In alignment with the global movement to support grants through the development of sustainable projects, reliable sources informed Al-Rai that the Central Bank of Kuwait has verbally urged credit policy makers in local banks to allocate a portion of their loan portfolios to green financing.
While no specific annual financing ceiling has been set by the regulatory authority, each bank is expected to direct a portion of its loans toward local and foreign projects in the green sector. The focus appears to be on encouraging banks to allocate financing to investors involved in sustainable projects, in line with global trends in credit, without specifying the nature of the projects or the percentage of financing for each.
The Organization for Economic Cooperation and Development defines green finance as financing aimed at achieving economic growth while reducing pollution, greenhouse gas emissions, and waste, and improving natural resource efficiency.
Despite the notable achievements of the Kuwaiti banking sector in developing sustainable banking solutions, the sources indicate that the size of local projects eligible for green financing remains limited. In response, local banks are taking 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, contingent 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 for 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 up to $134 billion.
Regarding the financial aspects, banks aim to achieve an appropriate profit margin by obtaining suitable loans at lower interest rates, allowing 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. Work is ongoing to rehabilitate the remaining areas through existing contracts expected to conclude in 2027-2028.