Ahsanullah University of Science & Technology

A Report on “Green Banking in Bangladesh”

Submitted by,
Mariyam Tahasin
ID: 20210102027
Section : A
Subject : Money and Banking
Course Code: 315
Submitted to,
Mr. Md. Hafez
Assistant Professor
Department of School of Business
Ahsanullah University of Science & Technology

Submission Date: 24 January 2024

1
Date: 24 January 2024

Mr. Md. Hafez

Assistant Professor

Department of School of Business

Ahsanullah University of Science & Technology

Tejgaon, Dhaka

Sub: Submission of Assignment Report

Dear Sir,

This is my pleasure to submit my assignment report on “Green Banking in Bangladesh” which

I was assigned. It was a great opportunity for me to acquire knowledge and experience in respect
of the functions, procedures and operational activity, other than my topic of study.

I have concentrated my best efforts to achieve the objectives of the assignment study and hope my
endeavor will serve the purpose. However, I will always be ready to provide any further
clarification that you may require.

Sincerely Yours,

Mariyam Tahasin

ID: 20210102027

Section A

3rd Year 1st Semester

Green Banking in Bangladesh
 Table of Contents

Topic Page
Number
1
1 Introduction

2
2 Objectives

2
3 Status of Green Bank

3
4 Green Banking Practices in Bangladesh

8
5 Sustainability of Green banking in Bangladesh

9
6 Limitations of Green Banking in Bangladesh

10
7 Findings and Recommendations

11
8 Conclusion

12
9 References
Introduction:
The term "Green Banking" is widely used globally. Green banking refers to a recent financial trend
in which banks shift their investment strategies to prioritize environmentally friendly initiatives
and sustainable technologies. It begins with the goal of protecting the environment, in which banks
analyze a project's environmental friendliness and potential future implications before providing
financing. The challenge of global warming has a significant concern for maintaining a clean
society. The negative consequences of climate change represent a risk to a sustainable way of life
on Earth, so developed and developing countries must move quickly to find solutions that are
feasible. Green Banking has a strong potential to deal with the problem of global warming. It
emerges as a potent tool in addressing the pressing issue of global warming. The notion of green
finance originated in Western countries and has now spread to the most nations throughout the
world. It involves promoting eco-friendly practices and reducing the carbon footprint of financial
activities. Green banking is more than just corporate social responsibility; it is about sustaining the
world's livability with little harm. When all social and environmental aspects are considered, green
banking is also known as ethical banking. Green banking practices include environmental risk
assessment, financing renewable energy projects, carbon footprint reduction, sustainable lending
practices, customer education and corporate social responsibility.

Figure : Some Green Banking Slogans of Banks

Source: Green Banking Activities, 2012

1
Objectives:

The fundamental purpose of this study is to become familiar with the green banking techniques
used by financial institutions in Bangladesh. This includes understanding the process of
implementing green banking regulations, resolving environmental concerns, and investigating in-
house activities. To fulfill the primary purpose, the study focuses on the specific objectives listed
below:
1. Learning about Green Banking projects in Bangladesh.
2. Evaluating banks' success in implementing Green Banking practices in Bangladesh.
3. Analyzing the entire landscape of green banking practices in the country.
4. Evaluating the potential benefits of green banking practices in Bangladesh.
5. Offering some recommendations in this regard.

Status Of Green Bank:

Green Banking means eco-friendly or environment-friendly banking to stop environmental
degradation to make this planet more habitable. Bangladesh Bank's green operations are focused
on in-house and non-in-house activities. The term 'in-house activity' refers to office-specific
activities such as network expansion, automation, and green operations. Bangladesh Bank's head
office and nine branch offices have already implemented a computer network (LAN/WAN),
linking almost 3,100 PCs as of March 31, 2012. Banks have joined E-Commerce to offer online
banking services such as bill payments, money transfers, and local currency transactions via the
internet. Since October 2012, 838.4 million out of taka 2.0 billion revolving fund has been
allocated to the following green projects:
Category Amount (in million Taka)
Solar irrigation pump 23.9
Solar home system 87.8
Biogas plant 262.7
Effluent Treatment Plant (ETP) 90.4
Hybrid Hoffman Kiln (HHK) 124.8
Solar PV module assembling plant 248.8
Table: : Bangladesh Bank refinance scheme for promotion of green projects.
Source: Bangladesh Bank

