Green finance rises by 48% amid dismal private credit growth

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. 

Khondkar Morshed Millat, general manager of the department, told The Business Standard, "Here the fund size has been increased and the loan limit has also been raised. Four new green products have been included in this refinance scheme. Banks and NBFIs now can provide more loans for green projects."

Now a single project can avail a maximum of Tk50 crore from this fund. 

Apart from green financing, the central bank has already launched two green transmission funds (GTF).

One fund is worth 200 million euros and another one $200 million – taking the total size of the BB-formed GTF to $418 million.