energy saving solution. Compact fluorescent lamps (CFL) have replaced incandescent light bulbs, even in villages. Meanwhile, low energy LCD lamps for about USD 20 are heavily promoted. They can become expensive for hotels as some patrons regard them as souvenirs.

Several department stores and specialized appliance vendors offer loans in the form of ‘interest free’ instalment payments for energy-saving refrigerators or air conditioners (AC). Buyers consider this loan very convenient and fast. Credit card payment is another popular option.114 The credit card company allows scheduled instalment payments; the interest rate generally exceeds 50% eff pa. Immediate electricity savings may balance the additional financing costs. For cash payment, vendors offer a cash discount or free maintenance service. The discount can be higher than interest payments for a 30% eff pa bank loan.

CITIHARDWARE is a do-it-yourself warehouse type retail outlet. Its primary business is retailing finishing construction materials. It has more than 40 stores nationwide, including two shops in Bohol (Cogon, Dao) and three in Cebu (Carcar, Mandaue, Pardo). Its website does not mention their offers of EE/RE equipment and financing.115

Few green equipment suppliers have an office outside Metro Manila. Edward Marks Phil., Inc. does, but has no showroom in Cebu. An office with some exhibits is located close to the airport. It is hidden without any sign at the end of a compound in a small road and with a small adjacent junk yard.116 These surroundings will hardly create confidence in a prospective but still undecided client. Demand is primarily for solar water heaters for residences, a product that is paid cash. The company does not offer loans or allow instalment payments beyond three months. The staff reported that some businesses have probably financed the equipment with loans from BPI and BDO. It seems that the company does not provide a link to finance as a promotional tool to push sales. Clients are warned that ‘if you’re not a heavy user, it is not yet for you!’117

Among the green suppliers participating in the ZCR project were: Hotel and Spa Essentials Inc., SG Eco Industries Inc., Emerald Vinyl Corp., Green Built Enterprise/Happy Home Pest Control, Philippine Geogreen, Inc., Edward Marcs Phil., Inc., PanManhattan, AMECOS, Interlock Electrical Engineering Services, NWTF, and ASCHOFF Solar GMBH. The websites of most of these enterprises are not attractive or informative for investors, who tend to look for equipment available on the spot in Metro Manila and/or Cebu.

The DOE published a list of six Metro Manila-based companies that have obtained accreditation for participating in the Rural Power Project’s Solar PV subcomponent. 118

114 It is now very common for credit card companies to offer interest free (‘0%’) installment loans on appliance purchases for 12–24 months. However, the next challenge for SMEs is to qualify for credit cards. And of course ‘conditions apply’ because ‘There ain’t no such thing as a free lunch.’ 115 http://www.citihardware.com/ 116 See Annex Photo Documentation: 3 Vendors of Solar Equipment 117 The appearance of the Cebu office contrasts with the website presentation: http://www.edwardmarcsphilinc.com/ 118 http://www.doe.gov.ph/microsites/rpp/directory_accredited_pcs.html Green Finance for MSMEs in the Philippines 39

8 Recommendations

There is no role for GF without environmental awareness and information on investment opportunities, which then stimulate demand for finance, sometimes for loans.

In the first instance, awareness raising measures are recommended to stimulate demand for greening and measures to supply this demand. Offering green bank financing can in itself stimulate demand, providing another reminder to assume active responsibility for the environment.

Promoting a loan to finance green equipment does not preempt the question of whether itis necessary to offer soft green financing or not. As demonstrated by types of investment and their payback periods, there are few green projects that are infeasible without soft loans. In other words, it is unlikely that a project that is feasible with 5% pa soft loan would not be feasible with a 7% pa commercial loan. Loan condition concessions are often a bonus giving ‘freeriding’ borrowers a comfortable feeling, seldom an incentive for investments with small (less than loan interest rate) or no return.

Starting in Bohol As far as cooperation with financial institutions is concerned, it is proposed that, at least during the initial stage, ProGED focus its efforts on Bohol province. Issues, infrastructure, and business type/ size in a province with a capital of 100,000 inhabitants differ from those of a metropolitan area with more than 2.5 million inhabitants, such as Metro Cebu. It is believed that partnerships will be more easily arranged in ’test case’ Bohol. With fewer and smaller BMOs, also, it should be easier to link with enterprises and mobilize their cooperation. It remains to be seen how soon the partners would be ready to scale up their Bohol experience for another region or if they would agree to run tests in Bohol and Cebu simultaneously.

Promoting a ‘Green Alliance’ The Provincial Government of Bohol (PGBh) has expressed its support for environmental issues in an ‘environmental policy statement’.119 It is proposed that a ‘Green Alliance for Bohol’ be established, later perhaps to become an umbrella organization, with members from PGBh, NGAs, banks ready to finance greening, green equipment vendors, and green equipment users. Banks, vendors, and MSMEs can be represented by their associations and similar institutions (BMOs).120 PGBh can accelerate greening the tourism sector with initiatives such as assistance in greening websites and links to and among ‘Green Alliance’ members, awards for outstanding endeavours and performance in greening, and comparative study tours for benchmarking. Benchmarking should continuously compare the status and development of greening Bohol with other ‘green’ tourist locations, e.g. Boracay. Attention should also be paid to infrastructure and LGU affairs; water, sewage, and solid waste disposal are critical issues. The pioneering Zero Waste Management Program of Alaminos City should be studied.121

8.1 Proposed Partner Institutions

Presently, the ProGED’s project partners are ASSIST, Zero Carbon Resorts project, and the PGBh.

119 http://bohol.gov.ph/images/Envi%20Policy%20Poster.jpg; see also Annex, Photo Documentation, 5. 120 Alternatively, the ProGED project might want to strengthen any existing similar organization. 121 http://www.triplepundit.com/2012/12/zero-waste-philippines/ 40 Green Finance for MSMEs in the Philippines

8.1.1 Financial Institutions

A promising partner would be an FI with green background operating nationwide that offers loans to MSMEs ranging from PHP <10,000 to PHP >10 million with tenures of more than five years. Such an institution could not be identified. ProGED must partner with more than one FI in order to facilitate green finance for micro enterprises in rural areas as well as large resorts. The following presents potential partner FIs.

DBP DBP is a partner for investors who prefer long-term fixed interest loans and can wait for the bank’s loan decision. DBP’s Green Financing Program is attractive for e.g. piggeries that have to manage their manure problems and plan to acquire bio-digesters. This investment is not an off-the-shelf solution and is known for its low IRR122 and long payback period, especially when follow-up service is difficult to arrange. DBP lends to other banks and MFIs (wholesale lending), outsourcing the management and risk of small loans to small institutions close to their clientele.

SEF Participants Thanks to the SEF program, BPI is perhaps the most experienced private commercial bank with regards to green finance. Other SEF participants are BDO, BanKO, and CBC. It is a fair guess that most resorts cooperate with at least one of these four institutions. BanKO could perhaps become a green loan provider for micro and small enterprises. BanKO is present in Bohol and Cebu. For SEF, it applies wholesale or outsourcing methodology, offering wholesale loans to BMOs, cooperatives, MFIs, and others, who would like to extend green financing to their members.

First Consolidated Bank of Bohol (FCB) It is recommended to seek FCB’s engagement as a financial partner. FCB is the largest Bohol-based bank. The growth in numbers of branches, offices, ATMs, and accredited merchants all over the country is an opportunity for the bank to meet the growing needs of customers in micro, small and medium business markets in the community. FCB has planned managed branch growth in various centres in Luzon, Visayas and Mindanao. Given its 20% dividend, it is presumably a healthy institution. The bank’s CSR is focused in the fields of health, education, livelihood, and environment.

Plantersbank Plantersbank is a suitable partner for loans to SMEs and its management is committed to greening. The bank has a national branch network that would allow multiplying, but Bohol is still excluded. Plantersbank might be interested in joining the partnership through its three branch offices in Cebu. However resorts on Mactan and their suppliers might not find it convenient to have their bank in Cebu City or Mandaue. Plantersbank has clients in Cebu who are active in the tourism value chain as well as clients outside the tourism sectors who might also be potential candidates for greening.

122 Internal Rate of Return, an indicator for the projected profitability of an investment, used by banks as benchmark against the interest rate of a loan. Green Finance for MSMEs in the Philippines 41

Micro Finance Institutions, NGOs If the ProGED project wishes to reach out to poor rural people, it should cooperate with Bohol’s Community Economic Ventures, Inc. (CEVI), which also has a network beyond the Visayas. CEVI could benefit from a link with the finance institution CARD MRI,123 which already has experience in financing EE/RE equipment, most probably used for household purposes. ProGED must verify its capacity to coordinate multiple diverse partnerships (GFI, commercial bank, thrift bank, etc.). Supporting non-bank MFIs should be ProGED’s lowest priority.

Loan Enhancement Institutions Loan guarantee or loan insurance agencies are bank partners for reducing credit risk and NPLs quickly. With regard to the pilot Region VII, SBC and PhilEXIM are suitable partners for banks as they can offer credit guarantees for MSME borrowers. They have offices in the same Cebu City building. PhilEXIM handles larger and more specific accounts than SBC, so the two companies complement one another. ProGED can facilitate a stronger linkage between these two financing institutions and the banks as well as inform interested investors about this opportunity.

8.1.2 Equipment and Appliance Providers

CITIHARDWARE is a large and modern hardware supplier with 41 branches. It has two branches on Cebu (Cebu City, Mandaue) and two on Bohol (Tagbilaran, Dao). The advantage of partnering with this institution is its financial power to assume risks and purchase power vis-à-vis suppliers. CITIHARDWARE is represented in other parts of the country, which would make it easier to copy successful schemes beyond the pilot region. Furthermore, the company’s banker is probably also present in all locations where CITIHARDWARE has an outlet. This bank might become a supporter for a specific GF model.124

CITIHARDWARE might also become one of the local suppliers of the equipment and appliances promoted in the ZCR Green Technology Catalogue. The related Philippine Hardware Merchants’ Association, Inc. constantly coordinates and communicates with the DTI and could become a promoter for experience multiplication.125

8.1.3 Consultants

Cooperation with energy consultants is necessary. They have the expertise to advise investors and financing institutions about options for EE/RE solutions. These consultants should be qualified Certified Energy Managers (CEMs).

All twelve ESCOs are headquartered in the capital region (NCR). ESCOs are partners when it concerns investments of large enterprises. Recently, ENPAP and other organizations arranged several training measures, among others for certifying 500 energy managers (CEM). ConservePhil has established nine trainers in Cebu City. By the end of 2013, local trainers, with the support of TÜV Rheinland Phil. and ASSIST, are scheduled to have developed content for technical support.

123 http://cardbankph.com/wp_cardbankph/home.php, http://cardbankph.com/wp_cardbankph/ bank/ Mission of CARD Bank, Inc., a microfinance-oriented Rural Bank, a member of Center for Agriculture and Rural Development–Mutually Reinforcing Institution (CARD MRI) • To provide banking services especially designed for landless rural workers by bringing bank services to community sites and accommodating their financial transactions affordably • To provide non-collateralized loans to non-bankable but viable projects • To ensure that half a million of the poorest Filipinos are provided with financial services by the year 2005. 124 CITIHARDWARE’s banker has not yet been identified. 125 http://www.businesslist.ph/company/239185/philippine-hardware-merchants-association-incorporated 42 Green Finance for MSMEs in the Philippines

It is recommended that suitable CEMs be identified in Bohol and Cebu. ASSIST, IFC, and DOST should be able to provide additional contacts to active and qualified local energy experts.

The consultant’s fee is crucial; it should be affordable and acceptable for SMEs. Therefore, consultants’ tasks should be standardized and visits scheduled far in advance. It is recommended that the CEM and enterprise owner allow other SME managers to join the proposed walkthroughs, the presentation of observations and results, and subsequent discussion of recommendations. The consultants should point out how much money the SMEs are wasting each month because of their low-efficiency equipment. A respondent advised using the term ‘wasting’ as shock therapy. It provokes more emotion and goes much deeper than ‘potential saving’. 126

Consultants’ sessions for Bohol’s hotels, resorts, and restaurants should be organized in cooperation with the relevant BMO and government institution, for instance the BAHRR and DOT. The consultant’s honorarium might be shared among the walkthrough participants and organizing BMO with facilitation and (preferably) sponsorship from government agencies and the ProGED project.

IFC is the prime mover of the SEF product. IFC’s technical assistance should be sought for SEF partners in Bohol and in Cebu. Non-SEF participants should join the activities that IFC arranges. Another consultant is TÜV Rheinland Philippines, Inc., with an office in Lapu-Lapu City, Cebu, which can contribute its technical expertise, in particular with regards to its involvement in a) energy audits (ConservePhil) and b) the Philippine Energy Efficiency Project–Efficient Building Initiative (PEEP–EBI) BERDE, the green building rating system. For greening hotels and resorts, the institution to contact is the Philippine Green Building Council (PHILGBC).127

TÜV SÜD, PSB Philippines, Inc. offers Internal Environmental Audit (IEA) Training, which might be beneficial for experts of local DENR offices and other consultants and CEMs. The services of IEA-trained experts, probably beyond EE/RE, may complement those of other consultants.

