Bangladesh’s green-finance portfolio has expanded rapidly, but lending patterns remain heavily weighted towards industrial efficiency projects, raising questions over whether current financial instruments can support the country’s renewable-energy ambitions.
Bangladesh’s green-finance market is growing, but its lending architecture still favors quick-payback industrial upgrades over the long-tenor capital needed to build renewable power.
Bangladesh has built a vocabulary of green banking faster than it has built a renewable-energy lending market. The country now has sustainable-finance targets, taxonomies, climate-risk rules and several refinance windows. Yet the newest sectoral ledger shows that banks and finance companies still direct far more credit towards cutting energy use inside existing businesses than towards adding solar, wind and other renewable generation.
At 31 December 2025, outstanding loans for energy and resource efficiency stood at Tk31,931.42 crore, compared with Tk6,045.37 crore for renewable energy. In other words, the efficiency book was 5.28 times larger. During the final quarter of 2025, the divergence was sharper: Tk3,453.76 crore was disbursed for efficiency, against Tk352.60 crore for renewables—a ratio of about 9.8 to one. These figures come from the Bangladesh Bank quarterly sustainable-finance review, the latest full sectoral account available for 2025.
The imbalance is not evidence that efficiency lending is misplaced. Efficient boilers, motors, cooling systems, production lines, and buildings can quickly reduce fuel use, improve industrial competitiveness, and limit pressure on the grid. The problem is one of scale and composition: efficiency can lower demand, but it cannot by itself replace the fossil-fuelled electricity that still dominates Bangladesh’s power system.
That distinction matters because the Renewable Energy Policy 2025 aims for renewables to supply 20 per cent of electricity by 2030 and 30 per cent by 2040. Meeting an electricity-share target requires operating assets, grid connections and long-term capital—not only more efficient consumption. The banking data therefore expose a financing paradox at the centre of the energy transition: the projects that lenders find easiest to approve are not necessarily the projects that the national power mix most urgently needs.
The imbalance, in plain numbers
Green finance disbursements have expanded significantly over the past five years. Bangladesh Bank records Tk30,369.26 crore of green-finance disbursement in 2025, more than four times the Tk7,232.85 crore recorded in 2021. But the annual total was slightly below the Tk30,653.78 crore disbursed in 2024, and it achieved only 44.78 per cent of the 2025 target of Tk67,820.83 crore. The direction of travel is positive; the pace remains well short of the regulator’s own benchmark.
The year-end stock tells an equally important story. Total outstanding green finance reached Tk77,140.22 crore. Energy and resource efficiency accounted for 41.40 per cent of that portfolio; renewable energy accounted for 7.84 per cent. Green or environment-friendly establishments held Tk16,529.70 crore, while liquid-waste management held Tk6,412.28 crore. A rapidly growing green portfolio is therefore not automatically a rapidly growing renewable-energy portfolio.
Participation is also uneven. In the October–December 2025 quarter, 40 of 61 banks and 10 of 34 finance companies reported some exposure to green finance. Banks disbursed Tk5,990.83 crore and finance companies Tk989.87 crore, producing a quarterly total of Tk6,980.70 crore. The number of institutions with exposure is meaningful, but it also shows that a sizeable part of the regulated financial system had no recorded green-finance activity during the quarter.
Green finance itself was only 8 per cent of the broader sustainable-finance mix in the quarter. Other sustainable-linked finance represented 35 per cent, sustainable micro, small and medium enterprise finance 33 per cent, sustainable agriculture 13 per cent and socially responsible finance 11 per cent. Those categories support legitimate development goals, but their size can make a headline sustainable-finance total look more directly aligned with decarbonisation than the underlying sector allocation really is.
What the power data actually show
Power-sector statistics require careful handling because Bangladesh’s agencies publish different measures. A utility installed-capacity series may exclude off-grid systems or captive generation; a national renewable database may include them. Installed megawatts are also not the same as electricity generated over a year. A solar plant’s capacity is available only when the resource is available, while a fuel-based plant may also sit idle because of fuel shortages, maintenance or dispatch decisions. Capacity share, generation share and peak contribution should not be used as if they describe the same thing.
The government’s Energy Scenario of Bangladesh 2024–25, drawing on BPDB’s annual data, reported 27,414MW of installed capacity at 30 June 2025. Natural gas supplied 11,794MW, or 43.02 per cent; coal 5,683MW, or 20.73 per cent; furnace oil 5,641MW, or 20.58 per cent; and imports 2,696MW, or 9.83 per cent. Renewable energy excluding the separately listed 230MW of hydropower was 764MW, or 2.79 per cent. The original manuscript’s furnace-oil figure of 6,641MW was a transcription error; 5,641MW is the official figure.
