Markets may have hands but not soul
The key challenge in developing economies is how to nudge the banks beyond short-termism and to serve the medium- to long-term goals of sustainable development, said Atiur Rahman, former governor of Bangladesh Bank.
“Developing economies often have small, rudimentary and bank-based financial system. Financing generally is short-term in nature, with a large presence of state-owned banks and supervisory challenges,” he said.
In today's post-Paris Climate Agreement and UN mandate for financing SDGs, it is imperative that finance reaches the real economy and the base of the pyramid to deliver prosperity for all, poverty for none, and respect for nature, he said.
Rahman spoke at a discussion on sustainable finance in developing countries, in Dubai organised by UNEP and UAE on Tuesday.
“Unfortunately, as we have seen in the past and across the world, financial system or market alone left to its own device may not spontaneously bridge these gaps with its invisible hands and missing markets.”
“We must not forget that markets may have hands but not soul or conscience. That said, we also cannot be naive and blame the markets for the failures in policy gaps.”
“I am happy to share that some policy innovations in countries facing the climate change vulnerabilities are already taking place,” Rahman said.
“In Bangladesh, despite being a victim of climate change not of our own creations, we were already investing our meagre resources to fight back.”
Bangladesh's central bank came out of its conventional narrow shell and has been playing a broader developmental role by ingraining socially responsible, inclusive, and environmentally sustainable ethos in finance, he said.
“Green finance has become imperative. To start with, our priorities have been agriculture, MSMEs enterprises and women entrepreneurs, green businesses and industries for equity and impact consideration.”
Besides greening its own energy supplies, Bangladesh Bank also offered a revolving refinance scheme of Tk 200 crore in 2009 for supporting small and medium scale solar, bio-gas and effluent treatment plants.
Bangladesh Bank expanded the refinance schemes with support from the World Bank and as well as from its own resources, he said.
Supported by ADB, BB established a $50 million “Financing brick kiln efficiency improvement project” as brick kilns are known to be large polluters in South Asia, he said.
At present, there are more than 50 green products in supply. In addition, massive digitisation of the payment and supervisory systems were introduced to make the sector paperless and modernised.
Top 10 performers in green banking are annually awarded by the central bank. Banks are also encouraged to share a part of their CSR fund with green initiatives taken by community based organisations, he said.
Around 40,000 projects received green financing worth $7 billion, mostly through private banks. Solar home systems (SHS), solar assembly plants, biogas, solar irrigation pumps, green bricks, effluent treatment plants, bio-fertiliser have received major share of this fund, he said.
Around 13 million beneficiaries are having off-greed solar energy. The SHS reaching around 4.5 million households replaced 180,000 tonnes of kerosene worth $225 million per year.
Also the programme saved 41,000 tonnes of firewood. Scaling up solar-powered irrigation will save huge amount of foreign exchange now spent on purchase of diesel.
“I strongly feel that greening finance is a journey and not a destination. Much more need to be done in institutionalization, experimentation, and implementation.”
“Central banks cannot do this alone.”
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