The Central Bank of Kuwait (CBK) has called upon credit policy makers in local banks to allocate a portion of their loan portfolios to green financing, aligning with the global movement to support sustainable projects. While no specific annual financing limit has been set, each bank is expected to direct a portion of its loans towards local and foreign projects in the green sector. This move aims to encourage banks to provide financing to investors involved in sustainable projects, in line with global credit trends.
Green finance, as defined by the Organization for Economic Cooperation and Development, refers to financing aimed at achieving economic growth while reducing pollution, greenhouse gas emissions, waste, and improving natural resource efficiency.
Despite the Kuwaiti banking sector’s notable achievements in developing sustainable banking solutions, the availability of local projects eligible for green financing remains limited. To address this, local banks are implementing compensatory measures in three directions.
Firstly, banks are establishing innovative green financing lines for companies, offering exclusive discounts in terms of duration and interest rates based on project feasibility. The discount rate depends on the type and size of the investment and the cost of re-granted funds.
Secondly, efforts are underway to enhance the green credit culture among individuals. This includes creating personal financing products with exclusive incentives, such as interest-free financing. Some banks have already started offering interest-free loans for environmentally friendly initiatives, such as the purchase of electric cars or the construction and furnishing of green residential properties.
The third approach involves tapping into foreign markets interested in green projects, either through direct deals or participation in collective financing. At the banking level, this trend constitutes a significant portion of the financing base allocated to green loans.
The global green finance market has experienced rapid growth in the past decade, with various financial instruments such as green-rated bonds, green loans, and green investment funds contributing to this expansion. The Infrastructure Development Finance Company estimates the green financing market to be valued at up to $134 billion.
From a financial perspective, banks aim to achieve an appropriate profit margin by obtaining suitable loans at lower interest rates. This allows them to stimulate loans for customers in the green sector without facing cost-related pressures. Some banks opt for financing agreements with regional and international financial institutions interested in green financing, obtaining loans at favorable rates that can be redirected into higher-priced loans for customers.
Locally, one of the significant green financing projects involves the rehabilitation of soil in oil fields affected by the Iraqi invasion. This project is among the largest soil remediation endeavors globally, with a budget allocated by the United Nations of about $3 billion. The Kuwait Oil Company has invested $281 million in this project, focusing on the removal and rehabilitation of approximately 16 square kilometers of contaminated soil. The remaining areas are expected to be rehabilitated through existing contracts, which are scheduled to conclude in 2027-2028.
This initiative by the Central Bank of Kuwait to encourage local banks to allocate part of their loan portfolios to green financing reflects the growing importance of sustainable development and environmental responsibility. By promoting green financing, the CBK aims to support projects that contribute to economic growth while reducing environmental impact. This move not only aligns with global trends but also demonstrates Kuwait’s commitment to sustainable practices.
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