TA-6890 REG: Technical Assistance for Women s Financing Marketplace - Expansion of the Marketplace (Subproject 4) - Transition Finance Study (54436-005)

Date Published: 03-Apr-2024

Deadline of Submitting EOI: 24-Apr-2024 04:00 PM Manila local time

SELECTION PROFILE

Consultant Type: Firm

Selection Method: Simplified Consultants' Qualifications Selection (SCQS)

Selection Title: Technical Assistance for Women s Financing Marketplace - Expansion of the Marketplace (Subproject 4)

Package Name: Transition Finance Study

Engagement Period: 12MONTH

Consulting Services Budget: USD 100,000

Source: International

Technical Proposal: Single-Stage Proposal (SSP)

Approval Number: 6890

Approval Date: 17-Dec-2021

ADDITIONAL INFORMATION

Country of assignment: Regional

TERMS OF REFERENCE

Primary Expertise: Transition Finance, Gender Finance, Sustainable Finance, WSME

TOR Keywords: Transition Finance, Gender Finance, Sustainable Finance, SME, WSME

Objective and Purpose of the Assignment

A. Background

1. The Asian Development Bank (ADB) is committed to ensuring that the benefits of the shift to low- carbon, resilient economies are shared equally, and no individual, community, or region is left behind. ADB's Private Sector Operations Department launched Women’s Finance Exchange (gWFX), in 2021 to expand women owned micro, small and medium enterprises’ (WMSMEs) access to finance – including green finance – by providing funding and capacity building to financial institutions (FIs) in ADB’s developing member countries (DMCs). During COP27, ADB launched the Just Transition Support Platform to build the capacity of its developing DMCs to strategically plan, implement, and finance just transition, to manage any negative impacts, and increase benefits from the transition to net zero. 2. Transition Finance for MSMEs: Transition finance is a concept where financial services are provided to high carbon-emitting industries to fund their transition to decarbonization, climate- resilience and a more resource-efficient and circular economy. These goals could not be achieved without transitioning MSMEs that could comprise different value chains. However, surveys of SMEs found considerable barriers to decarbonize and build climate-resilience, especially in emerging markets. These include a lack of knowledge, little guidance from policymakers and the large corporates that they supply, limited time, and lack of access to transition finance. It is estimated that there is a $50 trillion SME transition finance gap that needs to be filled to get global supply chains to net zero by 2050 and both large corporate buyers and FIs have catalytic roles to play. 3. WMSME Access to Finance: Globally, women own 1 in 3 small, medium and large businesses, with variations at the regional level. For example, women in East Asia and the Pacific own 47% of businesses and women in South Asia own 18% of businesses. While women business leaders are more likely to take climate considerations in their business decisions, they find it difficult to access climate finance providers who tend to prioritize large-scale projects (where green-house gas emissions reductions are greater) over small businesses. Women entrepreneurs, often operating MSMEs, also face systematic gender inequalities in accessing capital and financing. They lack ownership of land and property that is acceptable as collateral and lack credit history as men are more likely than women to borrow to start, run and grow their businesses. Estimates suggest that: women account for 32% of the MSME finance gap; 7% of total private equity and venture funding in emerging markets went to female-led businesses; and 3% of philanthropic environmental funding supported environmental activism by women and girls. Therefore, there is a need to bridge the MSME transition finance gap while ensuring that WMSMEs are not left behind in both strengthening resilience and improving the sustainability of their businesses as well as in the transition to decarbonization, climate-resilience, resource-efficiency and circularity to reach the objectives of the Paris Agreement.B. Objectives4. ADB is collaborating with a development finance institution (DFI) to catalyse gender-responsive transition finance for MSMEs through a study that aims to (i) assess the status of transition finance in India, and (ii) using the findings of the assessment, develop a practical guide for FIs on providing transition finance to MSMEs with a gender lens. In addition, the study will reflect the trend of sustainable finance guiding market players on how transition finance will relate to green finance. It is also envisaged that the results of this study will create a pipeline of MSME and FI investment opportunities. To this end, ADB is seeking to engage the services of a consulting firm (“Consultant”) to undertake this assignment. ADB will select the firm in consultation with the partner DFI. It is intended that the firm will work on country 1 (India) under the ADB contract and country 2 (Viet Nam) under the partner DFI's contract. The toolkit/guide will be completed under both contracts. ADB and the partner DFI intend to share and discuss/review all deliverables.C. Scope of Work5. The assignment has two phases: (i) assessment, and (ii) practical guide for FIs on providing gender-responsive transition finance to MSMEs. Each phase is described below.(i.) Assessment: (a.) Leading global and regional practices: As a starting point, the study will seek to understand the state of transition finance and finance for transition for MSMEs (particularly in the agricultural sector) globally and in Asia and the Pacific based on literature review and remote interviews as needed. Which markets are more advanced than others? What are the drivers (e.g., sustainable finance taxonomies, disclosure requirements, national sector transition strategies, upcoming ASEAN Strategy for Carbon Neutrality) and barriers in the macro, meso and micro environments? What insights and lessons can be drawn from the MSME transition finance practices in “advanced” markets? How are they integrating a gender lens? (b.) A comprehensive market assessment of the current state of transition finance in the country from the perspective of a financial institution including, but not limited to, the following: 1. Characterization of the enabling environment (e.g., policy initiatives, development finance institution (DFI) support) for transition finance and/or sustainable finance. 