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Indonesia’s financial regulator is encouraging banks to increase “green lending” though it won’t force them to stop financing for companies that contribute to pollution and climate change because of the implications for economic growth.
“I am not supportive of the policy to stop lending to the companies that are not compliant, because these companies exist already, employ people already, and support the economy,” said Wimboh Santoso, chairman of the financial-services authority known as OJK. “We don’t want to disrupt the process of development,” Wimboh added, speaking in an interview last week in Singapore.
Instead, the regulator is focused on encouraging banks to “enlarge their loan portfolios for those who comply with environmental guidance,” Wimboh said.
Financial regulators around the world are drawing up various strategies to counter climate change, from promoting loans to environmentally friendly projects, to creating guidelines that discourage funding for projects such as coal-fired power stations and forest clearing.
The issue has gained greater urgency in Southeast Asia after parts of the region were enveloped this month by a noxious layer of smoke and ash from Sumatra and Borneo in Indonesia, where farmers are using illegal slash-and-burn methods to clear land for palm oil, pulp and rubber plantations.
Only 9% of major Southeast Asian lenders have no-deforestation policies, according to a World Wide Fund for Nature study published in August.
OJK is a founding member of the Sustainable Banking Network, which represents regulators and banking associations from emerging economies. The Indonesian regulator drew up guidelines in 2017 intended to promote sustainable finance by local banks.
As well as encouraging banks to lend more to environmentally friendly projects, OJK is encouraging issuance of green Islamic, or sukuk, bonds, Wimboh said. Indonesia became the first country to sell a sovereign green sukuk last year.
Other highlights from the interview with Wimboh:
- Unlike Singapore and Hong Kong, Indonesia will not be issuing new digital banking licenses; any firms wishing to enter the industry would have to apply to buy one of the existing banks, Wimboh said
- OJK is taking a “light-touch” regulatory approach toward financial technology to maximize its benefits for the nation’s 267 million people, many of whom don’t have good access to financial services
- Wimboh expects Indonesia to issue its first municipal bonds in 2020; various regions are already discussing such issuance
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