Assignment Final
Transcript of Assignment Final
Assignment
on
AGRICULTURAL AND RURAL CREDIT FINANCING IN BANGLADESH
Submitted To
MR. SUBHANKAR SAHA
General Manager & Director of Foundation Course
Bangladesh Bank Training Academy
Mirpur-2, Dhaka
Submitted By
Group No. 15
Foundation Training Course 2012 (1st Batch)
Bangladesh Bank Training Academy
Mirpur-2, Dhaka
April 17, 2012
INTRODUCTION TO GROUP MEMBERS
Foundation Training Course 2012 (1st Batch)
Bangladesh Bank Training Academy (BBTA)
Group No. 15
Serial No. Name & Designation Roll No.
01 Chandan Kumar Roy
Assistant Director
32
02 Golam Mostafa
Assistant Director
37
03 Akter Jahan Shukhee
Assistant Director
46
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 2
AGRICULTURAL AND RURAL CREDIT FINANCING IN BANGLADESH
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 3
TABLE OF CONTENTS
Sl. No. Topic Page No. 1 Introduction 07
1.1 What is Agricultural Credit? 081.2 What is Rural Credit? 08
2 Agricultural & Rural Credit Agencies in Bangladesh
09
2.1 Need for Institutional Framework/Network 092.2 Rural Financial Market 092.3 NGOs as Source of Rural Credit 11
3 Government Endeavor in the Past 123.1 The Nationalized Commercial Banks 123.2 Role of Specialized Agricultural Banks 14
4 Present Scenario of Agricultural and Rural Credit in Bangladesh
18
4.1 Disbursement & Recovery of Agricultural Loan 184.2 Disbursement of Agricultural/Rural Credit by Lenders 204.3 Agricultural/Rural Credit Disbursement Target 225 Agricultural/Rural Credit Initiative by Bangladesh
Bank23
5.1 Policy Formulation 235.2 Credit Targeting 245.3 Credit Refinance 24
6 Challenges of Agricultural/Rural Financing & Proposed Remedial Measures
26
6.1 Inadequate Rural Branches 266.2 Farmers Selection Bias 266.3 Collateral Requirements 276.4 Credit Recovery 276.5 Balancing Farmers Preferences 276.6 Interest Rate & Repayment Method 286.7 Political Interference 286.8 Agricultural Credit Share over Total Bank Advances 286.9 Uneven Distribution of Agricultural Credit 29
6.10 Supervised Credit 296.11 Agricultural Insurance 29
7 Conclusion 30
8 References 31
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 4
LIST OF ABBREVIATIONS
Abbreviation ElaborationABL Agrani Bank LimitedASA Association for Social AdvancementADBB Agricultural Development Bank of
BangladeshADBP Agricultural Development Bank of PakistanADFC Agricultural Development Finance
CorporationBADC Bangladesh Agricultural Development
CorporationBARD Bangladesh Academy for Rural
DevelopmentBBS Bangladesh Bureau of StatisticsBKB Bangladesh Krishi BankBRAC Bangladesh Rural Advancement CommitteeBRDB Bangladesh Rural Development BoardBSBL Bangladesh Samobay Bank LimitedFCB Foreign Commercial BankFY Financial YearGB Grameen BankGDP Gross Domestic ProductGOB Government of BangladeshHYV High Yielding VarietyIFAD International Fund for agricultural
DevelopmentJBL Janata Bank LimitedMFI Micro Finance InstitutionNCB Nationalized Commercial BankNGO Non-Government OrganizationPCB Private Commercial BankPKSF Palli Karma Sohayok FoundationRAKUB Rajshahi Krishi Unnayan BankSACP Special Agricultural Credit ProgrammeSB Specialized BankSBL Sonali Bank LimtedSEF Small Enterprise FundSFDP Small Farmers Development ProjectsTk. Taka
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 5
PREFACE
This assignment work on ‘Agricultural and Rural Credit Financing in
Bangladesh’ is an integral part of the Foundation Training Course for the Newly
Recruited Assistant Directors of Bangladesh Bank. This work has been carried out
following the instructions of the course administration. Various books, journals,
reports, online resources have been studied for preparing this assignment paper.
The data used in this assignment work have been collected from the secondary
sources.
This paper has been grouped into eight chapters. Chapter 1 is the introductory
part while the chapter 2 describes the agricultural credit agencies in Bangladesh.
Chapter 3 describes the past endeavor by government regarding agricultural and
rural credit. Present scenario of agricultural and rural credit has been depicted in
chapter 4. Initiative taken by Bangladesh Bank to boost up agricultural and rural
credit has been shown in chapter 5. Chapter 6 focuses on the challenges of
agricultural and rural credit and possible remedial measures. Chapter 7 draws
conclusion and chapter 8 is the references sources studied in preparing the
assignment.
We are grateful to our honorable course director, chief course coordinator and
section coordinator for their valuable guidance and direction.
...............................
Akter Jahan Shukhee
.....................
Golam Mostafa
.............................
Chandan Kumar Roy
Bangladesh Bank Training Academy (BBTA)
Mirpur-2, Dhaka
April 17, 2012
1. INTRODUCITON
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 6
Agriculture forms the base for economic development. It is the oldest and most
widely practiced form of production activity in the world and has evolved
gradually with the passage of time. Agriculture contributes significantly to overall
economic growth all over the world. Development of agriculture still holds
paramount importance today, not merely because it provides food, fodder and
other agro-products to a rising population, but because it also ensures a strong
base for the extension of markets and ingestible resources. Agriculture also
provides many of the raw materials used by industry. The fate of the textile
industry, for instance, is crucially linked with the supply of raw cotton, and the
food processing and tobacco manufacturing industries are equally dependent of
agricultural products.
