China flexes its economic muscles to push green finance on the New Silk Road

Deborah Lehr says Beijing’s leadership on the ‘Belt and Road Initiative’ means it can encourage partners to emulate its plans for sustainable development

China’s “Belt and Road Initiative” is likely to transform trading routes from Asia to Africa, the Middle East to Russia. With the world’s largest foreign reserves and a determination to build political and economic ties with strategically important governments, China is helping finance much-needed major infrastructure projects along the modern Silk Road. China is also using its economic might to promote its own set of standards, and nowhere is this more evident than in the field of green finance.

China has launched the world’s largest green bond market, officials’ promotions are linked to meeting environmental targets and banks grant preferential interest rates to sustainable projects. China will soon create the world’s largest experiment in pricing carbon with its national exchange.

China is also using its platform for green finance to encourage other countries. At the Belt and Road Forum in May, President Xi Jinping said, “We should pursue the new vision of green development and a way of life and work that is green, low-carbon, circular and sustainable,” and his words are being translated into action.

At the forum, China’s Ministry of Environmental Protection and the United Nations Environment Programme announced an international coalition for green development on the belt and road. UNEP sees tremendous opportunity in the initiative to promote massive sustainable development and be part of the reconstruction of war-torn countries like Afghanistan and Iraq. They also see it as an opportunity to require green standards both in financing and construction.

UNEP is offering its full range of resources. Erik Solheim, executive director of UNEP, wrote in an op-ed that, “Our environmental expertise runs from sustainable finance and clean technologies to ecosystems and sustainable consumption and production. … Through our Finance Initiative, we can work with private investors to promote sustainable investment practises along the Belt and Road.”

While UNEP may provide the know-how, China will be setting the green standards for countries seeking investment. In regulations issued last year, the government explicitly stated that it will “enhance the greenness of China’s outward investment”. The government is requiring that Chinese banks apply their own standards and criteria for green projects to any loans granted overseas and for infrastructure development. Of course, many of the contracts go to Chinese companies, as they are more familiar with the mandated standards and criteria.

China also has a long-term vision for “exporting” its carbon trade policies. This year, building on its seven regional pilot projects, it intends to launch a nationwide carbon market. This exchange, starting small by China’s standards, will rapidly become the world’s biggest cap-and-trade programme.

Even as China grapples with getting its own carbon market up and running, it has a plan for its growth internationally. China intends to work with developing countries along the belt and road – starting in Central and Southeast Asia and expanding across the Middle East and Africa – to support efforts to create their own carbon trading systems. These exchanges are likely to be small initially, to achieve economies of scale, but they will be permitted to trade on China’s national exchange, giving them much greater exposure and access to capital. This access, however, will depend on compliance with China’s policies.

China will set the standards for the growth and development of satellite exchanges. Their practices will be established in Beijing, not local markets. While the creation of these markets is for the greater good and global reduction of greenhouse gases, China’s ability to set the green standards will ensure they are adopted along the belt and road – encompassing no less than 60 countries and 4.4 billion people.

The initiative is a clear demonstration of China’s economic might and growing political power. However, it is also is a platform for showcasing China’s leadership in green finance, which may become one of its most meaningful exports along the New Silk Road.

Commerzbank, other banks join UBS and IBM trade finance blockchain

NEW YORK, Oct 4 (Reuters) – Commerzbank AG, Bank of Montreal, Erste Group Bank AG and CaixaBank SA have joined an initiative launched by UBS Group AG and IBM Corp aimed at building blockchain-based technology to support trade finance transactions.

The platform called Batavia would help banks and their clients automate the trade finance process, which remains highly manual and paper-based, the participating companies said on Wednesday.

Among other things Batavia will allow parties to track a transaction from when a shipment leaves a port to when it reaches its destination.

Blockchain, which was first developed to power cryptocurrency bitcoin, is a shared ledger of data that is maintained by computers, rather than a central authority. Over the past few years, banks have been investing millions of dollars in adapting the technology to run some of their data heavy and complex processes.

Banks have been collaborating and forming consortia to develop the technology.

Trade finance is considered a good use for the technology because it involves numerous parties such as the institutions financing the transactions, buyers, sellers, transporters and inspectors.

Currently each party maintains its own records, which can lead to mistakes and delays. The new platform aims to provide all participants with a shared record, reducing errors and driving more business.

“Trade finance is a perfect use case because there are so many participants in a trade ecosystem especially when you talk of global trade,” Marie Wieck, a general manager at IBM Blockchain, said in an interview. “Digitizing and creating a level of trust is a perfect accelerator (for business).”

A pilot is expected to take place with the new banks in the first quarter of 2018, Wieck said. The project was first announced in 2016.

The platform would also use so-called smart contracts, or computer programs on the blockchain that automatically enforce the terms of an agreement. For example the platform would release payments for a transaction along each step of the trade process.

While the finance industry continues to experiment with blockchain, it is still in its early days and some caution that it may take several years before it leads to any benefits.

IBM is also working with Nestle SA , Unilever Plc , Wal-Mart Stores Inc and other large food and retail companies on a separate blockchain project to track food supply chains.

