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Central Bank of Bangladesh Announces $500 Million Green Fund for Textile Sector

March 31, 2015

Narayan Debnath / DFID

  • The central bank of Bangladesh announced $500 million of low-cost green fund for the textile sector.
  • The fund's timing is critical as the global demand for environmental-friendly goods continues to rise.
  • The World Bank Group is supporting the Partnership for Cleaner Textile (PaCT project) in Bangladesh. IFC is taking a lead role in structuring the green fund.

Bangladesh has the world’s second largest textile industry, generating around $24 billion in 2014 and employing 4 million workers, 80 percent of whom are women. Washing, dyeing, and finishing (WDF) activities are a key pillar of the country’s economy: 1,700 WDF units and 200,000 workers contribute a net value added of up to 20 percent to the textile value chain.

Despite their profitability, WDF factories are the second biggest polluter in the country, consuming an annual 1,500 billion liters of groundwater and relying on inadequate wastewater treatment. Many mills use 250 to 300 liters of water per kilogram of fabric, far beyond the global best practice of 50 liters per kilogram or less.

To help the sector adopt eco-friendly technologies and practices, the Governor of Bangladesh Bank, Atiur Rahman, recently announced the central bank’s plans to earmark $500 million of low-cost “green fund” for textile factories.

Rahman’s announcement follows the recommendations made at a seminar jointly organized by the World Bank Group’s Trade and Competitiveness Global Practice and the Policy Research Institute of Bangladesh (PRI). The seminar is a part of the Partnership for Cleaner Textile (PaCT) project.

PaCT aims to eliminate the harmful environmental and social impact of groundwater extraction, surface water pollution, and misuse of energy and chemical resources in textile wet processing to support the sector’s long-term competitiveness. The Bank Group’s Trade and Competitiveness Global Practice led stakeholder engagements with national and sector-level stakeholders to address water sustainability challenges.

Following a series of efforts to improve the resource efficiency of WDF activities, three interim working groups were formed in May 2014 to discuss sector-related regulatory, finance, and industry issues. Jointly led by PRI, the working groups met frequently and conducted several diagnostic assessments of regulatory and access to finance issues.

At least six major policy recommendations on finance issues were proposed by working group members to the central bank governor on February 14, 2015. As a result, $500 million for resource efficiency financing in textile sector was announced by the governor. IFC was requested to take a lead role in structuring the fund.

In addition, all financial institutions in Bangladesh must allocate at least 5 percent of their lending to green finance by 2016.

The central bank chief emphasized the need to brand the textile industry, saying the fund’s timing is critical as the global demand for environmental-friendly goods continues to rise. 

PaCT benefits from the anchor sponsorship of the Embassy of the Kingdom of the Netherlands. Lead sponsors are the C&A Foundation, H&M, and Inditex. Associate sponsors are G-Star, KappAhl, Lindex, Primark, Tesco and Dupont. The project is implemented by the World Bank Group’s International Finance Corporation (IFC) and Solidaridad, in cooperation with the apex trade body, Bangladesh Garment Manufactures & Exporters Association (BGMEA). Technical specialists TNO and Water Footprint Network are the project's implementing partners.