8.2 Innovative Mechanisms for Facilitating MSME Access to Finance

For greening the environment, it is almost irrelevant whether MSMEs, in particular micro and small enterprises, finance green equipment with green finance or from ordinary finance sources. Green finance advantages such as import tax breaks, income from sale of CDMs/CERs, long-term fixed interest loans, and FIT are probably more relevant for large-scale RE investments.

MSMEs in urban areas and close to urban areas have multiple finance sources.128 A variety of institutions offer funds and enhancements such as credit guarantees and insurance. Creditworthy persons have access to credit,129 though perhaps not to ‘low’ interest or amounts that prudential lenders would find risky.

Flexible Loan Repayment Schemes Many MSMEs do not borrow from banks because they are afraid that banks would seize their collateral if they defaulted on their fixed periodic loan repayment obligations. (Commonly, loans have to be repaid in equal monthly instalments.) Only in a few cases is such a default due to

126 SMEs are not savings-oriented; this would contradict their entrepreneurial character. 127 For more on green building, including a checklist for identifying green improvements, see Annex 9.21. 128 Respondents confirmed that many SMEs have accounts with more than one bank 129 MSMEs complain that they do not have instant access to substantial low-interest loans, which they want to have without providing business documents (informal sector) or collateral. Green Finance for MSMEs in the Philippines 43 entrepreneurs’ fluctuating cash flow.130 The main causes of late instalment payments and loss of creditworthiness are lack of discipline, weak financial management of seasonal (predictable) income fluctuations, or sudden economic stress (hospitalization). A flexible loan repayment schedule, which may even incorporate a grace period, solves most of borrowers’ problems.

For example, the bank allows one or two of the 12 monthly instalments to be missed and pays a reward if the borrower does not use this facility. This and similar loan features have proved successful elsewhere because they ease the borrower’s financial stress and reward discipline.

A more in-depth analysis would be required

• to investigate if banks, in particular those with microfinance products, would be willing to introduce flexible loan repayments – or the reasons for their apprehension

• to study how loan quality reporting to BSP under flexible loan repayment schemes works; no BSP regulation has been identified that handles flexible instalment loans.131

Rental-Purchase Agreements Rent-to-own or rental-purchase agreements will finance e-trikes in Boracay. Rentals must be paid daily. Short instalment periods have proved successful for the informal sector and microenterprises. The scheme is based on the observation that many micro and small entrepreneurs lack the discipline to set aside a certain amount for monthly loan instalments. Daily or per-use collections reduce default risk but require frequent transactions and supervision (returning the equipment every day or periodic inspection visits) and thus high costs. Few banks can and will perform this task. Therefore, these schemes require the cooperation of a supplier, cooperative, association, or similar institution to which the bank would provide a wholesale loan.

Buy-Back Agreements Various financing agreements are in use involving bank, borrower, and vendor. The supplier and buyer agree on a conditional or qualified sale, i.e. the supplier remains legitimate owner (proprietor) of the equipment until full payment. The vendor can repossess the goods if the buyer does not fulfil contractual obligations such as instalment payments and adherence to service intervals.

The bank signs a loan contract with the buyer of the equipment and transfers the amount to the supplier’s account. The supplier delivers the equipment. The supplier promises to refund the bank an agreed percentage of the outstanding loan amount should the borrower default (guarantee). The rationale behind this scheme is that the supplier is in a much better position to seize, store, and resell the equipment than the bank. The supplier would just surrender a share of the profit, which he would not earn without bank financing.

130 Cash-flow based lending should not be considered as obviating collateral-based lending. The projected cash flow is relevant for determining the repayment plan. It is not a collateral substitute. 131 Compare BSP Circular No. 772, 2012, Amendments to Regulations on Non-Performing Loans; http://www.bsp.gov.ph/downloads/regulations/attachments/2012/c772.pdf 44 Green Finance for MSMEs in the Philippines

Box 16: Model Calculation for Repossessing Equipment

Retail sales price of equipment 1,000 The investor orders the equipment from the Purchase price for retailer/vendor, costs - 800 supplier and signs a loan contract with a FI/bank. Vendor profit 200 The supplier delivers and installs the equipment, but remains proprietor until full loan repayment. Buyer’s down payment 200 Alternatively investor and supplier conclude Buyer’s bank loan 800 a fiduciary contract (depending on Philippine Loan outstanding (O/S) at default 700 legislation). The equipment serves as chattel mortgage. The investor endorses delivery and functioning of the equipment and concludes a The vendor repossesses the equipment service contract with the supplier. The investor and pays the bank XX (70) per cent of O/S 490 insures the equipment. Ancillary cost for repossessing + 100 The supplier guarantees the bank to repossess Total cost 590 the equipment upon default and repay XX% of the outstanding loan amount. The bank releases Sale of repossessed second hand funds to the supplier. equipment at 40% of original sales price 400 The investor repays the loan to the bank. Income from initial sale (as above) + 200 The loan period would be about half of the Total income 600 estimated economic lifetime of the equipment. Total cost as above - 590 Ideally, loan repayment would be based on Net income for vendor 10 realized EE savings or additional income generated by the investment.

Vendor’s risk Loan repayment is suspended during any period - Functioning of the equipment, vandalism the equipment is not functioning for technical - Residual value in case of repossession reasons (responsibility of the vendor). The bank could cover the remaining Legal issues have to be clarified concerning the 30% with a credit guarantee. transfer of ownership, in particular of items that form a part with buildings and other structures.

Procurement Pre-Financing Organic food, handicrafts, and souvenirs are produced in rural areas. Access to institutional credit is limited there and can be challenging, in particular when the cooperative is defunct.

These micro entrepreneurs depend on prepayments or substantial down payments for their services and goods from their buyers, in particular when alternative sales opportunities are limited. For example, a resort might prepay farmers for organic produce or cottage industries for handicrafts. For resort operators, as financially strong partners in a value chain, it is easier and cheaper to access loans (here for financing accounts receivables). They have a bank relationship and the property serves as physical collateral. Alternatively, the buyers finance the suppliers’ inputs (raw material) or buy it themselves.

Pre-financing or even investment financing by buyers prevents micro and small entrepreneurs from developing their own credit history. Therefore, it is proposed that the buyer settle all purchases with a crossed cheque or bank transfer should the supplier intend to take up a loan in future.132 Pre-financing has advantages for vendor and buyer when they are interdependent; e.g. there are few or no alternatives for the vendor to sell the goods or few, costlier, or no alternatives for buyer procurement.

Collateral Substitutes and Other Confidence Enhancements The SEF program confirms that banks respond to risk-reducing measures. Their willingness to grant loans increases. IFC’s risk sharing is a major propeller for BPI’s efforts to extend green loans. An

132 For tax reasons and convenience MSMEs generally avoid traceable bank transactions. Green Finance for MSMEs in the Philippines 45 insurance cover does the same: it reduces bank risk and complements or supplements insufficient conventional collateral. Its advantage is immediate recovery of problem loans, thus reducing cost for NPL provisions and write-offs.

MSMEs complain repeatedly that insufficient collateral prevents them from obtaining a bank loan. It is proposed that bank loan guarantee providers and participating banks negotiate terms under which they share the risk for green loans. Additionally, insurance providers could guarantee the share of the loan risk not adequately covered by conventional collateral. Insurance contracts enhance the bank’s confidence in the loan repayment. It is necessary to identify or develop a green insurance scheme for EE/RE measures and investments, in particular for equipment. ProGED could play a role in linking loan guarantee providers with participating banks. The premium (price) for loan guarantees increases financing costs. Few banks will compensate these costs with their lower risk. It has to be anticipated that some MSMEs will take these costs as a reason for not taking up the loan and not investing (‘too expensive, too cumbersome, too much red tape’). Small entrepreneurs prefer convenience.

Chattel mortgages and fiduciary agreements are collateral substitutes in the form of moveable goods. The chattel must be durable, identifiable (unique production number), insurable, and have a secondary market. Some FIs do not accept chattel mortgages, e.g. the Cooperative Bank of Bohol.

Reportedly, MFIs accept or even require electricity bills as loan enhancement documents. They reflect payment capacity (amount as proxy for income) and payment discipline. The availability and condition of these documents also reflect the administrative capacity of the loan applicant.

Electricity Company Loans An arrangement with local electricity companies or electricity cooperatives should be explored.133 If the investment involves electricity, power companies and their employees have the capacity to • assess the suitability of the envisaged EE/RE measures and equipment • assess the fair price of the equipment and fair loan amount • calculate the potential for energy savings (the basis for credit instalment payments) • facilitate less-expensive loans (access to financial market).

Loans are repaid together with the electricity bill;134 hence the term ‘on-bill financing’. Loan repayments should be adjusted to the projected electricity savings so that the electricity bill including the loan instalment will not be higher than the electricity bill pre-investment. Transaction costs are low for borrower and lender alike. The default rate is low: the electricity company imposes fines for late payments; entrepreneurs and households cannot afford to be cut off from the grid (quick sanctions); and reconnection costs are high. This scheme is suitable for entrepreneurs at a location distant from the FI that would otherwise extend a loan, e.g. in the absence of a functioning cooperative with modest interest rates.

In a similar alternative scheme, the FI approves the loan and transfers the loan amount to the borrower or equipment vendor and the electricity company collects the instalments.

133 It has not been investigated if regulations prohibit electricity companies from extending loans to clients, if these companies need and have access to finance (loans from banks), and if FIs would cooperate. 134 Compare: http://www.moneysavingexpert.com/utilities/green-deal 46 Green Finance for MSMEs in the Philippines

8.3 Recommendations on Tools, Capacity Building Measures, Consultancy Arrangements and Other Support Activities

8.3.1 Tools

Loan Product Development Volumes and quantity are important. It is proposed to develop a green product for banks, an ‘Energy Saving Loan’ for both MSMEs and consumers. The bank could offer slightly lower interest rates (to attract attention), financed from discounts conceded by vendors and/or from a lower risk component (limited vendor guarantee: the vendor agrees to buy-back). This should be a standardised product, similar to car loans, a model that other banks can copy. Financing should be limited initially to three pilot products: solar water heaters, inverter ACs, and solar PV (home) systems. The Energy Saving Loan should give banks experience and confidence in financing green products so they will progress to financing more complex green projects.

8.3.2 Capacity Building Measures

Banks and Other Financial Institutions

Development of a ‘Flexi Loan’ Banks might require assistance designing and implementing instalment loans that allow some repayment flexibility. Current schemes with equal monthly instalments are not designed to accommodate the proposed flexibility, in particular not when flat interest calculations are applied, i.e. when the amount for interest due remains constant. Assistance measures encompass discussing options, developing manuals, training loan officers, and product promotion, testing, and evaluation.

Assessment of EE/RE Loan Proposals FI officers reviewing an EE equipment loan application cannot be expected to calculate the associated savings, especially in the case of MSMEs. Loan applicants must provide data demonstrating that they can repay the loan from net revenues whether the EE equipment achieves the anticipated savings or not. Account officers should not assess RE projects over about PHP 20 million (about USD 476,000) without consulting a technical expert.

Training bank officers to better understand EE and RE investments should be limited to basic information that fits on two or three pages, such as energy ratings (see yellow label), power (kW), power consumption (kWh), electricity tariffs, benchmarks for EE equipment and RE investment costs (in PHP per installed kW or MW), and savings from EE measures. This ‘Basic EE/RE Training’ should consist of two or three training events, each consisting of three 90-minute sessions (half day).135

A special training session for account officers should expose the ‘dark side’ of financing green investments: an analysis of why technologies failed and borrowers defaulted. Banks should not finance when they cannot assess risk.

135 Advantages: participants can attend to their most urgent office tasks every day; training content is adjusted to the average daily learning capacity. Green Finance for MSMEs in the Philippines 47

Marketing The introduction of green bank products can be accelerated with supporting marketing efforts. Few thrift banks, rural banks, or cooperatives look for professional support. It is proposed to assist these institutions in learning the basics of marketing bank products and developing a marketing strategy for green financing.136

Box 17: Posters for Creating Awareness

Word-of-mouth promotion is slower than of green equipment (not green meadows). active marketing; it puts the onus on the This action could be initiated with the client to ask about finance opportunities. provincial Bankers Association and Rural Participating banks should agree on a joint Banker Association together with the Bohol action to demonstrate their commitment government. Bohol could serve as a pilot and to the environment. This could be in the banks would be free to expand this promotion form of developing and displaying a poster, to other regions. The joint use of the same pre-ferably outside (windows) and in the marketing tool does not mean that their loan service hall, with a message like ‘We finance conditions need be the same. GREEN’, perhaps with pictures

Commonly, banks have a website. Cooperating institutions could be assisted to upgrade their web pages and include references to financing green products. The project could also assist those (mostly small) FI institutions without a website presentation to develop one.

Capacity Building for MSMEs

Electricity: Basic EE/RE Training MSMEs should understand the most important features of EE equipment in order to assess savings potential in relation to costs. Electric tools carry yellow labels from DOE and DTI (consumer protection); perhaps these agencies can provide staff to educate MSMEs.

Entrepreneurs often know almost nothing about the cost and efficiency of EE/RE technologies. They know that energy saving lamps save energy, but are not aware of the financial impact of their electricity-consuming appliances’ energy savings/waste. ‘Basic EE/RE Training’137 should also be offered to MSMEs. Resort managers should be trained, additionally, in analysing their electricity and water consumption (benchmarking: per guest, per room, or others) and related costs.

