Benin: Driving the green transition through inclusive finance

With the support of ADA and Luxembourg Development Cooperation, through the Inclusive and Innovative Finance programme implemented by LuxDev, Benin's National Microfinance Fund (FNM) recently launched a Green Credit refinancing facility for microfinance institutions (MFIs). The facility is designed to help agricultural producers and micro, small and medium-sized enterprises (MSMEs) invest in environmentally sustainable solutions. 

Enabling MFIs to finance the green transition

Although demand for sustainable solutions is growing, many farms and MSMEs struggle to finance the investments they require. The upfront cost of water-efficient irrigation systems or solar-powered equipment, for example, can be prohibitive without access to suitable financing. 

FNM's Green Credit facility provides refinancing to eligible MFIs, enabling them to develop tailored financial products for these investments. During the pilot phase, each participating institution may access refinancing of up to CFAF 100 million. 

In practical terms, MFIs will be able to finance equipment for sustainable agriculture, such as drip irrigation systems or investments that promote climate-resilient farming practices. They will also be able to finance stand-alone solar systems that allow entrepreneurs to power productive equipment, including mills and refrigeration units.

From financing mechanism to real impact 

Establishing the facility is only the first step. Its success will depend on how effectively MFIs adopt it and integrate it into their operations, ensuring that financing reaches the farmers and businesses it is intended to support. 

Many MFIs already finance activities that meet the eligibility criteria without explicitly classifying them as green investments. To benefit from the facility, they will therefore need to review their loan portfolios and identify eligible activities. 

They will also need to adapt their financial products. Investments in renewable energy and climate-resilient agriculture often involve relatively high upfront costs and longer payback periods. At the same time, loan officers will need to develop the skills required to assess new technologies and emerging business models. 

Finally, MFIs will need robust systems to monitor the use of Green Credit loans and measure their impact on both clients' economic activities and the environment. The facility therefore includes reporting requirements covering the types of projects financed, the profile of beneficiaries and the results achieved. 

Image

ARCC programme implements the approach 

ADA also contributed to the development of operational guidelines for participating MFIs by defining eligible activities, refinancing conditions, key risk considerations, as well as monitoring and reporting requirements. 

ADA's Climate-Resilient Agriculture in Benin project illustrates how this support is implemented in practice. Under the project, ADA is supporting four MFIs in developing financial solutions tailored to the needs of smallholder family farms. 

This support includes raising awareness of climate-related challenges among MFI staff, analysing agricultural loan portfolios and helping institutions develop financing strategies that integrate climate-resilient agriculture. ADA also supports the design and pilot testing of financial products that enable farmers in selected value chains to adopt climate-resilient agricultural practices. 

By strengthening the capacities of MFIs, ADA is helping to create the conditions for the effective deployment of the Green Credit facility and for increasing investments in sustainable agriculture and green entrepreneurship.