Bangladesh is a predominantly rural country, with most of its population
dependent on agriculture. Agriculture is thus the most important sector of the
national economy generating more than 20 percent of the country’s Gross
Domestic Product (GDP), and 6 percent of export income, while employing more
than 48 percent of the labor force. The food security of the country is dependent
on agriculture. The rural people (specially the farmers) depend entirely on
agriculture for their livelihoods. It is only through the development of the
agriculture sector that they can increase their earnings and enhance their
standard of living. Agriculture continues to play a pivotal role in rural growth.
Development of the rural economy is thus should be central to Bangladesh’s
Development Strategy.
Finance is the lifeblood of all economic activity. Extending credit to the rural
economy is crucial for the development of the rural economy as well as overall
development of Bangladesh. Bangladesh Bank, by its active direction, guidance
and supervision, has set priority in agricultural and rural credit financing in
Bangladesh. Thus, agricultural and rural credit financing has got special attention
in the financial system of Bangladesh economy.
1.1 What is Agricultural Credit?
Agricultural credit refers to the amount of money that the farmers borrow to meet
their production requirements as well as their current consumption needs.
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 7
Farmers may borrow to purchase new agricultural land or to release mortgaged
lands, to make permanent improvements on land, to purchase production inputs
or agricultural machinery, to meet consumption expenses etc. The money that is
borrowed by farmers to meet all such requirements is termed as “agricultural
credit”. It is needless to mention that credit plays a vital role in accelerating
agricultural production.
1.2 What is Rural Credit?
Rural credit is a small amount of money which give to the poor people including
small scale farmers and unemployed person as loan to start there own work by
development banks or any other financial institutions. Rural credit is any type of
lending program or line of credit that is aimed at impacting a rural population in
some manner. There are banks and cooperatives that specialize in extending this
type of credit to farmers and others engaged in the agricultural/other income
generating tasks. Depending on the nature of the organization, credit plans may
focus on providing mortgage assistance, securing new equipment, or even funds
to support research into various aspects of land development within a rural
community.
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 8
2. AGRICULTURAL & RURAL CREDIT AGENCIES IN BANGLADESH
2.1 Need for Institutional Framework/Network
For any credit program to be implemented effectively, proper institutional
arrangements are most essential. Even well-designed programs can fail if the
institutional framework is not adequate. This is even truer in the case of
agricultural and rural credit where a vast area and a large rural population have to
be covered by the credit program. Rural credit programs also have to be designed
keeping the socio economic condition of the target people in view. For rural
advancement of a nation, rural credit agencies generally have to cater to the
financing need of (a) agriculture, (b) small business and (c) cooperative
development. Separate institutional credit arrangements may also have to be
made to meet the special needs of a particular class of people with reference to
their economic, professional or regional status.
2.2 Rural Financial Market
From time immemorial, the Rural Financial Market (RFM) of Bangladesh had been
controlled mainly by professional money lenders (mohajons) and land owners.
Friends and relatives also had a role to play in this respect. It is mentionable that
all of them also used to meet financial needs of the farmers during natural
calamities or socio-economic crises of the subsistence farmers. But there is the
allegation that, particularly the mohajons and the land owners had been charging
exorbitant rate of interest on the money they lent out and, hence, are marked as
"usurious monopolist". This kind of situation also prevails in other developing
countries. However, the basic truth is that everywhere including Bangladesh,
these credit sources are considered a bane rather than a boon.
But an opposite view of this is also available which can hardly be overlooked. In an
imperfect credit market, where small-scale farmers have always had difficulty
gaining access to banks and credit societies, these agriculturalists-turned money
lenders perform a socially useful function of financial mediation. Because, in
extreme distress, they engage in large financial intermediation for the small
groups and serves as friend in need. However, the basic truth is that everywhere
these sources of credit are considered bane rather than boon as far as rural
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 9
investment is concerned. More often than not, indebted farmers are driven to
destitution in the face of a harvest failure.
The sources of rural credit (or RFM) can broadly be classified into three groups as
follows;
01. Formal Financial Market
02. Informal Financial Market
03. Semi-Formal Financial Market
The structure of RFM cab be depicted as shown in below:
Figure1: Rural Financial Market Structure
The players of the Formal Financial Market in the rural areas are the various banks
operating in Bangladesh. They include Nationalized Commercial Banks (NCBs),
the specialized commercial banks like Bangladesh Krishi Bank (BKB) and Rajshahi
Krishi Unnayan Bank (RAKUB), Private Commercial Banks (PCBs), the Foreign
Commercial Banks (FCBs) etc. Informal sources of rural credit include
moneylenders, friends/ relatives, traders, landowners etc. Semi-Formal sources
include Palli Karma Sohayok Foundation (PKSF), Non Government Organizations
(NGOs). Other sources include Bangladesh Rural Development Board (BRDB),
Cooperative Societies.
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 10
Figure 2: Channel of Agricultural Credit
2.3 Non Government Organizations (NGOs) as Source of Rural Credit
In the context of Bangladesh, another source of rural credit is the NGOs. Following
the success of the Grameen Bank, a large number of NGOs stepped in to
supplying rural credit in remote areas as part of their social development
programmes. These programmes targeted mostly women from landless and poor
households. It is estimated that, in 2000, about 6 million of the estimated 11
million functionally landless households have received the advantage of NGO
credit. Presently, ASA and BRAC are mentionable among the large NGOs operating
in Bangladesh and also involved in agricultural and rural financing.
3. GOVERNMENT ENDEAVOR IN THE PAST
3.1 The Nationalized Commercial Banks.
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 11
BranchesBranches BranchesBranches BranchesBranches
FarmersFarmers Individual Farmers
Individual Farmers
Individual Farmers
Individual Farmers
UCCAUCCA
KSSKSS
MembersMembers
Bangladesh BankBangladesh Bank
Nationalized Commercial
Bank
Nationalized Commercial
Bank
Bangladesh Krishi BankBangladesh Krishi Bank
BSBLRAKUBBSBL
RAKUB
Prior to the liberation of Bangladesh in 1971, commercial banks had played an
insignificant role in agricultural and rural credit. Even after this event, the newly
nationalized commercial banks remained rather unconcerned about rural finance
Institutional participation in the agricultural credit programmed was stepped up
after 1977 when a special agricultural credit programme (SACP) was introduced
by the Government of Bangladesh (GOB). Through the SACP, the GOB induces the
NCBs to participate more actively in the disbursement of agricultural credit. The
agricultural credit activities of the NCBs in Bangladesh need to be examined in
relation to the national banking policy on agricultural credit. The past endeavor for
extending credit by the three major NCBs is analyzed next.
