The Asian Development Bank (ADB) has come up with risk guarantee assistance for issuance of green bond in Bangladesh to help mobilise funds from abroad, officials have said.
Before that the government has decided to carry out a feasibility study to see the pros and cons of issuing the bond with ADB's technical assistance, they added.
Both the ADB and the government have agreed that Bangladesh needs to mobilise a large volume of foreign fund to finance the ongoing development activities.
Sources said the financial institutions division (FID) under the ministry of finance at a recent meeting discussed that Bangladesh's financial sector is unable to provide long term finance for development projects.
As a result, they said, implementation of large infrastructure projects is being hampered due to the fund constraints.
The meeting opined that formation of a long term loan market by issuing bonds and long term securities through capital market is now needed as an alternative to loans from the banking sector.
Mobilising fund through issuing corporate bonds will, in one side, help bring stability in the capital market and, on the other side, help reduce risk of liquidity management of banks, they noted.
Sources said the ADB recently forwarded a concept paper to the FID on green bond issuance, stressing the need for issuance of green bond, suitable projects for green bond and, the potential and challenges for issuance of the green bond.
The ADB also offered Bangladesh to help issue green bond with technical assistance and guarantee, and also to help issue bond by state-owned enterprises and the private sector.
A senior finance division official told the FE on Monday that issuance of green bond will depend on the outcome of the feasibility study. "We will soon write to the ADB for launching a feasibility study in this regard," he said.
According to officials, Bangladesh Bank (BB) and International Finance Corporation (IFC) started early this year a joint assessment of green bond opportunities in the country.
A senior central bank official earlier told the FE that there is a substantial potential in foreign investment if a quality green bond is launched in Bangladesh. He said the country's foreign exchange reserves have remained static for last several years.
"If the banks having interest in green financing launch good quality bonds, we believe foreigners will be interested to invest," the BB official said.
He said globally there are various organisations that support sustainable business practice worldwide will be interested to subscribe green bonds in Bangladesh. He named trust funds and endowment funds in this case.
The central bank official also said that local insurance companies, large corporate houses and multinational companies also can be interested to invest in green bonds.
Since there is no bond market in Bangladesh, the joint study team will assess the types of incentives needed to encourage launching green bond in the country, he noted.
Abu Ahmed, honorary professor of the Department of Economics at the University of Dhaka, told the FE earlier that Bangladesh has to stop long-term financing from the banking sector first and launch a bond market in the country.
"If the state-owned banks come with green bonds, I believe both local and foreign investors will subscribe," he said. But the rate of interest must be a bit higher than that of fixed deposit receipt (FDR) in banks, Mr Ahmed argued.
Laying stress on activating the bond market, he said the government should first issue some bonds to evaluate public responses.
Large corporate bodies having considerable reputation as well as private sector banks and financial institutions also can launch bonds, he said, adding that globally the corporate bonds are lucrative.