Green Finance in Bangladesh: Policies, Institutions, and Challenges | Asian Development Bank

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Green Finance in Bangladesh: Policies, Institutions, and Challenges

Publication | November 2018
Green Finance in Bangladesh: Policies, Institutions, and Challenges

Building the capacity of banks and financial institutions, developing bond and equity markets, and establishing a well-coordinated policy oversight body are key to promoting green finance in Bangladesh.

Despite having great potential for renewable energy (RE) sources, RE comprises a meager 1% share of Bangladesh’s energy portfolio. This poor performance is attributable to the lack of technology, poor regulatory and institutional frameworks, and weak policies and incentives. Though the Bangladesh Bank has formulated green banking guidelines, the lack of capacities of banks and financial institutions, the lack of a proper understanding of the risks and returns of green projects, and the underdeveloped equity and bond markets hamper the expected growth of green projects in Bangladesh. We discuss both the potential for and the impediments to expanding renewable energy projects. As a case study, we analyze various aspects of a successful Solar Home System program implemented by the Infrastructure Development Company Limited (IDCOL) to understand the risks and potential of a renewable energy project. The IDCOL’s solar homes program in Bangladesh is a good example of a public–private partnership in green financing. However, this program is now on the brink of abandonment due to a huge amount owed to customers because of uncoordinated grid electricity expansion, lack of coordination among the respective agencies, the failure of the program’s commercialization, poor financial governance, and the absence of a national policy oversight body. Therefore, building the capacity of banks and financial institutions, developing bond and equity markets, establishing a well-coordinated policy oversight body, and mainstreaming green finance are some of the key issues that Bangladesh needs to address to promote green financing and achieve sustainable development.

WORKING PAPER NO: 892