Kenya needs Sh2.4 trillion for its green transition, but banks still want projects they can finance

Kenya’s green businesses need money, but getting a promising climate or nature-based project into a form that a bank or investor can finance remains a major hurdle. A new five-year partnership between the Global Green Growth Institute (GGGI) and the Kenya Bankers Association (KBA) is aimed at tackling that problem by helping businesses become investment-ready while giving financial institutions better tools to assess sustainable projects.

GGGI and KBA signed a five-year Memorandum of Understanding in Nairobi on Thursday, creating a framework for cooperation on sustainable finance, green investment and inclusive green growth. The agreement was signed during the launch of the International Climate Initiative-funded SYMBIOTIC Project and brings the banking sector deeper into efforts to finance climate, biodiversity and other sustainable investments.

The scale of the challenge is substantial. GESIP estimates that Kenya needs about Sh2.4 trillion ($23.5 billion) to transition to a low-carbon economy, a requirement that cannot be met by public funding alone. The private financial sector will have to play a significant role, but that requires a steady pipeline of projects that can withstand commercial scrutiny.

The financing problem sits on both sides of the market

For a small business developing a climate or nature-positive solution, having a useful product does not necessarily make it an attractive lending proposition. A project may have environmental benefits but still lack the financial modelling, documentation, predictable revenues, risk assessment or other requirements a commercial lender needs before committing money.

Banks, meanwhile, have to determine whether an investment can generate sufficient returns and whether its risks can be managed. Where a technology is unfamiliar, revenues may take longer to materialise or a business model depends heavily on policy and environmental conditions, conventional lending criteria can become difficult to apply.

That is the gap GGGI and KBA are trying to address. Nagnouma Koné, GGGI’s Manager for Africa Strategy and Partnerships and Head of GGGI Kenya, described the problem as one in which entrepreneurs say banks are not lending while banks say there are not enough bankable green projects.

The partnership therefore puts project preparation alongside financing. That distinction matters because simply encouraging banks to lend more will not necessarily produce more lending if the pipeline of projects reaching them remains weak.

Kenya already has pieces of the sustainable finance market

The partnership does not represent Kenya starting from scratch.

KBA says the banking industry has already developed Sustainable Finance Guiding Principles and an e-learning platform that has trained more than 60,000 bank staff. The association has also advocated for tax exemptions for green bonds, helping make the instruments more attractive to issuers and investors.

The next step is to turn that institutional groundwork into more transactions.

The signing was followed by training for commercial banks on Green, Social and Sustainability Bonds, giving the announcement a practical component beyond the five-year framework itself. KBA Chief Executive Officer Raimond Molenje said banks have an opportunity to use these instruments to strengthen Kenya’s position as an attractive and competitive financial market in Africa.

For Kenya’s climate ambitions, that matters because the money required for the transition is too large to depend on a single source of funding. Banks, investors and capital markets will all need to participate, using different instruments for different types of projects.

Making green projects easier to finance

Under the agreement, GGGI and KBA will work on sustainable finance policies and market practices, mobilise public and private capital, strengthen capacity on ESG, climate and nature finance, and develop bankable investment opportunities.

There will also be technical assistance, training, research and knowledge-sharing, with banks, businesses, government agencies, investors and development partners brought into the same financing ecosystem.

The partnership will look at financing products suited to green and nature-positive investments, including green loans and sustainability-linked bonds. It will also examine ways to reduce the risks associated with green lending, potentially making projects more attractive to commercial financiers.

That is important because climate and biodiversity investments can carry risks that conventional lenders are not always equipped to price. Some projects require significant upfront investment, have long payback periods or rely on emerging technologies and business models. Better project preparation can reduce some of that uncertainty before a financing decision reaches a bank’s credit committee.

SMEs need more than an invitation to apply for funding

The focus on small and medium-sized enterprises is particularly relevant because many green businesses are not large infrastructure companies with established balance sheets and long histories of borrowing.

GGGI says SMEs, particularly women-led businesses, continue to face difficulties accessing finance because of perceived risk. Those challenges can become more pronounced when a company operates in a relatively young green sector where lenders have limited historical data against which to judge performance.

This is where KBA’s Centre for Sustainable Finance and Enterprise Development, or CSFED, becomes important. The association says potential issuers will receive hands-on support through the centre to prepare projects and bring them to market.

That is a more practical response to the bankability problem than simply encouraging businesses to seek green financing. A company still needs to know what investors require, how its project should be structured and how its financial and environmental performance can be demonstrated.

Nature finance adds another layer

The partnership also extends beyond the more familiar areas of renewable energy and clean technology. Biodiversity and nature-positive investments are part of the programme, bringing projects whose economic returns may be harder to quantify into the sustainable-finance conversation.

That presents a different challenge for financial institutions. A solar project can often be assessed through expected electricity generation and revenue. A conservation, restoration or nature-based enterprise may generate value through several channels, some of which depend on ecosystem services, land use, tourism, agricultural productivity or emerging environmental markets.

Building financing models for those businesses will require banks and investors to become more comfortable assessing environmental outcomes alongside conventional financial metrics.

For Kenya, where agriculture, tourism, water resources, conservation and rural livelihoods are closely connected to natural systems, that could broaden the range of projects considered part of the sustainable economy.

The real test will be what gets financed

The partnership comes with an important caveat: the announcement does not commit Sh2.4 trillion, nor does it set out a specific amount that banks will lend under the agreement.

Its value will therefore have to be measured through what happens after the training, policy work and project preparation.

Will more green businesses become capable of securing commercial finance? Will banks develop products that work for those businesses? Will more green, social and sustainability bonds reach the market? And will climate and biodiversity projects progress from proposals to funded investments?

Those are the outcomes that will determine whether the five-year arrangement has made a meaningful difference.

Kenya has already built parts of the institutional foundation for sustainable finance. The harder task is connecting that foundation to businesses that need capital and investors looking for credible opportunities.

For GGGI and KBA, the next phase is about building that pipeline. If the partnership succeeds, the measure will not be the number of meetings held or training sessions completed, but whether more capital ultimately reaches projects capable of delivering both commercial value and environmental benefits.