Best green finance product 2020
Industrial Bank’s “Lv Chuang Dai”
Many Chinese banks have rolled out financial products to facilitate green finance transactions. But Industrial Bank’s ‘Lv Chuang Dai’ – which literally translates as ‘green innovative loan’ – stood out because of its ability to tap a huge pool of government funding.
In September last year, Industrial Bank signed an agreement with the China Clean Development Mechanism Fund (CCDMF), one of the most selective but also one of the biggest green-focused funds onshore.
The ‘Lv Chuang Dai’ product was designed to bring in the CCDMF as a seed investor in green projects selected by Industrial Bank.
Deals tend to happen at a provincial level. The usual approach is for Industrial Bank, after identifying a lending opportunity, to approach the CCDMF and the local finance ministry. All three then sign a loan with the borrower, typically a green project. Industrial Bank and the CCDMF will provide the money, while the finance ministry will often provide subsidies to the borrower to improve its creditworthiness.
This helps the CCDMF clear an important hurdle. China’s large and disparate economy has created millions of potential lending opportunities for the fund. But most are too small to warrant the CCDMF doing its own credit analysis.
The ultimate lending decision still rests with the CCDMF. But by convincing the fund to invest alongside it, Industrial Bank has helped ensure a national fund can be used to solve local problems.
It is still early days for the scheme. By the end of 2019, 32 ‘Lv Chuang Dai’ projects had been selected by Industrial Bank and were being evaluated by the CCDMF.
Industrial Bank reckons a total of Rmb2.38 billion ($333 million) of CCDMF funding will go to these projects. The bank will provide more than Rmb4 billion of low-cost funding alongside it.