* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.
Largely unnoticed until recently, Bangladesh has been taking major steps in aligning green growth with economic progress.
A few weeks ago I had the chance to interview the Governor of Bangladesh’s Central Bank, Atiur Rahman. He was recently awarded the regional 'Central Banker of the Year’ Award from The Banker, a Financial Times publication, in recognition of his work.
Green banking refers to promoting green practices in the bank as well in as how money is invested. In Bangladesh, not only does the Central Bank have solar panels on its roof, it is also encouraging the spread of renewable energy around the whole country.
Bangladesh is identified as one of the most vulnerable countries to climate change. Rahman argued Bangladesh will be “on morally a higher ground” by being proactive in this regard with its own resources.
Bangladesh's growth has risen from 5 percent in 2009 to over 6 percent projected in 2014-5, in spite of recent political strikes. As noted by economist Amartya Sen, Bangladesh has gone ahead of neighbouring India on several development indicators, including reducing child mortality.
Bangladesh shows social and environmental goals do not have to conflict with growth - they can and should align.
As head of the Central Bank, Rahman set targets for direct green financing – with a target of 5 percent of all loans to be for financing environmentally friendly products. So far, 47 green products have been identified.
The Central Bank also issued policy guidelines on green banking to all scheduled banks. All 47 banks now have their own Green Banking Unit (GBU) and have had green banking policy guidelines approved.
Bangladesh is particularly dependent on its ‘natural capital’ – around 60 percent of the population work in agriculture, and it is also home to the world’s largest mangrove forest, the Sunderbans, which offers protection from regular cyclones.
Environmental Risk Management guidelines were made mandatory in the financial sector in 2011. These guidelines include a due diligence checklist for sectors such as engineering, chemicals, housing, and pulp and paper. Money-saving green activities have also been promoted within the banks themselves, like use of LED bulbs.
Growing Markets in Renewable Energy
Bangladesh’s progress in microfinance is well known. But the application in Green Banking has been a new innovation. Many homes in off-grid areas have used microfinance loans to install solar panels.
Bangladesh is home to one of the fastest-growing solar home industries in the world. IDCOL, a government-owned intermediary, with support from the World Bank, has installed more than 3 million solar home systems. This has been enabled access to energy.
Around 13 million people are now getting solar electricity - around 9 percent of the population. Another 3 million more are set to be installed over the next few years and the market is growing.
In my interviews in Bangladesh last month I found that, in many places, solar energy has saved people money compared to using kerosene lamps. There are also health benefits - using solar electricity prevents indoor air pollution from burning kerosene.
Electricity allows children to study in the evenings and has supported small businesses, like cottage industries in garments.
In 2009, the Central Bank launched its own 200 billion taka ($25 million) renewable energy re-financing scheme for solar panels, biogas and waste treatment plants, to encourage the growth of these markets.
There could be lessons for other countries in Africa that have huge populations lacking grid access. Rahman has joined an advisory council at the United Nations Environment Programme in its enquiry into the design of a sustainable financial system.
Tackling poverty and financial inclusion
Not only has the Central Bank being successful on green banking, but it has also promoted financial inclusion of the poorest farmers. Rahman argues strongly that financial inclusion and stability are mutually supportive.
Rahman's own life story is an interesting example of social mobility and inclusion, as he worked his way up from being the son of a rural farmer to Governor of the Central Bank.
The Central Bank has introduced bank accounts that can be opened with a deposit of just 10 taka (about 9 British pence), giving millions of poor farmers an opportunity to open up an account. All this has been enabled by the mobile phone revolution in Bangladesh.
These farmers, who have moved from the ‘unbanked’ to the ‘banked’, are now able to take bank loans instead of borrowing from informal moneylenders who charge high interest.
Access to finance can also help rural farmers become more resilient to disasters. As extreme weather events may become more frequent due to climate change, steps like these can help build resilience.
In a world where public faith in bankers has been tarnished by the financial crisis, Rahman’s reforms are rightfully being recognised as a global success story from the world of banking.
