In recent periods, Bangladesh is experiencing alarmingly high internal migration from villages to urban slums in big cities. This is triggered by natural disasters and climate change—a major and multidimensional development challenge for Bangladesh. These climate migrants will have to be provided with income opportunities in various innovative ways so that they find their livelihood opportunities in their own areas. Access to SME finance for green projects in disaster-prone areas could be a way to address this. However, to have a positive and multifaceted development impact, the scalability and commercial viability of such finance will be crucial. This will also help mobilise blended finance from various sources. Blended finance mechanism can attract investors and donors with an expected outcome of decreasing internal migration to big cities by generating employment and ensuring livelihood security in disaster-prone areas.
These issues, based on a study undertaken by CPD on blended finance framework for Bangladesh, were discussed at a dialogue titled “Establishing a Blended Finance Mechanism Involving Climate Funds in Bangladesh: Opportunities and Challenges” on Saturday, 30 September 2021. The dialogue was organised by the Centre for Policy Dialogue (CPD) in partnership with Promoting Knowledge for Accountable Systems (PROKAS) of the British Council.
The research has been conducted by Dr Fahmida Khatun, Executive Director, CPD, Dr Wasel Bin Shadat, Senior Visiting Fellow, CPD and Mr Foqoruddin Al Kabir, Programme Associate, CPD. On behalf of the research team, the presentation at the dialogue was made by Dr Wasel. The study pointed out that the proportion of internally displaced people due to natural calamities in Bangladesh is the highest in South Asia. This displacement trend puts tremendous pressure on the already over-crowded, unsafe and unhealthy city slums, leading to critical environmental consequences.
The report also mentions that insufficient decent livelihood opportunities are identified as a dominant, underlying and structural problem for climate displacement. The solution to this problem depends largely on access to finance by the climate victims so that they can be engaged in income generating activities in the villages. The study proposes that blended finance involving the green climate fund, can be used to address the finance gap. The research also proposed a generic, flexible and dynamic blended finance framework to initiate policy debates, emphasising the governance (transparency and accountability) issues.
Dr Fahmida Khatun moderated the session. In her opening remarks, Dr Fahmida said, every year many people experience a number of natural disasters, and those who are particularly poor and live in climate vulnerable areas are mostly affected. The rural economy is not large enough to create opportunities for them. As a result, the pressure on the larger cities increases heavily. If we have an alternative source of income and livelihood opportunities in the places where these people live—who tend to migrate after such disasters, and if they have funds, it would be easier to control their migration. “Access to finance is the key challenge here and that is the basic ground of this study,” she said.
Mr Gerry Fox, Team Leader, PROKAS Team, British Council delivered the introductory remarks at the dialogue. He commented that this proposed mechanism in fact is a massive opportunity for Bangladesh. While thanking CPD for taking initiative as regards proposing a blended finance mechanism, he considered that the blended finance framework has immense potential to play a critical role primarily in creating employment and business for climate change-induced migrants.
One of the panelists Professor Mizanur Rahman Khan, Deputy Director, International Centre for Climate Change and Development (ICCCAD) said that the investment pattern should focus more on the vulnerability of the community rather than the infrastructure. He mentioned that migration is a failure of the adaptation of climate finance strategies, and development functions should be decentralised. In this connection, he urged for adapting a risk management strategy before exercising fund mobilisation.
“There needs to be a blend between development outcome and commercial yield in terms of access to funds,” said another panelist Mr Md Mahbub Ur Rahman, Chief Executive Officer, HSBC Bangladesh. He felt the need for skillsets of people to create employability and localised work opportunities in order to address climate vulnerability. He also emphasised the need for integration of the SME skillsets into the bigger market and adoption of a market-driven as well as commercially viable approach.
Mr Masihul Huq Chowdhury, Managing Director and CEO, Community Bank Bangladesh Limited, opined that lending mindset is important. He also talked about issues including commercial viability and recovery of the money.
Dr A K Enamul Haque, Professor, Department of Economics, East West University, and Director and Member, Economic Research Group, said that the existing regulatory framework functions is bureaucratic and unrealistic. He opined that micro industries have greater potential for creating employment opportunities, and there should be certain strategies regarding financing the smaller industries where the recovery rate is high. He also emphasised the need for skills developing trainings.
Mr Mominul Islam, Managing Director and CEO, IPDC Finance Limited, stated that shifting our focus to smaller cities instead of restricting our funding only to the disaster-prone areas will be more efficient. Shedding light on the need for financing small industries, especially women entrepreneurs, he said that e-commerce platform has potential in creating income opportunity for small enterprises despite some problems occurred in recent times. He also felt that the financing process needs to be simplified and flexible.
In light of Bangladesh’s transition from a least developed to a middle-income country in the post-pandemic time, accessing concessional financing will be very challenging, and risk appetite will be needed from private sector, especially from SMEs, MSMEs and commercial banks, said Ms Judith Herbertson, Development Director of FCDO Bangladesh, British High Commission. She highlighted two important considerations to bridge the financing gap—first, creating an enabling environment, and second, ensuring de-risking to check the private sector. She spoke about issue that included fostering local capacity, identifying private sector business opportunities in concentration with the investing companies, supporting access to the green climate funds, developing blended finance mechanism, and re-skilling the climate migrants.
Mr Asif Ibrahim, Vice-Chairman, New Age Group of Industries, and the Chairman of Chittagong Stock Exchange, re-asserted the need for capacity building of SMEs to create linkages between out-growers and small-holders. He said, climate funds through blended finance mechanism will require technological preparedness, policy reforms, and innovative ideas. He also shared about the SME launch in in both Dhaka and Chittagong Stock Exchange.
Dr Md. Mafizur Rahman, Managing Director, SME Foundation, felt that the financing procedure is influenced by the bank-client connections. While talking about identifying who would qualify for the blended finances, he added that incentivising those who would pay the loan back on time can be a way to secure the blended investor’s fund. He also called for the importance of skills development issue.
Dr Md. Golam Rabbani, Head, Climate Bridge Fund Secretariat, BRAC, said that there should be an adaptation strategy preparedness regarding blended finance. Also, there should be careful guidance in case of amalgamation of climate funds.
Mr Mesbaul Asif Siddiqui, Senior Executive Vice President and Head of Credit Risk Management and Sustainable Finance, the City Bank Limited, talked about significant issues including credit guarantee scheme, need for a non-bureaucratic due diligence process, sustainable finance policy, capacity building of the SMEs, etc.
Mr Mesbah Uddin Ahmed, General Manager and Head of Corporate & Green Finance, IDLC Finance Limited also spoke as a panellist.
The session was followed by an open-floor discussion. Researchers, development practitioners, academics, business leaders, civil society representatives, international development partners, and journalists were present at the dialogue.