Overview
This fund provides loans to SMEs for mitigation, sequestration, and adaptation solutions. Borrowers are rewarded with lower interest upon reaching targets, and the fund receives participation in potential borrowers’ carbon credit generation.
The Problem
Medium-sized businesses in emerging markets want to invest in lower carbon and better-adapted models, but there are no financial products to enable it. Many investors have little experience in emerging and frontier markets and therefore place a high-risk premium on them. Additionally, the sustainability-linked loans space lacks frameworks for assessing and verifying carbon reductions in an emerging market context, making it expensive to monetize carbon.
The Solution
The Lendable Decarbonization Fund (LDF) is a structured product that will provide sustainability-linked loans (SLLs) to small and medium enterprises (SMEs) in emerging markets to implement or scale a carbon mitigation, sequestration, or adaptation solution as part of their business. Loans will generate quantifiable carbon benefits monitored via API by Lendable’s Maestro system.
The borrower will unlock lower interest rates based on impact targets to provide alignment and incentives. The fund will, in turn, own rights to either develop the offsets associated with the use of proceeds or a revenue share in the borrower’s development of the offsets. These cash flows will act as a long-term upside to the fund investors.
“Decarbonizing equitably is our generation’s most urgent problem that requires the collaboration of many types of entities to do so. Initiatives like the Lab help speed up the deployment of much-needed solutions, like the Lendable Decarbonization Fund, by bringing together actor networks across DFIs, foundations, commercial investors, and implementers.”
Daniel Goldfarb, Executive Chairman and Co-founder of Lendable.
Target Impact
The proponent Lendable aims to raise the fund as a blended finance vehicle – it would be Lendable’s fifth impact fund but first sustainable finance fund. Ideally, the fund will comprise 20% first-loss concessionary capital, 80% commercial capital, and a technical assistance facility of USD 5-10 million.
The fund will aim to finance between 10,000 and 100,000 electric or high-efficiency vehicles, provide between five and 10 million acres worth of climate-resilient inputs or blended organic fertilizer to smallholder farmers, and finance between 34,000 and a 120,000 kWh peak power output of solar installed through inventory and receivable finance (based on IRENA cost assumptions).
