Financing Solar – Success Story in Bangladesh

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.