Assessment of Green Financing Mechanisms For MSMEs In Africa
European Union (EU), Switch Africa Green, UNEP
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Abstract: MSMEs need green finance to absorb shocks and take advantage of opportunities but face a wide range of constraints in accessing this finance. Developing or transitioning to climate-friendly business models requires capital investments that MSMEs are unlikely to afford. Currently, accessing finance is constrained by issues that have historically faced MSMEs, such as strict collateral requirements, and those specific to green finance, such as higher perceived risk. While financiers and development actors are working to address constraints, there remains little clarity on the extent to which green finance reaches MSMEs and how the flows can be expanded. Despite extensive data on climate finance flows and MSME financing, there is limited information on green finance flows to African MSMEs. There is also competing demand for climate finance from the government for creating fiscal incentives to advance the green economy. This study seeks to close the gap by presenting a macro-view of green finance in Africa. This entails looking at the demand for green finance, key trends in flows of green finance, and the challenges MSMEs face in accessing finance. The in-depth understanding of the MSME green finance landscape in Africa will inform a set of recommendations on how access can be improved.