2
Green Banking Practices in Bangladesh:
Considering the adverse impacts of climate change and the global push for proactive measures,
Bangladesh Bank, the central bank of the country, has displayed a strong commitment to realizing
a greener world through various green initiatives. In this regard, Bangladesh Bank serves as an
exemplary model for the financial sector, engaging in green banking activities both at its central
and branch offices. These endeavors send a powerful message to other financial institutions,
highlighting the sincere dedication of Bangladesh Bank to its environmental initiatives.
The green activities of Bangladesh Bank are categorized into in-house and external activities. In-
house activities pertain to operations within the office premises, encompassing aspects like
network expansion, office automation, and daily environmentally friendly practices. As part of the
networking program, all departments at the Bangladesh Bank head office and its nine branch
offices have been integrated into a computer network (LAN/WAN), connecting nearly 3,100 PCs
as of March 31, 2012. Additionally, the bank has extended its E-Commerce reach to include banks,
offering customers online banking services for utility bill payments, money transfers, and local
currency transactions through the internet.

• Policy Formulation & Governance:

In the year 2012, 47 commercial banks devised Green Banking Policy Guidelines, which
received approval from their respective Boards of Directors. Additionally, they established
Green Banking Units (GBUs) dedicated to overseeing and implementing Green Banking
activities. Among these banks, 44 have developed a Green Office Guide outlining practices
for environmentally friendly activities within their premises.

Figure: Bangladeshi Formations of Green Banking Policy and Unit.

3
 • Budget Allocation and Utilization:
Bangladesh Bank plans to devote significant funds for green banking in their annual
budgets, including green finance, climate risk fund, marketing, and capacity building. In
2012, 39 banks used 271270.84 million taka for green finance and CSR activities, including
green projects, events, marketing, training, and capacity building.

Table: Bangladesh Bank-Annual Report on Green Banking 2012

As per the directive from Bangladesh Bank (the following figure below), the majority of banks
have allocated their funds predominantly in marketing, training, and development. Approximately
34% of banks have designated their allocations for green finance, with 21% allocated to the climate
risk fund, while the remaining banks did not allocate funds in the year 2012.

Figure: Implementation of Bangladesh Bank policy in allocation of budget

• Green Finance:
Green Finance encompasses both direct and indirect financing. Direct financing for banks
can originate from the bank's internal funds or from Bangladesh Bank's funds specifically
designated for renewable energy and environmentally friendly projects. Indirect finance
includes projects that incorporate Effluent Treatment Plants (ETP) or similar systems.

4
 Table: Bangladesh Bank- Annual Report on Green Banking 2012
Banks have allocated funds to various green products and events, disbursing amounts such
as 1356.52 million taka in ETP, 259100.05 million taka in projects featuring ETP, 899.87
million taka in Bio-gas plants, 3638.37 million taka in solar/renewable energy initiatives,
and 1830.33 million taka in Household Hazardous Kitchen (HHK) projects, all in the year
2012.

• Climate Risk Fund:

In 2012, banks allocated a sum of 2145.35 million taka as a climate risk fund. This fund,
designated for climate-related risks, encompasses Corporate Social Responsibility (CSR)
activities, including green events and projects. However, the utilization of this Climate Risk
Fund by banks has been limited, with only 258.89 million taka utilized in 2012. Banks, as
a whole, have demonstrated a modest response in terms of utilizing the Climate Risk Fund,
utilizing only 12.07% of the total allocation. Among the different types of banks, Private
Commercial Banks (PCBs) have made the maximum contribution, utilizing 219.70 million
taka (84.86%), while State-Owned Commercial Banks (SCBs) and Specialized
Development Banks have utilized only 9.5% and 0%, respectively.

Table: CSR activities for green event / project

5
• Online, Internet & Mobile Banking:
The online banking service is growing steadily, accompanied by the expansion of the
number of branches offering online coverage and the availability of accounts equipped with
internet and SMS banking.

Table: Online, Internet and Mobile Banking activities of Green Banking

The outlook for online banking appears highly optimistic. Specifically, 41.05% of the total
8392 branches are now equipped with online banking services. Among these, 37 banks,
predominantly private and foreign commercial banks, have achieved full automation,
ensuring online banking services across all their branches. Notably, 92.24% of the branches
belonging to Private Commercial Banks (PCBs) are now covered by online banking. On
the other hand, 5.08% of branches from State-Owned Commercial Banks (SCBs) and
5.28% of branches from Specialized Development Banks have also been brought under
online banking coverage.

• Branches/ SME/ATM units powered by Solar Energy:

Currently, solar energy is utilized to power 214 branches across 26 banks. Specifically, 23
branches of Islami, 16 branches of both Sonali and Al-Arafah, and 14 branches of
Mercantile Bank Ltd. operate using solar energy. In addition, 161 Small and Medium-sized
Enterprises (SME) and Automated Teller Machine (ATM) units belonging to 9 banks are
powered by solar energy. BRAC Bank, in particular, has 131 SME/ATM units operating
with solar energy. Other banks, including Sonali, AB, Prime, Mutual Trust, Islami,
Standard Chartered, HSBC, and Bank Al-Falah, also have SME/ATM units powered by
solar energy.