3.1.1 Sonali Bank Limited
Sonali Bank Limited (SBL) has been extending financial support on priority basis
to potential growth sectors in Bangladesh including agriculture, industry, trade
and commerce, in order to strengthen the national economy to accelerate the
pace of industrialization, SBL had expended its industrial credit programme by
extending financial support for the establishment of large, medium and small
scale industries. It has also continued to follow government policies for financing
people of smaller means on easy terms and conditions. SBL commenced its rural
financing programme in 1973 by financing the projects of Bangladesh Rural
Development Board (BRDB). SBL started directed financing programme for rural
people from 1976. The major rural credit scheme of SBL provides credit suport for
the SACP, the Swanirvar Self Reliance Programme and the Krishi Shakha
Programme and extends credit to farmers for sugarcane, banana and jute
cultivation. SBL provides finance under the IFAD Credit Programme and
Bangladesh Swiss agricultural project, also extends scheme assistance for rural
irrigation, rural housing and rural transport. For rural poverty alleviation, SBL
supports fisheries and shrimps development projects, and also finance the BRDB
Scheme for establishing Central Cooperative Society at each Thana. The Bank also
extends direct financial support to fertilizer dealers.
3.1.2 Agrani Bank LImted
Agrani Bank Limited (ABL), another leading NCB, was brought into existence by
the Bangladesh Bank (Nationalization) Order of 1972, under which Agrani Bank
Limited took over the assets and liabilities of the Habib Bank Limited and the
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 12
Commerce Bank Bank Limited which had functioned in East Pakistan. At the time
of commencing operations, it had a network of 888 branches located through out
the country, including its Head Office, 4 Circle offices, 54 Zonal offices and 38
branches handling foreign exchange, 582 branches (66 per cent) of the Agrani
Bank’s 888 branches were located then in rural areas. Since then, Agrani Bank
Limited has witnessed an expansion in terms of deposits, advices and branches.
By the end of 2002 the total number of branches had risen to 870, of which 528
(61 per cent) were rural branches.
Agrani Bank Limited has been involved in rural finance since 1975 to 1976. Its
credit activities have extended to most sub sectors of rural financing including
agricultural and non agricultural credit programmes. Credit operations by ABL are
dominated by general lending. Thus although it has been an active participant in
the rural credit sector, the share of agricultural credit in its lending portfolio
amounted to a meager per cent in 1997 and 2.75 per cent in 2004. The principal
rural finance schemes of ABL provide credit support for the crop loan programme,
the Swanirvor Self Employment Programme and rural finance projects; banana
and coconuts plantations and the cultivation of minor corps; silk weaving, sault
manufacture; and livestock loan and shrimps culture and small scale duckery and
poultry projects. ABL supports Grameen Development Projects and the BRDB
Rural Poor Programmes, and finances small farmers under IFAD, DANIDA/NRDP I &
II. Under rural infrastures, ABL finances Grameen Godown and Food Godown
Projects, Community Schools, Rural Housing, Rural Electrification and Transport,
Village Machinery, agricultural and irrigation equipment including power pumps.
3.1.3 Janata Bank LImted
Like other NCBs, the banking objective of Janata Bank Limited (JBL) includes the
mobilization of deposits from urban and rural areas in Bangladesh and the
financing of agriculture, industry, commerce and trade. JBL has been extending
credit assistance to priority production activities like tea, jute, tannery, and so on,
in order to strengthen the economy of Bangladesh. The bulk of its credit resources
are deployed among traders and industrialists in the urban areas as well as in
rural finance to farm and non farm activities. The credit policies and programmes
of JBL are designed to cover all occupational groups among the rural population,
including landless farmers’ labors, rural artisan, destitute women, educated youth,
blacksmiths, fishermen, small traders and so on. Under its rural lending
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 13
programmes, JBL has financed rural activities covering the cultivation of different
seasonal crops, installation of irrigation equipment, livestock and poultry rearing,
fisheries development and salt production, as well as allied activities like
horticulture, shrimp culture, development of cottage industries, weaving, beef and
goat fattening, paddy processing, petty business, rural transport, rural
electrification, rural house construction and so on.
Like the other NCBs, JBL also finances a variety of rural schemes. Some of its
major rural credit schemes include the SACP, the Swanirvor Credit Programme and
Small Farmers Development Project (SFDP); Crop Loans through CIDA assistance,
loans for the cultivation of sugarcane, cotton and tea; horticulture development
loans and loans for the purchase of irrigation equipment and powered pumps sets,
as well as project loans to small farmers. Land mortgages and livestock loans for
the purchase of bovine livestock like buffalo and cattle are also supported. In the
non-farm sector, JBL extends credit to weavers and supports self-employment
programmes for trained rural youths. It also extends infrastructural credit for rural
transport and rural electrification and finances rural house building. Its rural credit
programmes thus cover the gamut of rural activities in Bangladesh and seek to
accelerate rural development.
3.2 Role of Specialized Agricultural Banks
It has been seen that the NCBs in Bangladesh have been reluctant participants in
providing agricultural credit to the country’s farmers. Despite the wide base of
their financial operations, their commitment of financial resources towards the
declared policy objective of strengthening agriculture and rural development is
meagre and leaves much to be desired. Hence the role of the specialized
agricultural banking institutions like Bangladesh Krishi Bank (BKB), Rajshahi Krishi
Unnayan Bank (RAKUB) and BSBL comes to the fore, and is examined next.