It is proposed that equipment vendors and their staffs also participate in the ‘Basic EE/RE Training’ and a course on new EE/RE equipment. Importers or producers of EE/RE equipment might want to sponsor this activity with demo-exhibits, trainers, and funds.

Consultancy Arrangement In view of the prohibitive fees (from the perspective of micro and small entrepreneurs) and ancillary costs of Manila’s ENPAP consultants138 and in order to strengthen local capacities we suggest selecting two or three Cebu-based (recently trained under GPIoS) Certified Energy Managers (CEM) for short-term assignments. They should conduct walkthroughs in resorts (also in restaurants and retail shops if capacity allows and demand justifies it) in Bohol and places in

136 For more, contact Bank Marketing Association of the Philippines or BMAP 137 Training should start preferably at 13:00 or 14:00, allowing participants to settle business affairs first. 138 Quotations in Cebu start at PHP 15,000 per walkthrough. This compares with charges of assessors in Great Britain who charge GBP 100 to 150 (PHP 6,500 to 10,000) per visit and recommendation; see http://www. greendealorb.co.uk/ ; compare also: http://www.moneysavingexpert.com/utilities/green-deal 48 Green Finance for MSMEs in the Philippines

Cebu not yet covered by other projects, carrying energy meters, tools that indicate the actual energy consumption and related costs of electric appliances. In addition, it is proposed to explore whether the electricity company can assist with EE/RE experts.

The project might also like to identify consultants with expertise beyond EE/RE measures (solid waste management may be a promising field) by contacting the relevant persons working with the GPIoS project.

Walkthrough Walkthroughs (walking through the premises of an enterprise) are an accepted standard procedure139 to explore options to increase efficiency and decrease costs by reviewing inputs and process steps. The honorarium for this service depends on the terms, for instance focus on energy only, or beyond. It is suggested that ProGED support BAHRR (or similar other BMOs) in offering its members the opportunity for subsidized walkthroughs140 provided about three to five other BAHRR members are allowed to join the walkthrough (multiple learning on the spot).

The CEMs must show walkthrough participants how to collect data141 and how to translate power (kW) and time (h) first into electricity consumption (kWh) and then into expenses (PHP). Based on the walkthrough results, CEMs should prepare proposals for improvements, those that just require management directives and other low-cost solutions, and those that require investment. In a follow-up presentation, CEMs should discuss these proposals with participants and other interested BAHRR members, preferably also in the presence of bank account officers. BAHRR should be approached for financial and logistic contributions to the cost of the CEMs and follow- up meetings. Entrepreneurs are expected to learn that ‘expensive’ consultant costs can pay off within a few months. Depending upon member demand, BAHRR should arrange additional walkthroughs.

Financial Literacy Financial literacy training for MSMEs will give entrepreneurs the confidence to approach a bank for a loan. They need information about banks, bank loans, and accessibility. They need to know, among other things: • why one institution rejects a loan application and another approves it (specialization, different risk assessment, internal policies) • why banks require collateral and the function of collateral substitutes (BSP requirements) • the importance of a loan record/history • the necessary steps if they cannot repay a loan according to schedule (background of the word ‘credit’) • how to negotiate flexible repayment schemes • the steps to be taken if there is no money for the upcoming loan instalment, etc.

139 As an indication, walkthroughs in Manila’s high-rise buildings identified substantial energy saving potentials. Insiders estimate that less than 15% of the potential investors asked for a loan within two years afterwards. Reportedly, walkthroughs prompted investments without an associated loan application. However, data are not available. Walkthroughs, one of the most prominent existing instruments to determine energy savings potential, do not automatically result in a loan for greening; green loans may be a proxy but not a suitable indicator for the success of walkthroughs. 140 The subsidy is suggested as long as the lowest expenses (reportedly at least PHP 15,000) exceed the SME budget by more than 100%. Other projects such as ZCR have already performed similar checks in numerous resorts in Cebu and Bohol. The basic questions for eligibility were: 1. Does your business generate, consume, or produce electricity? 2. Is your profit affected by high power costs? 3. Do you have operating/manufacturing equipment that is more than five years old? 4. Do you want to increase your profit and improve cash flow? Ang, Jesse O., Resident Representative, IFC Philippines, Increasing Uptake of Financing EE Projects, http://www. eefphilippines.com/cms_cebu/medrep/_uploads/f_20120814-104520_Increasing_Uptake_of_EE_Financing_IFC__JAng.pdf 141 Many MSMEs already fail to provide basic required data such as electricity and fuel consumption and a list of electric and other power-consuming equipment. Green Finance for MSMEs in the Philippines 49

BMOs should organize these information events for micro and small entrepreneurs. Active bank officers may not be appropriate presenters. Microfinance Council of the Philippines, Inc.ora BAIPHIL representative should be requested to propose a docent.

Respondents mentioned that MSMEs cannot write a loan proposal and thus have no access to bank loans. ProGED should not undertake loan proposal training for MSMEs; BMOs should arrange that an experienced BMO member advise and assist fellow members.

8.3.3 Other Support Activities

Exhibition, Fair Apart from LED bulbs and common household appliances, not only MSMEs but also Bohol hardware vendors are too little informed about green equipment: where to source it, how to install it, and how to service it. Exhibitions and fairs of tools and equipment that contribute to saving energy should be organised. The exhibiting companies could give first-hand information to retailers and also to potential users. Ideally, such a presentation would be combined with other events around greening the environment, for example a ‘Green Fiesta’ that attracts visitors from all parts of the island and perhaps beyond, preferably outside the peak tourist season (opportunity of cooperation with PGBh, DOT, BAHRR). As a reference, conferences organized by the ZCR project featured green products in a side exhibit.142

The Manila market and exhibitions for new products should be reviewed regularly to accelerate technology transfer. ProGED could sensitize and support hardware vendors in the project’s pilot regions to visit related exhibitions for this purpose.143

Green Technology Catalogue The ZCR project produced a Green Technology Catalogue. This catalogue should be reviewed, improved, and updated for distribution to government agencies, BMOs, CEMs, vendors, and cooperating banks as well. Equipment producers, importers, and vendors might be interested in supporting the preparation, printing and periodic updating of such a catalogue. It should also be internet-accessible and updated regularly. Cooperation with DTI and DOE and/or DENR should be envisaged and the responsibility for the maintenance of this website established. Special reference should be made to equipment that can be sourced in Bohol and Cebu. Furthermore, a permanent agency or institution should be identified to update and publish the catalogue every year.

Learning from Experience Investigate and analyze how enterprises financed their green investments and determine the influence of GF. Data are probably available from the recent resort study (scheduled for May 2013). SWITCH-Asia projects, SMART Cebu, ConservePhil,144 GPIoS, and the ZCR program145 assisted numerous MSMEs and may have follow-up data on whether and how MSMEs financed suggested green improvements or at least the participants’ names and phone numbers for further

142 The exhibitors include active suppliers from the ZCR’s Green Suppliers Network: Plantex Solution International Corporation, Pharos Off-grid Technologies Inc., SG Eco Industries Inc., Hotel and Spa Essentials, Inc., Emerald Vinyl Corp., Negros Women for tomorrow Foundation (NWTF), Edward Marcs Philippines Inc., and Fronius China Trading Co., LTD. 143 For suggestions see: http://www.biztradeshows.com/green-energy-exhibition/ 144 See documents for download: http://www.conservephil.com/index.php?option=com_content&view=article&id=77&Itemid=96 145 For ZCR member list and contact number see: http://www.zerocarbonresorts.eu/ index.php?option=com_content&view=article&id=49&Itemid=56 50 Green Finance for MSMEs in the Philippines

contacts.146 Assess the actual technical and financial performance of the green equipment and mode of financing. The owners or managers of these resorts are the most credible communicators to convince fellow resort owners to invest in greening.147 Resorts that did not implement the recommendations should be contacted as to why and if lack of finance was decisive.

Greening Websites Despite the prevalence of word-of-mouth recommendations in the Philippines, internet research for products and services is becoming increasingly popular.148 The ProGED project should support its partners with website review and suggestions to include links to the Green Technology Catalogue and other institutions that support greening. For example, a bank website might promote a green loan product and link to another website that presents energy consultants, green equipment vendors, and so on.

Public Promotion Inexpensive flyers should be developed for investors and the public about green investment opportunities (‘How to green Bohol’) and distributed to offices that investors and entrepreneurs visit (BOSS, DTI, banks, tax authorities). The flyer should present the tools, suppliers, and financing institutions. Bohol people are savings-oriented.149 A short calculation in the flyer could show that EE equipment is the ‘Real Savings Account’.

Lobbying More generally, ProGED should lobby for:

• a green credit guarantee institution; banks are more likely to lend for green purposes when a credit is backed up by a guarantee; credit guarantees have their benefits not only as a substitute for collateral but also in addition to conventional collateral

• Separate reporting of green bank loans in the framework of monthly reporting to BSP; this is a continuous reminder and some banks may be proud to present a noticeable green portfolio. It will become easier to pick banks experienced in green financing. Reporting increases awareness. Mandated lending is discouraged.150

For Special Consideration Respondents repeatedly hinted at weak enforcement of regulations concerning environmental protection. More serious enforcement would increase demand for green investment. Government respondents indicated that too few civil servants are available to fulfil this task.

146 ZCR exposed on the website the names of participating resorts http://www.conservephil. com/index.php?option=com_content&view=article&id=77&Itemid=96 147 The manager of Bohol Bee Farm Resort, Panglao, expressed his support by calculating and documenting savings from the resort’s investments in inverter ACs and solar heaters. 148 Compare: http://www.greendealorb.co.uk/ ; see also growth of www.sulit.com.ph 149 Reportedly, financial institutions know the province as a place to mobilize funds. 150 Mandated lending will be circumvented in one way or another. Similarly, the benefit of mandated lending to MSMEs is highly controversial. Green Finance for MSMEs in the Philippines 51

9 List of Annexes

9.1 Rural Power Project (RPP), DOE, 2008 52 9.2 Land Bank’s Carbon Finance Support Facility (CFSF) 54 9.3 Information About Plantersbank (PDB) 55 9.4 Plantersbank Urges SMEs to Go Green 57 9.5 Plantersbank: From Double to Triple Bottom Line Banking 58 9.6 Plantersbank: From Double to Triple Bottom Line 59 9.7 PhilEXIM 60 9.8 SWITCH-Asia Zero Carbon Resorts (ZCR) Project 61 9.9 Environmental Economics (EC) 62 9.10 Risks and Profits 63 9.10.1 Zero Carbon Hotels May Have to Look for New Clientele 63 9.10.2 PV-Powered Electric Transport and Battery Replacement Costs 63 9.10.3 Income from Sale of CERs Negligible 64 9.10.4 Achievements of Green Philippines Islands of Sustainability (GPIoS) Project 64 9.11 Citibank: Ready Credit (Fees and Charges) 65 9.12 Philippine Green Energy Tariffs Due 2014 65 9.13 Development of the Philippine PV Market 66 9.14 National Budget for 2013 67 9.15 Small Business Guarantee Finance Corporation (SBC or SBGFC) 69 9.16 Credit Surety Fund (CSF) 69 9.17 PCFC Micro-Energy Credit Program General Policy Guidelines 70 9.18 List of Banks with Microfinance Functions in Region VII (Central Visayas) 71 9.19 SEF Promotion and BPI’s Experience 71 9.20 ECCP SMART Cebu 72 9.21 The Philippine Green Building Council (PHILGBC) 73 9.22 Philippine Energy Efficiency Project (PEEP) 75

Photo Documentation 76 52 Green Finance for MSMEs in the Philippines

9.1 Rural Power Project (RPP), DOE, 2008

PROJECT OBJECTIVES AND SCOPE The Rural Power Project is the first phase of an Adaptable Program Loan (APL) by the World Bank to the Philippine Government.

The total program cost is USD 233 million with the initial phase (APL 1) costing USD 26.8 million. The objective of the Project is to support the implementation of the Rural Power Development Program aimed at supporting reforms and priority investments to improve the quality of life in the rural areas through the provision of adequate, affordable, and reliable energy services.

Specifically, under APL 1, the Project would (a) test and demonstrate viable business models that maximize leverage of public resources with private investment for decentralized electrification; (b) support the transformation of electric cooperatives through institutional and operational improvements; and (c) avoid CO2 emissions. The main project components include (a) rural electrification component; solar PV subcomponent minigrid subcomponent EC/grid subcomponent (b) partial credit risk guarantee component; and, (c) capacity building component, focusing on reducing market barriers to commercialised renewable energy.151

The Department of Energy (DOE), as the primary agency in charge of the energy sector, has the overall responsibility for implementing the Rural Power Project. The Development Bank of the Philippines (DBP) as the borrower of the IBRD loan is responsible for on-lending the proceeds to eligible sub borrowers. The DOE administers the GEF grant associated with the loan.

Solar PV Subcomponent 152 For dispersed users unable feasibly to connect to the grid, the Project will promote the use of photovoltaic (PV) technology and other renewable energy technologies (RETs) of scale suitable for individual users or group users. These applications are eligible for GEF grant assistance. PV systems are mainly in the form of solar home systems (SHS) of about 20-50 Watt peak for individual households and 100 Watt peak or more for small business or communal use. The systems are distributed/serviced on commercial basis by Accredited Participating PV Companies153 and provided appropriate incentives by the project.

