Bangladesh’s green financing drive is failing small manufacturers as delays, strict rules and alleged favoritism slow access to funds vital for cleaner industry and export competitiveness amid global climate pressure.
Bangladesh’s flagship green financing programme is struggling to support small and medium entrepreneurs despite strong demand as bureaucratic delays strict compliance rules and allegations of political favouritism continue to limit access to funds meant for environmentally sustainable industrial transformation.
Experts warn that unless financing access improves and accountability is strengthened Bangladesh’s transition toward sustainable industry could face major setbacks at a time when global markets are increasingly demanding greener production standards.
Bangladesh is currently standing at a critical turning point as it seeks to transform its industrial sector to meet growing climate and economic challenges. Policy leaders and industry experts say industrial transition is no longer optional but essential to ensure sustainable growth protect workers and maintain export competitiveness.
Rapid industrial expansion has played a major role in Bangladesh’s economic success particularly through the garment textile brick kiln and manufacturing sectors. However these industries also remain among the largest contributors to pollution greenhouse gas emissions and environmental degradation. With international buyers placing greater emphasis on sustainable supply chains pressure is mounting on Bangladesh to modernise its industrial base.
Fund launched to promote green industry
To support this transition Bangladesh Bank introduced the Green Transformation Fund in January 2016 as a 200 million US dollar refinancing facility designed to promote environmentally sustainable growth in export oriented textile and leather industries.
The fund was expanded in 2019 to cover all manufacturing exporters seeking to import green technology and machinery. The programme was further strengthened with an additional 200 million euros allocation and a separate Tk 5,000 crore domestic refinancing facility introduced in 2022.
Under the scheme commercial banks provide loans to eligible factories and later receive reimbursement from the central bank.
Bangladesh Bank data shows that 30 banks signed participation agreements for the dollar component while 26 banks joined the euro component. However only 15 banks have disbursed funds so far.
More than 60 factories received 140.94 million US dollars and 71.21 million euros reflecting 70 percent utilisation of the dollar component but only 36 percent utilisation of the euro fund. From the Tk 5,000 crore local currency component Tk 1,832 crore was disbursed to 68 clients through 20 banks as of June last year.
Complex procedures slow disbursement
Bankers say stricter compliance requirements and equity conditions are discouraging businesses particularly small and medium sized manufacturers.
Mercantile Bank has disbursed 8.9 million US dollars and 0.6 million euros to five recipients under the programme. A senior bank official said procedures have gradually become more complicated.
“Earlier funds were disbursed directly in foreign currency which was easier. Now borrowers must provide at least 30 percent equity while banks finance up to 70 percent. Many factories cannot arrange the required equity and environmental certification compliance also remains challenging” the official said.
Two years ago Humayun Kabir Salim managing director of Khantex Composite Textiles Ltd planned to install a one megawatt rooftop solar power system at his Dhaka based factory. The project was expected to generate enough electricity annually to power around 200 households while significantly reducing factory energy costs.
The project required an investment of Tk 6 crore roughly 550,000 US dollars. Despite policy support and available technology Salim failed to secure financing under the country’s green funding schemes.
He said he approached four to five banks and financial institutions but faced repeated delays due to documentation and compliance requirements.
“There was no outright rejection but the process kept getting delayed with repeated documentation requirements. Such prolonged delays discourage entrepreneurs from pursuing green initiatives” Salim said.
He believes the challenges reflect broader systemic gaps.
“The government has set ambitious renewable energy targets but there is no obligation for banks to finance a fixed portion of green projects or explain why proposals remain pending” he added.
Politically connected firms accessed large loans
While smaller businesses struggled to meet financing requirements several politically connected business groups reportedly accessed large green loans more easily.
Two subsidiaries of S Alam Group Infinia Spinning Mills and Infinia Spinning Mills 2 received 21.36 million US dollars and 3.3 million euros from Social Islami Bank Ltd under the Green Transformation Fund.
