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CASE STUDY 40:                 SOUTH AFRICA – ENERGY EFFICIENCY PROGRAMME

 Barriers                Lack of access to credit, lack of technical capacity

 Instrument              Senior Loan (with interest rate step down performance incentive)

 Application             Financing of energy efficiency and renewable energy projects

 Amount                  EUR8 million


PROJECT BACKGROUND AND OBJECTIVES                             EE/RE sub-loan portfolio. The project is part of the CTF
                                                              South Africa Energy Efficiency Program.
South Africa is the largest contributor to greenhouse gas
(GHG) emissions in Africa. The energy sector is the single    INSTRUMENTS USED
largest source of CO2 emissions, accounting for more
                                                              IFC and the CTF are providing a €8 million senior loan
than 70 percent of the total. One of the main barriers
                                                              package to support Mercantile to develop a new line of
preventing private sector energy efficiency and
                                                              business - EE/RE lending - focusing on the SME sector in
renewable energy lending in South Africa is that
                                                              which the bank currently specializes. To encourage
financial intermediaries are hesitant to provide financing
                                                              faster integration of the new EE/RE business line, and to
to energy efficiency (EE) and small-scale renewable
                                                              encourage the bank to deliver on target outcomes, the
energy (RE) projects as a specific product line, since they
                                                              loan includes a performance incentive. The performance
associate such funding with higher transactional costs as
                                                              incentive in this project is an interest rate step down
a result of their lack of experience with the technologies
                                                              which is triggered once the EE/RE portfolio reaches
and market opportunities. Additionally, banks do not
                                                              agreed targets.
typically have internal resources to evaluate or identify
appropriate energy efficiency projects. As a result of        INSTITUTIONAL ARRANGEMENTS
these hurdles, real and perceived, financing on fully
                                                              This is the first IFC investment under the CTF South
commercial rates does not provide banks a sufficient
                                                              Africa    Energy     Efficiency  Program.      Additional
incentive to venture into an energy efficiency line of
                                                              investments with other local banks willing to develop
business for the first time.
                                                              their sustainable energy lending business are being
In order to increase the availability of appropriate          developed in order to increase the impact in the market.
financing mechanisms for EE and small-scale RE
                                                              OUTCOMES
projects, IFC is providing Mercantile Bank with a senior
loan investment to be on-lent to eligible EE/RE projects.     The project aims to build a EUR8 million portfolio of
The loan includes a tranche funded by the Clean               EE/RE sub-loans with at least 8 to 10 companies. As the
Technology Fund (CTF) with an interest rate step down         first EE/RE product to be launched by a second tier
to encourage Mercantile to develop and grow a sizeable        South African bank, the project should have a
                                                              demonstration    effect     to    Mercantile’s   peers.




Further reading
IFC, Mercantile Bank Holdings Limited: Summary of Proposed Investment – click here
Climate Investment Funds, South Africa Energy Efficiency Program (the “Program�) – click here

1 | R E F I N e www.worldbank.org/energy/refine