Other Renewable Energy Technologies for Individual Users Other RETs for individual users (i.e. households, rural microbusiness, etc.) that may be supported include small ‘wind home systems’ of about 300-600 Watt peak, pico-hydro of 200-1,000 Watt capacity, and other technologies utilizing solar, wind, hydro, or biomass resources. Proposals from qualified private companies or NGOs for assistance in the commercial dissemination of these RETs in a manner similar to the marketing of PV systems are evaluated by DOE on a case-to-case basis. Proponents may include already accredited PV companies that wish to expand their marketing

151 The website’s latest addition is the 3Q2010 Progress Report. Later results may not have been published yet. http:// www.doe.gov.ph/microsites/rpp/documents/RPP%20Prog%20Rpt%203Q%202010%20%2829Oct10%29.pdf 152 http://www.doe.gov.ph/microsites/rpp/abouts-components-stand.htm 153 See: http://www.doe.gov.ph/microsites/rpp/directory_accredited_pcs.html Green Finance for MSMEs in the Philippines 53 operations to other RETs. Proposals for single installations are not eligible. DOE will develop the detailed criteria for eligibility of the non-PV RETs, for accreditation of companies, and for the application of GEF grants to different system capacities.

Small-Scale RETs for Community or Productive Use These include solar battery charging stations (SBCS), micro-hydro units, small windpower systems, and hybrids of capacity sufficient for several households, a small community, or a productive application. Proponents may include private companies, local community organizations, or NGOs. Proposals for GEF grants, subsidy, financing, and/or technical assistance are evaluated by the DOE on a project-by-project basis. DOE will develop the detailed criteria for eligibility of the community-based systems, for accreditation of proponent parties, and for the application of GEF grants.

Partial Credit Guarantee Component The Partial Credit Guarantee Component will improve access to long-term credit by suppliers and users of renewable energy systems with seed money provided by the GEE. For APL 1, solar PV will be the main technology supported.

Capacity Building/Technical Assistance Component The Capacity Building Component will finance, with GEF grants, a comprehensive range of renewable energy market barrier-reducing activities, including improvement of policy formulation and project management capabilities by the various energy agencies, financial intermediaries, and private participants; reduction of investment risk through more detailed characterization of energy investment packages; and provision of market development assistance to private participants in the Project.

The DOE implements a comprehensive range of technical assistance activities in the following general categories.

• Policy Development and Planning: policy studies cover such areas as subsidy, regulations, and tariff-setting with respect to off-grid electrification and integration of renewable energy and off- grid electrification into the MEDP.

• Implementation Support: provided to the DOE-PMO, working groups, financial intermediaries, participating companies, and others involved in project administration, field implementation, and monitoring and evaluation; market development activities.

• Institutional Strengthening: training and other activities to improve capacity of involved government agencies (ERC, DOE, NEA, SPUG, etc.) to implement various components of the Project. Other institutional strengthening activities are promotion of livelihood/productive activities in sub-project areas and preparation of new market packages.

• Contract Monitoring Support. Support is provided to supervision of contracts with QTPs and other due diligence activities.

Implementation of Rural Power (RPP) Project (Solar Electricity) World Bank–DOE from: http://www.doe.gov.ph/microsites/rpp/news4.htm#mfi The top MFIs who have presence nationwide are Center for Agriculture and Rural Development, Inc., Enterprise Bank, Green Bank of Caraga, People’s Bank of Caraga, Taytay sa Kauswagan, Inc., Negros Women for Tomorrow Foundation, Hometown Micro Finance for the Highlands 54 Green Finance for MSMEs in the Philippines

and Islands, Cooperative Bank of Palawan, Progressive Bank, Inc., Kasanyangan Foundation, Inc., Kabalikat para sa Maunlad na Buhay Inc., and People’s Credit & Finance Corp.

The PV producers whose track record are well-known nationwide are Solar Electric Co., Shell Solar Phils., Edward Marcs Phils., Gendiesel Phils., World Water Philippines, Inc., Dumalag Corp., Solutions Using Renewable Energy, Inc., Mashinen & Technic, Inc., and Center for the Advancement & Utilization of Sustainable Energy. Motolite/Oriental Battery has been a supplier of batteries for solar installations for the past decades.

Representatives of both sides agreed that their role is not mere service provider but most importantly, agents of transformation in the countryside. With a memorandum of agreement to be facilitated by the RPP-Project Management Office, participating solar PV producers will be matched to an MFI who will then extend the necessary loan to individual or community beneficiaries. A set of incentive packages will be extended to MFIs and solar producers to make the solar lending window a profitable business opportunity.

The DOE’s RPP-PMO under Director Mylene Capongcol ensures that the project avoids the ‘business as usual’ approach to service delivery that are top-down and monopolistic and rely heavily on government funding. To maximize chances for sustainability, best practices and lessons from similar projects serve as guiding principles. These include local participation and good sector policies, among others.

9.2 Land Bank’s Carbon Finance Support Facility (CFSF)

Under the CFSF, the Program of Activities (PoA) approach was adopted to achieve enhanced CDM viability of small-scale piggeries with a minimum size, at least 300-sow level. Methane recovery and combustion with renewable energy generation from anaerobic animal manure management system is envisaged. These PoAs are considered as the first of their kind in the Philippines and in Southeast Asia.

CDM Program of Activities (PoA) Eligible for MSMEs Activities (PoA) Basic eligibility criteria Methane Recovery and Combustion with Renewable • Size: at least 300-sow level Energy Generation from Anaerobic Animal Manure • Condition of the manure management Management System (for piggery projects) system prior to CDM: (PoA 5979 - UNFCCC registered as of 10 May 2012) o open anaerobic system with no methane recovery and destruction by flaring, combustion, or gainful use o for anaerobic treatment systems, retention time of manure waste greater than one month Supported by the World Bank o for anaerobic lagoons, depth of at least one metre • Piggery farm manages its livestock under confined conditions • Pig manure or streams obtained after treatment are not discharged into natural water resources such as rivers

Philippines Mini-Hydro PoA • For grid-connected, hydroelectric projects with capacities 15MW and below

(Supported by KfW of Germany)

Services Offered • arrange the pre-assessment/due diligence activities; • prepare the CPA Design Documents and the CDM Sustainable Development Form; Green Finance for MSMEs in the Philippines 55

• facilitate the Designated National Authority (DENR) endorsement of the CDM project application;

• arrange validation and verification activities with Designated Operational Entity or Third Party Auditor;

• provide support and assistance on CDM documentation and monitoring; and

• provide financing for CDM projects, subject to the existing lending policies of the Bank.

Interested parties can join the PoA by filling out a reply form.

The proposed CDM project shall be evaluated based on the PoA criteria. The project proponent shall be then informed of the result of our initial screening and next steps through email or letter.

LBP’s Environmental Due Diligence (EDD) is embedded in its credit delivery, from loan packaging through full payment, assisting clients to comply with environmental laws and mitigate environmental risks that could result in imposition of fines and penalties or closure due to environment-related violations.

9.3 Information About Plantersbank (PDB)

Business Loans PDB’s complete range of commercial banking products and services is especially geared towards SMEs. For example, approval times are short (seven days for the Small BizLoan and three weeks for the SME BizLoan), with interest rates at about 18% eff pa.

Small BizLoan amounts start at PHP 250,000 and go up to PHP 10,000,000 (about USD 240,000).

The SME BizLoan, with amounts from over PHP 10 million to PHP 50 million (about USD 1.2 million), offers a range of SME loan packages customized to suit various financing requirements.

Terms are from 12 to 60 months for acquisition of fixed assets, which may serve as collateral. Plantersbank’s SME Small BizLoans probably finance fewer than 10,000 (mostly family) businesses.

Most popular are PHP 5-15 million business loans. Outside Luzon, the range is PHP 5-10 million. The Plantersbank SME BizLoan is backed up by various special loan program funded by multilateral agencies and government financial institutions.

Program Loans PDB has received funds from selected government agencies and wholesale financial institutions, such as BSP, LDP, DBP, SSS, and SBGFC, to be extended as program loans to eligible borrowers for specific purposes.

PDB’s Engagement for Environment PDB’s management is probably most outstanding among non-universal and non-commercial banks in its commitment to environmental issues. In May 2012, the bank titled its periodical SME-targeted publication ‘For a Greener Future’. 56 Green Finance for MSMEs in the Philippines

‘Our aspiration to manage Plantersbank not only as a highly profitable, socially-relevant institution but also one that is environmentally responsible led to our selection by the European Union- sponsored Green Philippines Islands of Sustainability/EcoSwitch project as its EcoSwitch Showcase bank and strategic partner in the SME sector.’

Plantersbank clients could in the future be part of the audits, increasing their profitability and thus becoming more bankable. So far the bank has provided financial resources to projects using natural resources, businesses with a strong concern for the environment, and projects focusing on efficient use of energy and energy saving. Plantersbank is currently discussing the design of an EE loan program with EcoSwitch/SWITCH-Asia.

Insurance PDB Insurance Agency, Inc. (PDBIA) is one of Plantersbank’s affiliates since 1982. It deals on a wholesale basis with insurance firms and provides a variety of different coverage. MSMEs have advantages when purchasing policies through agents, who have gathered knowledge across many different areas of insurance, are aware of cost-effective coverage, and are able to spare entrepreneurs the hassle of legwork and negotiation. As wholesale buyers, agents wield clout and influence with the insurance firms and can protect MSMEs from malpractice

Plantersbank Gets a PRS A Plus Issuer Rating PhilRatings, Rating News 24 May 2012

Planters Development Bank (Plantersbank), the country’s largest private development bank, has been assigned an issuer rating of PRS A plus (corp.) by Philippine Rating Services Corporation (PhilRatings). Plantersbank’s key strength is in the small and medium enterprise (SME) market, for which its products and services are particularly geared. As at end-2011, SMEs accounted for 72% and 41% of the bank’s loans and resources, respectively.

An issuer rating of PRS A means that the obligor has an above average capacity to meet its financial commitments relative to that of other Philippine corporates.

Asset quality measures are projected to show marked improvement, with non-performing assets (NPAs) expected to be down significantly by end-2012, as Plantersbank implements its programed disposal of NPAs. Recent updates from management indicate that the bank’s disposal program is on track. Plantersbank will also enter into arrangements with third party distressed assets buyers/ resellers to unload its non-performing loans (NPLs).

IFC Sets Aside P1.02 Billion to Acquire Plantersbank’s Bad Loans154 January 30, 2013

The International Finance Corp (IFC) will invest P1.02 billion in a firm that will buy the non- performing loans of the thrift bank owned by former ambassador Jesus P. Tambunting.

In a statement, the private-sector investment arm of the World Bank said it pooled its money with that of OPIF Corp and Altus Capital Partners in Philippine Asset Growth Opportunity, a special purpose vehicle that will acquire the bad loans of Planters Development Bank.

154 http://www.interaksyon.com/business/53928/ifc-sets-aside-p1-02-billion-to-acquire-plantersbanks-bad-loans Green Finance for MSMEs in the Philippines 57

