42244 - Kenya Refugee and Host Communities RSF

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Summary of Investment Information

Project Number

42244

Date SPI Disclosed

Mar 4, 2024

Country

Kenya

Region

Africa

Projected Board Date

Apr 15, 2024

Environmental Category

FI-2 - Limited

Status

Pending Approval

Last Updated Date

Jun 14, 2024

Department

CF3EA - Regional Industry - FIG Africa/FIG East Africa

Industry

Financial Markets

Sector

Commercial Banking - SME Finance

Project Description

The proposed investment consists of an unfunded Risk Sharing Facility (“RSF”) to Equity Bank (Kenya) Limited (“EBK” or the “Bank”) for a maximum portfolio of up to US$20 million. IFC's maximum exposure will be up to 50% or US$10 million equivalent. The RSF will target individuals and micro, small and medium enterprises (“MSMEs”) in 14 of the most fragile counties in Kenya.

Associated Advisory Engagement

The Project incorporates a comprehensive Advisory Services (“AS”) component to support EBK in building its capacity to serve individuals and MSMEs in the 14 targeted counties, including women and refugees. This includes enhancing its unsecured micro-lending proposition, assessing the Islamic banking opportunity, developing a non-financial services proposition for target customers, and facilitating the RSF onboarding process.

Sponsor / Cost / Location

The Project is expected to be supported by the Prospects – Blended Finance Facility for Refugees (“Prospects”) and the Women Entrepreneurs Finance Initiative (“We-Fi”) as described as described below:

The Project is supported by an investment from IFC as the Implementing Entity of Prospects of up to US$ 4 million. Without the support of the blended concessional finance co-investment the increased access to finance to refugees and MSMEs in host communities in 14 vulnerable and un(der)served counties in Kenya will not be achievable due to high risks and collateral requirements associated with this segment in Kenya. The level of concessionality (i.e., “subsidy”) provided by the blended concessional finance co-investment is estimated to be 10% of the total project cost of up to US$20 million. This estimate is based on the difference between (i) a “reference price” and (ii) the “concessional price” being received by Prospects.

The Project is also expected to be supported by We-Fi in the form of a performance-based incentive (“PBI”) with a subsidy of up to 0.5% of the total project cost of US$20 million to incentivize on-lending to WMSMEs (which combined with the Prospects subsidy will bring the total subsidy to 10.5% of the total project cost of US$20 million). The estimated subsidy provided by We-Fi assumes that the Project will fully reach the agreed impact and shall only be paid out upon achievement of the pre-defined targets. We-Fi's support would enable IFC to reach more WMSMEs that may otherwise not be served without its support. IFC is open to engaging further with other financial institutions and consider structures similar to the one proposed in this investment with the support of We-Fi. We-Fi is a multi-donor initiative to address barriers to financial access and provide related services that address public and private-sector constraints to women entrepreneurs and WMSMEs across the developing world, thereby promoting jobs and boosting economic growth.

As is the case with all of IFC's blended concessional finance co-investments, this project has been assessed against the Enhanced Blended Concessional Finance Principles for DFI Private Sector Operations adopted by IFC and more than 20 other DFIs in 2017. Further information on these Enhanced Principles, IFC's blended finance approach and governance, and details and historical information on estimated subsidy levels in IFC's blended finance portfolio can be found at: www.ifc.org/blendedfinance.

Product Line	IFC Investment (million USD)
Risk Management
Guarantee	24.0
Loan	6.0
Equity

Development Impact

The most significant expected project-level outcome of the initiative is the availability of lending to individuals and MSMEs in 14 underserved counties across Kenya, with a specific focus on refugees, host communities, and women. Beyond the Project, IFC envisions a broader positive market effect, foreseeing the potential to foster greater market inclusiveness through demonstration and replication by showcasing the commercial viability of lending to underserved individuals and MSME segments within refugee and host communities. The Project complements several ongoing World Bank Group ("WBG") efforts to increase private sector activity among refugee and host community regions in Kenya.

In this Project, IFC's expected additionality is twofold: i) IFC will provide a RSF to EBK, covering 14 of the most underserved counties in Kenya, and ii) IFC will offer non-financial additionality through an integrated advisory program. The advisory program is designed to enhance the Bank's lending capacity, particularly in market segments with relatively high perceived risk, particularly refugees.

E&S Category Rationale / Risks and Mitigation

The proposed Project entails a risk sharing facility of up to US$20mn to support lending to MSMEs in 14 fragile counties in Kenya. The Bank’s MSME portfolio includes real estate, manufacturing, energy and water, agriculture, trade, and building & construction. The Bank’s MSME portfolio entails risks that are expected to have potential limited adverse environmental and/or social risks or impacts that are few in number, generally site-specific, largely reversible, and can be readily addressed through mitigation measures (medium risk). The Project will not invest in any coal-related activities or higher-risk activities that may include (a) involuntary resettlement, (b) risk of adverse impacts on Indigenous Peoples, (c) significant risks to or impacts on the environment, community health and safety, biodiversity, cultural heritage, or (d) significant occupational health and safety risks. As such, the project has been categorized as FI-2 according to IFC’s Sustainability Policy. The applicable E&S requirements for the project will be the IFC Exclusion List and host country laws and regulations. The main E&S risks and impacts of the project derive from the E&S risks associated with the transactions supported under the RSF and the Bank’s capacity and systems in place to manage these risks. The typical risks of the MSMEs may include labor and working conditions, occupational health and safety, and waste management, among others. EBK is largely aligned with Life & Fire safety requirements and IFC's labor standards under PS2: Labor and Working Conditions. The Bank has developed an external communication mechanism. As part of the Project, EBK will be required to enhance the human resources policies related to grievance handling and harassment prevention and develop procedures to assess contextual risks relevant to the supported counties.

