Bangladesh Bank Makes Green Finance Mandatory

Central Bank Of Bangladesh Makes It Mandatory For Banks & NBFC’s To Disburse 2% Of Sustainable Financing To Green Financing
09:08 PM (Beijing Time) - 14. January 2021
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With the Bangladesh Bank ensuring banks and NBFC’s reserve 2% of their loans for green financing, it should help renewable energy projects get access to a funding source.

Key Takeaways

  • Bangladesh Bank has issued a circular making it mandatory for banks and financial institutions to invest in green projects
  • Under the rules, they will be expected to give out 15% of their loans for sustainable financing including 2% for green financing
  • Success of their achievement will be factored in by the bank during the preparation of its sustainability ratings and CAMEL ratings of the lenders

The Central Bank of Bangladesh called Bangladesh Bank has issued a circular paving the way for renewable energy sector to get access to financing making it mandatory for banks and non-bank financial institutions to ensure they disburse at least 15% of their outstanding loans for sustainable financing.

Out of the 15%, it has asked for 2% to be given out only as green financing. The SFD Circular No. 01 issued by the bank through its Sustainable Finance Department is available on its website in Bangla language.

Target achievement on sustainable financing and green financing as mandated will win the institutions a good score on Sustainability Rating prepared by the bank as well as on the CAMELS rating index. The bank will calculate an institution’s rating under CAMELS which is an international rating system used by regulatory authorities to rate financial institutions and it stands for Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Sensitivity.

Reporting the development, The Daily Star explained that sustainable financing has lenders distribute loans to set up machinery to enable lower carbon emission compared to traditional ones, whereas green financing refers strictly to set up plans having a direct link in reducing environmental pollution.

According to a recent report on finding the causes behind the sector not yet taking off as planned in Bangladesh, United News of Bangladesh (UNB) found disinterest among financial institutions to fund non-conventional energy projects are one of the reasons, along with the challenges of non-availability of land, bureaucratic hurdles, and unfriendly regulatory environment.

In October 2020, a draft study by the Sustainable and Renewable Energy Development Authority (SREDA) of the country was reported by UNB to expect 40 GW of solar power generation potential for Bangladesh by 2041 (see Study Sees 40 GW Solar Energy Potential For Bangladesh).

As per the International Renewable Energy Agency (IRENA), till the end of 2019 Bangladesh had 284 MW of solar PV capacity.

Anu Bhambhani

Anu Bhambhani is the Senior News Editor of TaiyangNews

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Anu Bhambhani