9.4 Plantersbank Urges SMEs to Go Green155 The Philippine Star | Updated September 3, 2012

MANILA, Philippines – Coming from its successful The bank’s corporate building in Makati City was hosting of the 9th Annual Meeting of the APEC redesigned to incorporate energy-efficient, water- Financial Institutions Dealing with Small and saving, and climate control features to help minimize Medium Enterprise (APEC SME), Plantersbank, the carbon footprint. (Remark: This redesign competed country’s leading SME bank, wants to take the lead in with the old brick facade of the building that was transforming SMEs into green and triple bottom line protected as an architectural heritage.) (3BL) companies like itself. Likewise, Plantersbank branches have been using “The future of business is green. Better yet, the energy-saving LED signage technology since 2008 future of business will be green. Together, let us substantially reducing electric consumption. make it so,” Plantersbank chairman and CEO Amb. Jesus P. Tambunting declared in his speech before Plantersbank participated in the Green Philippines foreign delegates, government officials and local Islands of Sustainability, an initiative funded by the businessmen attending the conclusion of the three- European Union’s SWITCH-Asia Program. Under the day annual APEC SME event in Sofitel hotel held program, industrial companies in Metro Manila and recently. Calabarzon region are introduced to measures to save on energy, cut down on wastage and promote best “We aim to inspire the SMEs likewise to take the 3BL environmental practices. approach as a matter of good citizenship and good business,” Tambunting also said during the first ever “Our involvement with Ecoswitch is a step towards the APEC SME meet held in Manila. Representatives of development of facilities and services to finance clean the group’s member banks Standard Chartered Bank production, energy efficiency, green design technology Hong Kong, Japan Finance Corp., Industrial Bank of and supply chains, and sustainable business practice Korea, the Association of Banks in Malaysia, Nacional for SMEs,” Tambunting said. Financiera S.N.C of Mexico, Planters Development Bank, Association of Banks in Singapore, the Taiwan Plantersbank provided the first loan to Coconut Cooperative Bank, the SME Development Bank of Technology Corp. (COCOTECH), which produces and Thailand, and Vietnam’s Vietin Bank attended the installs coconut fiber anti-erosion nets for public event aimed at fostering cooperation among SME works as a more durable, nature-friendly alternative banks in APEC member economies. to expensive concrete riprap. The bank financed the first green-designed building in Bulacan province for 3BL refers to a business that is earning, helping the Baliuag University. community and preserving the environment at the same time. Plantersbank is able to conduct business Plantersbank’s efforts to go green combined with its this way after decades of providing financial services 40 years of service to SMEs enabled it to achieve the to countryside enterprises. “We see ourselves so-called triple bottom line, which it calls “People, playing a lead role in leapfrogging the SME sector Profit and Planet.” By serving SMEs, the bank already in this country to go green,” said Tambunting. fulfills the social aspect of 3BL. The SME sector “Plantersbank is well-placed to integrate account for 9 out of 10 registered businesses in the environmental management in the upgrading of country, contributes a quarter of gross national fledgling enterprises.” product, and provides jobs to half of the labor force. They are a lead sector in stimulating economic growth Tambunting cited the bank’s own green initiatives and fighting of poverty particularly in the countryside. and support for green design and technology of its SME clients. Plantersbank has a strict policy against The bank has since realized continuing growth and financing environmentally and socially harmful profitability by serving its market niche. From an asset projects involving coal and child labor. Its employees base of P500,000 when it started as a rural bank in volunteer in reforestation and wetlands rehabilitation Bulacan in 1972, Plantersbank now ranks as the 19th efforts. largest banking institution in the Philippines and the country’s largest private development bank, largest There is a company program to reduce, reuse and independent thrift bank and leading SME bank with recycle paper and other office consumables. Urban resources worth P53 billion. poor people connected with a client of the Bank crafted souvenir tote bags for APEC SME delegates SMEs can also achieve 3BL status by replicating out of discarded glossy magazines and newsletters. the Plantersbank’s efforts, especially with the help This year, the bank started using 100 percent of the bank itself. “We are committed to enabling recycled paper for its bi-monthly SME Magazine and entrepreneurs and promoting community well- annual report plus eliminated the plastic packaging being, respect for the planet, and enlightened for these publications. It also started limiting private interest,” said Tambunting. By sharing its production of printed reports and encourages the use 3BL experience to APEC SME banks, Plantersbank of digital copies on its website. also hopes to inspire entrepreneurs in Asia to work to achieve the status for the benefit of the business, people and the planet.

155 http://www.philstar.com/business-usual/2012/09/03/844724/plantersbank-urges-smes-go-green 58 Green Finance for MSMEs in the Philippines

9.5 Plantersbank: From Double to Triple Bottom Line Banking for SMEs and Sustainable Development http://www.plantersbank.com.ph/2012/10/triple-bottom-line-banking-for-smes-and-sustainable-development/ By Ambassador Jesus P. Tambunting

Plantersbank Today Realizing we have to do more for our SME clients in an era of increasing globalization Plantersbank has grown to become the and liberalization, we embarked on a number Philippines’ largest private development bank of initiatives to enable SMEs to manage their and the leading SME Bank. With resources businesses better, survive economic crisis of P53 billion, we are the 19th largest and become globally competitive. banking institution in the Philippines and the country’s largest independent thrift bank. We recently sealed our partnership between our IT company, SME Interactive Web Plantersbank has provided its shareholders Solutions Inc., the country’s pioneer in with fair returns despite the additional web-based solutions for small and medium social costs in SME financing. For the past enterprises, and Melbourne IT, a global three decades, we have been the recipient provider of IT based business technology of numerous awards and citations from solutions. government, multi-lateral and guarantee institutions and international organizations To deepen our engagement in the rural for excellence in SME finance. economy in the next period, the Bank started its series of strategic planning sessions Our involvement with the small entrepreneur with Rabobank, a leading international has attracted prestigious international agricultural finance lender based in the institutions who became our partners and Netherlands. Rabobank is currently providing shareholders, the World Bank’s International the technical assistance that will enable the Finance Corporation, the Asian Development Bank to significantly increase its agri-lending Bank and the Netherlands Development capacity and to manage the risks associated Finance Company or FMO. with this economically important sector. Green Finance for MSMEs in the Philippines 59

9.6 Plantersbank: From Double to Triple Bottom Line

Source: http://www.plantersbank.com.ph/2012/10/triple-bottom-line-banking-for-smes-and-sustainable-development/

Transitioning to the Triple Bottom Line Green Finance. In the recent period, we realized that not only Plantersbank was going green. The Double Bottomline Banking is creating a positive SME sector itself, influenced by global market social impact while realizing reasonable returns forces and changing tastes, as well as a generation for shareholders. of entrepreneurs seeking relevance and meaning, have themselves taken steps towards sustainable As we expand our work in the SME sector and business practices. enter new areas in the archipelago, we recognize that our market of choice, not only faced economic Our Green Finance experience can be divided into risk but often it was environment and compliance four categories: risks that had just as significant impact on SMEs. Our Corporate Mission states that we strive to be 1. Shared Value/Community/Lifestyle responsible stewards of the environment. Thus our Board of Directors made the decision to include 2. Sustainable Technology, for example, Coconut the greening of Planters Development Bank and Technologies Corporation, which produces the greening of the SME sector as a part of our and installs coconut fiber anti-erosion nets for Five Year Plan. public works, as a more durable, nature-friendly alternative to expensive concrete rip-rap. People. Profit. Planet represent Plantersbank’s pursuit of the Triple Bottom Line (3BL). 3. Green Design, an outstanding example is financing of the construction of the first Green- Awareness. To transform a Bank into a Triple Designed Building in the province of Bulacan for Bottom Line institution requires involving Baliuag University. 85 percent of this building’s employees at all levels in activities to bring energy requirement is provided by the sun and it attention to the state of the planet and to deliver also boasts a rainwater harvesting facility. commitments that mitigate climate change, like ongoing employee volunteer efforts in reforestation 4. Energy Efficiency. To support commercialization and wetlands rehabilitation. of L-E-D lighting systems in the country, our Bank backed the renovation of the energy efficient Infrastructure. The renovation of our corporate offices as well as the upgrade of machinery and headquarters was more than just a superficial equipment of UPSPI, a company engaged in the makeover. We had to make the painful decision manufacture and importation of L-E-D lighting between keeping our landmark brick façade itself systems and one of the first to promote such part of the architectural heritage of the financial energy saving technology in the Philippines. district and the need to shift to efficient, climate- friendly systems. The challenge of this emerging dynamic presents new opportunities. New opportunities mean new Zero Waste Program. We implemented this solutions which, in turn, beget new ideas; new program to Reduce, Re-use and Recycle office ideas give rise to new jobs, new companies, new consumables, chiefly paper, as well as recover industries, or old industries that are ripe for materials and safely disposal waste. This year, our reinvention. Bank successfully made the shift to 100 percent recycled paper for our bi-monthly customer It embodies the convergence of social relevance magazine and Annual Report, and eliminated the and equity, environmental sustainability and plastic packaging for these. financial returns in our continuing journey with SMEs. As the country’s leading SME Bank, we EcoSwitch. Plantersbank was the private sector are committed to enabling entrepreneurs and representative of the Philippines in Jakarta last promoting community well-being, respect for the October, where the Bank presented our report planet, and enlightened private interest. on the Philippine SME sector, our transition program to Triple Bottom Line operations and key The Future of Business is GREEN. Better yet. environment-oriented projects being financed by our Bank. The Future of Business will be GREEN.

GPIoS. Under the European Union-sponsored Together let us make it so. Green Philippine Islands of Sustainability (GPIOS) Thank you. / EcoSwitch project project, Plantersbank, our affiliates and SME clients are engaged in the certification process and technical assistance

60 Green Finance for MSMEs in the Philippines

9.7 PhilEXIM

The Trade and Investment Development Corporation of the Philippines (TIDCORP), today more popularly known as the Philippine Export-Import Credit Agency (PhilEXIM), is a government owned and controlled corporation attached to the Department of Finance. The Cebu office has a skeleton marketing staff; therefore, it focuses on large enterprises and wholesale operations with cooperatives.

PhilEXIM products include short term, medium term (three years) and long term (up to seven years) lending for SMEs that are direct or indirect exporters, import substitutions industries, or firms involved in priority projects of the National Government. RE is regarded as a priority sector. The loan limit is PHP 50 million (about USD 1.2 million) or twice asset size of the corporation. PhilEXIM has a RE facility supporting rural electrification. So far, the Cebu office does not report financing a RE project.

PhilEXIM’s guarantee program also covers non-direct-export-oriented priority sectors, including tourism, business process outsourcing (BPO), power generation, mining, food production, and bulk water. PhilEXIM takes over 90% of the risk at a cost of 5% of the loan amount, which can partly be balanced against a lower bank interest rate depending on individual negotiation. The bank has to provide risk equity for only 10% of the loan amount, because PhilEXIM is a government institution with sovereign guarantee.

PhilEXIM occasionally seeks out investors. The minimum for SME individual loans is PHP 3 million (about USD 71,000). Interest rates vary from 9% to 12% eff pa. Clients include loan wholesalers such as Cebu-GTH and Fashion Accessories Manufacturers and Exporters Foundation (Cebu FAME). GTH’s wholesale loan earns it a 2% margin (which is eliminated by loan defaulters). The maximum GTH individual (member) loan is PHP 2.5 million. PhilEXIM’s Credit/Guarantee Committee meets only once a month. Therefore, it can take two or more months for the applicant to obtain a decision.

PhilEXIM competes with SBC for loans up to PHP 8 million. In Cebu, SBC has its office in the same building as PhilEXIM.

Eco-Efficiency in the Workplace

The decision to relocate PhilEXIM’s of recycling and revived the practice of operations from two company-owned floors reusing paper originally printed for inter- at Citibank Center to one floor at Citibank office memoranda and other documents. Tower has consequently improved internal Energy conservation was also being observed transactions due to proximity between by each and every employee by turning off the departments and reduced overhead costs as lights and individual computers during lunch well. The company had also promoted the break. merit

from PhilEXIM, Annual Report 2010

Green Finance for MSMEs in the Philippines 61

A. PhilEXIM Lending Features of Long-Term Loans

Loan Purpose Purchase of equipment – Term Loan Building Construction – Term Loan Purchase of Lot ¬– Term Loan Purchase of Inventory – Permanent Working Capital

Target Industries All industries except: a) trading of imported goods, liquor, and cigarettes; b) extractive industries

Eligible Enterprises At least 60% Filipino-owned, assets not greater than PHP 100 million, excluding the value of the land, or subject to ownership rules as defined under existing Philippine laws for specific industries

Maximum Financing 80% of the incremental project cost maximum PHP 5.0 million

Interest Rate SULONG Lending rate repriced quarterly by the SULONG Finance Committee, now ASENSO (name changed 2011); rate 9% up to maximum of PHP 5 million

Repayment Terms Maximum of five (5) years, inclusive of maximum one (1) year grace period on principal monthly amortization

Collateral Post-dated check

Registered/Unregistered REM/CHM

Assignment of life insurance

Corporate guarantee (if franchisee)

Assignment of lease rights (if franchisee)

Evaluation and Service Fee PHP 2,000 for every PHP 1 million plus front-end fee of 1/2 of 1% of approved loan and commitment fee of 0.125% of unavailed balance

Financial Profile of the Borrower

Debt to Equity Ratio At most 80:20 after the loan At most 70:30 (if franchisee)

Profitability Positive income for last year (if past year’s income is negative, the average income of past 2 or 3 years should be positive)

Other Ratios Based on industry standards

B. PhilEXIM Guarantee Program for SMEs

Program Guarantees on short-term loans to direct and indirect exporters, firms involved in government priority projects, and import substitution industries

Purpose of the Loan Working capital

9.8 SWITCH-Asia Zero Carbon Resorts (ZCR) Project

During the Conference, Dr. Robert Wimmer, ZCR Project Lead and Managing Director, GrAT explained the overall concept of ZCR project that uses the 3R approaches of Reduce, Replace and Redesign. He related the first phases and initial gains of the project in Palawan and how it has expanded to other parts of the country in just three years. He highlighted one frontier group resort member that apart from largely saving cost from energy used, had been awarded an international recognition. Also included was the simple inventions easy-to-do solar water as one of the output of the capacity building program of the project that has won regional awards.

Home Crest Residences, a “boutique hotel” in Davao, is a 28-room exclusive home for business and leisure travelers. It aims to be the best chain of residences in Davao City. Its green program includes offering the guest to choose when to replace towels and changing bed linen, whereas solar heaters provide hot water. 62 Green Finance for MSMEs in the Philippines

Under SWITCH-Asia, technical assistance and training will be provided to concerned government agencies for the effective enforcement of relevant Sustainable Consumption and Production (SCP)- based laws.

A total of EUR 3.5 million (P186 million) has been allocated to the Philippine government to support its policy priorities in the fields of Renewable Energy, Energy Efficiency, Biofuels, Green Procurement and Eco-labeling, and Clean Air, among others.

The Department of Environment and Natural Resources (DENR) chairs the Steering Committee, with the DOE, the Department of Trade and Industry (DTI), the Climate Change Commission (CCC), and the National Economic Development Authority (NEDA) as members.

9.9 Environmental Economics (EC)

From: http://en.wikipedia.org/wiki/Environmental_finance Environmental finance or green finance is only one of a number of concepts in the framework of environmental economics.

