Bangladesh Bank (BB) has increased the interest rate for green banking aiming to encourage the commercial banks to strengthen disbursement of the loan under its refinance scheme, officials said.

Under the new provisions, the interest rate on bio-gas and cattle farming has been fixed at 11 per cent from the previous 9.0 per cent.

"The decision on raising the interest rate will help to bring a positive impact on disbursement of the environment-friendly loan," General Manager of the Agriculture Credit and Financial Inclusion Department of BB Nirmal Chandra Bhakta told the FE Saturday.

The central bank has, so far, disbursed around Tk 600 million loans under the refinance scheme from the total fund worth Tk 2.0 billion.

BB launched the Tk 2.0 billion scheme on August 3, 2009 to facilitate renewable energy and environment-friendly projects.

A single commercial bank can borrow up to Tk 500 million from the central bank's revolving fund.

BB is advising the banks to take more loans from the revolving fund and finance the green and environment-friendly projects like bio-gas plants.

The BB has directed chief executive officers (CEOs) and managing directors (MDs) of all scheduled banks and non-banking financial institutions (NBFIs) to implement the new interest rate immediately through its circular Thursday last.

The disbursement of loan under the scheme slowed down as per the previous interest rate arrangement due to apathy from the commercial banks.

"The decision of interest rate increase will hamper not only loan disbursement but the sector as well," a stakeholder said.

The banks will now disburse the loans at 11 per cent interest instead of 9.0 per cent if they do it directly to clients, said the circular.

The circular said the increase of interest rate is mainly to promote bio-fuel production and the expansion of the sector by setting up bio-gas plants in rural areas. The bio-gas plants will be set up by taking a comprehensive cattle farming initiative.

The circular also said that the commercial banks would not be able to charge in addition to the interest rate from the clients in the name of any service charge.

The government wants to meet up 5.0 per cent of total power demand from the green energy by 2015 and 10 per cent by 2020.

Under the scheme, banks and financial institutions can get loans at 5.0 per cent interest from the central bank.

The Financial Express/ Bangladesh/ 20th May 2012