3.2.1 Bangladesh Krishi Bank (BKB)
As it name suggests, the specific function of the Bangladesh Krishi Bank (literally,
the Bangladesh Agricultural Bank or BKB) is to provide credit support for the
promotion of agricultural and allied activities. As the pioneer specialized
agricultural bank in Bangladesh, BKB has played a vital role by supplying nearly
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 14
60 per cent of the institutional credit support received by agriculture. Hence the
history, objectives, policies and functions of BKB deserve special attention.
After the large-scale migration of private professional moneylenders to Indian
following the creation of Pakistan in 1947, the need for a specialized agricultural
credit institution was acutely felt. To meet this need, the Government of Pakistan
established the Agricultural Development Finance Corporation (ADFC) in 1952 to
extend medium and long-term credit to agriculture. However, the demand for
agricultural credit was so large the ADFC was unable to cope with the situation.
Consequently, the Government established the Agricultural Bank of Pakistan in
1957 to supplement the credit effort of the ADFC. Since the purposes of both two
state-owned institutions were similar, they were merged in February 1961 and
renamed the Agricultural Development Bank of Pakistan (ADBP).
The Bangladesh Krishi Bank (BKB) is the direct successor of ADBP. After the
liberation of Bangladesh in December 1971, ADBP was initially renamed as the
Agricultural Development Bank of Bangladesh (ADBB) and subsequently as the
Bangladesh Krishi Bank (BKB) under the Bangladesh Krishi Bank Order, 1973
(President’s Order No. 27 of 1973) published in April 1973. The authorized capital
of the Bank was Tk. 50.00 crore, of which Tk.45.61 crore (91 per cent) was paid-up
and fully subscribed by the Government. An 11-member Board of Directors
(including a Managing Director and three non-official Directors) was constituted by
the Government in 1975 for overall administration of BKB’s operational activities.
The primary objective of BKB is to provide credit facilities of individuals and
cooperative those are engaged in crop (i.e. non-plantation) production. BKB also
extends financial and technical assistance to individuals and cooperative societies
engaged in agro-based cottage industries, and in storage, warehousing or
processing of agricultural produce. IN the interest of agricultural development in
Bangladesh, BKB aims to increase agricultural output and thereby to improve the
economic and social conditions of the country’s farmers. Under the provisions of
the BKB charter, preference is given to the credit needs of small agriculturists
including sharecroppers and other backward socio-economic groups over other
more advanced sections of the rural population.
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 15
To extend the banking facilities available to the rural population, BKB has been
continuously expanding its network of branches throughout the country. In 1972-
73, BKB only had 102 branches. This number increased significantly to 936 in
2004-05, implying nine-fold growth in the BKB branch network compared to 1972-
73. Of the 936 BKB branches that now exist, 815 are located in rural areas against
121 in urban areas.
3.2.2 Rajshahi Krishi Unnayanb Bank (RAKUB)
The Rajhsahi Krishi Unnayan Bank (literally, the Rajshahi Agricultural Development
Bank, or RAKUB) was constituted under the President’s Ordinance No. 58 on 1986
and started functioning within the administrative sheer of Rajshahi Division on
March 15, 1987. The genesis of RAKUB lay in the special circumstances faced by
Rajshi as one of the more backward and impoverished regions of Bangladesh.
RAKUB is the largest agricultural credit institution operating in the Division. It was
established with the aim to extending specialized agricultural credit support to
farmers in Rajshahi Division in order to promote rural development within its area.
The authorized capital for RAKUB was set at Tk.1500 million, from which Tk.50
million was paid-up in the year of RAKUB’s establishment. In March 1999, total
paid-up capital of RAKUB had increased to Tk.128.00 crore.
The Head Office of RAKUB is located at Rajshahi, the divisional headquarters. The
number of RAKUB branches, nearly all of them located within the Divison, stood at
349 as on June 2004. A single RAKUB branch was established outside the Division
in Dhaka, in order to liaise with the Government and NGOs. Regional offices of
RAKUB were opened at each to the 18 district headquarter in Rajshahi Division. In
accordance with the Ordinance governing RAKUB, a 7-member Board of Directors
was constituted in January 1988 and entrusted with the responsibility of steering
the operations of RAKUB in the desired direction. The Managing Director of RAKUB
thus fulfills dual responsibilities as an ex-official Director on the Board.
.Like BKB, which operates throughout the country, RAKUB also fulfils the functions
of a specialized rural credit bank, while also functioning simultaneously as
commercial bank. RAKUB has been playing their role of financier in the rural
money market and has also extended banking services to the farmers of Rajshahi
Division, with the help of its divisional network of 349 branches located at
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 16
municipal settlements and rural growth-centre and other areas in Rajshahi
Division. RAKUB’s lending portfolios provide financial support to the production of
various seasonal crops, and the installation of irrigation equipment. Besides these,
RAKUB funds other allied activities like horticulture development, livestock and
poultry rearing, beef and goat (mutton) fattening and the development of
fisheries. In addition to agricultural and agro related activities, RAKUB extends
credit support to weaving activity and the development of cottage industries, as
well as paddy processing, petty trade, etc. RAKUB also finances activities aimed at
rural poverty alleviation and employment generation through farm as well as no-
farm activities.
Major rural credit activities undertaken by RAKUB include SACP and the Swanirvar
self-reliance schemes, loans towards crop production and crop intensification by
the marginal and small-farming system, loan disbursements towards livestock
acquisition and fisheries development. RAKUB also offers technological credit for
the supply of low-priced shallow tube-wells, irrigation equipment and farm
machinery, and extends credit support to the Women’s Entrepreneurship
Development Programme, and to small traders located in urban areas.
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 17
4. PRESENT SCENARIO OF AGRICULTURAL AND RURAL CREDIT IN
BANGLADESH
4.1 Disbursement & Recovery of Agriculture Loan
Agriculture sector is still the single largest contributor to income and employment
generation and vital elements in the country's challenge to achieve self-
sufficiency in food production and to ensure food security reduce rural poverty
and foster sustainable economic development.