Concepts Carbon related • Green accounting • Low-carbon economy • Green economy • Carbon neutral fuel • Green trading • Carbon neutrality • Eco commerce • Carbon pricing • Green job • Emissions trading • Environmental enterprise • Carbon credit • Fiscal environmentalism • Carbon offset • Environmental finance • Carbon emission trading • Personal carbon trading • Renewable energy • Carbon tax • Carbon finance Policies • Feed-in tariff • Sustainable tourism • Carbon diet • Ecotax • Food miles • Environmental tariff • 2000-watt society • Net metreing • Carbon footprint • Environmental pricing reform

Dynamics • Renewable energy commercialization • Marginal abatement cost • Green paradox • Green politics • Pollution haven hypothesis Green Finance for MSMEs in the Philippines 63

9.10 Risks and Profits

9.10.1 Zero Carbon Hotels May Have to Look for New Clientele156

West Gorordo Hotel, the First Recognised Green Hotel in the City (cdn.ph/news_details.php?id=16705)‎

A CEBU City hotel was recently added to the roster West Gorordo Hotel is awarded the title “Zero Carbon of Zero Carbon Resorts (ZCR) of the Tourism Resorts”. In fact, the management implemented Infrastructure and Enterprise Zone Authority (TIEZA) various efforts to go green. The establishment is on yesterday. its way to becoming a zero carbon place. But it still The ZCR, an initiative funded by the European Union to has a long way to go. Those who expect a close to encourage tourism stakeholders to help reduce energy zero carbon hotel may be disappointed. For example, and resource use, cited West Gorordo Hotel (WGH) for the electricity still comes from the grid, not from using light emitting diode (LED) bulbs and fixtures. renewable resources. Also, the investors hesitate “Our hotel doesn’t look like a conventional hotel but to provide inverter ACs or energy saver switches in there is a way to live in a sustainable manner and all rooms. The character of the hotel changed and it therefore be able to contribute to change,” said Joel remains to be seen if the change to another clientele, a Lee of WGH. major risk, is successful. Edna said some of their eco-practices that can also be done at home include using reclaimed wood in their Similarly, “impact examples” stating that a resort counters and partitions in the first and second floor. “saved 63% of the monthly electric costs” are almost The wood came from seven to eight year-old dry wood meaningless in the absence of any data and may just from a demolished building. spark false hopes.156 “You don’t need to light up every single corner of your house so we first did an audit of our lights and A hotel marketing officer and spokesperson explained see where we need our lights and then we reduced that the hotel purchased solar panels for heating the the number of lights by 60 percent. You only light water. “It was told to us it would pay back but I it did where it is needed,” Edna said. “If fluorescent lights not, I didn’t see it happening. are replaced, the energy bill can go down to 20 to 40 percent depending on consumption.”

Risky Investments

LED Bulbs Competing With LED Bulbs Unfavourable Price Changes for LPG The savings potential of LED bulbs is high when When liquefied petroleum gas (LPG) was introduced, compared with incandescent bulbs. However, taxi drivers experienced a low fuel consumption meanwhile, CFLs are ubiquitous. Although the of only P 500 (about USD 12) per day. The lower savings potential of LEDs against CFLs is still about fuel price made them shift. Meanwhile the price 50%, it is 50% of an already quite low amount! Actual difference to petrol fell from P 10 to P 3 per liter. savings are seldom as high as promised and pay- Many taxi drivers in Cebu consider going back to back periods much longer than presented in sample petrol because of the superior climbing performance. calculations. One reason is that the lamps ar not used five hours or more per day as in the projection.

New Technology: The Spare Parts and Service Realized Savings – High Quotations Question There were reports on substantially reduced Acquisition of tools, systems, and technology is not electricity costs after purchasing energy efficient the problem, but spare parts and components as equipment or implementing green architecture well as the necessary after sales service may render recommendations. But there were also reports investments questionable. about too high quotations for equipment by vendors jeopardizing the financial bottom line of going green.

9.10.2 PV-Powered Electric Transport and Battery Replacement Costs

Protagonists of Boracay’s e-trike project157 say that the drivers will increase their take-home income significantly. ADB estimates e-trikes drivers can save up to PHP 200 per day since no money will be spent on gasoline.158 This can finance the cost of an e-trike (cash price around

156 For a selection of such phrases see http://www.zerocarbonresorts.eu/data/1ZCR%20 Project%20Overview_Dr.%20Wimmer.pdf, page 17 and 18. 157 Source: http://boracaystories.com/forum/archive/index.php/t-40.html 158 And assuming that electricity costs are already deducted; it was not explicitly mentioned! 64 Green Finance for MSMEs in the Philippines

PHP 250,000, about USD 6,000) in about five years at subsidized interest–without substantially improving the driver’s income.159 Worse, there is no mentioning that after about three or four years the expensive lithium-ion battery (more than PHP 100,000160) has to be replaced!161,162 Variable costs have been turned into a fixed cost binding the owner of the vehicle.

Similarly, a boat tour operator intended to convert one of his eight boats into a solar PV-powered boat. The quoted additional investment, more than PHP 10 million (about USD 220,000) for PV panels, battery, controls, wiring, and electric engine would in theory be balanced by fuel savings. The investor was unaware of the need to periodically replace the costly battery packs.

9.10.3 Income from Sale of CERs Negligible

The development of revenues from sale of CERs is appalling, dropping from a peak of USD 20/t CO2 to below USD 1. For example, the construction of a green resort-hotel achieved ‘annual savings of USD 106,000 in energy and 700,000 gallons of water and GHG emission reduction of 321 tons per year.’163 For the investor, the GHG emission reduction is worth less than USD 200 (two hundred) per year.

9.10.4 Achievements of Green Philippines Islands of Sustainability (GPIoS) Project

Project Results – Phase 1 of Implementation 2010-2011 Item Actual Savings Savings Amount Saved (PHP) Amount Invested (PHP) Electricity 8,907,445 Kilowatt Hours 7% 80,185,117 107,454,159 Fuel 877,852 Litres 13% 24,020,075 2,200,000 Hazardous Waste 15,277 Kilograms 63% 1,045,213 109,593 Solid Waste 315,464 Kilograms 76% 29,525,153 613,870 Water 640,662 Cubic Meters 39% 9,066,215 5,473,086 TOTAL 143,841,776 115,850,708

Source: http://greenphilippines.com.ph/newgpios/?page_id=37 These values are proven savings until August 2011; overall performance of Phase 1 is more than double.

Return on Investment = 0.8; Payback Time = 9.6 months

159 No interest, working six days per week. 160 Compare: http://www.alibaba.com/product-gs/275372599/lithium_ion_battery_for_electric_vehicle.html 161 A lithium-ion battery survives 500–1,500 discharge/charge cycles. During 9th BLTMPC General Assembly on March 31, 2013, BLTMPC Chairman Joel Gelito was quoted saying ‘I am not in favor of E-Trikes but let us just be law-abiding citizens.’ Source: http://boracaystories.com/forum/archive/index.php/t-40.html 162 http://boracaystories.com/forum/activity.php?sortby=recent&show=all&time=week 163 https://www.changemakers.com/SME-Finance/entries/bpi-sustainable-energy-finance-program-smes Green Finance for MSMEs in the Philippines 65

9.11 Citibank: Ready Credit (Fees and Charges) Source: http://www.citibank.com.ph/gcb/loans/loan_fees_charges.htm

Fees/Charges Description

Annual Contractual Rate Annual contractual rate is from 26.9% to 37.9% (whichever is indicated in the (applies to Ready Credit Disclosure Statement); Loan) • Effective interest rate (EIR) which includes Loan Processing Fee, Loan Disbursement Fee and DST is from 31.5% to 46.4% using a sample loan amount of PHP 250,000 at a 24 month loan period (exact EIR is indicated in the Disclosure Statement) • EIR is computed as: (Total Interest + Loan Processing Fee + Loan Disbursement Fee + DST) /(Total outstanding balance/12)

Monthly Interest Rate* 2.4% will be applied to any or all of the following: (1) revolving interest on fees and charges if I opt to pay the Minimum Amount Due per month; (2) revolving interest rate on the Total Amount Due (less the interest component of the unpaid billed instalment amounts) when my Ready Credit Loan account is in default at 60 days past due.

Monthly Late Charge PHP 500 or 6% of Minimum Amount Due, whichever is higher Minimum Amount Due computation: PHP 500 or 1% of your current billed balance will be charged, while interest charges and late charges indicated on your current statement will be billed in full together with unpaid monthly instalments due and other overdue amounts. The total amount due will become your minimum amount due upon closure of account or if account becomes delinquent (under the Bank’s applicable criteria). The total amount due will be billed and will be used as basis for the computation of any late charges.

Account Maintenance Fee In case of any remaining overpayments on closed RC accounts, a monthly Account Maintenance Fee of PHP 200 or the amount equivalent to the credit balance, whichever is lower, shall be charged to the account until the credit balance is zeroed out.

Documentary Stamp Tax PHP 1 for every PHP 200 of the instalment loan approved that pass the criteria (DST) as required by local based on local regulations law and regulations

Bounced PDC Fee PHP 1,500 will be charged for every post dated check (PDC) returned due to reasons such as insufficient funds, uncollected deposits, stop payment order or closed account

Loan Processing Fee PHP 500 for each instalment loan approved

Loan Disbursement Fee PHP 120 for disbursement or release of loan proceeds for each instalment loan approved

Loan Closure Handling Fee 4% of unbilled principal component of the instalment loan

PDC Deferment Fee PHP 1,000 will be charged for every post-dated check (PDC) that you request to defer/delay for deposit as payment to your account

PDC Replacement Fee PHP 750 will be charged for every post-dated check (PDC) that you request to pull-out and replace with another post-dated check(s) as payment to your account

Attorney's Fees & Liquidated In case of default in payment, the primary account holder is liable to pay in Damages addition to Late and Interest Charges, the cost of collection and/or attorney’s fees and the litigation and judicial expenses as applicable.

* Interest rates are quoted based on a 30-day period. For months with more (or less) than 30 days, the applicable interest rate shall increase (decrease) accordingly. Interest is compounded monthly.

9.12 Philippine Green Energy Tariffs Due 2014164

In a spur to deriving half of the Philippines’ energy from renewable sources by 2030, the central government has announced that an anticipated green energy incentive scheme should finally come into effect by early 2014.

164 Posted by Justin Calderon on April 26, 2013, see http://investvine.com/philippine-renewable-energy-tariffs-due-2014/ 66 Green Finance for MSMEs in the Philippines

The proposed feed-in tariff, a popular policy mechanism, will be used to help accelerate investment into renewable energy (RE) projects, such as solar, wind, geothermal, and biomass.

Under the new incentives scheme, investors in RE will be eligible for power-provider contracts offered above the market rate, measured per every kilowatt-hour sold.

While the move, a pillar of a 2008 RE law, may help kickstart investment, larger renewable projects, such as wind and geothermal, may not get going for another three to five years, Mario Marasigan, the energy department’s RE bureau chief, told AFP. The long awaited incentives scheme has faced criticism for getting lost in red tape over the past five years, much to the exasperation of the business community.

However, the Department of Energy defended the rollout time, stating that the timeframe was to be expected considering the completely new financing mechanism that was being devised.

Listing the near term possibilities for the Philippines, Marasigan named solar power as the kind of renewable energy project most likely to first appear in the country under the new feed-in tariff scheme.

According to the country’s energy secretary Carlos Jericho Petilla, the Philippines need an additional capacity of 11,400 MW at the end of the 2012–2030 planning cycle based on the government’s Power Development Plan.

This makes USD 32.5 billion in investments necessary for power generation and natural gas projects that aim to make the country energy sufficient by 2030, Petilla said.

9.13 Development of the Philippine PV Market

According to Tetchi Cruz-Capellan, founder of the Philippine Solar Power Alliance Inc., the total output of PV systems connected to the mains in 2012 amounted to 2.2 MW, plus around 3 to 3.5 MW from off-grid systems.

Nevertheless, the Philippine PV market is gaining momentum. Indeed, while just 280 kW were installed in the form of grid-connected plants in 2011, in 2012, the figure reached 1.2 MW. Furthermore, the project pipeline for grid-connected systems already amounts to more than 800 MW.165

Crucial factors for the accelerated development of PV in the economically booming country are high electricity prices, reduced system prices for PV systems, and a FIT program started last summer that pays PHP 9.68/kWh (USD 0.24/kWh). The current average retail electricity price for final consumers is approximately PHP 11.35/kWh (USD 0.28/kWh) according to Cruz-Capellan, while on remote islands a kilowatt-hour of electricity from a diesel generator can cost as much as PHP 28.39 (USD 0.70).

The Energy Regulatory Commission (ERC)’s approved initial FITs cover hydro (PHP 5.90/kWh), biomass (PHP 6.63/kWh), wind (PHP 8.53/kWh) and solar (PHP 9.68/kWh).

165 pv magazine, 18 February 2013, http://www.pv-magazine.com/news/details/beitrag/ pv-in-the-philippines-beginning-to-pay-off_100010251/#axzz2T8JR1xjf Green Finance for MSMEs in the Philippines 67

9.14 National Budget for 2013 Abridgment of the 2013 Budget message of president Aquino166

Rapid, Inclusive and Sustained Economic Growth

Infrastructure: 20,000 e-trikes The Department of Energy (DOE) has also taken part in this Administration’s drive to bolster transportation infrastructure in the country, while advocating the use of clean and renewable energy, through the distribution of 2,’000 Electric Tricycles to participating local government units (LGUs). A total of PHP 3.1 billion (about USD 74 million) has been allotted for this program.

