Other Financial Instruments: Green Bonds and Securitization


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Outside of the structured funds and insurance funds, KfW also has promoted a variety of other marketized development financial instruments for economic development. Two that deserve mention are KfW’s initiatives with green bonds on behalf of developing countries and KfW’s assistance to help developing countries securitize their financing programs, particularly for SMEs. While neither initiative has the scope nor the volume of the aforementioned funds, they continue to demonstrate how KfW continues to search for new avenues to promote financial sector development via marketized financial instruments. Moreover, these initiatives underscore the consistency of KfW’s approach of governmentbacked initiatives to mobilize private investment. In both cases, the original impetus arose from KfW’s experiences in the domestic German market, which were then applied to a developing country context. First, KfW had supported green investments in the domestic sphere for decades. As early as the 1970s, KfW sponsored domestic credit lines for energy efficiency upgrades for housing and SMEs (Harries 1998, 124). By the 1990s, KfW had expanded decisively into the renewable energy market with the Renewable Energy Program, and KfW’s critical engagement with the German government’s Energiewende program to shift away from the use of renewables has led to billions in funding. Throughout, KfW demonstrated remarkable commitment to funding green investments and developed a series of important innovations, such as the setting of housing energy efficiency standards and a complex system of feed-in tariffs to promote small-scale solar panel installation (Development Practitioner #50 2017). However, KfW was less trailblazing with the use of financial instruments for the purposes of green investments


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Outside of the structured funds and insurance funds, KfW also has promoted a variety of other marketized development financial instruments for economic development. Two that deserve mention are KfW’s initiatives with green bonds on behalf of developing countries and KfW’s assistance to help developing countries securitize their financing programs, particularly for SMEs. While neither initiative has the scope nor the volume of the aforementioned funds, they continue to demonstrate how KfW continues to search for new avenues to promote financial sector development via marketized financial instruments. Moreover, these initiatives underscore the consistency of KfW’s approach of governmentbacked initiatives to mobilize private investment. In both cases, the original impetus arose from KfW’s experiences in the domestic German market, which were then applied to a developing country context. First, KfW had supported green investments in the domestic sphere for decades. As early as the 1970s, KfW sponsored domestic credit lines for energy efficiency upgrades for housing and SMEs (Harries 1998, 124). By the 1990s, KfW had expanded decisively into the renewable energy market with the Renewable Energy Program, and KfW’s critical engagement with the German government’s Energiewende program to shift away from the use of renewables has led to billions in funding. Throughout, KfW demonstrated remarkable commitment to funding green investments and developed a series of important innovations, such as the setting of housing energy efficiency standards and a complex system of feed-in tariffs to promote small-scale solar panel installation (Development Practitioner #50 2017). However, KfW was less trailblazing with the use of financial instruments for the purposes of green investments date, with targeted projects for the domestic German market.20 While KfW was initially slow to engage in the green bond market, this commitment has become so entrenched in the philosophy of KfW that one interviewee, when asked, said that KfW delayed the issuance of green bonds because “all of our investments are already green” (Development Practitioner #50 2017). Since then, KfW has become one of leading institutions—public or private—to support the expansion of the green bond market, although, as with the promotion of national development banks, KfW’s initial foray into international green sector investments was within Europe. Since 2014, KfW has issued fully 71% of Germany’s total amount of green bonds, worth EUR 12.8 billion in 11 separate issuances (Climate Bonds Initiative 2017, ). KfW issued five bonds with an aggregate total of EUR 2.7 billion; 87% of this total was invested in wind energy, and 78% went to Germany with the remaining 22% to its European neighbors.

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