The Government has therefore accorded highest priority to agriculture sector to
enable the country to meet this challenge. In spite of favorable weather condition
and strong policy support the agriculture sector grew moderately by 5.0 percent
in FY11 lower than 5.2 percent in FY10 which accounts for 19.9 percent of GDP.
In line with Government efforts Bangladesh Bank also continued its proactive
policy and programme support to boost up agricultural production. Agricultural/
Rural credit policy and programme has also been formulated in that consideration
and BB declared its annual agricultural/ rural credit policy and programmes for
FY11 with a disbursement target of Taka 126.17 billion higher by 13.49 percent
compared to the actual disbursement of Taka 111.17 billion in FY10. The policy
aimed at increasing the scope of agricultural credit and financial inclusion,
expanding banking services to rural areas using information technology, deciding
the course of action for adapting to the adverse impact of climate change
including credit norms for a number of new crops.
This policy support has expected to help directly to stimulate the agricultural
production and reduce dependency on import and alleviate rural poverty through
increased flow of funds in rural areas. The achievement against this target was
96.6 percent marked by the remarkable participation of private sector banks
through their branch network as well as linkages with Micro Finance Institutions
MFIs). BB's policy highlights in agricultural/ rural credit policy and programme for
FY11 ere:
Priority has been given in the 3 core sectors viz. crop, fisheries and animal
resources over other sectors in disbursing agricultural credit.
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 18
To ensure timely availability of necessary amount of credit to the small and
marginal farmers, including share-croppers, especially n less developed and
neglected areas (i.e char, haor, coastal belt etc.).
For the sake of transparency in credit disbursement emphasis has been
given on publicity of disbursement of agricultural credit at union level.
Banks have been put in place an effective monitoring system to ensure
timely and hassle free disbursement of necessary credit to real farmer and
100 percent achievement of the target of agricultural credit.
.Agricultural credit has been provided to the small, marginal farmers and
sharecroppers by single or in a group following easy process.
Successful farmers have been provided with necessary credit so that other
farmers may get encouragement with their success.
Women borrowers have been given priority in disbursing agricultural/ rural
credit.
Use of IT and mobile phone in agricultural credit system has been
encouraged.
A special refinance scheme for sharecroppers has been continued in FY11 which
BB undertook in agricultural credit programme in FY10. Under this refinance
scheme BB has been refinanced Taka 2.66 billion to more than 1.40 lac share
croppers up to FY11.Another refinance scheme for solar energy, bio-gas and ETP
sector has also been continued in the agricultural/ rural credit programme in FY11.
BB has been provided Taka 0.13 billion to refinance the banks under this scheme.
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 19
Comparative Statement of Disbursement & Recovery of Agriculture loan
(Billion Taka)
Disbursement FY09 FY10 FY111. Disbursement (Target) 74.66 84.53 89.86
A Crops Loan 31.1 35.88 37.41
B Purchase & Installment of irrigation equipment
0.7 0.68 0.67
C Livestock 6.2 7.26 7.34D Marketing of agricultural goods 0.2 0.2 0.3E Fisheries 4.86 5.43 5.44F Poverty Alleviation 13.03 13.97 15.55G Other Agricultural activities 18.57 21.11 23.15
2 Actual Disbursement 69.57 82.79 92.1A Crops Loan(Other than tea) 28.54 33.19 36.88B Purchase & Installment of irrigation
equipment0.06 0.52 0.53
C Livestock 3.15 4.08 4.27D Marketing of agricultural goods 0.79 0.62 0.3E Fisheries 3.42 3.99 4.65F Poverty Alleviation 12.35 13.61 16.29G Other Agricultural activities 21.61 26.77 29.18
3 Term Structure of loan disbursed 4 Short term 45.78 52.16 58.045 Longer term 24.14 30.63 34.046 Recovery 66.14 76.51 89.197 Total outstanding Loan 171.7 199.61 225.998 Overdue 60.49 63.66 59.729 overdue as percent of outstanding 35.23 31.89 26.43
4.2 Disbursement of Agricultural & rural Credit by Lenders in FY11
The actual disbursement of Taka 92.10 billion in FY11 against the disbursement
target of Taka 89.86 billion (excluding PCBs and foreign banks) was 11.25 percent
higher than the disbursement of Taka 82.79 billion in FY10. The target attainment
in FY11 was 102.52 percent as against 97.94 percent (excluding PCBs and foreign
banks) in the previous year. The disbursement of FY11 exceeded the target due to
poverty alleviation and other agricultural activities have remarkably exceeded the
target though other sub-sectors fell short in some extent from the target.
Agricultural Credit Disbursement by Lenders-FY 11
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 20
(Billion Taka)
LenderDisbursement
TargetActual
Disbursement Recovery Overdue Outstandingoverdue as
% of Outstanding
SCBs 25.75 22.14 20.11 25.83 64.36 40.13
BKB 45 52.34 50.18 16.47 116.22 14.17
RAKUB 11.4 10.1 11.91 12.95 33.15 39.06
BRDB 7.7 7.5 6.91 3.91 10.65 36.71
BSBL 0.01 0.02 0.08 0.56 0.61 91.8
Sub Total
89.86 92.1 89.19 59.72 224.99 26.54
Foreign Banks
5.82 5.46 10.4 0 3.31 0
PCBs 30.49 24.28 21.89 1.25 26.62 4.7
Sub Total
36.31 29.74 32.29 1.25 29.93 4.18
Grand Total
126.17 121.84 121.48 60.97 254.92 23.92
SummaryFY11 126.17 121.84 121.48 60.97 254.92 23.92
FY10 115.12 111.17 101.12 64.04 225.87 28.35
FY09 93.79 92.84 83.77 60.8 195.98 31.02
About 63.00 percent of disbursement was as short term lending and the rest
37.00 percent was in the form of long-term loans for irrigation equipments,
agricultural machinery, livestock etc. The lion's share of the short-term credit was
for production of crops and poverty alleviation programmes constituting 63.5
percent and 28.0 percent respectively of total short term loans.
