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Bangladesh mandates 2% of loans issued must be for green projects

Some 15% of the finance disbursed must fit the wider definition of being ‘sustainable’ and banks and other lenders have been warned penalties will be applied for non compliance.

Bangladesh’s central bank has made it mandatory for 2% of all loans issued by the nation’s banks and other financial institutions to be devoted to green projects, including renewable energy facilities.

In addition, 15% of loans should meet the wider definition of being ‘sustainable‘ and lenders have been asked to dedicate sustainable finance help desks in their branches to speed roll-out.

“The achievements of the banks and financial institutions in green banking and sustainable financing will be taken into consideration in [the] case of their CAMELS and sustainability rating,” said the central bank in a circular on Monday, referring to the international banking authority rating system which assesses capital adequacy, asset quality, management, earnings, liquidity, and sensitivity.

Policy

The move came after the central bank last month published sustainable finance policy for lenders as part of a government effort to achieve the UN’s sustainable development goals.

Under that document, sustainable finance was deemed to include capital for wages and direct labor costs under continuous loans, and procurement of raw materials under demand loans for solar power plants and the assembly and manufacture of solar PV, solar cookers, solar water heaters and solar air heating and cooling systems. The definition also encompasses financing the trading of solar panels for home systems and net-metered rooftop arrays; pico, nano, micro and mini grids; and PV-powered irrigation pumps, cookers, water heaters and air heating and cooling equipment.

With financiers asked to “meticulously” comply with the new lending guidelines, the central bank policy stated: “Necessary actions will be taken against respective banks [and] FIs [financial institutions] for any non-compliance of the said guidelines, credit norms, instructions and returns as per [the] Bank Company Act 1991 and [the] Financial Institutions Act 1993.”

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The stick may be accompanied by a carrot, with the policy guideline adding: “The central bank will recognize top-performing banks and FIs on [the] basis of sustainability rating. Besides, it will consider other incentives for top-performing banks and FIs in due course of time.”

The new policy has been well received by Bangladesh’s renewables sector.

“It’s a very positive move,” said Dipal C Barua, president of the Bangladesh Solar and Renewable Energy Association. “We heartily welcome this great initiative.”

Barua told pv magazine banks have more than 10,000 branches in the country. “If even every branch disburses one per cent of their loans for green financing, the impact will be huge,” he added, while calling for the green finance to be offered at a lower rate than traditional loans.

Ezaz Al Qudrat A Mazid, founder and CEO of Dhaka-based Solar EPC Development Ltd, told pv magazine the initiative was similar to steps taken in European states to ensure an adequate flow of green finance. “To make the initiative effective … the central bank will have to deploy [a] proper monitoring system,” he added.

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Source: pv magazine