State Bank of Pakistan (SBP) through its recent initiatives and actions has focused its attention on finance-deficient areas such as financial inclusion, low cost housing facility, agricultural credit, SME finance and most importantly, the Green Banking phenomenon. In accordance with its strategic policy, given the importance of SMEs being attached to our economic development, SBP is playing a facilitator’s role, aimed to increase the orderly flow of financing to SMEs. It has set the principal targets to be achieved in SME financing till 2020 for increasing SME’s share from existing 8 percent private sector credit to 17 percent by 2020 and increase the number of borrowers from existing 183,606 to 500,000 by 2020. SBP had released 9 pillars of Policy for Promotion of SME Finance back in December 2017, which included among others, improvement in regulatory framework, leveraging technology to promote SME financing and simplifying taxation regime for SMEs.
Another broad-based policy framework, in the shape of Green Banking guidelines was also issued by SBP. This needs immediate attention of our banking and finance sector, because of its vital and crucial nature. But Green Banking is still in infantile stage. In view of deep concern for environmental sustainability, which has created the concept of Green Banking, it would be of great advantage for the banking and the industrial sectors, ultimately passing out the benefits to the national economy and ecology. The ecological disability has led to massive emissions of carbon dioxide and greenhouse gases. Green Financing is an integral part of Green Banking and also the overall concept of Green Movement, currently much hyped all over the globe. The Green Movement is a global movement relating to deep worries for environmental conservation and betterment of the health of our environment. The Green Movement also strongly advocates for the protection, reclamation and the overall improvement of our environment. It aims to promote environmental and climate friendly practices to decrease carbon footprints emanating from the banking activities. It enjoins on the banks to take into account the environmental challenges and to abide by best practices to lessen the adverse impact.
Green Banking is vital in avoiding some of three most vulnerable risks: Credit Risk, in view of climate changes taking place all over the world including global warming and topsy-turvy climatic upheavals, there will be direct or indirect impact on the banks as well. Due to this turmoil, industries financed by the banks may fail to pay back, which may result in loan defaults. Then , there is a legal risk if banks/DFIs fail to follow the environmental rules, for example as happened in the case of Chakwal Cement factories, which were set up in violation of the environmental protection rules, guzzling the entire underground water which in turn damaged the ancient heritage of Katas Raj and nearby villages as lack of water resulted in its lake drying up. It invited judicial notice also. Finally, there is the reputational risk also which damages the goodwill and repute of the financing agencies.
The banks would now have to consider innovative green banking financial products, installing energy efficient equipment and machines in their offices, besides paper less banking. Some of the principal domains, where banks should begin taking immediate attention, are listed below:
- Paperless Banking Operations – Already being carried out through widespread use of Information Technology. All banks need to pay attention to this factor.
- Paperless Banking Services – While managing the customers, measures to be taken to deliver customer services through electronic means. These measures are already in place in most of the banks, but all banks need to implement the same in letter and spirit.
- Green IT Infrastructure – The banks and DFIs are required to use energy-efficient IT equipment and install systems for saving energy.
- Waste Reduction: The banks should adopt practices to reduce the quantum of waste generated in their offices and recycle these materials specially such items as computer and accessories.
Lastly, the Green Financing Portfolio encourages financing in Alternative Energy Sources such as Wind Power, Solar Energy, Biomass Energy and other renewable energy sources. Besides most of the branches use diesel generators in case of power failures, so banks should adopt alternate energy wherever possible and easy. Banks must also finance environment-friendly segments such agro-forestry, forestry, organic agricultural farming and poultry and dairy farming, besides organic fruits, vegetables and herbs. All these practices, in tandem with other measures, would be of tremendous help in improving our ecology.