[Comment: This is equivalent to PHP 155,000, about USD 3,700, per e-trike and includes infrastructure such as charging stations.]

Development of Micro, Small and Medium-Scale Enterprises: PHP 500 million for DOST The Department of Science and Technology (DOST) will be given PHP 500 million to provide sufficient assistance to fledgling MSMEs through the Small Enterprise Technology Upgrading (SET-UP) Program, which will empower small firms to address their technical problems through financial aid, technology transfers, and other interventions, to improve productivity, human resources development, and cost minimization.

Rural Electrification: 7,500 solar home systems The DOE aims to energize around 7,500 Filipino households through the installation of solar panels and other renewable energy sources under its Household Electrification Program.

[Comment: In view of the investment in e-trikes this is a negligible amount. The estimated cost per household is USD 400, the total, USD 3 million. For comparison, the average 2012 access-to-grid cost was PHP 65,000 per household (about USD 1,550).167]

Integrity of the Environment and Climate Change Adaptation and Mitigation

National Greening Program: Logging ban On 1 February 2011 I signed Executive Order No. 23, which implemented a nationwide total logging ban. This measure was intended to preserve our environmental and natural resources, as well as to mitigate the adverse effects of climate change, such as rampant flooding. This logging ban, however, is only one of this Administration’s different policies and programs aimed at mitigating climate change.

National Greening Program: Planting 150 million seedlings The National Greening Program (NGP) has been given a PHP 5.9 billion (about USD 140 million) budget in 2013, more than double compared to PHP 2.7 billion allotted to them in 2012. With this amount, 150 million seedlings will be planted on 300,000 hectares in 2013, from 44 million seedlings covering 128,559 hectares in 2011. This will go a long way towards accomplishing our goal of planting 1.5 billion trees on 1.5 million hectares of public lands from 2011 to 2016. The end in sight is the improvement our forest cover to 30% of total land area, from only 23.8% in 2003.

166 http://www.dbm.gov.ph/?page_id=3692 167 Last year, NEA and its partner electric cooperatives spent about PHP 3.5 billion in providing electricity to 6,163 sitios across the country. These electrification projects have benefited 53,688 households, or 268,440 Filipinos. The Department of Energy is aiming for 90% household electrification across the country by 2017. Thus, about three million households are potential buyers of solar PV units, a billion USD market. http://business.inquirer.net/110487/p5-4b-earmarked-for-nea-electrification-program 68 Green Finance for MSMEs in the Philippines

Renewable and Efficient Energy

Launched in June of 2011, our National Renewable Energy Program will continue to address the electricity needs of our people at a much lower cost, freeing us from the ravages of the world oil market. To add to that, it will give us what we need, without destroying the environment.

Household Electrification Programme (HEP) Using RE For 2013, we have infused PHP 127 million (about USD 3 million) into the Household Electrification Program (HEP) in off-grid areas using renewable energy systems. The program, to be implemented from 2011 to 2017 with a total project cost of over PHP 1.0 billion (about USD 220 million), involves the electrification of off-grid households using renewable energy technologies such as solar power and micro-hydro systems. We expect to energize 7,500 households in 2013 to achieve our target of electrifying 90% of all households by 2017. [Comment: see above]

National Energy Efficiency and Conservation Program The 2013 Budget through the National Energy Efficiency and Conservation Program allocates PHP 25 million (about USD 600,000) under the Department of Energy (DOE) to promote and implement six energy efficiency and conservation programs: 1. energy standards and labeling 2. information, education, and communication campaigns 3. Voluntary Agreements Program 4. Recognition Award Program 5. Government Energy Conservation Program 6. DOE-United Nations Industrial Development Organization (UNIDO) Industrial Energy Project.

Philippine Energy Efficiency Project Next year, we complete the implementation of the five-year Philippine Energy Efficiency Project, which aims to reduce the cost of power generation through investments in energy-efficient lighting and lighting systems. Its PHP 46 million budget for 2013 will distribute the remaining compact fluorescent lamps (CFLs) nationwide. Since 2011, we have set aside a total of PHP 1.05 billion for the retrofitting of 135 government buildings, the installation of LED Traffic Lights in88 intersections, and the distribution of 1.7 million CFLs nationwide.

Electric Cooperative System Loss Reduction Project (ECSLRP) Another noteworthy project that will be supported in 2013 is the Electric Cooperative System Loss Reduction Project (ECSLRP). This will be given PHP 257 million to promote energy efficiency improvements through commercial lending and private investments in electric cooperatives.

Energy-Efficiency Initiative for Five Buildings Finally, we are also working with the Climate Change Commission (CCC), the DOE, and the Bank of the Philippine Islands (BPI) to spearhead the pilot test of an energy-efficiency initiative for five buildings in the Malacañang compound, as part of our endeavor to eventually make government offices fully ‘green’. Green Finance for MSMEs in the Philippines 69

9.15 Small Business Guarantee Finance Corporation (SBC or SBGFC)

SBC’s primary responsibility is implementing comprehensive policies and programs to assist MSMEs in all areas, including but not limited to finance and information services, training, and marketing.168

SBC’s portfolio contains about 200 direct retail borrowers, MSMEs mostly with loan amounts below PHP 2 million (about USD 48,000). Interest rates for these loans start at around 10% eff pa. This is higher than those of most commercial banks. SBC justifies the rates with higher cost for funds. Banks benefit from access to inexpensive demand and savings deposits.

The SBC is the choice for MSMEs with assets from PHP 500,000 to 100 million (about USD 22,000 to 4.4 million). The loan refusal rate is 50% ‘or higher’. Applicants expect high loan amounts they do not have the documentation to justify. For example, the entrepreneur’s tax declaration, probably understated, shows too low an income. Other applicants have unrealistic expectations with regards to interest rates and argue that a government institution should provide them with concessional loans.

9.16 Credit Surety Fund (CSF)

The CSF is a credit enhancement scheme, essentially a partnership between the citizens (represented by members of cooperatives), NGOs, and community-based banks.

BSP launched the CSF in 2008. It is an advocacy of the BSP designed to help capital-short MSMEs obtain loans from banks despite lack of acceptable collateral, credit knowledge, and credit track records.

It is created by pooling cash contributions of participating cooperatives, local government units, and partner institutions. In lieu of hard collateral, the fund will issue surety cover to serve as guarantee for loans extended by banks to MSMEs participating in the CSF Program

Private entities that support the CSF program consist of cooperatives and other NGOs. Public institutions include LGUs where the CSF is to be established, the DBP, LBP, and Industrial Guarantee and Loan Fund (IGLF).

The prerequisite for a CSF is a cooperative to organize it and a local government to support it. For example, a cooperative fund of PHP 5 million is complemented by a LGU match of PHP 5 million. The total of PHP 10 million is again matched by IGLF so that the total amounts to PHP 20 million. At a gearing ratio of 10, this amount guarantees a loan volume of PHP 200 million. At a surety fee of 2%, the SCF carries 80% of the risk, 20% remaining with the bank. Credit appraisal is modified: documentary requirements are lower than with banks.

For Cebu’s CSF, PHP 12.1 million was contributed by cooperatives and PHP 10 million by the city government.169

A guarantee fee ranging from 2% to 5% pa will be charged depending on the collateral security offered by the MSME borrower. A service charge shall also be levied for every letter of joint surety issued.

168 RA 6977, January 1991, for a 2010 self documentation see: http://www.afdc.org.cn/afdc/UploadFile/201062333751581.pdf 169 http://www.philstar.com/cebu-business/514602/city-bsp-ink-agreement-csf- implementation, Updated October 17, 2009; for more details on applicatio 70 Green Finance for MSMEs in the Philippines

BSP Opens Bohol Credit Surety Fund (2009)170

The Bangko Sentral ng Pilipinas (BSP) launched on The support of the First Consolidated Bank (FCB) February 15 (2009) the third and biggest cooperative accelerated the formation of the Bohol Credit Surety credit surety fund here. Fund. FCB is designated as the depository bank of the Bohol Credit Surety Fund. With an initial membership of 17 cooperatives and one non-government organization that pooled its A brainchild of the BSP, the credit surety fund or CSF fund resources with a counterpart of P5-million each is a program that involves the creation of a trust fund from the provincial government, the Development contributed by cooperatives from a province and its Bank of the Philippines (DBP) and the Industrial provincial government intended primarily to make Guarantee and Loan Fund (IGLF), the Bohol MSMEs (that are relying on cooperative fund support) Coopreneurs Credit Surety Fund (BC-CSF) seeks bankable by giving them access to formal sources of to expand and simplify access to credit among financing by means of a surety cover. member-cooperatives.

9.17 PCFC Micro-Energy Credit Program General Policy Guidelines

A. PCFC to MFI Type of Credit Facility Term loan (non-revolving) available within 1 year from approval of credit facility.

Eligible Borrowers Accredited MFI partners.

Loan Purpose To finance the MFI’s micro-energy program for its end-clients.

Loan Amount Based on 85 % of credit needs of end clients as indicated in the Solar Availment Plan (SAP). Loan Maturity Up to 5 years promissory note PN.

Mode of payment Quarterly.

Interest and Service Charge 11% interest per yr plus 1% service fee for up to 1 yr PNs; 12% interest per yr plus 1% service fee for > 1 yr PNs. Manner of Availment Reimbursement basis (i.e. drawdown against actual loan releases to end clients) or liquidation basis (i.e. drawdown based on projected loan releases); list of borrowers to be submitted within two months from drawdown from PCFC. Security Requirement Post-Dated Cheques

Additional Availment Assignment of (a) all PNs of end-clients or MFI’s receivables from end–clients; (b) Requirements credit guarantee proceeds; and/or (c) buy-back proceeds. Submission of Solar Availment Plan (SAP).

B. MFI to BORROWER Eligible Borrowers Low -income families in urban and rural areas.

Suggested priority areas Households in un-energized Barangays and un-energized Households in ‘energized’ Barangays. Loan Purpose To finance the acquisition of small-scale renewable energy solar home system/ solar lanterns for poor individual households. Loan Amount In accordance with MFI’s credit policies and end-client repayment capacity (cash flow) but shall not exceed PHP 150,000 inclusive of end-client’s other loans with the MFI. Loan Maturity Based on MFI’s credit policies and guidelines but not to exceed 5 years.

Mode of payment Based on MFI’s credit policies and guidelines, i.e. weekly, semi-monthly, or monthly. Interest and Service Charge Based on MFI’s credit policies and guidelines.

Manner of Availment Based on MFI’s credit policies and guidelines.

Suggestion Loan utilization check within 30 days from release.

Security Requirement Based on MFI’s credit policies and guidelines, i.e. chattel mortgage and insurance for loans above PHP 75,000.

170 http://www.boholnewsdaily.com/boholnews-bsp-opens-bohol-credit-surety-fund.html Green Finance for MSMEs in the Philippines 71

Additional Availment Based on MFI’s credit policies and guidelines. The micro-energy loan should be Requirements supported by a livelihood project and/or total household cashflow. Suggestion Loan Guarantee Fund (c/o RPP-LGF) and Buy-Back Scheme (c/o Supplier).

9.18 List of Banks with Microfinance Functions in Region VII (Central Visayas) As of 31 December 2012, published by BSP

MICROFINANCE ORIENTED RURAL BANKS • None

MICROFINANCE ORIENTED THRIFT BANKS • None

MICROFINANCE ENGAGED COOPERATIVE BANKS • COOP BANK OF NEGROS ORIENTAL

MICROFINANCE ENGAGED RURAL BANKS • COMMTY RB OF CATMON (CEBU) INC • FIRST AGRO-INDUSTRIAL RB INC (Fairbank) • FRONTIER RURAL BANK INC • RB OF BOGO (CEBU) INC • RB OF LOON (BOHOL) INC • RB OF OSLOB (CEBU) INC • RB OF STA CATALINA NEGROS ORIENTAL INC • SUGBUANON RB IN

MICROFINANCE ENGAGED THRIFT BANKS • FIRST CONSOLIDATED • SUN SAVINGS BANK INC

9.19 SEF Promotion and BPI’s Experience

Statements from BPI’s SEF Brochure171172,

‘The Sustainable Energy Finance (SEF) program equipment vendors whose motive is simply to sell aims private sector investment in EE and RE the product without providing for a total energy technologies to help increase SMEs’ access to saving solution for the company. finance for Sustainable Energy (SE) investments (inclusive of energy efficiency and renewable The program has gained momentum within BPI energy projects) and further promote growth and and resulted in a paradigm shift in the traditional sustainability of businesses by providing financing banker’s way of thinking. The available TA and RSF solutions that contribute to clients’ triple bottom enabled us to veer away from collateral based line: profits, people and the planet.”171 lending to cash flow based lending which is a unique value-add for clients. Investments in SE projects ‘This process gives our SME clients more access typically have short payback period due to the energy to knowledge and information related to energy savings attributed to project implementation. Our efficiency and renewable energy. With the technical pitch, “your energy cost savings can pay off the evaluation and confirmation of viability, the bank investment”, coupled with the embedded expert is provided with additional comfort other than the technical evaluation, improves the risk profile of traditional review criteria such as management our loan portfolio. We see this as a big step towards composition, market and financials. For the SME the creation of new business and more innovative, borrower, he learns to veer away from the lure of sustainable products in the future.’172