The system expanded again after that reporting date. An IEEFA review published in May 2026 put installed generation capacity at 28,919MW as of February 2026, with derated capacity of 28,494MW, against a highest peak demand of 17,200MW. The gap between nameplate capacity and usable output is a reminder that simply adding capacity does not ensure reliable supply; fuel availability, grid readiness, dispatch and plant performance determine what consumers actually receive.
For renewables, the most current broad measure is the SREDA National Database of Renewable Energy, which listed 1,818.86MW of installed renewable capacity on 22 July 2026, combining 1,440.30MW on-grid and 378.56MW off-grid. This wider SREDA total should not be compared mechanically with a narrower BPDB grid series. It does, however, show that renewable deployment is still measured in low single-digit gigawatts while the national policy requires a rapid move into a much larger market.
Recent additions demonstrate that projects can reach scale when finance, land, procurement and grid connections are assembled. The World Bank said in July 2026 that Bangladesh’s Scaling Up Renewable Energy Project added 338MW of clean power to the national grid and mobilised private capital through public–private arrangements. The same update said renewable energy supplied only about 1.5 per cent of national grid electricity—again, a generation measure rather than an installed-capacity measure.
The 2030 and 2040 targets are shares of electricity, not fixed capacity numbers. Converting them into megawatts depends on demand forecasts, reserve margins, technology choices and assumed capacity factors. The Centre for Policy Dialogue’s January 2026 model estimated that Bangladesh would need about 18,202MW of renewable capacity by 2030 and 35,753MW by 2040 under its assumptions. By contrast, IEEFA’s June 2025 scenarios estimated a pathway to roughly 5,831MW by 2030 and 16,506MW by 2040. The large difference reflects methodology, not a simple factual dispute. What both analyses agree on is the need for a steep acceleration from the present base.
Why efficiency is easier to bank
Commercial lenders are not choosing between two abstract climate labels. They are choosing between different cash-flow profiles. An established exporter buying a more efficient production line already has sales, audited accounts, banking relationships, buildings and machinery that can support a credit decision. The saving can be measured against an existing electricity or fuel bill. In many cases, the asset is installed inside a functioning factory and begins reducing operating costs within months.
Renewable projects can look different. Utility-scale solar and wind may require land, licences, grid studies, a power-purchase agreement, construction management and an off-taker able to pay over many years. Imported equipment creates foreign-exchange exposure while project revenue is commonly earned in taka. Rooftop systems are smaller and avoid some land risk, but they can still depend on roof quality, consumption patterns, net-metering administration and the creditworthiness of many dispersed borrowers.
Shafiqul Alam, an energy analyst at IEEFA, said efficiency investments often have payback periods of around three years, helping them fit banks’ normal lending horizons. Renewable projects generally require longer recovery periods and introduce resource variability. Weather dependence is technically manageable, but lenders unfamiliar with generation forecasts may translate it into a higher perceived risk or a demand for more collateral. “Financial institutions often do not have credit profiles for rural people interested in small-scale renewable-energy projects. They consider this group of borrowers risky and show less interest in providing loans,” Alam said.
This helps explain why efficiency fits prevailing bank practice. It is typically a balance-sheet loan to a known company, supported by existing cash flow. Renewable power is more likely to require project finance, where repayment depends on the project’s future revenue and a contract that must remain credible over a decade or more. Bangladesh’s banks have limited experience assessing that package of construction, technology, off-taker, policy and currency risks.
Efficiency should therefore not be framed as the rival of renewables. Bangladesh needs both. Alam warned that without industrial efficiency, electricity demand and dollar-denominated fuel imports would rise faster. The policy failure is allowing the bankability advantage of efficiency to become a permanent substitute for building the financial instruments that renewable generation requires.
Factories see a refinancing design problem
Borrowers say the gap is partly produced by the design of central-bank support. Md Saleuddin Zaman Khan, managing director of NZ Apparels, said businesses can commit to equipment before discovering that low-cost refinance money is unavailable. If Bangladesh Bank cannot reimburse the participating lender after the investment has been made, the borrower may be pushed towards a higher-priced commercial facility. “After we buy a machine, the central bank sometimes says the fund is not available. We then have to go to commercial banks for a high-cost loan, which creates a barrier to renewable-energy growth,” Khan said.
