Malaysia’s Green Technology Financing Scheme promotes green investment by providing easier access to financing, at lower costs
To create the financial environment for accelerating market penetration of green technology, the Malaysian government launched the Green Technology Financing Scheme (GTFS) in 2010. The GTFS is aimed at providing manufacturers and users of green technology with easier access to financing from private and commercial financial institutions. The GTFS is being implemented by the Malaysian Green Technology Corporation (GreenTech Malaysia) and Credit Guarantee Corporation Malaysia Berhad (CGC) and will be available until 31 December 2015, or upon reaching of total financing approval amount of RM3.5 billion.
Under the GTFS, the government provides a 60% guarantee of the borrowing amount and a rebate of 2% on interest or profit rate charged by financial institutions. Project proponents can be users or producers of green technology and can apply for loans up to RM10 million and RM50 million, respectively. Upon finding projects that meet the Scheme requirements, GreenTech Malaysia awards projects with green certificates that are required for obtaining financing from any of the participating financing institutions. The Scheme is applicable to new, retrofit, or expansion projects that have been not been funded or that have been funded partially.
GreenTech Malaysia conducts promotion programs, such as road shows, for financial institutions and industries nationwide to highlight the importance of GTFS and share success stories of approved applications to instill confidence in its business viability. GreenTech Malaysia also supports financial institutions that require assistance on the assessing green aspects of projects, particularly on green cost components, to facilitate the loan evaluation process.
Characteristics of a Green Technology project
- Minimizes degradation of the environment
- Safe for use and promotes healthy and improved environment
- Zero or low GHG emissions
- Conserves energy and natural resources
- Promotes use of renewable energy resources
As of September 2014, GreenTech Malaysia has awarded green certificates to 333 projects. Of this total, 67% (224 projects) were in the energy sector, 26% (87 projects) were in water and waste, 4% (13 projects) were for buildings, and 3% (9 projects) were in transport. Already, 148 of the 333 green certified projects have received financing [from 23 participating financial institutions] worth RM1.94 billion, creating over 2,000 green jobs.
The bankability of green technology projects still faces major challenges and less than 50% of the certified projects have received financing so far. Green technology is still a new sector in Malaysia, and green projects are subject to the same credit assessment criteria used in evaluating conventional projects. Financial institutions face difficulties in evaluating green projects due to lack of knowledge on the subject, lack of documentation of successful projects’ track records, lack of awareness on technological effectiveness, and payment uncertainty, often resulting in delayed lending for green technology projects. To address this challenge, GreenTech Malaysia is conducting regular training programs and workshops for financial institutions and project developers to create awareness on green technology. It also holds regular meetings between banks and project developers to promote business matching, and resolve implementation issues.
The Scheme ends in December 2015. To further market transformation that is consistent with the existing policy landscape, GreenTech Malaysia is studying the feasibility of establishing a financial entity for supporting investments in green technology projects. This is because the current commercial financial sector is risk averse towards green projects due to the unfamiliarity with assessing green investment projects and as such is unable to commit the required scale of capital. The proposed green financial entity is expected to replace the existing GTFS and will take on a leadership role in accelerating the speed and scale of green investment activities in Malaysia.
This article is based on a presentation delivered by Mr. Syed Ahmad Syed Mustafa, Vice President (Smart Partnership), Malaysian Green Technology Corporation, at the Asia LEDS Partnership “Workshop on Accessing Finance for LEDS and Green Growth”, held in Hanoi, Vietnam in March 12-13, 2014, as well as additional input from Mr. Syed. Download Mr. Syed's presentation here, or read more about the GTFS at https://www.gtfs.my/.