Climate Resilience Enhanced Debt (CRED)
Climate Resilience Enhanced Debt (CRED) is a financial tool designed to provide counter-cyclical financing to financial institutions, promoting business continuity and resilience in the face of extreme climate events and other natural disasters. Developed by Enabling Qapital in collaboration with Global Parametrics, CRED is structured as a tailored blend of multiple financial tools, including an emergency liquidity facility, subordinated loan, and partial interest or loan forgiveness. The goal of CRED is to ensure that the recovery process is not halted by a lack of liquidity, enabling Micro and Small Enterprises to rebuild and adapt to changing needs of the community in a post-disaster scenario.
In 2021, the first CRED facility was granted to Cambodia, one of the most disaster-prone countries in Southeast Asia, with 30% of the population living below the poverty line. Chamroeun, an MFI in Cambodia, was chosen as the recipient of the first CRED funding, along with technical assistance from EA Consultants, who have significant experience in inclusive finance and insurance. EA Consultants worked with Enabling Qapital and Chamroeun’s team to develop and monitor a recovery-based climate loan product for Chamroeun’s clients.
While it is hoped that Chamroeun will never need to use the climate-risk product, CRED provides peace of mind and support to the MFI and its clients in the event of major natural disasters. The success of the CRED initiative in Cambodia could inspire other countries to adopt similar measures, providing much-needed support and financial stability in the face of increasingly frequent and severe natural disasters.