Description

Asset-based securities (ABS) is a financial tool for aggregating multiple small-scale loans, which would otherwise be too small to attract viable financing. This is suitable for green mortgages, electrical vehicle loans, energy efficiency upgrades, battery and storage projects etc.

Instrument category

Aggregation models

Implementation status

Moderate - tried and tested

Instrument benefits

• Loans to small-scale projects can be aggregated and then securitised to reach an adequate deal size for bond markets.
• Capital raised through the sale of asset-backed securities by the loan originators can be used to create a new portfolio of loans.
• Tagging the securitisation as ‘green’ enables issuers to tap into the increasing demand for securities with environmental benefits.
• In high-interest environments, asset-backed securities issued in bond markets can offer a lower capital cost than bank financing. This is important for low carbon projects that typically have high capital expenditure.

References

Case studies

GreenStreet Africa: aggregated solar energy financing in Nigeria

Energy Efficient Mortgages Action Plan (EeMAP): green mortgages in the European Union to incentivise energy efficient homes