Government measure meant for switching to eco-friendly businesses, development schemes

Banks' 'direct green financing' remained negligible despite a recent directive for them to channel 5 per cent of total credits into such schemes for a gradual shift in development paradigm.

Bangladesh Bank in a circular issued in 2014 had instructed all the banks and financial institutions to disburse 5 per cent of their total loans for direct green financing of schemes from January 2016.

The move was expected to gear the necessary bank financing for eco- friendly businesses and schemes in the country by setting a specific target for all the banks and financial institutions.

However, as the latest central bank data show, most banks and FIs have failed to meet that target as the percentage of direct green financing compared to their total lending during the four quarters of last year never went beyond 0.69 percent.

Even there was no visible improvement in the portion of direct green financing from the previous year either as the quarterly percentage of direct green financing in 2015 ranged between 0.43 per cent and 0.63 per cent.

Overall, green financing by the country's banks is on an upturn, though. The banks and FIs in total invested around Tk 522.804 billion in green-financing schemes in 2016, up from Tk 440.19 billion in 2015.

However, analyzing those data on a quarterly basis, it was found that much of that money went for investing in 'indirect green financing' schemes, as direct financing never constituted more than 9.9 percent of those amounts.

Asked about reasons for such sluggish trend in direct green financing, industry-insiders blamed it on lack of sufficient incentive structure for involving the banks in such schemes.

"The target of 5 per cent for direct green financing was an overambitious one in the first place," said Dr Shah Md. Ahsan Habib, Director of Bangladesh Institute of Bank Management (BIBM).

"Moreover, it is very difficult to motivate the banks to meet such target without effective incentives," he added.

Recently, Mr Habib led a team of researchers from BIBM and Bangladesh Bank to conduct a comprehensive study on green-banking scenario in the country. The study has come up with some specific recommendations for bolstering the green financing in the context of Bangladesh.

Looking forward, Habib suggested the central bank should introduce the system of rating and awarding based on the banks' involvement in green financing.

He also called for providing preferential access to funds for banks that would channel a substantial amount of their loans into green banking.

When contacted, central bank high officials admitted that there was not enough progress in monitoring since the aforementioned Green Bank circular was issued two years ago.

"However, the Financial Inclusion Department of the central bank has recently prepared an inspection format for better monitoring of such activities," said Muhammad Mijanur Rahman Joddar, Executive Director of Bangladesh Bank.

"This will soon be put up to the BB Governor for his review and approval," he said, adding, "This can go a long way in better monitoring of banks' green-financing activities".

Previously, a less relevant concept in the banking industry of Bangladesh, Green Banking has started to receive significant policy attention from the central bank since 2010.  

Recycling, eco-friendly brick making, renewable energy are some of the areas wherein much of the direct financing is being channeled, while liquid waste management and green industry also received substantial amounts of green money in recent times, according to the central bank statistics.