Bangladesh has suffered greatly from human-caused climate change. Cyclones, tornadoes, floods, coastal and riverbank erosion, droughts, landslides, heat waves, and protracted summers hit the country hard. Bangladesh is the fifth most disaster-prone nation, according to the Global Climate Risk Index 2021, highlighting its vulnerability to natural disasters and climate change.
This existential environmental problem has prompted the banking sector to offer green finance loans, refinancing options, and specialised funds to mitigate climate change and promote a sustainable future for Bangladesh.
According to the central bank’s latest report, banks disbursed BDT 126.41 billion and NBFIs BDT 23.58 billion in green finance in FY23. Green finance made for 5.84% of term loan disbursements.
“We pioneered green financing, a 2009–2010 central bank project. The UNEP named Bangladesh Bank the first central bank to embrace green finance, and other central banks have followed. Our maiden green fund with Bangladesh Taka 2000 million refinances small and medium firms with three products,” Professor Atiur Rahman, former Bangladesh Bank Governor, said.
“We broadened the sustainable finance programme to 94. The central bank’s comprehensive Sustainable Finance Programme allocates at least 20% of term loans to sustainable finance. The programme rates banks sustainably and names the top 10 annually,” he added.
He also explained why the green fund for small and medium firms was expanded to cover heavy industries like the garment sector, saying that Bangladesh is known for its RMG products.
“We received a USD 3 million World Bank grant and a USD 300 million Bangladesh Bank grant after the Rana Plaza catastrophe, which supported the green transformation fund. We contributed USD 200 million from our pocket. The results are great, with over 200 LEED platinum and gold-rated green factories and 500 more in the pipeline,” said Atiur Rahman, as he added that 18 of the 20 finest platinum-rated green factories are in Bangladesh.
According to the central bank’s latest report, banks disbursed BDT 126.41 billion and NBFIs BDT 23.58 billion in green finance in FY23. Green finance made for 5.84% of term loan disbursements.
ESRM guidelines require banks and NBFIs to have an Environmental and Social Risk Rating (ESRR). The Environmental and Social Due Diligence (ESDD) checklist rated 229,592 projects in FY23. BDT 4,165 billion went to 179,022 rated projects in FY23. Banks and non-banking financial companies (NBFIs) received BDT 0.88 billion in grants from the climate risk fund in FY23.
Green banking has prompted banks to open solar-powered online branches. By FY23, 720 branches were solar-powered. Additionally, the December 31, 2021 sustainability rating methodology for banks and NBFIs incorporates green refinance as one of its five components. This grade evaluates banks and NBFIs’ sustainability practices.
In 2009, a BDT 2.0 billion revolving refinance plan made green products and projects affordable. This fund grew to BDT 4.0 billion. The strategy initially recognised six green refinance facility products or activities. By FY22, 68 green products and initiatives were refinanceable.
The central bank’s latest sustainable finance project is the Green Transformation Fund. It first targeted textile, leather, and jute exports but eventually expanded to all export-oriented industries to help the nation shift to a greener economy.
The Bangladesh Bank said that the Green Transformation Fund (GTF) disbursed USD 140.94 million across 47 projects and Euro 71.21 million across 30 projects by FY22. The local currency GTF fund distributed BDT 1778 million to five clients of four banks by June 30, 2023.
Bankers believe green finance loans won’t become bad debts if well-chosen projects. Green finance has great potential, they say.
“In 2023, EBL financed BDT 1,180 crore across 385 diverse projects promoting energy and resource efficiency, effective liquid waste management, circular economy ventures, LEED certified factories, green CMSMEs, ICT projects, and more,” says Eastern Bank PLC Managing Director Ali Reza Iftekhar.
“BRAC Bank has been a top sustainable bank in Bangladesh for three years. Our green and sustainable finance percentage grows each year. Green financing accounted for 23% of term loan disbursements in the last quarter at BDT 15,472 million,” said BRAC Bank PLC DMD & Chief Sustainability Officer Md. Sabbir Hossain.
“Prime Bank released BDT 784.82 crore for green funding in 2023. This is 19.5% of the term loan disbursement, excluding the staff loan. Our green finance portfolio focuses on RMG energy and resource-efficient machinery and green factory structures,” added Md. Ziaur Rahman, DMD and CAMLCO & Chief Risk Officer, Prime Bank PLC.
“Our bank always prioritises green finance. In 2020 and 2021, the Central Bank named us one of the top 10 sustainable finance award winners. Last year, we loaned 100,000 customers across all loan categories, focusing on small clients, BDT 53170.77 million for sustainable finance, including BDT 182 million in green finance,” remarked Shafiuzzaman, AMD & Chief Credit Officer of Bank Asia PLC, while continuing, “we want to lend money for renewable energy, solar projects, green buildings, and energy-efficient manufacturing equipment.”
When questioned if Bangladesh’s green money is enough to address its climatic and environmental concerns, Atiur Rahman says the financial crisis has hampered green investment. However, entrepreneurs are offering their equity to boost the green branding of their high-demand items. However, he remains optimistic that the central bank will revive steps to support this vital sector once the financial situation stabilises. He believes international development partners will promote sustainable financing more.