The total outstanding loan in the agricultural sector (including all banks) in FY11
increased by Taka 29.05 billion or 12.86 percent to Taka 254.92 billion over the
previous year's level Two specialized banks viz. BKB, RAKUB, four NCBs and BRDB
although played key role in disbursement of agricultural and rural finance, the
remarkable contribution of foreign and private commercial banks are also
imperative in this regard. However, PCBs, NCBs, RAKUB, FCBs and BRDB fell short
of targets by 20.37, 14.02, 11.40, 6.19 and 2.60 percent respectively. On the
other hand, BSBL and BKB exceeded the disbursement target by 100.0 and 16.31
percent respectively in FY11.
4.3 Agriculture/Rural Credit Disbursement Target
A target of Tk.13,800 crore has been fixed up for FY2011-2012 by Bangladesh
Bank, break up of which as follows:
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 21
Agriculture/Rural Credit Disbursement Target for the Banks in 2011-12
(Taka in crore)Sl No.
Name of the Banks Target (Taka)
A. State-owned specialised Com. Banks
1 Bangladesh Krishi Bank 4600.00
2 Rajshahi Krishi Unnayan Bank
1220.00
Sub Total 5820.00
B. State Owned Commercial Bank1 Sonali Bank Limited 1150.002 Janata Bank Limited 750.003 Agrani Bank Limited 660.004 Rupali Bank Limited 130.00
Sub- Total 2690.00
C. Foreign Banks1 Standard Chartered Bank 174.002 Bank Al Falah Limited 11.003 Commercial Bank of CL 21.004 Citi Bank N.A. 200.005 Habib Bank Limited 6.006 HSBC 99.007 National Bank of Pakistan 19.008 State Bank of India 16.00
9 Worry Bank 1.00Sub-Total 547.00
Sl No.
Name of the Banks Target (Taka)
D. Private Commercial Banks:
1 Premier Bank Limited 96.002 AB Bank Limited 172.003 Al-ArafahIslami BL 122.004 Bank Asia Limited 151.005 BASIC Bank Limited 99.006 Bangladesh Commecrce
Bank Ltd 18.007 Brac Bank Limited 171.008 Dhaka Bank Limited 128.009 Dutch Bangla Bank Ltd 141.0010 Estern Bank Limited 114.0011 Exim Bank Limited 179.0012 First Security Islami Bank
Limited 113.0013 IFIC Bank Limited 97.0014 Islami Bank Bangladesh
Limited1000.00
15 Jamuna Bank Limited 104.0016 Mercantile Bank Ltd 143.00
17 Mutual Trust Bank Ltd 85.0018 National Bank Ltd 189.0019 NCC Bank Limited 129.0020 One Bank Limited 87.0021 Prime Bank Limited 232.0022 Pubali Bank Limited 169.0023 Shahajalal Islami Bank
Ltd. 135.0024 Social Islami Bank Ltd 80.0025 South East Bank Ltd 196.0026 Standard Bank Ltd 105.0027 City Bank Limited 115.0028 Trust Bank Limited 78.0029 UCBL 198.0030 Uttara Bank Limited 97.00
Sub Total 4743.00
5. AGRICULTURAL AND RURAL CREDIT
INITIATIVE BY BANGLADESH BANK
As the apex monetary institution of the country, Bangladesh Bank exercises
ultimate control over all banking programmes in Bangladesh. It formulates the
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page
Total Target 13,800.00
22
polices, rules and regulations that govern institutional credit and also monitors all
development activities in the national economy. Bangladesh Bank also provides
institutional supports for efficient implementation of agricultural credit policies. In
view of the country’s primary dependence on agriculture, Bangladesh Bank has
the authority to announce the agricultural credit policy applicable for each year,
especially on matters governing crop loans. This policy is implemented through
the credit operations of the NCBs as well as BKB and RKUB. After the annual
agricultural credit program has been formulated by Bangladesh Bank in
consultation with the Ministry of Agriculture., it allocates funds for the credit
program to different Banking institutions and closely monitors the implementation
of policy guidelines. While resolving any difficulties that may be encountered by
banking institutions, Bangladesh Bank also functions as the lender of the last
resort. The major functions of the Bangladesh Bank that define its role in relation
to agriculture credit are discussed below-
5.1 Policy Formulation
Agricultural Credit and Financial Inclusion Department of Bangladesh bank issues
detail policy guidelines for proper disbursement, utilization and recovery of
agricultural credit for implementation through the NCBs, BKB, and RAKUB. In
farming credit norms for financing the agricultural sector, the bank takes account
of the crop wise, sector-wise and target group-wise credit needs of farmers to
enable effective channelization of finance. Specific time schedules are announced
for disbursement of various types of credit. The policy guidelines also make
specific mention of the norms on borrower eligibility, the quantum of credit
support to be disbursed for various crops, and the period over which credit
recovery is to take place. Participating banks are expected to follow these
schedules and norms meticulously.
5.2 Credit Targeting:
Special attention is given to ensuring the adequate flow of bank credit to farmers
in order to make Bangladesh self-sufficient in food grains by increasing major crop
production and achieving overall development of the agricultural sector.
Bangladesh bank earlier used to prepare an annual agricultural credit program to
be followed by all financing banks and institutions.
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 23
5.3 Credit Refinancing
To ensure smooth and timely disbursement of agricultural credit to farmers at
reasonable rate of interest, Bangladesh Bank has expended liberal refinance
facilities to all formal sectors agricultural credit, institutions since 1983.
During FY11, only RAKUB has enjoyed refinance facilities to the tune of Taka 1.86
billion from Bangladesh Bank. No other institutions availed refinance facilities from
Bangladesh Bank in FY11. An amount of Taka 3.64 billion (including interests) was
recovered from different banks and institutions leaving an outstanding balance of
Taka 56.03 billion (including interests) as on end June 2011. Details of Bangladesh
Bank's refinance to different institutions are shown in the following Table.