2. Identification of current private sector investments and initiatives of both corporates and FIs that enable the provision of technologies that support the transition to decarbonization, climate- resilience, resource-efficiency and circularity. 3. Identification of the drivers, risks and barriers to mainstreaming transition finance in the suite of financial services offered by FIs to MSMEs. 4. Analysis of correlation between transition risk and credit/ financial risk for the FIs. 5. Mapping of sectors and sub-sectors where there is a concentration of MSMEs, especially those owned by women, their transition finance needs and the motivation (e.g., extrinsic, financial, intrinsic) for them to transition to decarbonization, climate-resilience, resource-efficiency and circularity. 6. Prioritization of sectors and sub-sectors from an FI perspective in collaboration with ADB and its partner DFI. 7. Identification of potential technologies and the corresponding investment/ use of proceeds in the priority sectors and sub-sectors. 8. Cost-benefit analysis of identified technologies from the perspective of the MSME e.g., cost savings from reduced intensity of energy and water consumption and greenhouse gas emissions. 9. The business case for FIs in providing transition finance to MSMEs and the estimation of the value (in USD) of the transition finance demand among MSMEs. 10. Assessment of the demand for transition finance among MSMEs that can be obtained through literature review and validated through focus groups. 11. Identification of existing stimulus programs that FIs can tap into e.g., Dutch Fund for Climate and Development (DFCD) and analysis of what works and what does not work.(ii.) Practical Guide for FIs(a.) Taking the lessons from the global, regional and the in-depth country assessments, create a practical how-to guide for FIs on providing transition finance to MSMEs including, but not limited to, the following activities: 1. Segmenting the MSME market: Where are the transition risks and opportunities for FIs in terms of e.g., enterprise size (Micro, Very Small, Small, Medium), stage/maturity, location, and economic sectors (e.g., agriculture, transport, green building); which sectors and sub-sectors should be, and can be, targeted first (differentiate hard to abate and high emitting sectors) 2. Identifying the needs of the target MSMEs related to the transition to net zero (reflect the different stages along a transition path) 3. Setting scientific-based objectives (e.g., Science Based Targets initiative or SBTi) and adjust corporate strategy 4. Adjusting governance (including resource allocation) 5. Defining the transition finance value proposition to MSMEs 6. Developing a lending product including guidance on how to responsibly price these products 7. Integrating climate (and environmental) risk into the credit assessment 8. Building a profitable business model including making use of existing stimulus programs 9. Building a robust pipeline of MSMEs and WMSMEs e.g., by raising awareness of and educating potential/ existing customers; partnering with like-minded organizations 10. Enabling bank staff to support customers make the transition to decarbonization, climate- resilience, resource-efficiency and circularity 11. Enabling customers to make the transition e.g., by educating them on green technologies and establishing a transition path, financing products, potential benefits/savings, green audit, reducing GHG emissions - in combination with other environmental objectives 12. Measuring the benefits to an FI (e.g., financial returns, improved credit risk) and development impact (GHG emissions reductions, outreach to MSMEs, outreach to women) 13. Loan portfolio classification and KPI setting(b.) The guide must integrate practical ways an FI could apply a gender lens on transition finance for MSMEs. Examples include, but not limited to, (i) segmentation – ensuring that economic sectors where women operate or have the opportunity to operate in are targeted; (ii) product development – ensuring that loan products consider and address specific barriers to women's access to finance such as lack of collateral, credit history, and documentation; (iii) portfolio monitoring – ensuring that portfolios can be analyzed on a sex-disaggregated basis and that this data is used to make business decisions; (iv) marketing – women entrepreneurs can relate to the FIs’ messaging about transition finance and access the modes and channels of communication; (v) capacity building – women have access to tools and knowledge to help them become "sustainability literate". (c.) The guide must integrate practical ways an FI could provide transition finance for Agri MSMEs. Examples include, but not limited to, (i) segmentation – ensuring that economic sectors where Agri MSMEs operate or have the opportunity to operate in are targeted; (ii) product development – ensuring that loan products consider and address specific barriers to Agri MSME’s access to finance, etc. (d.) The guide must include at least three case studies of global and regional FIs that are actively and effectively financing the transition of MSMEs, especially those that are employing a gender-responsive approach and tracking impact indicators. Where applicable, case studies should include social impacts of transition activities and investments and mitigation examples (if adverse), specifically for women.