IFSCA releases Draft Framework on Sustainable Financial Lending

On 2nd March 2022, The International Financial Services Centres Authority (IFSCA) released a draft framework on sustainable and sustainability-linked lending by financial in IFSCs.

The Consultation framework states that, “Banks and Finance Companies/Units are critical supporting pillars for achieving a low carbon, sustainable future provided they establish a robust framework for putting in place financing solutions, to help clients transition to a low carbon and green economy.”

Hence, the paper envisages to encourage the IFSC Banking Units (IBU) and Finance Companies/Finance Units (FC/FUs) (undertaking lending activities from IFSCs) to develop internal comprehensive Board approved policy on green/social/sustainable/sustainability linked lending. The guidance intends to provide a broad framework for adoption of principles aligned with the existing international standards viz. Green/Social Loan Principles developed by Loan Market Association (LMA), Bond Principles developed by International Capital Markets Association (ICMA), Climate Bond Standards by Climate Bonds Initiative and any other similar recognized standards.

The core components of such a policy on lending shall address the following considerations:

  1. Borrower assessment process,
  2. Assessing the use of proceeds and appropriately describing it in the legal documentation of the loan facility,
  3. Process to be adopted for project evaluation and selection, management of proceeds,
  4. Reporting mechanism,
  5. Monitoring either internally or through external reviewer, and;
  6. De-classification of lending facilities.