Bangladesh Bank’s Refinance against Agriculture Loans (billion Taka)
Lender
FY 09 FY 10 FY 11
Re-finance
Re-payment
Outstanding
Re-finance
Re-payment
Outstanding
Re-finance
Re-payment
Outstanding
BKB 1.00 2.27 41.96 - 2.40 39.91 - 2.40 37.80
RAKU
B
1.94 1.42 17.42 1.58 1.84 17.16 1.86 1.20 17.90
BSBL - 0.04 0.30 - 0.04 0.26 - 0.04 0.21
BRDB - - 0.12 - - 0.12 - - 0.12
Total 2.94 3.73 59.80 1.58 4.28 57.45 1.86 3.64 56.03
5.3.1 Refinance Scheme for Agro Product processing Industries
For financing establishment of agro product processing industries in the areas
outside Divisional Head Quarters and Narayanganj town, Bangladesh Bank
launched a scheme of Taka 1.0 billion from November 2001 out of its own fund.
Refinance facilities were provided to banks and financial institutions at the bank
rate under the scheme. An amount of Taka 1.3 billion has been disbursed under
this scheme till end June 2011.
5.3.2 Refinance for Small Enterprises
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 24
46 banks and non-bank financial Institutions have signed participation agreement
with Bangladesh Bank for financing SME sector under following schemes:
5.3.3 Bangladesh Bank Fund:
Bangladesh Bank introduced a refinance scheme named Small Enterprise Fund
(SEF) of Taka 6.0 billion out of its own fund for supporting the development of
small enterprises in the country. Refinance facilities under the scheme were
extended for the banks and financial institutions at bank rate against their
financing to the small entrepreneurs, usually left out by the formal sector
financing. The scheme demonstrated a high market demand. Recovery against
refinanced loan will be used as a revolving fund for financing SME sector. An
amount of Taka 12.36 billion has been refinanced to 43 banks and non-bank
financial institutions under this fund up to end June 2011 against 13869
enterprises.
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 25
6. CHALLENGES OF AGRICULTURAL/RURAL FINANCING AND
PROPOSED REMEDIAL MEASURES
In the past, lot of questions and complaints were raised by the farmers at field
level on the effectiveness of credit polices. Typically, performance of various
lenders is determined based on credit disbursement, outstanding loan, recovery
rate etc. While selection/judgment of the appropriate clients and harassment for
obtaining credits are neglected. Encouragingly, Bangladesh Bank has upgraded
agricultural/rural credit policies particularly sets target for individual lenders and
offering some incentives. However, there is still scope for further improvement.
Therefore, following section tries to address the major challenges for agricultural
and rural financing and proposes some remedial measure to overcome these
difficulties.
6.1 Inadequate Rural Branch Offices
Branch network of the banks in the rural areas are not adequate. Sometimes,
bank branches are situated at upazilla level. Hence, farmers are reluctant to
handle the application and other formalities at upazilla level having their extreme
busyness during peak season of agricultural farming. On the other hand, PCBs do
not have adequate branches in rural areas while FCBs do not have any rural
branch offices to expand their rural or agricultural credits which tend to reduce
the business scale and performance. Hence, NGO-MFIs linkage program to
channeling the credit can be treated as positive movement but the concerning
matter is such linkage program increase the cost for lending. So, it is suggested to
adopt cost sharing mechanism or Bangladesh bank should consider providing soft
loan to limit the lending cost.
6.2 Farmer Selection Bias
Bangladesh bank has encouraged all scheduled banks to collect farmer
information from department of agricultural extension to identify the real farmers.
However, the selection bias is still prevail as bank officers given special priority to
their relatives, friends, and those maintain good relation with bank personnel in
selecting the borrowers. Thus, appropriate monitoring and supervisory approach
should be adopted by the central bank to reduce the tendency of malpractices by
the bank personnel.
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 26
6.3 Collateral Requirements
Typically, farmers have to keep some of his/her assets as mortgage for obtaining
loans from scheduled banks. Even, the formalities and procedures are complex
requires longer time. As most of the farmers are illiterate, they caution about the
formalities/contract eventually they lost their intention to borrow from formal
banks. Despite recent initiative for extending credit to marginal and small farmers
through guarantee of land owners or responsible person from village, has not
gained much success as small and marginal farmers find difficulties to accomplish
the requirements. Not to mention, group lending approach is so successful in
Bangladesh, hence it is proposed to adopt group guarantee approach same as
NGO-MFIs to expedite the agricultural credit disbursement.
6.4 Credit Recovery
It is apparent from previous discussion that the overdue as percentage of the
outstanding loans found higher which is definitely a concerning issue for the banks
providing agricultural credit in a long run. It may also be discouraged PCBs and
FCBs for extending agricultural credit furthermore in a larger scale although they
achieved significant recovery at present context. Besides taking legal action
against default farmers, there should have frequent motivation and propaganda
for encouraging farmers to repay their loans on time.
6.5 Balancing Farmer Preferences
Generally, farmers are enthusiastic to borrow from formal lenders particularly
from specialized banks (BKB, RAKUB) due to lower interest rates. However, most
of the farmers face difficulties to borrow from them due to collateral requirement,
complex application procedures, claim on bribe, lack of required amount of credit
and in timely fashion etc. Hence, they prefer to borrow from NGO-MFIs as easily
accessible to them and require less formality. There are concerns that NGO-MFIs
are little shy to lend to farmers in absence of a real group model, potential of
credit risk due to natural calamity, government pressure on subsidized interest
rate for agriculture sector etc. So, it is quite challenging to make balance between
farmer preference and the reality of agricultural credit market. To address such
challenges, it is suggested to adopt simple application and loan approval process
by the scheduled banks, meanwhile NGO-MFIs should be encouraged to extend
their group lending approach in agricultural lending.