Another company linked to the group Unitex LPG Limited owned by Belal Ahmed son in law of the group chairman received 12.6 million euros from Islami Bank Bangladesh PLC in 2021.
Bank officials said these companies have since defaulted and their owners are reportedly abroad leaving banks struggling to recover funds.
A Bangladesh Bank official said a special audit found that the Infinia units alone owe several hundred crores to Social Islami Bank.
“These companies were financially stable earlier but operations collapsed after the 2024 political transition” a senior bank official said adding that attempts are ongoing to sell company assets to recover funds.
Islami Bank Managing Director Omar Faruk acknowledged external influence in previous loan approvals.
“The entire bank used to operate under external influence. There is no way to deny it. Legal steps have been initiated to recover the money” he said.
Experts warn of economic and climate impact
Policy analysts say misuse and underutilisation of green financing are undermining both environmental goals and financial sector stability.
Khondaker Golam Moazzem research director at the Centre for Policy Dialogue described the situation as financial injustice.
“Climate financing remains underutilised despite strong demand from small and medium enterprises. At the same time loan defaults are increasing pressure on the banking sector” he said.
Renewable energy expert M Zakir Hossain Khan said the fund structure requires reform.
“Startup financing without collateral should be introduced for small entrepreneurs. Clear approval timelines must be established and at least half of green financing should be reserved for SMEs with a portion allocated for innovation” he said.
Banks bear financial risk
Bangladesh Bank maintains that refinancing repayments by participating banks are continuing and does not officially acknowledge a default crisis. However officials involved in the programme said commercial banks ultimately bear financial losses when borrowers fail to repay loans.
Professor Shah Md Ahsan Habib of the Bangladesh Institute of Bank Management said both entrepreneurs and banks face structural challenges.
“Many entrepreneurs do not yet see a strong business case for green investment while banks remain cautious due to uncertain risk patterns. Simplified procedures and stronger incentives are necessary to accelerate industrial transition” he said.
Industry transition remains essential
Environment Forest and Climate Change Adviser Syeda Rizwana Hasan said Bangladesh is reaching the limits of its capacity to cope with climate impacts and must accelerate industrial transformation.
“While sustainability is widely discussed it often lacks proper definition and criteria which increases the risk of greenwashing instead of ensuring justice and equity. This concern is especially critical as Bangladesh prepares to graduate from the least developed country category” she said.
Rizwana stressed that sustainability standards must expand beyond the energy sector.
“Every sector including textiles agriculture and manufacturing must have clear guidelines and standards so the entire country moves forward together” she said.
Industry experts believe transitioning toward green industrial practices can reduce emissions create employment opportunities and improve workplace safety particularly for young workers and women.
Economists say global buyers are already shifting toward suppliers that follow environmental and social compliance standards. Failure to adapt could reduce Bangladesh’s export opportunities especially in the garment sector which contributes more than eighty percent of export earnings.
Bangladesh already hosts some of the world’s highest rated green garment factories. However smaller and informal factories continue to face financial and technical barriers in adopting green technologies.
Industry leaders emphasised that financial investment technology transfer and worker capacity development remain essential to ensure successful industrial transformation.
Youth climate advocate and Executive Coordinator of YouthNet Global Sohanur Rahman said the future of Bangladesh’s industrial sector depends on integrating sustainability into economic planning.
“Young people are ready to support industry transformation with innovation and climate conscious solutions. If we invest in youth skills and green entrepreneurship Bangladesh can become a global leader in sustainable manufacturing” he said.
Experts added that industrial transition could significantly reduce air and water pollution in major industrial zones improving public health and environmental conditions for surrounding communities.
Government officials said Bangladesh has already incorporated just transition principles into national climate and development strategies. However implementation continues to face challenges due to resource limitations and coordination gaps between sectors.
Entrepreneurs like Salim remain hopeful but cautious.
“Green transformation requires practical support not just policy announcements. Otherwise many entrepreneurs will lose interest before projects even begin” he said.