Equity Bank Kenya has developed an ESMS, comprised of an E&S risk management policy and E&S risk management procedures. The E&S policy details the Bank’s commitment to E&S risk management, activities that the Bank will not finance, the E&S frameworks that the Bank will adhere to, and the internal and external communication channels for E&S aspects. The E&S procedures specify the process that the Bank follows to identify and manage E&S risks and opportunities related to its financing activities, including how E&S activities are undertaken throughout the credit review process, from transaction screening to E&S risk categorization to how the Bank’s potential exposure to E&S risks are expected to be managed. The E&S procedures also define roles and responsibilities in the ESMS implementation, training expectations, the E&S assurance process, and the external communication mechanism. The Bank has designated an E&S Officer and has a dedicated team that provides support to Bank staff on E&S risk management.

Title	Anticipated Completion Date
Enhance human resources policies	06/30/2024
Develop contextual risk procedures	06/30/2024

Contacts

For Inquiries About the Project, Contact

Equity Bank (Kenya) Limited
Joy E. DiBenedetto
Group Director, Communications
+254 763 085445
joy.dibenedetto@equitybank.co.ke
Upper Hill - Hospital Road, Equity Centre, Nairobi
https://equitygroupholdings.com

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IFC supports its clients in addressing environmental and social issues arising from their business activities by requiring its real sector clients to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities in relation to environmental and social issues arising from IFC's clients' business activities. Since 2012, IFC's Financial Intermediary clients applying the Performance Standards are required to develop External Communications Mechanisms to receive and review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations.

For IFC projects that are active or under consideration, individual(s), or their authorized representative(s), who allege they have been or will be adversely affected by E&S risks or impacts arising from IFC's clients' business activities, may submit a complaint to IFC directly for consideration. When receiving an E&S complaint, IFC engages with complainants and works with its clients to find solutions to E&S concerns as quickly and efficiently as possible.

Complaints can be submitted to IFC online at www.ifc.org/escomplaints or by email to EScomplaints@ifc.org.

IFC complaint response is separate from and complementary to IFC’s clients’ project level grievance mechanisms and IFC’s Independent Accountability Mechanism (CAO). Lodging a complaint directly with IFC does not, at any time, restrict access to CAO.

Affected communities have unrestricted access to the Compliance Advisor Ombudsman (CAO), the independent accountability mechanism for IFC and MIGA. CAO facilitates the resolution of complaints related to IFC and MIGA projects and sub-projects, undertakes reviews of IFC’s and MIGA’s environmental and social compliance, fosters public accountability for their commitments, and enhances the environmental and social performance of IFC and MIGA.

Independent of IFC and MIGA management and reporting directly to the IFC and MIGA Boards of Executive Directors, CAO helps resolve issues raised about the environmental and social impacts of projects through a neutral, collaborative, problem-solving approach via its Dispute Resolution function. It also reviews IFC’s and MIGA’s compliance with environmental and social policies, assesses related harm, and recommends remedial actions through its Compliance function. Additionally, CAO provides advice to IFC, MIGA, and their Boards to enhance environmental and social sustainability performance and minimize the risk of harm.

Complaints may relate to environmental and social harm regarding any aspect of the planning, implementation, or impact of a project or sub-project, and can be made by any individual, group, community, entity, or other party affected or likely to be affected by the environmental or social impacts of an IFC- or MIGA-financed business activity.

Complaints can be submitted by any of the following methods:

Online form: available at https://www.cao-ombudsman.org/
Mail/Hand Delivery to: 2121 Pennsylvania Avenue, NW, Washington, DC 20433, USA
Voice mail: +1 202 458 1973
Email: cao@worldbankgroup.org
SMS, WhatsApp, Telegram, and Signal: +1 202 650 2627

CAO receives and addresses complaints in accordance with the CAO Policy, which can be accessed at: https://www.cao-ombudsman.org/policies-guidelines.

This Summary of Investment Information (SII) is prepared by IFC to disclose a factual summary of the main elements of the potential investment. It also includes findings and recommendations related to environmental and social considerations regarding this potential investment. The purpose of the SII is to enhance the transparency of IFC’s activities. For any project documentation or data included or attached herein, whether prepared by the project sponsor or otherwise, authorization has been given for public release by the project sponsor. IFC considers that this SII is of adequate quality for release to the public, but has not necessarily independently verified all of the project information therein. It is distributed in advance of IFC Board of Directors’ consideration and may be periodically updated thereafter. Board dates are estimates only and this document should not be construed as presuming the outcome of the Board Directors’ decision. The following SII is disclosed in accordance with IFC's Access to Information Policy (AIP) that went into effect on January 1, 2012.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

Shareholder	Shareholding (percent)
Arise BV	12.76
Standard Chartered Nominees Non RESD A/C KE 11752	4.35
Stanbic Nominees Ltd A/C NR3530153-1	4.08
James Mwangi	3.38
Equity Bank ESOP	3.20
Standard chartered Kenya nominee’s Ltd A/C KE004667	2.89
Fortress Highlands Ltd	2.67
AIB Nominee	2.38
Equity Nominee A/C 00605	2.35
Standard Chartered Kenya Nominees Ltd A/C KE005073	2.34
Others	59.60

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Summary of Investment Information

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