Rand Merchant Bank Boosts African Carbon Business With Offset-Backed Loan

(Bloomberg) -- Rand Merchant Bank said a loan agreement based on the flow of future carbon credit income to a Microsoft Corp.-backed clean cookstove company takes it a step toward establishing its Africa-focused carbon finance business.

The loan to KOKO Networks, plus an undertaking for future financing, will help support will help support the expansion of a company that has supplied 1.1 million Kenyan homes with bioethanol fuel and cookers.

“It’s a deal which actually stands out as fairly innovative and specialized,” said Phil Norton, carbon finance lead at the Johannesburg-based bank, in an interview. “As an African investment bank we think there’s a real opportunity to, within the African continent, lead as a carbon financing and trading business.”

The deal, a first step by Nairobi-based KOKO into accessing finance from major institutional debt markets, comes as African governments and businesses seek to boost income from carbon markets. New regulations have been announced over the last year in countries including Kenya and Zimbabwe, and companies that reduce deforestation and greenhouse gas emissions are seeking to raise finance. 

Carbon credits can be sold by clean cookstove companies as offsets to companies that produce emissions, provided they can prove their devices are preventing deforestation or reducing the production of carbon dioxide. The bioethanol sold by KOKO replaces the use of firewood and charcoal, reducing use of the fossil fuels and soot pollution. 

Each carbon credit represents a ton of climate-warming carbon dioxide or its equivalent either removed from the atmosphere or prevented from entering it in the first place.

KOKO already sells carbon credits to a subsidiary of Korea Electric Power Corp. and is seeking other customers. The company, which last year said the Microsoft Climate Innovation Fund had taken a stake in it, is expanding into Rwanda and is in talks to enter several other African nations, Greg Murray, its chief executive officer and co-founder, said in an interview. 

RMB and KOKO declined to disclose the size of the loan.

“The facility is scalable in that as KOKO grows and sells more cookers, the size of the borrower base will also grow allowing the funding package to scale in line with KOKO’s growth ambitions,” Norton said in a separate response to questions. “As mandated lead arranger we are playing a key role for KOKO in facilitating its access to large scale institutional debt markets on commercial terms.”

RMB is a unit of FirstRand Ltd., Africa’s biggest bank by market value.

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