Piramal Finance sanctions Rs 280 Cr to Puranik Builders

Piramal Enterprises Limited, through its subsidiary Piramal Finance Limited (PFL), announced a Rs 280 crore sanction to Puranik Builders for one of its flagship projects in Thane – “Puranik City Reserva”.

Piramal Finance, through its entire suite of products, is following a ‘financial partnership’ model, by extending holistic solutions to developers. Within the Real Estate space, PFL is uniquely capable of catering to the entire capital stack – right from early stage equity to late-stage debt, construction finance, lease rental discounting as well as bulk buying apartments – and is therefore, able to act as a perpetual provider of capital for its preferred relationships.

Khushru Jijina, Managing Director, Piramal Finance & Managing Director, Piramal Housing Finance, said “I am pleased to mark what we hope will be a long and rich relationship with the Puranik Group, that has a demonstrated track record of execution in the Thane micro market. We look forward to enabling the growth of the Group with our offerings across both the wholesale as well as retail business.”

Puranik City Reserva, a unique theme based ongoing project at Ghodbunder Road, being developed on 13 acres of land with 2.2 mn sq.ft. development potential worth Rs.2000 crores approximately, is to be completed over the next 6 to 7 yrs. The project has received a good response during its launch a couple of months back, and the construction on-site, is in full swing. Puranik Builders has so far developed over 5 Mn sq.ft. of real estate and is currently developing around 15 Mn sq.ft. in Thane, Pune, Lonavala, Karjat and Mumbai suburbs.

Microfinance institutions are struggling for survival. Here’s why

Four summers back, the plain-speaking Reserve Bank of India deputy governor KC Chakrabarty declared in a Kolkata conference that micro lenders may become irrelevant if banks turn efficient. Come 2017, with four of the 10 largest microfinance companies turning into small banks, and the second largest— Bharat Financial Inclusion— set to dissolve into IndusInd Bank, Chakrabarty’s words are turning out to be prophetic.

Two decades after India-born American citizen Vikram Akula founded SKS Microfinance, which was rechristened as Bharat Financial, the industry that delivered livelihood to millions of poor is facing its pincer moment with private banks giving a big push to micro lending.

The business model — propounded by Nobel laureate Mohammad Yunus and successfully implemented in India by Akula and Chandra Shekhar Ghosh — still remains profitable, but the vagaries of regulations and populist politics like farm loan waivers keep them on the edge.

The tiny size of these institutions makes them vulnerable to even a small adverse development as their finances remain fragile. Unlike banks, which have multi products and an assured deposit base, micro lenders are dependent on markets for funds, which turn hostile at the smallest of events that affect business.

“Today banks are equally in the microfinance space as much as we are,” says MR Rao, managing director with Bharat Financial Inclusion. “So, banks are looking to partner MFIs either as subsidiary or by way of strategic stakes. As MFIs grow, they too need capital badly to remain on the growth path. It will be difficult for pure-play MFIs to grow independently without support of an anchor investor.”

Microfinance institutions (MFIs) came into being in the 90s as banks’ reluctance to lend to those without credit history provided an opportunity to those willing to take risk and organise rural communities.

Though the gap still exists, the likes of Axis Bank, HDFC Bank or RBL Bank are developing their own ecosystem to reach out directly to the poor for higher returns. There are pockets of oversupply squeezing growth potential for the pure-play micro lenders.

India has some 223 MFIs, including societies and NGO-run entities, and 168 of them are registered with Sa-Dhan, the association of community development finance institutions. There are 47 non-bank finance company-micro finance institutions (NBFC-MFIs) registered with Microfinance Institutions Network (MFIN), an industry body, covering 90% of the portfolio While the top 10 find it easier to get equity or bank loan, the smaller ones are always at a disadvantage.

Piramal Finance sanctions Rs 280 cr to Puranik Builders

Piramal Enterprises Ltd, through its subsidiary Piramal Finance Limited (PFL), has sanctioned Rs 280 crore to Puranik Builders for one of its flagship projects in Thane.

Piramal Finance, through its entire suite of products, is following a ‘financial partnership’ model, by extending holistic solutions to developers.

Khushru Jijina, Managing Director, Piramal Finance & Managing Director, Piramal Housing Finance, said “I am pleased to mark what we hope will be a long and rich relationship with the Puranik Group, that has a demonstrated track record of execution in the Thane micro market. We look forward to enabling the growth of the Group with our offerings across both the wholesale as well as retail business.”

Within the Real Estate space, PFL is uniquely capable of catering to the entire capital stack – right from early stage equity to late stage debt, construction finance, lease rental discounting as well as bulk buying apartments – and is therefore, able to act as a perpetual provider of capital for its preferred relationships.

Shailesh Puranik, MD, Puranik Group, said “We are extremely pleased to have started our relationship with the Piramal Group. With this deal, it will help us to achieve a complete financial closure for the project. We firmly believe that the market today presents attractive opportunities and we look forward to relying on the Piramal platform’s experience and expertise as a lender of choice as we chart out our own path towards further growth.”

Puranik City Reserva, a theme based ongoing project at Ghodbunder Road, being developed on 13 acres of land with 2.2 mn sq.ft. development potential worth Rs 2,000 crore approximately, is to be completed over the next 6 to 7 yrs.