Low-interest sustainable finance gets popular as disbursal grows 69% YoY
The government's move to promote sustainable financing has begun to pay dividends as loan disbursements by banks and NBFIs in the sector increased by 69% in the July-September quarter of this year compared to the same period last year.
Sustainable finance is a set of financial regulations, standards, norms and products that pursues an environmental objective.
According to a central bank report, loan disbursements in the sector in the September quarter stood at Tk31,885 crore. In the same quarter in 2021, it was Tk18,875 crore.
The data, however, also show that the share of sustainable finance in total disbursed loans decreased in the September quarter compared to June.
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The sustainable finance sector accounted for 11.27% of the total disbursed loans in the September quarter, down from 11.98% in June.
It was, however, an improvement on the March quarter when less than 10% of the total was disbursed for the sector.
According to central bank guidelines, 20% of the total credit disbursed by banks and non-banking financial institutions (NBFIs) have to be given to the sustainable finance sector.
Arfan Ali, former managing director of Bank Asia, told The Business Standard that besides government and central bank guidelines, customers are also interested in taking sustainable loans because of a comparatively lower interest rate.
He, however, said green projects are not always implemented in the interest of buyers. It is rather buyers, especially in the readymade garment sector, who encourage factory owners to green their factories.
Noting that borrowers under sustainable finance are better at meeting conditions than others, he said the amount of classifieds for such loans was less in comparison.
This is also a good message for our banking sector, he said.
Central bank data show that most sustainable financing went to agriculture (Tk8,679 crore), followed by loans for green projects, products and initiatives (Tk8,540 crore).
According to a central bank report, the banking sector is one of the major sources of financing industrial projects such as steel, paper, cement, chemicals, fertilisers, power, textiles, etc., which have the most carbon emissions.
Therefore, the banking sector can play an intermediary role between economic and social development, and environmental protection, for promoting environmentally-sustainable and socially-responsible investment.
In the July-September 2022, quarter 11 banks and six NBFIs have been able to meet their target (20%) of sustainable finance compared to the total loan disbursement.
Most of the 61 banks operating in the country, however, have not achieved the target.
Green finance also grows
The central bank set a target of 5% of the country's total term loan from 2016 to further develop the country's green financing.
Green financing of banks and financial institutions almost reached the yearly target by the end of September this year.
At the end of September, the amount of green financing loans of the country's banks and financial institutions stood at Tk2,779 crores, which is 4.20% of the total term loans of the country.
However, during the same period last year, the loan amount was Tk1,596 crore, which was 3.14% of the total term loan.
The central bank report showed that during the said quarter 15 banks surpassed the target of green finance (5%) compared to the total term loan disbursement. Besides, five non-bank financial institutions (NBFIs) met their target.
The report also states that the introduction of a Sustainable Finance Policy has provided an ample opportunity to the banks and financial institutions to contribute to inclusive Sustainable Green Growth where green finance, sustainable agriculture, sustainable CMSME, socially responsible financing, other financing and CSR activities linked to sustainability are structurally addressed.
