Sustainable Finance To Foster Green Growth

12 October 2021
Sustainable Finance To Foster Green Growth

Barrister Shehrin Salam Oishee :
Though Bangladesh has not yet incorporated any inclusive green financing strategies, the Bangladesh Bank has been promoting green financing through concessional refinancing schemes and credit quotas for FIs as well as formulating guidelines for green banking and donor-supported sector-specific transformational projects.
In January 2016, the Bangladesh Bank set a mandatory 5% credit quota for direct green finance out of the total loan disbursement of all banks and FIs.
The Bangladesh Bank also established a refinancing scheme worth Tk. 2 billion for "Renewable Energy and Environment Friendly Financeable Sectors" in 2009 to facilitate financing possibilities for green products, such as solar energy, biogas plants, and effluent treatment plants (ETPs), the major catch for the RMG.
Main barriers of sustainable finance
Lack of access to sustainable finance to industries in Bangladesh - mainly RMG manufacturers - is a major barrier in the development of a sustainable industry. There is an inherent lack of coalition among industry & finance sector stakeholders.
This is a challenge because foreign buyers have a keen interest to develop and work with sustainable suppliers. Sustainability criteria are increasingly common in contracts with fashion brands and retailers.
Foreign banks are ready to provide finance for developing a sustainable industry, but the infrastructure of our economy is such that they cannot directly facilitate the finance. The channel has to be realized through national commercial banks to the individual industries, as an independent means of financing factories while safeguarding against hostile buyers as well. This is where the grass-root challenge lies.
The successful implementation of sustainable projects is further hindered by the lack of a comprehensive legal and regulatory framework and technical data, which is a result of a lack of adequate research and development work in this field.
There is an inherent reluctance of FIs to finance sustainable projects, because they generate a lower rate of return. Additionally, the bond market of Bangladesh is considerably underdeveloped for accommodating sustainable projects, and an immature capital market for proper utilisation of green finance for sustainable projects further impedes the growth of sustainable industries in the country.
At the same time, new disruptive challenges are being introduced at a greater speed than ever before. Investing in RMG manufacturing needs more robust understanding from the perspective of financiers so that we can achieve greater confidence regarding making investments. In addition, we need to innovate new financial tools that will increase RMG manufacturer's access to finance. To do that we need dialogue between apparel industry stakeholders, the finance sector, entrepreneurs and other partners.

How to overcome the problems
Bangladesh is at a crossroads in its development. With sustainability at the core of the RMG sector, access to sustainable funding options is crucial for the industry to realise its potential and compete on the global stage.
To do this, we need to firstly assess the financial implications associated with environmental risks. By presenting these so that we all know what is at stake, we can encourage industries to adopt sustainable financing methods. Besides this, identifying incentives, both financial and non-financial, to encourage entrepreneurs to adopt sustainable options shall further facilitate the new regime.
Bangladesh Bank is overseeing green finance in industries, piloting policy decisions for environment and social safeguards for banks and FIs, to be followed while disbursing green finances to commercial enterprises.
But the government's keen intervention at this stage is of utmost necessity, especially in the case of subsidizing the FIs and Banks, and providing sustainable and/or green financing to industries at a lower interest rate,
To address and resolve these challenges, it is necessary to make the SFU functional. The risks involved with instatement and proper functioning of sustainable green projects in countries like Bangladesh e.g. the degree of operational risks due to adoption of new technology - makes the entire concept pretty unsuitable for banks and FIs to be investing in.
Being susceptible to policy changes, a more rigorous risk assessment profile for sustainable projects must be done. The Banks and FIs must offer some joint responsibility to share the risks of the sustainable ventures so as to ensure more such ventures flourish over time. Mainstreaming such finances in the banking system is the core means of encouraging green and sustainable ventures to grow in the country.
BGMEA and other like-minded organizations will make plausible cooperation with the commercial banks so as to realize these government-allocated funds effectively, to ensure proper access to the available finance.

(Barrister Shehrin Salam Oishee is a Director of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Director of Envoy Group and an Advocate of the Supreme Court of Bangladesh).

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