He proposed a pre-approval mechanism that would reserve or confirm refinance support before a business places an order. In his account, the difference between eligible loan sizes also shapes demand. A factory can seek roughly Tk100 crore for a large efficiency machine while support for a rooftop-solar project may be closer to Tk10 crore. The resulting portfolio difference is therefore influenced both by the number of transactions and by the ticket size of each approved investment. “Bangladesh Bank has started giving loans for solar projects in our sector, but there should be a simpler format for receiving finance from the central bank’s refinance scheme,” Khan said.
The pre-approval question is more than an administrative preference. A business ordering imported solar equipment faces exchange-rate and delivery risks. A bank that must fund the loan first also faces liquidity and approval risk. If neither party knows whether the refinance window will be available after installation and trial operation, the nominally cheap facility cannot be treated as committed financing when the investment decision is made.
Low-cost refinance, but a difficult route to it
Bangladesh Bank created its revolving refinance scheme for solar, biogas and effluent-treatment projects in 2009 with Tk200 crore. It later expanded the fund to Tk400 crore and then to Tk1,000 crore in 2023, while increasing the product list to 70 items across 11 categories. Cumulative disbursement reached Tk1,792.20 crore by 31 December 2025. That is a meaningful institutional record, but it remains modest beside the scale of annual investment now required for renewable power.
The price of the money is attractive. Under the Bangladesh Bank participation agreement, the central bank charges participating financial institutions 1 per cent on refinanced funds. A lender may add a margin of up to 4 per cent, placing the customer rate at no more than 5 per cent under the stated arrangement. The agreement also allows syndicated financing and a debt-to-equity ratio of up to 70:30.
The sequencing is less attractive. The participating institution makes the original credit decision, takes collateral, disburses to the customer and retains the repayment risk. For projects requiring a trial run, the agreement says the bank applies for refinance after the trial has been completed against its already disbursed loan. The lender must repay Bangladesh Bank on schedule even if the end borrower does not pay. This protects the central bank, but it also gives commercial banks a reason to favour known borrowers and quick-payback assets.
The fourth-quarter utilisation data make the problem visible. Only Tk9.66 crore was disbursed under the environment-friendly products and initiatives refinance scheme in October–December 2025. Energy-auditor-certified machinery and boilers received Tk7.07 crore; net-metered rooftop solar received Tk0.99 crore; solar home systems received Tk0.03 crore. These are refinance flows rather than the entire green-finance market, but the distribution points in the same direction as the wider loan data.
Other windows are larger but are oriented mainly towards industrial transformation. The local-currency Green Transformation Fund had cumulatively disbursed Tk2,267.49 crore to 82 clients of 24 banks by the end of 2025. The Technology Development or Up-gradation Fund had disbursed Tk1,088.75 crore. Both can support lower-carbon industry, yet neither is a substitute for a purpose-built pipeline of bankable renewable-generation projects.
Central-bank constraints—and the demand it sees
A Bangladesh Bank official, speaking on condition of anonymity, said the central bank receives requests for both efficiency and renewable projects, but industrial demand is concentrated in the apparel sector. Factory owners may want rooftop solar, the official said, yet their immediate capital need is often a production machine costing Tk200–300 crore, compared with about Tk10 crore for a typical rooftop installation. That difference naturally produces a larger efficiency balance even when the number of interested borrowers is similar.
The official also cited land scarcity and food-security concerns as reasons not to favour land-intensive solar projects, and said entrepreneurs sometimes seek Tk500–600 crore for projects too large for the central bank window. According to the official, the scheme cannot finance more than Tk200 crore for a single project. Large central-bank-supported lending would also have to be considered against the monetary-policy objective of containing inflation.
Those constraints are real, but they do not remove the need for renewable finance; they define the instrument required. Utility-scale projects can use competitive procurement, project-company debt, syndication, guarantees and development-finance participation rather than relying on one refinance ceiling. Rooftop systems can use standard contracts, portfolio aggregation and credit enhancement. Agrivoltaics, floating solar and public-land programmes can reduce conflict over agricultural land when projects are selected transparently and assessed site by site.
The national capital requirement is far larger
CPD estimates that reaching its modelled renewable pathway would require US$35.2–42.6 billion through 2040, with a large share needed between 2025 and 2035. Its estimate is higher than some other studies because it uses its own electricity-demand forecast, applies the 20 and 30 per cent policy targets, incorporates a reserve margin and a 25 per cent renewable capacity factor, and models a broader technology mix. CPD’s central message is that capacity expansion, grid investment, policy coherence and fossil-plant retirement must be planned together.
