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With its own funds, the Bangladesh Bank created the US $200 million Green Transformation Fund (GTF) in 2016. The purpose of the GTF is to extend financial support in foreign currency to export-oriented manufacturing industries, in their efforts to make their factories sustainable by purchasing environment-friendly capital machineries. Similar to other green funds already available in the country, the fund will be disbursed through scheduled banks. So far, 18 banks have signed agreements with the Bangladesh Bank for the fund.
Mainly four actors are involved in the application and disbursement process of the GTF. They include the Sustainable Finance Department (SFD), which takes the decision about approval. The Forex Reserve and Treasury Management Department (FRTMD) of the Bangladesh Bank makes the disbursement and ensures subsequent supervision.
The third actor is the Authorised Dealer (AD) or the commercial bank that reviews the documents and application of the client and finally, the client also has an important role to play. In addition to these four actors, others who may have relevant roles are: Department of Environment (DoE), experts on green technology/financing, supplier of the machinery and so on.
The GTF was established following advocacy by the Textile Sustainability Platform (TSP) that was supported by BUILD. However, till date, the utilisation of the fund has been quite low.
As of June 2018, Goodrich Sweater Ltd and Sky Line Apparels, two RMG companies, have availed US $ 130,000 for workplace improvement initiative projects from the GTF through Southeast Bank.
Apart from these two projects, around $ 1.35 million worth of proposals for GTF are in the pipeline. Bangladesh Bank is also considering proposals submitted by Mercantile Bank, Dhaka Bank and Prime Bank. The central bank has not rejected any proposals for GTF from AD borrowers so far.
During the 2nd Sustainability & Green Growth Working Committee of BUILD, held recently at the Ministry of Environment, Forest and Climate Change (MOEFCC), it was revealed by Bangladesh Bank sources that in addition to the amounts mentioned, another BDT 54.80 million was waiting to be disbursed soon.
At the moment, only export-oriented industries are being allowed to apply for the GTF loans. In the meeting, it was discussed that the GTF should also be available for domestic industries so that they can buy environment-friendly machineries. If such a step is taken, then it would be easier to create a more sustainable industries sector in the country. It was also proposed that if an entrepreneur buys environment-friendly machineries from local sources, he or she should also be eligible for getting GTF loans.
Some participants also added that Zero Liquid Discharge (ZLD) Plants can also be included in the list to qualify for GTF funding. It was also proposed that the DoE and the central bank can work together closely to ensure proper certification of environment-friendly machineries. Participants also asked for simple and clear criterions that will ensure the efficiency of these machineries in respect to resource usage, energy consumption, emission and pollution.
The need for financial support for Online Monitoring facilities for Effluent Treatment Plants (ETP) of individual firms and support for central online CETP/ETP monitoring facilities were stressed. The private sector participants pointed out that the lengthy process of approving GTF projects is still a major constraint. Prevalence of other green funding is also creating confusion among the clients. Businesses involved with the leather sector also suggested that green financing should be made available for tanneries shifted to Savar Tannery Estate so that they can become sustainable. Legacy Pollution is also a nagging concern.
In order to encourage use of GTF, maximise its benefits for pollution-free industrial establishments and address other aspects, more discussions with the concerned parties is required.
Along with GTF and the Refinancing Scheme for Green Products/Projects of the BB, private commercial banks are also coming up with their own creative loan products. One such product is Planet Solution by BRAC Bank.
Additionally, over the past eight to nine years, the Bangladesh Bank has launched many different schemes to promote and encourage green financing.
According to the annual report of Bangladesh Bank, a significant amount was disbursed during the FY17 by 50 Banks and Non-Banking Financial Institutes (NBFIs) involved in green financing. Sector-wise contribution of all green financing schemes showed that Private Commercial Banks (PCBs) played important roles at disbursing green finance, followed by Foreign Commercial Banks (FCBs) and State-owned Commercial Banks (SCBs).
But in case of GTF, the performance of the banks at disbursing funds has not been up to the mark. A reason for this is possibly the fact that the fund is specifically meant for buying machineries for the plant. But entrepreneurs prefer composite funding that can mitigate a significant proportion of the need for sustainability.
Bangladesh Bank also launched a refinancing scheme with its own fund in 2009. The fund currently provides refinancing for investment in 52 sectors of 11 categories, through its SFD circular no 3, March 16, 2017. To date, 39 banks and 19 Financial Institutions have signed a participation agreement with Bangladesh Bank to avail finance from this scheme. The total fund size is BDT 2 billion (USD 25m) which is much lower than GTF. Cumulative disbursement amount is BDT 3.1 billion till June 2017.
In October 2014, Bangladesh Bank extended refinancing scheme facility for designated products of Islamic Shariah banks vide BPRD circular no. 13. Four Banks and one NBFI signed participation agreements for this facility till March 31, 2017. Bangladesh Bank has also issued full guidelines for Islamic Banks to refinance in "Renewable Energy and Environment Friendly Sector". Bangladesh Bank further introduced refinancing scheme, funded by excess liquidity of Shariah-based banks, to encourage more renewable energy and environment-friendly efforts.
Financing Brick Kiln efficiency improvement project is another fund that was supported by the Asian Development Bank (ADB) and created in 2012 with a view to improve environmental conditions in the country. The focus was at replacing fixed chimney kilns with more energy-efficient kilns to reduce emission of Green House Gas (GHG) and Suspended Particulate Matter (SPM). A total number of 54 FIs - 35 banks and 19 NBFIs - have signed participation agreements with BB as of June 2017.
An ADB loan of USD 50 million or equivalent taka is already in place. The project approved 14 sub-projects at a total cost of USD 33 million. Of the sum, USD 16.2 million has already been liquidated for eight sub-projects while six sub-projects are under construction. The project's deadline has been revised to December 2018.
The Green Climate Fund (GCF) was designed to support developing countries at responding adequately to the challenges of climate change by reducing greenhouse gas (GHG) emissions. GCF supports mitigation and adaptation initiatives to tackle the impact of climate change. The GCF initially gathered USD 10.3 billion. Bangladesh has already received approval for two projects: "Climate-Resilient Infrastructure Mainstreaming in Bangladesh" & "Global Clean Cooking Programme". The accumulated size of these two projects is USD 162.2 million. From this, USD 60 million will be financed from GCF and the remaining portion will be co-financed by the accredited entity (international) and executing entity. Both projects were submitted by public sector entities. Private sector entities are yet to receive support from the GCF.
Also, in 2011, Bangladesh Bank, with support from JICA, formed a two-step loan fund to support small and medium enterprises. The fund went into operation in 2012. The loan includes both refinancing and pre-financing for SMEs in medium and long terms.
Most of the funds described above have undergone a level of implementation and thus demonstrate better performance compared to the GTF.
There are a number of differences between the GTF and other schemes. Primarily, GTF is much larger than the previous funds. The GTF interest rate is more lucrative or equal to the rates offered for loans under other schemes. Like some loans, GTF has an unlimited single borrower exposure limit. It has the added advantage of being a foreign currency facility. The tenure of the loan is also suitable for medium and long-term investments.
The only constraint is that GTF is restrictive as it focuses only on capital machinery import. If the rules for the funding can be simplified and awareness can be generated about it among the private sector players, the fund may prove to be an important supporting element to nurture sustainable industrial development in the country.
Ferdaus Ara Begum is CEO of Business Initiative Leading Development (BUILD), a joint collaboration of DCCI, MCCI and CCCI.