The rising tide of green finance: Promise of a better tomorrow

Quattro Fashion, a new venture under Fortis Group, constructed a green factory building in Gazipur last year. This building was designed with maximum energy efficiency in mind, incorporating features such as optimal daylight utilisation and water-saving sensors.

A private bank provided a green finance loan for the construction of this building. The bank reported that the customer had been regularly paying loan instalments after receiving this low-interest loan under a refinance scheme. As a result, not only has the company saved energy due to the eco-friendly factory building, but the customer has also benefited in the long run.

Md Morsheduzzaman, deputy general manager of Accounts and Finance at Fortis Group, told TBS, "According to our management's decision, we aim to work in harmony with nature in all our projects. Although green industries require higher initial investments, they offer long-term benefits. Thanks to this green-certified factory, built with a green finance loan, our export orders have increased in both quantity and number. Moreover, our employees' productivity has improved."

The central bank reported that around 253,000 customers, like Fortis Group, have contributed to a greener Bangladesh by taking loans from banks and non-bank financial institutions (NBFIs) under green finance schemes. The ratio of male to female customers is almost equal.

According to the latest data from the central bank, outstanding loans under green finance stand at Tk60,433 crore, and this figure is increasing every month. In the first quarter of this year, Tk5,968 crore was disbursed under green finance, a 115% increase compared to the same quarter of the previous year.

In the March quarter of this year, banks allocated 13.16% of their disbursed term loans to green finance. According to central bank regulations, 5% of total term loan disbursements must be allocated to green finance. In this quarter, 43 out of 61 banks and 8 out of 34 finance companies had exposure to green finance.

A senior central bank official noted, "The trend of lending under green finance in our country is relatively new. Green factories or facilities require slightly higher initial investments. As a result, many entrepreneurs are reluctant to adopt green technology. However, green energy, products, and facilities are the future. For the sake of long-term security, we must move toward green finance."

Sabbir Hossain, deputy managing director and chief sustainability officer at BRAC Bank, emphasised that in order to effectively advance sustainability efforts, it is necessary to adopt global best practices and integrate proven standards into local practices.

Commenting on BRAC Bank's focus, he said, "We will increase investments in renewable energy sources, promote recycling, support the circular economy, and prioritise low-carbon sectors. We will also provide additional training to our frontline staff to better engage in green business initiatives. Furthermore, we plan to organise workshops and seminars to raise awareness of sustainability within the financial sector."

Banks and NBFIs provide loans for sectors such as renewable energy, energy and resource efficiency, alternative energy, liquid waste management, solid waste management, circular economy and eco-project financing, environmentally friendly brick production, green/environment-friendly establishments, green agriculture, green CMSME, green socially responsible financing, blue economy financing, and information and communication technology.

A central bank official mentioned that banks are being encouraged to prioritise environmentally friendly projects or products when issuing new loans. Additionally, Bangladesh Bank is providing refinance schemes for green finance, offering loans at lower interest rates. Notable schemes include the Shariah-based Refinancing Schemes for Green Products (Tk125 crore) and Green Products and Initiatives (Tk1,000 crore).

In January 2016, the central bank launched a longer-term refinancing window named the Green Transformation Fund (GTF), worth $200 million, to ensure sustainable growth in the export-oriented textile and leather sectors, thereby facilitating the transition to a green economy.

In January 2016, the central bank launched a longer-term refinancing window, named the Green Transformation Fund (GTF), worth $200 million, to ensure sustainable growth in the export-oriented textile and leather sectors, thereby facilitating the transition to a green economy.

To expand the scope of this fund, it has been made available to all manufacturers and exporters, regardless of sector, for the import of capital machinery and accessories needed for green or environmentally friendly initiatives since September 2019.

Recently, 200 million euros were added to the fund. This Euro component of the GTF can be used not only to import green machinery but also to procure industrial raw materials (for buyer's credit) used in all manufacturing enterprises, including both export-orientated and deemed exporters.

According to a central bank report, during the January-March quarter, 27 banks and five finance companies exceeded the 5% target for green finance in relation to their total term loan disbursements.

Banks such as Bank Alfalah, State Bank of India, United Commercial Bank, Shimanto Bank, Mutual Trust Bank, Eastern Bank, Prime Bank, Jamuna Bank, City Bank, Global Islami Bank, Al-Arafah Islami Bank, BRAC Bank, Premier Bank, Janata Bank, Islami Bank, Rupali Bank, BASIC Bank, Southeast Bank, Uttara Bank, Bank Asia, Trust Bank, SBAC Bank, HSBC Bank, Social Islami Bank, Union Bank, Bengal Commercial Bank, and Standard Chartered Bank are among those that have surpassed this target.

Finance companies like Infrastructure Development Company (IDCOL), IPDC Finance, Bangladesh Finance, Agrani SME, and IDLC Finance have also performed well.