Green finance expanded rapidly in 2025, but only 7.84 per cent of outstanding lending backed renewable energy as short loan terms, collateral rules and slow approvals deterred projects.

Bangladesh’s green lending has expanded more than fourfold in four years, but renewable energy remains a small part of the portfolio even as the government sets ambitious clean-power targets and fuel-import risks intensify.

Banks and finance companies disbursed Tk30,369.26 crore in green finance in 2025, compared with Tk7,232.85 crore in 2021, according to Bangladesh Bank’s quarterly sustainable-finance review. Green finance rose from 3.06 per cent of term-loan disbursement to 13.77 per cent over the same period.

The growth suggests that environmental lending is moving into the mainstream. But the composition shows that money labelled green does not necessarily build new clean-electricity capacity.

Outstanding green finance stood at Tk77,140.22 crore at the end of 2025. Renewable energy accounted for Tk6,045.37 crore, or 7.84 per cent. Energy and resource efficiency received Tk31,931.42 crore, equal to 41.4 per cent, while green or environment-friendly establishments received Tk16,529.70 crore, or 21.4 per cent.

Efficiency upgrades and greener buildings are valuable. A factory that uses less electricity, water or raw material can reduce costs and emissions quickly. The concern is balance: banks can expand green portfolios substantially without financing the generation assets needed to reduce dependence on imported fossil fuels.

The difference between annual disbursement and outstanding loans is also important. The Tk30,369.26 crore figure measures the flow of new green finance during 2025. The Tk77,140.22 crore figure is the stock of loans remaining at year-end. Bangladesh Bank set a 2025 green-finance disbursement target of Tk67,820.83 crore, but actual lending reached only 44.78 per cent of that target.

The energy gap sits beside a much larger policy promise. The Renewable Energy Policy 2025 calls for renewable sources to meet 20 per cent of electricity demand by 2030 and 30 per cent by 2040. The Sustainable and Renewable Energy Development Authority’s database recorded about 1,822 megawatts of installed renewable capacity in early August 2026, including about 1,529MW of solar, 230MW of hydropower and 62MW of wind.

That installed base remains far below the capacity required within four years. The Institute for Energy Economics and Financial Analysis has estimated that Bangladesh may need between $933 million and $980 million in renewable investment every year through 2030. Average annual investment between 2018 and 2023 was about $238 million.

Reaching the policy goal would therefore require financing to rise to roughly four times its recent level. The central bank data show that the current system is not yet delivering that scale.

One reason is that lenders often prefer projects that resemble conventional industrial loans. An efficient machine installed inside a profitable factory offers quick savings, familiar collateral and a borrower with an established balance sheet. A solar project can require a longer repayment period, a grid connection, performance estimates and confidence that electricity will be purchased over many years.

Local loan terms are frequently too short for the economic life of renewable assets. IEEFA found that utility-scale projects may need about 20 years to recover initial investment, while ordinary lending for smaller projects can be limited to around five years. Concessional green-refinance facilities may offer up to 10 years, but even that can leave annual repayments too high for some projects.

Collateral requirements create another obstacle. Solar developers operating under an operational-expenditure model finance and install equipment on a customer’s roof, then recover the investment through electricity sales. Their strongest asset may be the project’s contracted cash flow. Traditional lenders may instead demand land, a full bank guarantee or security based mainly on the sponsor’s balance sheet.

That approach can exclude capable engineering firms and small developers even when the electricity savings are predictable. It also limits the ability of schools, hospitals, universities and factories to obtain solar power without paying the full installation cost upfront.

Bangladesh has refinance tools on paper. The central bank’s revolving scheme for environment-friendly products and projects was expanded to Tk1,000 crore in 2023 and covers 70 eligible areas, including rooftop solar, solar-home systems and biogas. Participating institutions can obtain low-cost refinance after lending to eligible borrowers.

The sequence is a problem. A bank must first assess and disburse the loan using its own funds and risk appetite, then apply to Bangladesh Bank for refinance. Projects requiring a trial run may have to complete that stage before the lender can seek the cheaper money. A mechanism intended to lower costs therefore does not remove the initial credit barrier.

Use of the scheme remains modest. In the final quarter of 2025, it disbursed Tk9.66 crore across 42 projects. Net-metered rooftop solar received Tk0.99 crore and solar-home systems received Tk0.03 crore. The cumulative amount disbursed since the scheme began in 2009 was Tk1,792.20 crore, reflecting recycled funds but still illustrating the small channel relative to national needs.

Participation is uneven across the financial system. Only 40 of 61 scheduled banks and 10 of 34 finance companies reported green-finance exposure in the October-December 2025 quarter. Wider sustainable finance, which also includes agriculture, small businesses and social lending, involved more institutions. The broad category makes compliance easier but can hide a weak pipeline of climate-critical energy projects.

Lenders also face legitimate risks. Utility-scale solar and wind projects depend on clear contracts, land, grid readiness and a buyer able to pay. Currency depreciation raises the cost of foreign debt when revenue is earned in taka. Policy changes, equipment performance and delayed approvals can undermine project economics.

Those risks are not proof that renewable lending cannot work. A World Bank-supported renewable-energy project in Bangladesh financed 44 rooftop systems and two utility-scale solar plants, helped support 338.15MW of capacity and mobilised $101 million in private capital. Its financing portfolio reported no loans at risk at completion, according to the project’s implementation report.

The experience points to reforms that can move risk without pretending it does not exist. Bangladesh needs a dedicated renewable-energy window with technical appraisal capacity, longer loan tenures and a single-stage route to concessional funds. A partial credit guarantee could help lenders consider project cash flow instead of demanding only conventional collateral.

The government can reduce non-financial uncertainty by standardising rooftop and power-purchase contracts, publishing grid-connection timelines and enforcing equipment and installer standards. Regulators should report applications, approvals, rejection reasons, loan terms, technology, district and installed capacity. A lender that repeatedly delays viable projects without deciding should not disappear inside an aggregate green total.

Bangladesh Bank should also separate renewable-energy performance from the broader green-finance headline. The public needs to see not only how much green credit was reported, but how many solar, wind, storage and clean-irrigation projects reached financial close and began operating.

The central contradiction is now clear. Bangladesh has targets, a taxonomy, refinance schemes, net-metering rules and an expanding green-finance portfolio. Yet renewable energy still receives less than one taka in every 12 taka of outstanding green lending.

If finance continues to favour the quickest and most familiar green categories, the country may improve its reporting while missing its energy transition. If loan structure, guarantees, technical capacity and approvals are aligned, the same banking system can turn policy targets into equipment on roofs, farms and the national grid.