Triggering Green Transformation of the Private Sector Through Central Bank-led Initiatives: The Role of Bangladesh Bank in Mainstreaming Green Finance in Bangladesh

Abstract

A number of guidelines and circulars issued by Bangladesh Bank directing the banks and financial institutions under its jurisdiction to factor in environmental concerns while making financial and in-house operational decisions have created tremendous awareness about the concept of green banking in the banking community of Bangladesh. Actual disbursement of green finance, which till date remains undefined in the lexicon of the central bank, however, has been inadequate. 93% of the 2,370,392.45 million taka disbursed as green finance between 2013 and 2017 has been loaned under the category of Indirect Green Finance; which essentially is amount loaned to any project having an Effluent Treatment Plant (ETP) or similar system. How much of this amount loaned as Indirect Green Finance is actually used to operate ETPs, a key priority for curbing water pollution in Bangladesh, is not traced. This paper offers a strategy for aiding Bangladesh Bank shift from a supply-driven approach of disbursing green finance to a demand-driven one. Towards this end, a new functional conceptualisation of green finance is suggested. The functional conceptualisation that we offer in this paper includes: i. a definition that guides practical application, ii. a new way of categorisation that creates room for acknowledging the fact that demand for green finance by different segments of the private sector (private businesses and household level consumers) in their different roles has different roots, and iii. identification of the drivers motivating expenditure on green solutions by private businesses and consumers and thus creating private sector’s demand for green funds.