Table: Solar Energy Activities in financing activities

6
Briefly major Green Banking Activities:
• Green Banking units have been established in 47 banks.
• A Green Office Guide has been introduced by all 47 banks.
• Environmental Risk Rating (EnvRR) has been conducted for 12,088 projects.
• Financing has been provided for 11,165 rated projects.
• A total disbursement of 703,633.21 million taka has been made.
• Solar energy powers 214 branches and 161 ATM/SME unit offices.
• Fully automated systems are in place for 37 banks.
• Online coverage has been extended to 3,445 branches.
• A sum of 270,921.53 million taka has been disbursed as green finance.
• Climate risk fund utilization amounts to 258.89 million taka.
• Green marketing, training, and development initiatives have utilized 90.42 million taka.

7
Sustainability of Green banking in Bangladesh:
Seven banks and four non-bank financial institutions have achieved positions in the Sustainable
Rating for the year 2022, which was recently disclosed by the Bangladesh Bank. This rating is
determined for the country's banks and financial institutions, considering four key indicators.
Banks are graded based on their total green banking activity, based on various criteria, including
Environmental Risk Rating (EnvRR), green finance, CSR activities for green events or projects,
green marketing, training and development, in-house green activities, online banking, and other
green banking activities. The top ten banks were graded based on their green banking operations
in 2012 and statistics from the last quarter of 2012.

Figure: Sustainability ranking in banks 2022

Brac Bank leads the list of banks in the most recent Sustainable Rating, followed by Jamuna Bank,
Prime Bank, Shahjalal Islami Bank, City Bank, Trust Bank, and the United Commercial
Bank.Seven banks and four non-bank financial firms have secured spots in the Bangladesh Bank's
Sustainable Rating for 2022, which was issued yesterday and is based on four parameters.

8
Limitations of Green Banking in Bangladesh:
Green banking encounters certain constraints. The following limitations are:
• The challenge of transitioning beyond the pilot phase and slow overall progress persists.
• Insufficient capacity and a lack of capacity building across financial institutions (FIs) and
Green Banking (GB) stakeholders are notable hurdles.
• Banks struggle to meet the requirement of maintaining 5% of the total loan portfolio for
direct green financing.
• The absence of sector-specific environmental guidelines for financing poses a significant
limitation.
• Formulating appropriate policies, such as sector divisions aligned with hazards or
environmental risks, is challenging due to potential resistance from powerful corporate
bodies.
• There is inadequate compensation for the positive externalities of Green Projects and
insufficient penalties for the negative externalities of such projects.
• Among the 52 sectors identified by Bangladesh Bank as eligible for direct green financing,
many lack the infrastructural strength necessary for investment.
• Despite Bangladesh Bank's directive in Green Banking guidelines, only 31 out of the 56
scheduled banks in the country have published Sustainability Reports in line with the
Global Reporting Initiative (GRI) format.
• Poor application of green financing policies is observed among banks, with instances of
loan officers rushing to provide green loans primarily for auditing purposes.
• Lack of coordination among concerned agencies hampers effective implementation.
• Mid-level and small-level factories exhibit reluctance toward adopting Green Banking
practices.
• The introduction of Green Industry is delayed, and the relocation of Red industries to
appropriate locations is not occurring.
• The absence of proper monitoring and regulations by Bangladesh Bank over financial
institutions adds to the challenges in implementing Green Banking effectively.
• Insufficient comprehension of the arrangements in Global Climate Financing.
• Governmental delays in identifying National Implementing Entities (NIEs) for accrediting
the Green Climate Fund (GCF).
• A poor track record of local agencies in designing, implementing, and monitoring projects.
• Excessive reliance on Multilateral Implementing Entities (MIE), such as the World Bank,
UN, and UNEP, for presenting claims to climate financing forums.
• Limited internal capacity to formulate robust project proposals.
• Inability to effectively utilize funds and complete projects within specified timelines.
• Funding agencies lack confidence in Bangladesh's capability to manage projects.
• Procrastination in submitting applications to secure climate funds.

