Designing a sustainable financial system

Dr. Atiur Rahman
Governor, Bangladesh Bank :
The central bank of Bangladesh strongly believes that conventional short term business cycle focused monetary and financial policies do not address the longer term needs of inclusivity and sustainability. Rather, the directionless pumping of liquidity by the name of quantitative easing (QE) contributes little in sustaining growth while only heightening the instability risks, as a very little of these reaches to the growth generating startups and SME businesses in the real economy. For some years now, Bangladesh Bank has therefore stepped up to impart a deliberate directional bias channeling financial flows towards inclusive financing of environmentally sustainable domestic demand driven output initiatives.
Environmentally sustainable approaches targeting rapid poverty alleviation by opening up advancement opportunities for the unserved and under-served are our policy priorities in promoting a socially responsible, inclusive, and sustainable financing agenda. Bangladesh Bank’s financing strategy rests on ensuring adequate credit facilities for four thrust areas of agriculture; micro, small and medium enterprises (MSMEs); ‘green’ output options; and digital inclusion. Stimulating rural demand and empowering women also bear significant importance in our financing strategy.
Another element of Bangladesh Bank’s initiative of mainstreaming socially responsible inclusive financing is the promotion of financial sector’s CSR engagements in community development.
Accordingly, Bangladesh Bank has directed all banks and non-bank financial institutions to allocate at least 10 percent of their CSR funds in the climate risk prone areas. Refinance windows available at Bangladesh Bank provide low cost credit facilities for environmentally benign ‘green’ output options. Idle cash surpluses of Shariah based banks and financial institutions have also been inducted into new refinance lines to support SME and green financing. A USD 200 million longer term fund from Bangladesh Bank’s own resources is being lined up to support green transition of our export oriented textile and leather sectors. Bangladesh Bank is also among the few central banks that are pioneering environmental risk rating of financing proposals by the lenders.
For ingraining the ‘green’ or sustainability into agriculture, Bangladesh Bank has taken diverse policy and funding initiatives to promote sustainable agriculture. Channeling refinance to solar irrigation pump, vermicompost, bio-fertilizer, bio-gas, organic farming, saline, draught and flood resistant seed varieties, roof-top gardening; granting fund from CSR to conservation of wild life, forestation of coastal region, natural crop-reservoir (cold-storage) have really brought the financial sector to line up agricultural financing with ‘green’ practices.
Over the past few years, Bangladesh Bank has been proactively undertaking necessary enablement initiatives for the banking sector including a countrywide massive modernization of the payments system and financial sector IT infrastructure, with launching of Bangladesh Automated Clearing House (BACH), Bangladesh Electronic Fund Transfer Network (BEFTN), National Payment Switch (NPS), NID-based e-KYC, and most recently, Real Time Gross Settlement (RTGS). Outcomes of these initiatives are quite heartening. Bangladesh is on a steady spell of 6%+ real GDP growth for well over a decade now, with downward edging single digit inflation, massive inflows of workers’ remittances, rapid poverty alleviation, and impressive trends of social indicators.
Looking forward, we need to take a number of important measures to ensure a sustainable financial system in Bangladesh. The guideline and practice of environmental risk management should be continuously reviewed and strengthened accordingly. We are also focusing on greening the SME Credit Policy, and ensuring adequate financing facilities for alternative power generation options. These initiatives would be complementary to the real economy measures such as environmental regulations and fossil fuel subsidy reform.
I would like to conclude here with a quote from the recently launched report on ‘Designing a Sustainable Financial System in Bangladesh’ by the United Nations- ‘there are opportunities to go further and accelerate progress to generate a vibrant green finance sector in Bangladesh. These ideas could be developed into a roadmap with leadership and involvement’.