RFP-AFI-2023-03 Consultancy Service of Inclusive Green Finance initiatives for MSMEs

  • Remote
  • TBD USD / Year

Alliance for Financial Inclusion

Inclusive Green Finance (IGF)

Inclusive Green Finance is an evolving policy area pioneered by AFI member institutions implementing policies, regulations and national strategies to mitigate or build resilience to climate change. In May 2019, AFI published a scoping study on inclusive green finance – ‘Inclusive Green Finance: A Survey of the Policy Landscape’- outlining the 4P Framework on Inclusive Green Finance. An updated version was published in June 2020 ‘Inclusive Green Finance: A Survey of the Policy Landscape (Second Edition)’. The policies fall within four key pillars of inclusive green finance categorization, namely the 4Ps of inclusive green finance:

  • Promotion policies and initiatives prepare the private sector to offer financial services for green projects or related climate action activities to qualified beneficiaries, for example, through awareness raising, information sharing, capacity building and data collection.
  • Provision policies help to ensure financial resources for green projects or related climate action activities are provided to qualified beneficiaries, whether through lending policies, refinancing or other financing schemes.
  • Protection policies reduce financial risk by “socializing” potential losses through insurance, credit guarantees, social payments or other related risk-sharing mechanisms.
  • Prevention policies aim to avoid undesirable outcomes by lowering financial, social and environmental risks.

MSME Finance

Micro, Small and Medium Enterprises (MSMEs) are universally recognized as major driver that contribute to economic development and GDP, employment creation and innovation, especially in developing and emerging countries. However, access to finance remains one of the key constraints for MSMEs’ growth. MSME finance gap in emerging economies is estimated at approximately $5 trillion – 1.3 times the current level of MSME lending. These numbers even more staggering at about $8 trillion if MSMEs in the informal sector were also included. Government, financial regulator and relevant stakeholders play key roles in facilitating MSME finance, addressing financing constraints and mitigating the credit gap through financing vehicles and enabling infrastructure tools. As this thematic matures in the AFI network, the SME Finance Working Group (SMEFWG) issued a POLICY MODEL FOR MSME FINANCE in 2021 to guide members through a set of principles and the key elements derived from the AFI network’s best practices and their codification from several knowledge products issued over the years by AFI’s SMEFWG to be considered in developing or reviewing their MSME finance policies.

One of the six guiding pillars of the Policy Model is Priority Sector to develop MSME finance policies that are effectively implemented when priority sectors, such as women, youth, and climate change risks, are incorporated in mainstream MSME policies.

Inclusive Green Finance For MSMEs

As MSMEs make up 90 percent of all businesses in developing economies, MSMEs can contribute to climate change mitigation in the long run through a variety of ways. Various incentives to support green MSME finance, identify effective risk-sharing tool through green credit guarantee scheme and establish a restructuring fund and risk reduction measures for MSMEs. The sixth guiding principle in the policy model includes prioritizing green sector through the categorization 4Ps (Provision, Promotion, Protection and Prevention) framework of inclusive green finance.

IGFWG

Launched in 2019 in Kigali-Rwanda, the Inclusive Green Finance Working Group (IGFWG) is working to develop green financial inclusion policy solutions while focusing on the communities most vulnerable to climate change. In response to the increasing interest from the AFI network, member institutions committed to work together and collaborate with partners in identifying, understanding and implementing inclusive green finance policy solutions.

The AFI Inclusive Green Finance Working Group (IGFWG) was established in September 2019 during the AFI Global Policy Forum in Kigali, Rwanda. This WG has 61 members from 54 member countries. The IGFWG members have developed thirteen knowledge products and 11 policy changes on IGF in its short existence. The current members in the IGFWG are 45% women and 55% men. The Working Group aims to:

  • Produce policy guidelines and tools for formulating financial inclusion policies;
  • Provide peer reviews of members’ draft policies and regulatory frameworks; and
  • Contribute to AFI’s engagement with global Standard-Setting Bodies (SSBs) and financial inclusion ecosystems at national and regional levels.

The IGFWG has developed some KPs to provide deeper understanding on the intersection of IGF, MSMEs with gender perspective:

  • Inclusive Green Finance Policies for MSMEs (2020). This report takes stock of policy initiatives and practices from financial regulators in greening MSMEs in the AFI Network. One of the key findings of the report is that financial regulators and policymakers recognize the implications of climate change on MSMEs, and thus, are starting to link climate change and financial inclusion in their National Financial Inclusion Strategies (NFIS).
  • Green Credit Risk Guarantee Schemes for MSMEs (2022). Climate change and environmental degradation pose a significant risk to the performance, competitiveness and sustainability of MSMEs in developing countries. Contributing significantly to a country’s gross domestic product, MSMEs can play a significant role in strengthening a country’s resilience to climate change. This report elaborates on policy considerations for the implementation of credit guarantee schemes (CGSs) that can be used to support green lending to MSMEs.
  • Towards an Inclusive Green Future: An Analysis of the Intersection Between Inclusive Green Finance and Gender Inclusive Finance (2022). Women are disproportionately affected by climate change and environmental degradation due to existing gender inequalities, from access to financial resources and land, to education and health. The purpose of this special report is to examine the intersection between inclusive green finance and gender inclusive finance, with a special emphasis on how to integrate gender considerations into AFI’s 4P Framework.