IEEFA’s lower-capacity scenarios still imply a major financing acceleration. It estimated that Bangladesh would need US$933–980 million a year through 2030 and US$1.37–1.46 billion annually from 2031 to 2040. Average renewable investment was only about US$238 million a year during 2018–2023. Even on IEEFA’s more conservative pathway, annual investment therefore needs to rise roughly four to six times above that historical rate.
Zakir Hossain Khan, chief executive of Change Initiative, said the fivefold outstanding-loan gap reflects banks’ risk-return logic: efficiency offers shorter tenors, quicker payback, familiar technology and lower policy and collateral risk. Renewable lending, he said, remains constrained by long project gestation, weak appraisal capacity, regulatory inconsistency, policy reversals, off-taker risk and foreign-exchange exposure. “Existing sustainable-finance policies, refinance schemes and incentives have unintentionally reinforced this bias by rewarding short-term, balance-sheet-friendly efficiency gains rather than patient capital for renewables,” Khan said.
The cost of leaving the bias uncorrected is not confined to emissions. Imported fuels and power place pressure on foreign currency, fiscal accounts and electricity prices. Climate shocks also feed back into the financial system. A Bangladesh Bank working paper published in June 2026 found a statistically significant negative relationship between climate-related variables and its constructed financial-stability index. Green lending is therefore not a charitable side activity; it is part of long-term macroeconomic and financial-risk management.
Seven reforms that would change the lending mix
- Create a dedicated renewable-energy finance window. A ring-fenced facility would stop renewable projects from competing with every other green product for a limited pool. It should publish annual allocations for rooftop, utility-scale, irrigation and other eligible technologies, together with approval and disbursement data.
- Move from reimbursement uncertainty to conditional pre-approval. Bangladesh Bank could reserve refinance funds once a participating lender completes credit appraisal and the project meets technical conditions. Final disbursement could remain linked to installation and verification, but borrowers would know the low-cost facility is committed before ordering equipment.
- Use partial credit guarantees for borrowers without conventional collateral. A guarantee should cover a defined share of principal rather than remove the lender’s responsibility. With banks retaining part of the risk, public or development-partner capital can crowd in lending while preserving credit discipline.
- Match tenor to asset life. Solar panels and wind assets can operate for two decades or more, while a five-year loan produces an unnecessarily high annual repayment burden. Longer-tenor taka finance, combined with realistic grace periods, would make project cash flow—not unrelated property—the primary basis for repayment.
- Standardise contracts and project appraisal. Model power-purchase agreements, rooftop leases, engineering standards, resource assessments and lender due-diligence templates would reduce transaction costs. Training bank teams in project finance is useful only if there is also a credible pipeline of projects with enforceable contracts and grid access.
- Share off-taker, currency and construction risks. Payment-security mechanisms can protect lenders from delayed power-purchaser payments; blended finance can absorb selected early-stage risks; and currency facilities can reduce the mismatch between foreign equipment costs and taka revenue. Risks should be allocated to the institution best able to manage them, not simply passed to the borrower.
- Publish one reconciled energy-finance dashboard. Bangladesh Bank, SREDA, BPDB and the Power Division should identify the scope and date of every metric, distinguish capacity from generation, and connect financial disbursement with projects commissioned. A transparent dashboard would allow policymakers to see whether lending is producing operating renewable assets or merely expanding a labelled portfolio.
These reforms are not a request to divert all green finance away from efficiency. They are a plan to correct a market-design problem. Efficiency can deliver rapid savings and should continue to expand, especially in export industries exposed to energy costs and buyer standards. Renewable generation needs a parallel architecture built for longer lives, project revenue and risks that conventional corporate lending does not capture well.
The real test of Bangladesh’s green-finance push
Bangladesh’s banks are responding rationally to the incentives, information and instruments in front of them. The result is nevertheless misaligned with the country’s power-sector destination. A green taxonomy can classify both an efficient machine and a solar project as beneficial; it cannot ensure that enough capital reaches the category with the greatest deployment gap.
The next phase of policy should therefore be judged by more than the total value of loans carrying a green or sustainable label. The decisive indicators are whether renewable projects can secure long-tenor taka finance, whether central-bank support is predictable before investment, whether guarantees and contracts lower risks that individual banks cannot control, and whether financed projects connect to the grid and generate electricity.
If those conditions improve, banks will not need to be instructed to prefer renewables; more renewable projects will satisfy their credit standards. Until then, the fivefold outstanding-loan gap and the nearly tenfold quarterly disbursement gap will remain more than unusual statistics. They will be a measure of the distance between Bangladesh’s green-finance ambition and the capital structure required to deliver its energy transition.
This story is published as part of the CPRD–TCW Reporting Fellowship 2025
