45970 - EBK Sub Loan II

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Summary of Investment Information

Project Number

45970

Company Name

EQUITY BANK KENYA LIMITED

Date SPI Disclosed

Dec 22, 2021

Country

Kenya

Region

Africa

Projected Board Date

Dec 15, 2021

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Sep 30, 2022

Department

Regional Industry - FIG Africa

Industry

Financial Markets

Previous Events

Approved : Dec 15, 2021
Signed : Dec 17, 2021
Invested : Dec 22, 2021

Sector

Commercial Banking - General

Project Description

The proposed investment consists of a 7-year Tier 2, Basel II-compliant subordinated loan of up to US$165 million to Equity Bank Kenya Limited (“EBK” or the “Bank”). The investment will enhance the Bank’s regulatory capital and support its lending operations to climate smart projects and small and medium enterprises (SMEs) in Kenya.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	50.0
Equity

IFC's loan to the financial institution described in this SII is targeted for on-lending to the following sector(s):

Product Type	Use of Proceeds
Quasi-Equity	Loans to SME Borrowers

IFC's Definitions of Targeted Sectors can be found here.

Development Impact

The most significant expected project-level outcome is improved accessibility of SME and climate finance. Beyond the Project, IFC anticipates that - as part of IFC's broader systemic approach to strengthen the capital base of leading and regionally important banks in Kenya - it has the potential to promote greater banking sector resilience that will contribute to regional financial market stability and help the market withstand shocks by boosting capital adequacy.

Financing structure: In a context of pressure on regulatory capital buffers in the financial sector due to the ongoing pandemic, IFC's seven-year subordinated loan will strengthen the Bank's capital base and allow it to grow its lending portfolio. The investment will build the Bank's financial resilience in the face of an elevated credit risk environment, as a result of the ongoing economic disruption of the pandemic. Resource Mobilization: Through the proposed investment, IFC will play a verifiable role in mobilizing commercial financing into the SME and climate finance sector in Kenya. In addition to IFC's direct subordinated debt investment, IFC will also leverage additional funding through its syndication platform, with an investment of up to US$115 million from B and parallel lenders.

E&S Category Rationale / Risks and Mitigation

The project will support the Bank's SME and climate finance portfolio. EBK's current SME portfolio includes exposures to sectors such as real estate, trade, transport and communication, manufacturing, and energy and water. The Bank's climate finance portfolio includes exposure to renewable energy (i.e., biogas and solar energy), energy efficiency, water efficiency, and climate-smart agriculture projects. The overall portfolio risk of the asset class is considered medium. Therefore, the proposed project has been classified as a Category FI-2 project according to IFC's Sustainability Policy. The Project will not support coal-related activities, upstream oil & gas activities, or higher risk business 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. For this investment, the client will be required to continue to screen eligible SMEs and climate finance projects against the IFC Exclusion List, national E&S laws and regulations in Kenya, and the IFC Performance Standards (as applicable). In addition, the Bank will be required to meet Life & Fire safety requirements and the requirements of IFC's Performance Standard 2 on Labor and Working conditions.

The key risks and impacts of the project derive from the Bank's capacity to maintain its management system to identify and manage the potential environmental and social risks associated with the sub-projects supported under this transaction. These risks are typically associated with occupational health and safety issues, pollution prevention, waste and wastewater management, labor and working conditions, and community impacts, among others. Summary of Environmental and Social Management System EBK is an existing client and has implemented an E&S management system. The ESMS defines the steps taken when conducting E&S risk assessment, including describing the responsibilities of various actors in the E&S assessment process, the procedure for ensuring required E&S actions are monitored, and the roles and responsibilities in the supervision process. The Bank has developed internal E&S questionnaires that include Exclusion List screening, E&S categorization, assessing sub-project alignment with national regulations, and screening against the IFC Performance Standards (for applicable transactions). The Bank has designated a dedicated E&S officer who leads a team of trained staff. The Bank's induction training includes an E&S module for staff. 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, in line with applicable requirements, the Bank will be required to fulfill the action plans within the specified timelines and provide periodic reports to IFC.

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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.

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

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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
Britam	3.15
Stanbic Nominees Ltd A/C NR3530153-1	3.55
James Mwangi	3.39
Equity Bank ESOP	2.82
Fortress Highlands Ltd	2.68
AIB Nominee	2.39
Equity Nominees Ltd A/C 00104	2.3
Standard Chartered Kenya Nominees Ltd A/C KE0046667	2.12
Standard Chartered Kenya Nominees Ltd A/C KE002596	2.04
Others	62.8

Task Title & Description	Anticipated Completion Date
ESMS Enhancements	12/22/2021
Evidence of ESMS implementation	03/22/2022
Enhance Harassment Prevention Policy	06/17/2022

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