Green financing increases in the country

“We need a green recovery from the global pandemic. To achieve sustainable development, capital has to be mobilized for the inclusion of service groups, and capital has to be raised for sustainable financing and supporting innovations. Sustainability needs to be mainstreamed, ensuring market integrity, risk management, and sufficient disclosures.”

Dr Atiur Rahman said, He added that banks provide short-term financing so that the capital market maintains long-term financing. Over the past few years, Bangladesh Bank has encouraged both banks and non-banking financial institutions (NBFI) to implement a ‘go-green’ policy while encouraging client firms to adopt clean technology that reduces costs and ensures overall sustainability.

An increasing number of banks and NBFIs are going green by providing innovative products and services that cover the finances required to support economic activities that are not hazardous to the environment but instead conserve it, the central bank report read.The IFC report indicates that the aforementioned Asian nations are resolute in their commitment to promote sustainable finance and development planning for the future.

Established in 2012, the SBN is a voluntary community of financial sector regulatory agencies and banking associations from emerging markets that are committed to advancing sustainable finance.SBN, the first global network of its kind, focuses on ensuring sustainable finance at the market level. The association represents 39 countries and $43 trillion, or 86 per cent, of the total banking assets in emerging markets.

Compared to five years ago, Bangladesh has undergone positive changes in the way banks manage environmental and social risks, said Naidalaa Badrakh, CEO and a board member of the Mongolian Sustainable Finance Bankers Association and co-chair of the SBN IDA Task Force. Other than green finance, the report showed that Bangladesh, Mongolia and Nepal are exploring new ways to expand sustainable finance to other areas, such as financing for small and medium sized enterprises and agriculture. In the context of a circular economy, efficient resource management is key.

Investment under green financing will mainly be geared towards the construction of environmentally friendly housing and business infrastructure, transportation infrastructure, urban water management, agriculture, waste management and renewable energy to meet the nationally determined contribution (NDC) targets. The IFC, in partnership with Bangladesh Bank, has outlined what steps need to be taken to promote the domestic green bond market as a way to mobilise funds for climate-related initiatives.

Environment-friendly projects received 48.08 percent more investment from banks and other financial institutions in the final quarter of 2019, compared to the same period in the previous year, amid slow credit growth in the private sector. Private sector credit growth dropped to 9.83 percent in December last year – before further plunging in February this year, to 9.13 percent.Banks and non-bank financial institutions (NBFIs) have also adopted green practices in their day-to-day business and long-term operations in the period.

According to the Bangladesh Bank’s report on green financing for the October-December period of 2019, the investments made by banks and NBFIs in green initiatives increased to Tk3,512.54 crore at the end of the quarter, up from Tk2,372.06 crore during the same period of 2018.With the new disbursement in 2019, the total outstanding green financing by banks stood at Tk25,957.83 crore and by NBFIs at Tk3,091.8 crore – taking the total green financing volume to Tk29,049.63 crore.

An official at the central bank said 31 out of 57 banks, and 19 out of 33 financial institutions, had access to green financing in the reported quarter.Of the disbursed amount in the October-December quarter of 2019, banks distributed Tk3,342.19 crore, up 58 percent – or Tk1,233.15 crore – from the same quarter of the previous year.

The central bank’s statement showed that a total of 663 entities – including 202 large, 10 cottage and micro, 448 small and medium, plus three other industries – availed the green financing benefit from banks.Meanwhile, NBFIs disbursed loans to 23 large businesses and 13 small and medium industries for eco-friendly initiatives.

In February 2011, the central bank issued a policy guideline for green banking.Under the guideline, all operating banks and other financial institutions have introduced environment-friendly banking activities at their respective banks.In 2016, banks and NBFIs were asked to disburse a minimum of five percent of their funded loans for green banking.

The central bank the following year formed a local currency fund to refinance green projects with low interest to encourage projects to help save the environment from the effects of climate change.Recently, the fund size has increased to Tk400 crore. The Bangladesh Bank has also reduced the interest of the refinance facilities to a maximum of eight percent.

(AA)