Other IGF and IGFWG publications can be found in Annex I or here. Since AFI is a knowledge member platform, the AFI IGF Management Unit launched in 2020 the Inclusive Green Finance Resources, an alive Database where IGF policies implemented by AFI members can be found.

SMEFWG

AFI SME Finance Working Group:

The AFI SME Finance Working Group (SMEFWG) was first formed in 2013 with the vision to contribute to the development of MSMEs in developing and emerging countries through financial services. The SMEFWG promotes the development and implementation of policy frameworks that improve access to financial services for MSMEs within national contexts through the implementation of smart policy frames that facilitate access of MSMEs to finance and provide a platform for AFI member institutions to discuss the challenges and opportunities to achieve sustainable development for this niche of the global economy.

The SME Finance Working Group (SMEFWG) has developed significant guidance on policy and regulation for MSME access to finance, culminating in the publication of the MSME Finance Policy Model in 2021 with the objective to guide members through a set of principles and the key elements to be considered in developing or reviewing their MSME finance policies. The principles are derived from the compilation of best practices from the AFI network, complemented and benchmarked by insights from other international stakeholders in MSME development. In addition, the SMEFWG has worked on the topic of Inclusive Green Finance and produced knowledge products namely Green Credit Guarantee Schemes for MSMEs and

Inclusive Green Finance Policies for MSMEs.

Other related publications on SME finance can be found here.

2. Project Background:

There is an emerging recognition of how access to finance can drive climate resilience and climate change mitigation amongst Micro, Small, and Medium Enterprises (MSMEs). However, there remains a knowledge gap on how financial regulation and policy initiatives by financial regulators and central banks can promote, reduce barriers, and accelerate this access. Financial regulators and central banks also see the need to address the specific vulnerabilities of women and MSMEs through IGF policies. The underlying reason for this is the relative vulnerability of women to climate impacts and by addressing these and ensuring resilience building, there will be further stability and development gains.

The key outcomes of this project will be 1) Enhanced knowledge amongst AFI members on gender sensitive IGF policies to advance mitigation and adaptation amongst MSMEs, 2) Enhanced capacity of AFI member institutions to develop and implement gender sensitive IGF policies for MSMEs and 3) Enhanced awareness on gender sensitive IGF policies for mitigation and adaptation amongst MSMEs at the global level. Ultimately, this project is expected to contribute to the development and implementation of gender sensitive policies and regulations to advance IGF for MSMEs at the national level.

3. Objective:

The project will generate policy notes on how financial regulation and policy initiatives can drive green finance to advance mitigation and adaptation amongst MSMEs in a gender-sensitive manner with an understanding of the prevailing gender differences, issues, and inequalities faced by women-own/led MSMEs and it will also draw on the collective insights of AFI’s Inclusive Green Finance Working Group (IGFWG), SME Finance Working Group (SMEFWG), and Gender Inclusive Finance (GIF) Ambassador institutions.

This project that will contribute to the implementation of the Paris Agreement, specifically to the long-term goal in Article 2.1c to make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development, as well as to the implementation of the Sustainable Development Goals 5 Gender Equality, 7 Affordable and Clean Energy, 13 Climate Action, and 1 No Poverty.

It will also contribute to the following AFI Accords Sharm El-Sheikh Accord on inclusive green finance, and Maputo Accord on the commitment for greater pathway of financial inclusion for MSMEs, and – Denarau Action Plan to support the increase of women’s access and usage of quality financial products and services.

For this knowledge generation, the two working groups will be co-leading the development of the three knowledge products. To that end, joint IGFWG-SMEFWG dedicated subgroups will be created where representatives of each working group will take part. This is an established working method within AFI which facilitates buy-in from the policymakers and ensures the end result is demand-driven.

Project overall Objectives: Support financial sector regulators and policymakers in the AFI network to develop four Knowledge Products to provide research and guidance on gender sensitive policies and regulations to advance IGF initiatives for MSMEs.

Project Deliverables:

This project will generate 4 knowledge products for the period of 30 months (Jan 2023-Jun 2025) as follows:

  • An umbrella research paper which will provide an overview of gaps, barriers, and potential solutions to reduce the current market imperfections for MSME’s access to finance which will enable climate action. The diagnosis will focus on the main barriers that women face, highlighting potential interventions to tackle these barriers in certain AFI member states. The ability to actively involve a broad spectrum of policymakers through the platforms as mentioned above is a unique and vital component of this project which will ensure strong ownership and collaboration among policymakers. To help inform the diagnosis and planning stages, a survey accompanied by some focus groups will be conducted to discuss barriers and potential interventions and come up with main recommendations for the action-taking stage. Facilitating peer learning discussions among members is key to accelerate IGF policies adoption and to build capacities at the same time.
  • A knowledge product that includes two case studies based on the in-country projects, that will be developed over the first 18 months of the project, based on members’ priorities and the knowledge generation from this project. The member institutions considered for being showcased through this KP will be supported in developing and implementing national IGF policies or initiatives for MSMEs by AFI. The selection of the jurisdictions will be guided by the project’s potential to generate new knowledge that is of the highest value and relevance, applying AFI’s member-owned and member-driven approach where the policymaking institution in question has both the commitment and capacity to lead project implementations. In-country action research projects will be co-designed with the AFI member institutions leading the projects at the national level. This is done to gather deeper in-country insights on the multi-dimensional and gender aspects of the policy and regulatory guidance. These projects will provide an opportunity for practical implementation of the conceptual ideas and direct insights into implementation opportunities, risks, areas for further exploration, and knowledge sharing. The projects will aim to involve relevant national-level stakeholders, such as relevant ministries, private sector, and civil society through the leadership of the central bank, or financial regulator. Case studies will capture main challenges, learning, progress, and recommendations based on a series of interviews with different stakeholders involved in the development and implementation of the two projects. These case studies are also expected to provide concrete policy examples for policy peer learning among AFI members and the recommendations would feed into the work on the IGF for MSME toolkit.
  • A detailed Inclusive Green Finance for MSMEs Toolkit (as final knowledge product) with concrete examples and policy guidance on how to ensure MSMEs’ access to green finance products.
  • The policy toolkit will address regulatory risks, capacity and coordination gaps, as well as stress on how to reduce the current market imperfections for MSMEs to access financial products and services for climate action and consider blended finance models for implementation of policies. There will be a specific focus on women’s vulnerabilities to the impacts of climate change in all policy guidance developed. The aim is also to develop knowledge about policies and solutions aimed at and tailored for MSMEs to build their resilience to climate impacts and empower them to access business opportunities linked to climate adaptation and climate mitigation.
  • The learnings and insights from the project will be actively disseminated at strategic global forums, with key stakeholders and partners in and beyond the AFI network and with the research community. Knowledge products will be written with the guidance and leadership from both Working Group members. The Research Advisory Group will comment and contribute to such KPs.

The three KP should include, but not limited to:

  • Executive summary
  • Introduction
  • Challenges of development and implementation (of each topic)
  • Desk research on examples emerging from AFI membership, developed countries and non-AFI members
  • Insights emerging from in-depth interviews
  • Lessons learnt
  • Conclusions and recommendations for policy makers and financial regulators and supervisors
  • 3-pager summary
  • Info-graphic summary report (from all the three documents) to tie/indicate the flow/context from an umbrella research document to case studies and toolkit.

4. Scope of Work:

The target audience are:

  1. AFI institution members other regulators other than AFI members.
  2. International institutions, which provide technical and financial support to countries.
  3. Researchers interested in this field.
  4. Academia

Deliverables (per each KP):

  • Questionnaires to be used for interviews or analysis.
  • Inception reports (3-5 pages max) identifying gaps, outlining planned methodology, key stakeholders to interview, working plan and overall content.
  • 1 workshop to present the first proposal paper to the joint IGFWG-SMEFWG Subgroup members and gather their feedback.
  • Interviews transcripts/summaries.
  • Narrative report (no less than 10 pages and up to 40 pages, including annexes) with introduction, country cases, recommendations, conclusions and potential trends, which is a finalized product ready for editing and design.
  • Executive summary (2 pages max)
  • Technical appendices including technical details/analysis or relevant information.
  • Virtual presentation of the final draft, main conclusions and recommendations to joint IGFWG-SMEFWG Subgroup members and gather comments and feedback.
  • 3-pager summary
  • Info-graphic summary report (from all the three documents) to tie/indicate the flow/context from an umbrella research document to case studies and toolkit.

This project is part of the International Development Research Centre. AFI views financial inclusion, not only as an important tool to alleviate poverty and reduce inequality but as an important adaptation intervention that builds resilience to climate change.

5. Project Approach:

To achieve the objectives of this assignment, the Consultant will engage with the AFI Management Unit team to be provided with the surrounding context and project objectives. The communication with AFI members will be manage through AFI Management Team (Senior Policy Manager of the SMEFWG, Policy Manager of IGFWG and Senior Policy Manager of GIF).

Timeline, Resources and Payment etc.:

Refer link in ‘How to Apply’ section for more detailed information.

How to apply

Interested applicants are expected to submit a proposal with an updated CV and using the template given (Download the RFP document here) by email to AFI’s Procurement & Contracts Office at [email protected] by 10 February 2023, Friday.

Note: AFI does not tolerate copyright infringement, including and not limited to infringement, in the form of plagiarism. Consultant or consulting entity awarded a contract by AFI shall take responsibility to ensure that the authored works, produced in parts or as an entirety of the deliverables stated in this RFP does not infringe on copyrights.

The final decision on the selection of a consultant/consulting firm for this project rests with AFI management team and with the Inquiry. Only shortlisted and successful consultants will be contacted.


Closing date: 10-Feb-23