Global Parametrics and Enabling Qapital launch the Climate Resilience Enhanced Debt product with Chamroeun Microfinance Plc. in Cambodia
September 10, 2021 – Global Parametrics (GP), provider of parametric protection solutions against natural hazard and extreme weather risks in emerging markets, and Enabling Qapital, an impact investor and advisor of the Enabling Microfinance Fund (EMF), today announce the joint development of the Climate Resilience Enhanced Debt (CRED) product. The innovative offering enables microfinance institutions to access critical emergency financing after a climate event to help promote business continuity and increase resilience within the communities they serve.
The first CRED transaction was recently signed with Chamroeun, a leading microfinance institution in Cambodia. The instrument targets Chamroeun’s agricultural lending portfolio of approximately 5,000 smallholders with protection against severe drought and flooding. The financing solution has a three-year term.
When disasters hit, lenders typically pull back liquidity, which makes recovery more challenging for the communities they serve. In contrast, the CRED product offers quick, countercyclical financing to businesses to speed up recovery.
The CRED product utilizes GP’s parametric index platform to tailor efficient structures to the climate risks of Enabling Qapital’s clients. The Enabling Microfinance Fund then provides contingent financing on pre-agreed terms that is triggered based on GP’s climate indexes. The contingent financing offers Chamrouen fresh cash post-disaster to help their borrowers continue operating in the face of such adverse conditions, which ultimately leads to more resilient communities in Cambodia.
To manage any downside risk of its CRED loans, the Enabling Microfinance Fund also purchases matching risk transfer protection from the Natural Disaster Fund (NDF) which is managed by the GP team. Thus, when a contingent loan is triggered for the more extreme events, EMF receives a payment from the NDF and transfers the majority to Chamroeun in the form of interest rate reduction or principal forgiveness. By
efficiently packaging this parametric solution as an add-on to a standard loan product, GP and Enabling Qapital have been able to significantly reduce the cost of protecting vulnerable communities against climate risks.
The Enabling Microfinance Fund is currently USD 276 million in assets, with investments in loans to microfinance institutions across Asia, Africa and Latin America, and thus offers an ideal platform to replicate this offering in other markets. As many communities in low- and middle-income countries grow increasingly vulnerable to climate risk, the CRED product can offer a much-needed solution for efficient and affordable risk management for lenders to the working poor.
Vice President of Global Parametrics, Dan Bierenbaum remarked: “We’re thrilled to partner with Enabling Qapital on this innovative solution. With growing vulnerability to climate risks in emerging economies, we see the CRED product as an ideal way to get targeted financing into these communities post-disaster. Leveraging credit instruments provides a particular cost efficient means to deliver the emergency funding, which helps to make this protection more affordable for the communities that need it most.”
Chuck Olson, Managing Partner at Enabling Qapital commented: “We have closely followed the pioneering work at Global Parametrics in mitigating climate risk, and are extremely proud to be working with them on the launch of our climate initiative. We believe we have found the ideal partner in Chamroeun, as their experienced team is already pushing boundaries in access to finance in Cambodia.”
Yannick Milev, CEO of Chamroeun noted “Having a strategic partner to help us respond proactively with adapted services to our agri-business clients’ challenges, while at the same time protecting our assets, is an important development for Chamroeun. Chamroeun’s ambition is to further expand its services to vulnerable families in rural areas, and this has been made all the more necessary by the current global Covid-19 pandemic. Indeed, building resilient and competitive economies in the agricultural sector is an important strategy for all stakeholders in Cambodia, but brings with it important risks associated to increasingly uncertain weather patterns. Chamroeun’s partners (clients) are the ones most vulnerable to these, and it is important we come together as a global community in initiatives such as this one, for us to all share the burden of that risk more equally.”
About Global Parametrics – Rethinking Risk to build more Inclusive Resilience
Extreme weather events and natural hazards are being intensified by climate change, increasing the frequency and intensity of economic shocks which disrupt business and threaten livelihoods.
Established in 2016, Global Parametrics is a specialty provider of parametric solutions for natural hazard and extreme weather risk in emerging economies. Working with the private, public and third sector, GP uses its innovative climatic, seismic and financial risk modelling to rethink resilience for a new era of risk.
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About Chamroeun Microfinance Plc.
Chamroeun Microfinance Plc. is a licensed microfinance institution based in Cambodia, currently supporting 45,000+ partners (clients) in 16 of Cambodia’s 25 provinces. Chamroeun is a client-certified institution and aims to be the leading social microfinance institution in Cambodia. With 21 branches and a portfolio exceeding 30 million USD, Chamroeun has developed a range of innovative solutions to promote inclusive and responsible lending. Chamroeun’s portfolio is currently in rural areas at 60%, and in support to agricultural businesses at 30%. It provides both end-user and corporate financing in the agricultural sector, with exposure to a range of commodities and value-chain actors, including rice, aquaculture, poultry, cassava, and others. Chamroeun’s offer of loan services is mostly uncollateralized, and it supports its partners with financial literacy and business development services.
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