by Mohammad Syful Hoque
Bangladesh faces a green finance paradox: ambitious sustainability mandates but limited product uptake. Current financial instruments—mainly green loans or refinancing schemes—fail to align with the realities of informal borrowers, SMEs, and underbanked populations. Only 1.4% of private sector credit was classified as green (2023), despite Bangladesh Bank mandates of 5–20%.
This research introduces a Multi-Criteria Innovation Framework combining:
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Borrower preference modeling (via AHP/TOPSIS)
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Behavioral insights (trust, literacy, risk)
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Sandbox simulations for regulatory-safe prototyping
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Comparative analysis (Bangladesh vs Indonesia, Kenya, EU)
Key Findings
Our research highlights several important insights that can guide the development of more effective green financial products in Bangladesh. Borrowers—especially those from small and medium enterprises (SMEs) and informal sectors—consistently expressed concern over high interest rates, strict collateral requirements, and complicated documentation processes. These barriers discourage participation in current green loan schemes.
At the same time, the study revealed untapped demand for more flexible, mobile-based green financing options. For instance, nearly half of all surveyed borrowers said they would prefer to access green finance through mobile channels such as bKash or Nagad, rather than through traditional banks. In sandbox simulations, removing the requirement for land deeds or physical collateral increased the likelihood of loan adoption by 22%, showing how small design changes can lead to significant improvements in uptake.
Gender also plays a key role. Women-led enterprises were particularly drawn to products that offered flexible terms without the need for land-based collateral—highlighting the need to design financial tools that reflect the realities of ownership and access to assets. Digital access emerged as a cross-cutting priority, reinforcing the potential of fintech platforms in scaling green finance inclusively.
Recommended Actions
To meet this demand and unlock greater impact, the study suggests three priority areas:
1. Product-Level Innovation:
Policymakers and financial institutions should prioritize the development of diverse and accessible green financial tools. This includes Sustainability-Linked Bonds (SLBs) for SMEs, clean cooking loans for low-income households, and microcredit products linked to environmental goals. Embedding features such as carbon credit rebates or clear environmental performance indicators (KPIs) can increase both the credibility and appeal of these products. Just as importantly, these products must be designed for mobile-first delivery, ensuring ease of access for underserved borrowers.
2. Institutional and Regulatory Support:
A major recommendation is to establish a Green Finance Sandbox under the oversight of the Bangladesh Bank. This would allow for the safe testing and refinement of innovative products before national roll-out. Alongside this, developing sector-specific green taxonomies and robust KPI frameworks will help align public and private actors on what qualifies as “green.” Lastly, banks and non-bank financial institutions (NBFIs) must receive training and tools to evaluate ESG (Environmental, Social, Governance) criteria and better understand borrower behavior.
3. Role of Development Partners:
Development partners can play a critical role in bringing this vision to life. By co-financing pilot initiatives within the regulatory sandbox and supporting blended finance models, they can reduce risk for financial institutions and accelerate innovation. They can also support local institutions with decision-making tools (such as MCDM) and user-centered design research to ensure products truly meet borrower needs. Finally, successful products tested in Bangladesh could be scaled across other transition economies, creating broader regional impact.
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