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 27
6.6 Interest Rate and Repayment Methods
Generally, farmers have to pay higher interest rate for the loans they borrow from
NGO-MFIs. The initiative to channeling credit through NGO-MFIs is not so
productive. The concern is that the credit became costly for the farmers to have
their production profitable. This is because the NGO-MFIs borrow these funds from
PCBs/FCBs at high interest rate; after adding their cost the mark-up interest rate
on credit become above 20-22%, which is well above the market rate of interest
available for agricultural credit. So, the higher interest rate may shirk the market
access of PCBs and FCBs. Generally, NGO-MFIs provide credit for short period of
time and ask for weekly repayment which may not be suitable for agricultural
sector. It is expected that agricultural loans should be advanced at the beginning
of crops farming, livestock and poultry raising; fish farming etc. and repayment
should be made after getting returns from the investment. In the meantime, the
interest rate for agricultural credit should be caped at minimum level considering
agricultural as priority sector.
6.7 Political Interferences
In the past, there were several evidences on exemption of interest rate for
agricultural credit due to political favor, hence farmers waited for further
opportunities and delay to repay their loans. In addition, bank directors have
recruited on political consideration- the directors use the banks' vehicles for their
personal purposes as well as based on political wishes. Thus, it is suggested to
keep financial intermediaries away from such political good will.
6.8 Agricultural Credit Share Over Total Bank Advances
The percentages of agricultural credit over total bank credit are still comparatively
low. It is regarded that the allocation for agricultural credit was unrealistic
considering the importance of agricultural sector for achieving self-sufficiency in
food. So, allocation of agricultural credit should be increased considering growing
demand and importance of agricultural credit.
6.9 Uneven Distribution of Agricultural Credit
Within agricultural credit allocation among sub-categories, some like the livestock
and fisheries sub-sectors were neglected. Even, the target attained was only
between 50 to 70%, while other sub-categories almost reached their settled target
even exceeded the defined target. Considering the contribution of livestock and
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 28
fisheries sub-sectors (2.66 and 4.49% agricultural GDP) the allocation need to be
readjusted as well as must trace the reasons for lower target achievement.
6.10 Supervised Credit
Despite central bank initiatives, there is still lack of supervision and monitoring
services from lenders side particularly it is true for NCBs and SBs. Hence, farmers
are transferring agricultural credit to non-farm or business purposes as farming is
more risky compared to non-farming activities. To reduce such deviation of
agricultural credit there is nothing better than proper monitoring and supervision.
6.11 Agricultural Insurance
In Bangladesh, the agricultural insurance system has not yet been developed. The
earlier initiative on crop insurance failed due to lack of government patronization,
and lack of interest from insurance companies due to higher risk in agricultural
farming. Therefore, the government patronize insurance company (Jiban Bima)
should come forward to channeling the insurance facilities to agricultural sector
(crops, livestock, fisheries etc.)
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 29
7. CONCLUSION
Farmers need financial support for the shift from low-yielding traditional
agriculture to more costly but highly productive modern agriculture. Modern
agriculture comprises the use of improved inputs like High Yielding Variety (HYV)
seeds, chemical fertilizers and pesticides, irrigation, mechanical power and so on,
all of which require capital investment. In developing countries like Bangladesh,
the majority of poor farmers cannot afford to undertake this investment. The only
solution that can benefit them is the smooth flow of agricultural credit in adequate
amounts.
The history of agricultural development in all the advanced countries also
confirmed that an integrated system of credit provisioning has led each country to
the path of agricultural prosperity. More concentrated effort is therefore called for,
on the part of developing countries like us to initiate agricultural and rural
development through the strengthening of credit services to farmers. Agricultural
credit thus assumes great importance in an agrarian county that us trying to
modernize traditional agriculture.
Agricultural sector financial access has expanded over the decades with the
combined efforts of scheduled banks and NGO-MFIs. Not to mention, Bangladesh
bank policy on agricultural/ rural credit has promoted the access to credit for small
and marginal farmers. Although PCBs and FCBs contributed limited in respect to
credit disbursement but their participation in agriculture/rural financing deemed
as major movement of formal private banks to financing in rural Bangladesh.
Many PCBs and FCBs have formed linkages with NGO-MFIs for expanding market
horizon in a viable and sustainable manner, while NCBs and SBs have been using
their existing branch network to do so.
Since, there is a significant positive relationship between agricultural credit and
production, there should have demand for favorable agricultural credit policy and
implication which can increase the budgetary allocation as well as will take steps
to overcome the target shortfall. Meanwhile, policy makers should emphasize on
monitoring and supervision to extend the credit to the target clients. Finally, there
should have incentive for financial intermediaries to encourage them to financing
the agricultural sector and rural areas in a sustainable manner.
8. REFERENCES
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 30
Ahsan, A.S.M. Fakhrul
Bangladesh Bank (2012), Annual Report, Year 2010-2011, Bangladesh
Bank, Dhaka
Bangladesh Bank (2012), Agricultural/Rural Credit Policy and Programme for
the FY 2011-2012, Bangladesh Bank, Dhaka
Bangladesh Bureau of Statistics (2008), Yearbook of Agricultural Statistics
of Bangladesh, 2006, Bangladesh Bureau of Statistics, Dhaka
Bangladesh Institute of Bank Management (2011), Banking Research Series
2010, Bangladesh Institute of Bank Management, Dhaka
Hossain, Bayes (2009), Rural Economy and Livelihoods Insight from
Bangladesh, A H Development Publishing House, 2010
Sarker, R. A (2006), Rural Financing and Agricultural Credit in Bangladesh:
Future Development Strategies for Formal Sector Banks, The University
Press Limited, 2006
Website Visited:
www.bb.org.bd
www.moa.org.bd
www.mof.gov.bd
www.bbs.gov.bd
www.badc.gov.bd
www.brdb.gov.bd
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 31