Can banks drive green economic transition?

DAR ES SALAAM: TANZANIA’S aspiration to become a middle-income, climate-resilient and industrialised economy depends not only on government policies but also on the ability of financial institutions to mobilise capital for sustainable development.

As climate change continues to threaten agriculture, water resources, energy supply and infrastructure, the question is no longer whether Tanzania should embrace green finance, but whether its banking sector is ready to become a catalyst for the country’s green economic transition. Banks occupy a unique position in the economy.

They influence investment decisions by determining which projects receive financing and under what conditions.

If commercial banks prioritise investments in renewable energy, climate-smart agriculture, sustainable transport, green buildings, waste management and environmentally friendly manufacturing, they can accelerate Tanzania’s transition towards a low-carbon and resilient economy.

Conversely, continued financing of environmentally harmful activities may expose both banks and borrowers to increasing climaterelated financial risks.

The opportunities are enormous. Tanzania possesses abundant renewable energy resources, including solar, wind, hydro and geothermal potential.

The country’s agricultural sector which employs nearly two-thirds of the population requires substantial investment in irrigation, water harvesting, drought-resistant technologies and sustainable farming practices.

Small and medium enterprises are increasingly adopting green technologies, but many remain constrained by limited access to affordable financing.

Banks can bridge this financing gap by developing green loan products, offering preferential interest rates for environmentally sustainable investments and integrating Environmental, Social and Governance (ESG) principles into their lending decisions.

Globally, financial institutions are increasingly recognising that climate risk is financial risk.

International investors and development finance institutions are directing billions of dollars towards green investments.

Tanzanian banks that align their lending portfolios with global sustainability standards are likely to attract new investment opportunities, improve their competitiveness and strengthen their long-term financial resilience.

Green finance is therefore not merely a corporate social responsibility initiative; it represents a sound business strategy. Encouragingly, progress has already begun.

The Bank of Tanzania has shown increasing interest in sustainable finance, while several commercial banks have introduced financing programmes targeting renewable energy, clean cooking technologies, sustainable agriculture and women-led green enterprises.

However, these initiatives remain relatively small compared to the country’s overall financing needs.

Scaling up requires stronger policy coordination, regulatory incentives, technical capacity and greater awareness among financial institutions and borrowers alike.

Despite the potential, several barriers continue to hinder the expansion of green banking.

Many banks perceive green projects as high-risk due to limited technical expertise in evaluating environmental investments and insufficient historical performance data.

Green technologies often require higher upfront investment costs despite delivering significant long-term savings.

Smallholder farmers and rural entrepreneurs frequently lack collateral, financial records, or bankable business plans needed to access formal credit.

These challenges call for innovative financing mechanisms, including credit guarantee schemes, blended finance, climate funds and public-private partnerships that can reduce lending risks while encouraging private investment. Digital innovation also presents new opportunities.

Mobile banking, digital credit assessment, satellite data and artificial intelligence can help banks better assess climate risks, monitor agricultural investments and expand financial inclusion in underserved rural communities.

Technology can significantly reduce transaction costs while improving access to green finance for youth entrepreneurs, women and smallholder farmers who have traditionally been excluded from formal banking services.

The road ahead requires collective action. Government must continue strengthening the regulatory framework for sustainable finance, while development partners should provide technical assistance and risk-sharing facilities

Universities and research institutions can support banks by generating evidence on climate risks and green investment opportunities.

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Above all, financial literacy programmes should educate businesses and households about the economic benefits of sustainable investments.

Banks alone cannot deliver Tanzania’s green transition, but they remain indispensable partners in achieving it. Their lending decisions today will shape the industries, technologies and infrastructure that define the country’s future.

By embracing green finance, Tanzanian banks have an opportunity not only to safeguard their own financial stability but also to help build a more resilient, inclusive and environmentally sustainable economy for generations to come.

The transition to a greener Tanzania is not simply an environmental necessity, it is an economic opportunity waiting to be financed.