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Innovative Clean Energy Finance for Cambodian Farmers
Agriculture employs half the Cambodian labour force and strong growth in the sector over the past two decades has helped lift millions of farmers out of poverty. In recent years, however, the growth of the sector has slowed, and low commodity prices, high electricity prices and the impacts of climate change are increasing Cambodian farmers’ vulnerability.
The Clean Energy Revolving Fund (CERF), managed by Nexus for Development and supported by the Austrian Government, Blue Moon Foundation and REEEP, offered access to finance to small enterprises in the agrifood sector that wish to invest in clean energy technologies. These technologies have the potential to increase farmers’ productivity by helping them to manage electricity costs, improve their competitiveness in the regional economy and mitigate climate change.
Background
In Cambodia, the agricultural sector contributes around a third of national GDP and about half of formal employment. This creates enormous potential for deployment of renewable energy (RE), especially as farmers face high electricity costs and relatively high and fluctuating diesel fuel prices, solar irradiation in Cambodia is high and the costs of solar technologies are declining.
Investing in renewable energy technologies such as solar-powered water pumps and PV systems can increase the competitiveness of Cambodian farmers and agrifood SMEs, expand their access to electricity and reduce greenhouse gas (GHG) emissions. However, upfront costs for these technologies are high, and most Cambodians lack access to appropriate finance. Although Cambodia enjoys one of the world’s highest access to finance ratios, this is largely provided at local level through community-based lending and micro credit. By contrast, large financial institutions are risk averse and conservative in their lending practices. For the majority of agricultural enterprises, therefore, challenges remain in accessing finance, especially affordable finance, for investment in RE technologies.
Purpose
Nexus has established the Clean Energy Revolving Fund (CERF) which helps Cambodian farmers in different segments of the agrifood sector invest in small-scale RE solutions by offering affordable, unsecured finance in amounts suitable for SME-level operators (USD 10,000 to 100,000). The loans are issued following an intensive due diligence process which Cambodian banks would be unwilling to undertake for small-size loans. The Fund’s impact therefore lies in financing agricultural enterprises to become more energy efficient and/or harness RE without requiring collateral, through a relationship banking model. The Fund’s demonstration effect creates the potential to crowd in other financiers with appropriate products and structures. It may also provide the basis for replication of the CERF model, modified as necessary, in neighbouring countries.
The CERF reduced GHG emissions from the Cambodian agrifood sector by displacing fossil fuel-powered technologies and encouraging a shift towards renewables as the sector grows.
In 2019, the Fund was fully operational and supported a healthy pipeline of renewable energy investments. It generated substantial learnings about the target market and approaches to innovative finance for renewable energy deployment at small scale.
CERF Materials