9
Findings and Recommendations:
In recent years, Bangladesh has witnessed a notably positive and consistent advancement in Green
Banking and Green Financing. According to Sifat Monzur from IDCOL, Green Banking has
experienced remarkable growth in the country over the last 2-3 years.
The use of digital marketing has played a crucial role in enhancing awareness of Green Banking
initiatives, especially among the younger generation who increasingly prefer online and mobile
banking. The government's support has strengthened, evident in the successful relocation of
industries like the Tannery Industry to Savar, marking a significant achievement. Currently, the
Government of Bangladesh is actively working on establishing numerous economic zones.
Commercial banks are now gaining a better understanding of the concept and significance of Green
Financing, with an increasing number of personnel undergoing training in Green Banking
practices. Overall, the outlook for Green Banking appears promising; however, there are still areas
in which Bangladesh can further enhance its efforts and initiatives.
1. Develop a strategy to integrate SMEs into Green Banking.
2. Introduce the practice of Green Accounting.
3. Implement an analytical and numerical framework for companies to assess environmental
impacts.
4. Enforce sector-specific policies and consider expanding the scope of green products to include
new sectors such as Manufacturing, Transport, Urban Building Construction, Housing, and Clean
Power Generation.
5. Establish a dedicated unit for Green Finance within the Ministry of Finance.
6. Create a separate body to handle credit risk for medium and small-scale customers.
7. Prioritize capacity building to enhance eligibility for grants under the Green Climate Fund and
improve the professional handling of grants and Green Projects.
8. Provide financing and technical assistance to financial institutions (FIs) for adopting technology.
9. Extend the tenure of loans provided in the Green Refinance Scheme to 10 years to accommodate
the slow returns in Green Projects.
10. Adjust the target for direct green finance disbursement as a percentage of total term loans
disbursed rather than the total loan disbursed.
11. Focus on venture capitalists to finance green projects.
12. Incorporate successful models like Agent Banking and Micro Finance into Green Banking.
13. Establish a coalition scheme among banks to reduce high transaction costs for small green
entrepreneurs.

10
14. Enforce stricter monitoring of Green Banking activities by Bangladesh Bank (BB), requiring
every bank and FI to publish an annual sustainability report.
15. Introduce Green Banking products such as Green Bonds and Green Savings Accounts,
providing an avenue for the general public to participate in Green Banking.
16. Promote green buildings in the corporate sector with low-cost financing.
17. Regularly publish the names of top-performing Banks and FIs.
18. Encourage stock exchanges to adopt green and sustainable practices.
19. Require banks and financial institutions to publish an annual list of non-performing loans for
environmental reasons to quantify the financial implications of environmental risks.
20. Incorporate the concept of Sustainable Finance into the curriculum for business students.
21. Handle and maintain sophisticated data related to Green Banking, considering the creation of
an online databank.

Conclusion:
Gradually but consistently, Bangladesh's economy is on the upswing, marked by a gradual increase
in GDP and exports. Recently, Bangladesh achieved the significant milestone of transitioning from
a Least Developed Country (LDC) to a Developing Country. This juncture presents an opportune
moment for Bangladesh to flourish in the realm of Green Banking, as greening the financial sector
holds long-term implications for achieving the Sustainable Development Goals (SDGs). For a
nation like Bangladesh, Green Banking represents a crucial step in the pursuit of SDGs. Notably,
Bangladesh Bank stands out as one of the few central banks globally to proactively adopt Green
Banking as a policy. As a member of the Sustainability Banking Network (SBN), Bangladesh Bank
has set an exemplary standard in the field of Green Banking, reflecting the government's
commitment to environmental concerns and encouraging the private sector to contribute to
environmental conservation. Despite facing significant challenges, Bangladesh has performed
commendably in Green Banking activities. With increased scrutiny and regulatory measures,
Green Banking in Bangladesh has the potential to advance even further in the upcoming period.

11
References:
1. Banking and Finance. (n.d.). Google Books.
https://books.google.com.bd/books?hl=en&lr=&id=SpYtEAAAQBAJ&oi=fnd&p
g=PA91&dq=green+banking+objectives&ots=Vbkmhn60bY&sig=cX02lH9z2M
XBQkBk_o3ufih3nwc&redir_esc=y#v=onepage&q=green%20banking%20object
ives&f=false

2. Bangladesh Bank. (n.d.).

https://www.bb.org.bd/en/index.php/financialactivity/bankfi

3. Islam, S (2013). Green Banking practices in Bangladesh

GreenBankingPracticesinBangladeshL_3.pdf

4. Morshed Millat,K. (n.d.). Green Banking in Bangladesh Fostering Environmentally

Sustainable Inclusive Growth Process greenbankingbd.pdf

5. Prince, S. (2023, August 3). Seven banks receive cenbank’s sustainability rating for
2022. The Business Standard. https://www.tbsnews.net/economy/banking/seven-
banks-receive-cenbanks-sustainability-rating-2022-676610

12