Bangladesh can give a boost to green financing by enhancing existing practices, providing fiscal incentives and aligning monetary targets with sustainable development goals, according to a recent report.

Green financing is growing but it remains modest compared to the scale of Bangladesh's environmental, energy and industrial development imperatives, according to the report titled the Inquiry into the Design of a Sustainable Financial System.

The International Institute for Sustainable Development, the United Nations Environment Programme (UNEP) Inquiry and Bangladesh Bank prepared the report.

The report has been prepared to improve the financial system's effectiveness in mobilising capital towards a green and inclusive economy.

The report on Bangladesh is based on the UNEP Inquiry's analytical framework, desk research and interviews carried out in the country.

The leadership of Bangladesh Bank has played a critical role in initiating steps to ensure green financing and financial inclusion, the report said.

A national debate on the importance of aligning the financial sector with the broader objective of sustainable development has started, and initial instruments have been developed, and a new wave of creative innovation unleashed, it said.

According to the report, $13 million of green refinancing was disbursed during FY2010-FY2014. Some $0.5 billion of loans were disbursed to key green sectors in 2014.

Besides, $4.5 billion of loans were disbursed to industrial facilities with effluent treatment in 2014 and $20 billion of loans were disbursed to high impact sectors where environmental due diligence had been carried out.

In 2009, Bangladesh Bank launched a green refinancing line with an initial focus on solar energy, biogas, and waste treatment projects.

The scheme now covers 47 items, with $25 million available for commercial banks to disburse loans to key green sectors.

Loans are provided at 5 percent with interest chargeable to bank customers capped at 9 percent. In addition, there is a $50 million refinancing programme, financed by the Asian Development Bank, for more efficient brick kilns.

In February 2015, the central bank announced its intention to create a new long-term refinancing window to provide $500 million of funding. Of the amount, $200 million will be allocated specifically for green initiatives.

The report said innovations in policies, regulations and norms to shape a greener and more inclusive financial system are emerging in many places, but particularly in developing and emerging economies.

Bangladesh has been a leader in this regard, as part of a sustained drive to ingrain a socially responsible institutional ethos in the financial sector, it said.

The report said Bangladesh has sought to align regulation and policy to national goals, while avoiding negative unintended impacts.

The approach has not been to force financial institutions, but to encourage and develop the business case.

As part of recommendations, the report said the practice of environmental risk management should be reviewed and continually strengthened, and a protocol could also be developed to support assessment of clean energy and energy efficiency investments.

“Further advancements in information disclosure by listed companies and development of standards for green bonds would widen green finance beyond the banks.”

It said the refinancing scheme should be assessed to establish where course corrections or new approaches might be warranted.

Fiscal incentives might also be targeted to encourage the creation of long-term savings product and to provide credit enhancement to kick-start the development of a green bond market.

According to the report, there is potential for greening SME credit policies and tightening green credit quotas to target specific areas such as solar energy and energy efficiency loans.

It said networks of green banking competency should continue to be built up. Further opportunities include exploring the linkages between Islamic banking and sustainable development and promoting a green investor's network.

The opportunities could include aligning monetary targets with sustainability objectives, integrating green finance in the seventh five-year plan and establishing a green finance committee, the report said.

“These measures, concentrated on the financial system, would be complementary to real economy measures such as environmental regulations and fossil fuel subsidy reform.”

“It is a bold and exciting agenda...Broadly speaking, action in the banking sector might be implemented most rapidly, with measures for debt and equity markets, institutional investment and insurance being developed as part of the broader growth in these markets.”

It said a national roadmap could be developed with leadership and involvement not only of Bangladesh Bank but also of other financial regulators, financial institutions, the microcredit industry, civil society, stock exchanges, credit ratings and private standard setters.

In the report's foreword, Bangladesh Bank Governor Atiur Rahman said: “We are convinced that our actions have delivered considerable gains for Bangladesh, and can provide insights relevant elsewhere. Likewise, we have much to learn from others, and look forward to engaging with our counterparts.”

News:The Daily Star/21-Oct-2015