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Guarantees, Not Grants: The Financing Model Powering Kenya’s Green Transition
By Shameer Patel
For much of March, Nairobi’s flooded roads disrupted movement, delayed businesses, and slowed productivity. At the same time, heavy rains destroyed crops in the Rift Valley, worsening food security concerns. These events highlight a clear reality: Kenya’s economy already pays the cost of climate risk.
The debate, however, still leans on policy targets and donor commitments. Yet the real constraint is risk. For banks, green projects whether in renewable energy, clean transport, or sustainable agriculture often present uncertain returns and limited collateral.
As a result, lenders hesitate, not due to lack of awareness, but because traditional models struggle to price that risk.
Why Guarantees Are Key
Guarantees are now emerging as a practical solution. By absorbing part of the risk, they allow banks to lend within existing frameworks. They do not remove risk. Instead, they make projects bankable.
Encouragingly, Kenya’s financial system is adapting. The Kenya Green Finance Taxonomy now defines what qualifies as green investment, reducing ambiguity. At the same time, the Central Bank of Kenya requires lenders to factor climate exposure into their portfolios. As a result, climate risk is no longer theoretical it directly affects loan performance and asset quality.
This shift marks a move away from grant-driven climate finance. Instead, public and development capital now works to unlock private lending. Through this model, banks can extend credit into new sectors while protecting their balance sheets.
Guarantees, Not Grants: The Financing Model Powering Kenya’s Green Transition
Bridging the Execution Gap
Despite this progress, a major challenge remains. Many projects are not structured for financing. SMEs, in particular, struggle to meet technical, reporting, and compliance requirements. Consequently, a gap persists between available capital and actual disbursement.
Without stronger project preparation and standardization, guarantees risk remaining underused. At this stage, they act as a bridge not a permanent solution but one that enables climate investments to move toward full market viability.
Kenya has made clear progress. However, climate shocks continue to outpace capital deployment. Each flood, disrupted supply chain, and lost harvest reinforces the same point: the economy is already absorbing the cost of climate risk.
Ultimately, the transition will not be funded by policy intent alone. It will depend on financial structures that make risk acceptable and capital deployable.
The writer is the Director, Retail & Business Banking at I&M Bank.
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