171 BPI, cit. http://www.changemakers.com/SME-Finance/entries/bpi-sustainable-energy-finance-program-smes 172 http://www.changemakers.com/SME-Finance/entries/bpi-sustainable-energy-finance-program-smes 72 Green Finance for MSMEs in the Philippines

Statements from BPI’s SEF Brochure173174175

‘BPI’s SEF program was awarded a USD 1.2 1. Modernization of a corrugated box manufacturing million grant for winning the Group of G-20 SME plant- 54 percent energy cost savings and GHG Finance Challenge in 2010. Grants under the emission reduction of 1,269 tons/year competition will now be managed by IFC through 2. Biomass technology provider/steam supplier for a the SME Finance Forum, a G-20 initiative that bottling plant – savings of 6,000 tons of bunker fuel and is designed to improve access to financial GHG emission reduction of 19,000 tons/year resources for SMEs. One of the judges advised “to keep in mind (making) sure that it is going 3. Biogas methane capture project for a piggery farm – after the true “missing middle” and not focusing 80% energy cost savings and GHG emission reduction on businesses that are larger than SME.’173 of 4,622 tons/year ‘BPI’s Sustainable Energy Finance clients have 4. Post-harvest facility for corncobs – reduced production collectively reduced energy use by 142,000 loss to 5% from 15% and GHG emission reduction of megawatt hours and generated 208,200 MWh of 10,000 tons/year renewable energy each year. Their projects have also cut greenhouse gas emissions by 527,900 5. Construction of a green resort-hotel – annual savings tons annually.’174 of USD 106,000 in energy and 700,000 gallons of water and GHG emission reduction of 321 tonnes/year175

9.20 ECCP SMART Cebu

The European Chamber of Commerce of the Philippines (ECCP) launched the Energy Smart program in July 2010.176 The program is a private-sector-led initiative to encourage like-minded organizations to identify, implement, and share best-practice energy management programs that encourage EE and sustainability. It is supported by leading companies in the energy sector, international organizations such as IFC, and other key players in the field of energy management. Since 2010, the program has organizes the annual Philippine Energy Efficiency Forum (PEEF).

The Energy Smart Program also aims to achieve the following: • raise interest in and awareness of energy efficiency as a source of competitive advantage in the market place • increase the implementation of energy saving projects and programs • develop a supportive network of energy efficiency organizations and suppliers • recognize the effort and achievements of the program’s partners to promote greater action • recognize/reward the efforts of companies that continue to implement EE Programs.

173 Comment by Matt Guttentag, judge, 11/11/2010 http://www.changemakers.com/SME- Finance/entries/bpi-sustainable-energy-finance-program-smes 174 http://www1.ifc.org/wps/wcm/connect/region__ext_content/regions/ east+asia+and+the+pacific/news/philippine+bank+partners+step+up 175 BPI, submitted to G-20 SME Finance Challenge 176 http://www.eccp.com/project-page.php?catalog_id=53#details Green Finance for MSMEs in the Philippines 73

Commitment Benefits

• Appointment of an internal Energy Champion to Expert advice to identify and implement energy be the main contact for the program saving programs and projects • Submit a Partner goal proposal with a • Ongoing support for the Energy Champion and his/ corresponding Action Plan within 3 months of her team through targeted technical seminars, joining the program best practices and networking forums • Install an Inaugural Energy Efficiency project • Access to Energy Smart Allies and Suppliers within 6 months of joining the program • Access to tailored funding for EE and sustainable • Pursue the Action plan to implement programs projects through our funding partners and projects to achieve the pre-agreed milestones • Access to ‘best practice’ case studies and site as outlined below: visits to further raise confidence in the latest - Bronze Milestone (~10% Savings) energy saving technologies - Silver Milestone (~20% Savings) • External validation and recognition of energy - Gold Milestone (~30% Savings) savings achievements within the program at the annual Energy Efficiency Forum - Platinum Milestone (Above 30% Savings or Other Worthy Initiatives) • Use of the Energy Smart logo to enhance brand exposure and communication with the growing segment of green conscious consumers

Who Can Participate in the Energy Smart Program? What’s In It for Technology Providers?

Who Can Participate in the Energy Smart Program? • Access to industry end users • Companies with no energy management • Marketing platform: promotion of your energy Programs management solutions through the Energy • Companies with existing management Programs Smart directory, website, newsletter, information but need to improve energy performance sessions, product presentations, advertisement in print and electronic media, sponsorships, cause- • Companies with advanced energy management marketing Programs who want to be recognized for their achievement • Policy advocacy – energy efficiency and conservation law • Small and medium enterprises • Policy dialogue with government organizations • Large organizations • Networking with other local and international • Commercial and industrial companies stakeholders • Residential properties • Opportunity to exhibit and network at the Energy Efficiency Forum

9.21 The Philippine Green Building Council (PHILGBC)177

The PHILGBC is a national not-for- 2) economic growth and an environment that will stimulate job profit organization that promotes the creation to support a growing population; sharing of knowledge on green practices within the property industry to ensure a and sustainable environment. Green building (3) adaptation to the negative impacts of climate change is the act of designing, constructing, and operating buildings, ensuring that they Green building has the highest potential to address the above- will be environmentally responsible by mentioned issues (Huovila2009). Appropriate and economically utilizing the least resources, and ensuring viable energy technologies are now available. However, the occupant health and safety throughout uptake of green building is continually challenged by 177 their lifecycle. (1) high up-front costs for more efficient equipment, The government must prioritize funding (2) lack of access to financing, among concerns such as: (3) absence of energy subsidies, and (1) basic needs (healthcare, education, public housing, poverty alleviation); (4) lack of full understanding of environmental, health and other external costs

Source: BERDE Working Paper Series, Occupational and Skills Needs in the Green Building Sector in the Philippines, Christopher Cruz de la Cruz March 2011, Working Paper 2011-003; Philippine Green Building Council Building for Ecologically Responsive Design Excellence (BERDE) Program Technical Working Group

177 http://www.academia.edu/515417/Occupational_and_Skills_Needs_in_the_Green_Building_Sector_in_the_Philippines 74 Green Finance for MSMEs in the Philippines

The Philippine Green Building Initiative (PGBI) was formed in 2010. It is composed of professional associations accredited by the Professional Regulation Commission (PRC) • United Architects of the Philippines, • Philippine Society of Ventilating, Air-Conditioning and Refrigerating Engineers (PSVARE), • Philippine Chapter of the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE), • Integrated Electrical Engineers of the Philippines (IIEE), • Geological Society of the Philippines, • Philippine Institute of Interior Designers (PIID), • Heritage Conservation Society (HCS), and the • International Council of Monuments and Sites (ICOMOS).

Two organizations focus on the promotion of green architecture in the Philippines. 1. United Architects of the Philippines (UAP) initiated the Green Architecture Committee under the term of UAP National President Prosperidad Luis. It was named FUAP in 2000 and is now the Green Architecture Movement (UAP-GAM); 2. Green Architecture Advocacy Philippines (GreenAP) was incorporated in 2009 and currently has about 80 members.

Solid Waste Management Association of the Philippines (SWAPP): recognizing the role of proper solid waste management in the promotion of greener buildings, SWAPP was instrumental in convening the PHILGBC.

Common Green Building Features in Commercial Building178 Green Building Feature Description

Cooling Replacement of CFC based refrigerants; Use of several compressors to reduce peak demand charges and lower energy consumption associated with cooling; Variable speed drives; Variable refrigerant flow system; Ice thermal air-conditioning systems; Shadow effect – orienting buildings to take advantage of shadows to reduce heat gain in buildings.

Elevators Optimized operation by zoning

Pumps Better regulation of speed

Lighting Motion detection; LED Lighting; Compact Fluorescent Lamps (CFL); Soft starters.

Building Envelope Sun Shields; Low-e glazing

Renewable energy Solar collection

Passive strategies used in design Study of solar path; Study of wind and rainfall data; Proper building orientation; Natural lighting; Natural ventilation. Water Double/triple Piping; Reed bed systems.

178 http://www.academia.edu/515417/Occupational_and_Skills_Needs_in_the_Green_Building_Sector_in_the_Philippines Green Finance for MSMEs in the Philippines 75

9.22 Philippine Energy Efficiency Project (PEEP)

Benefits of PEEP (2009 -2013)

Savings/Avoidance Annual Energy Savings 319 GWh Capacity Savings 242 MWe Annual tC02 emission reduction 172,427 tCO2 Total Project Cost USD 46.5 million

Project Contracts (PC) Deliverables 2 Lots : Supply, Delivery and Distribution of CFLs 8.6 Million CFLs distributed nationwide 1 Lot: Public Lighting Retrofit using HPS Lamps Burnham and Wright Parks in Baguio City, and Street Lights in Cagayan De Oro City 2 Lots: Traffic Lighting Retrofit using LED Lights 261 Traffic Light Intersections using LED Lights in MM 3 Lots : Lighting Retrofit in Government Buildings 150 Government Buildings using T5 FL 1 Lot : Public Lighting Retrofit in Metro Manila using LED Lamps 1,484 LED Lamps 2 Lots : Incandescent Bulb Disposal (Total of more than > 2 Million pieces of IBs 2 million pieces) 1 Lot: LED Lighting using Solar Home System 223 Household Beneficiaries (Davao Del Norte, Palawan, Antique, Aklan) 1 Lot : Green Building Rating System BERDE Rating System; 45 buildings rated 4 Lots : Appliance Testing Equipment ; Lamp Waste 3 Equipment and 1 LWM facility in conjunction with EPR Management Facility 2 Lots : IECs on Communication for Energy-Efficient MTVs, billboards, flyers, brochures, tri-media Lighting and Promotion of Efficiency in Everyday Life placements; educational modules and meta-charts to 7,470 schools

Source: Evelyn N. Reyes, Energy Utilization Management Bureau, Energy Efficiency in the Philippines, Presentation at the 2nd EU- RP Meeting on Energy, Energy Efficiency to Boost Economic Growth, 29 May 2013, Manila 76 Green Finance for MSMEs in the Philippines

Photo Documentation

Greening Resorts

1 West Gorordo Hotel, Cebu City

Recycled wood for the hotel’s reception counter

Permeable pavement using gravel for the driveway

Natural ventilation replacing electric air-conditioning units

Air intake at basement Air outlet in an atrium used as climbing wall

White painted roof reflects heat from the sun Green Finance for MSMEs in the Philippines 77

2. Bohol Bee Farm Resort, Panglao Island, Bohol

Entertaining tourists with promoting organic farming and local handicrafts production

Information desk, natural ventilation

Organic Farming Rosemary, peppermint, tarragon, parsley, coriander

3 Vendors of Solar Equipment

Energy-efficient air conditioners and solar water heaters

CITIHARDWARE Bohol branch presents a SunTec solar water heater (glass tube model) just at the premises’ entrance

Solar photovoltaic panel, battery pack. LED Edward Marcs Philippines Inc., unit for lighting Lapu-Lapu Branch, Cebu Hidden office, no sign at the gate to the compound (left of the car) 78 Green Finance for MSMEs in the Philippines

4 Promotion of Energy Efficient LED Lamps

Save PHP 1,200 per year Earth Day Sale: 20% off at Good Buy! – Good Bye! Handyman hardware shop Save PHP 822 yearly

5 Landbank (LBP) and Environmental Policy Statement of the Provincial Government of Bohol

Protected by security officers and positioned at a height so that, unfortunately, few will and can read Green Finance for MSMEs in the Philippines 79

6 FAIR Bank, Lapu-Lapu City branch

FAIR Bank exposes and promotes its products and services, including explicitly SME loans, in the office window (right side of the entrance) .

7 ‘Yellow Labeling’ allows customers to select energy efficient appliances.

7.2 Lamps Air conditioners 7.3 Refrigerators

8 Solid Waste Segregation (in a government office)

Bohol Business One Stop Service BOSS/Bohol Invest- ment Promotion Center BIPC, Tagbilaran

CONTACT: Dr. Volker Steigerwald Project Manager

ProGED Project Office 6th Floor Trade and Industry Building 361 Sen. Gil Puyat Ave., Makati City Philippines 1226 Phone +632 897 8199 Fax +632 753 1441 Email [email protected] [email protected] URL www.greeneconomy.ph

The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, is a federally owned enterprise that supports the German Government in the field of international development cooperation. For more than 30 years now, GIZ has been cooperating with Philippine partners in strengthening the capacity of people and institutions to improve the lives of Filipinos in this generation and generations to come. Together, we work to balance economic, social and ecological interests through multistakeholder dialogue, participation and cooperation. About ProGED The Promotion of Green Economic Development (ProGED) Project, a development cooperation project between the Republic of the Philippines and the Federal Republic of German, aims to improve the competitiveness of enterprises through the adoption of climate smart and environment friendly strategies. The project will focus initially on the tourism sector in the Provinces of Bohol and Cebu with its high potential for investment, employment and poverty reduction due to its linkage with upstream and downstream industries in other economic sectors. It is implemented in partnership with the Department of Trade and Industry (DTI) and GIZ on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). The project duration extends from January 2013 to December 2015.