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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. 01 02 03
Name & Designation Chandan Kumar Roy Assistant Director Golam Mostafa Assistant Director Akter Jahan Shukhee Assistant Director
Roll No. 32 37 46
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page
AGRICULTURAL AND RURAL CREDIT FINANCING IN BANGLADESH
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page
2 2.3 3 3.1 1.3 5 5.2 5.1 2.6 6.10 6.9 6.3 6 6.8 6.1 4. 1 1.4 6.TABLE OF CONTENTS Sl. 07 08 08 09 09 09 11 12 12 14 18 18 20 22 23 23 24 24 26 26 26 27 27 27 28 28 28 29 29 29 30 31 Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 4 .11 7 8 Topic Introduction What is Agricultural Credit? What is Rural Credit? Agricultural & Rural Credit Agencies in Bangladesh Need for Institutional Framework/Network Rural Financial Market NGOs as Source of Rural Credit Government Endeavor in the Past The Nationalized Commercial Banks Role of Specialized Agricultural Banks Present Scenario of Agricultural and Rural Credit in Bangladesh Disbursement & Recovery of Agricultural Loan Disbursement of Agricultural/Rural Credit by Lenders Agricultural/Rural Credit Disbursement Target Agricultural/Rural Credit Initiative by Bangladesh Bank Policy Formulation Credit Targeting Credit Refinance Challenges of Agricultural/Rural Financing & Proposed Remedial Measures Inadequate Rural Branches Farmers Selection Bias Collateral Requirements Credit Recovery Balancing Farmers Preferences Interest Rate & Repayment Method Political Interference Agricultural Credit Share over Total Bank Advances Uneven Distribution of Agricultural Credit Supervised Credit Agricultural Insurance Conclusion References Page No.7 6.1 5.5 6.1 6.1 3.2 4 4.3 6.2 2 2. No.2 6.2 4.
Elaboration Agrani Bank Limited Association for Social Advancement Agricultural Development Bank of Bangladesh Agricultural Development Bank of Pakistan Agricultural Development Finance Corporation Bangladesh Agricultural Development Corporation Bangladesh Academy for Rural Development Bangladesh Bureau of Statistics Bangladesh Krishi Bank Bangladesh Rural Advancement Committee Bangladesh Rural Development Board Bangladesh Samobay Bank Limited Foreign Commercial Bank Financial Year Grameen Bank Gross Domestic Product Government of Bangladesh High Yielding Variety International Fund for agricultural Development Janata Bank Limited Micro Finance Institution Nationalized Commercial Bank Non-Government Organization Private Commercial Bank Palli Karma Sohayok Foundation Rajshahi Krishi Unnayan Bank Special Agricultural Credit Programme Specialized Bank Sonali Bank Limted Small Enterprise Fund Small Farmers Development Projects Taka Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 5 .LIST OF ABBREVIATIONS Abbreviation ABL ASA ADBB ADBP ADFC BADC BARD BBS BKB BRAC BRDB BSBL FCB FY GB GDP GOB HYV IFAD JBL MFI NCB NGO PCB PKSF RAKUB SACP SB SBL SEF SFDP Tk.
........ This paper has been grouped into eight chapters..... Chapter 3 describes the past endeavor by government regarding agricultural and rural credit.. We are grateful to our honorable course director.... The data used in this assignment work have been collected from the secondary sources.. 2012 1.... INTRODUCITON Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 6 . Chapter 7 draws conclusion and chapter 8 is the references sources studied in preparing the assignment............... online resources have been studied for preparing this assignment paper....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.......... chief course coordinator and section coordinator for their valuable guidance and direction.. Akter Jahan Shukhee .. Dhaka April 17. Present scenario of agricultural and rural credit has been depicted in chapter 4...... Chapter 1 is the introductory part while the chapter 2 describes the agricultural credit agencies in Bangladesh.. Initiative taken by Bangladesh Bank to boost up agricultural and rural credit has been shown in chapter 5... Chandan Kumar Roy Bangladesh Bank Training Academy (BBTA) Mirpur-2.......... Chapter 6 focuses on the challenges of agricultural and rural credit and possible remedial measures. . reports... journals. Golam Mostafa .. This work has been carried out following the instructions of the course administration....... Various books.....
Agriculture forms the base for economic development. and 6 percent of export income. guidance and supervision. Agriculture continues to play a pivotal role in rural growth. while employing more than 48 percent of the labor force. fodder and other agro-products to a rising population. The rural people (specially the farmers) depend entirely on agriculture for their livelihoods. Bangladesh Bank. It is only through the development of the agriculture sector that they can increase their earnings and enhance their standard of living. and the food processing and tobacco manufacturing industries are equally dependent of agricultural products. The food security of the country is dependent on agriculture. Bangladesh is a predominantly rural country. It is the oldest and most widely practiced form of production activity in the world and has evolved gradually with the passage of time. by its active direction.1 What is Agricultural Credit? Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 7 . 1. The fate of the textile industry. is crucially linked with the supply of raw cotton. Thus. for instance. Finance is the lifeblood of all economic activity. agricultural and rural credit financing has got special attention in the financial system of Bangladesh economy. Development of agriculture still holds paramount importance today. not merely because it provides food. Agriculture also provides many of the raw materials used by industry. Extending credit to the rural economy is crucial for the development of the rural economy as well as overall development of Bangladesh. Agriculture contributes significantly to overall economic growth all over the world. but because it also ensures a strong base for the extension of markets and ingestible resources. has set priority in agricultural and rural credit financing in Bangladesh. Agriculture is thus the most important sector of the national economy generating more than 20 percent of the country’s Gross Domestic Product (GDP). with most of its population dependent on agriculture. Development of the rural economy is thus should be central to Bangladesh’s Development Strategy.
securing new equipment. to purchase production inputs or agricultural machinery. or even funds to support research into various aspects of land development within a rural community. to meet consumption expenses etc. Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 8 . to make permanent improvements on land.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. Depending on the nature of the organization. credit plans may focus on providing mortgage assistance. It is needless to mention that credit plays a vital role in accelerating agricultural production. 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. 1. Farmers may borrow to purchase new agricultural land or to release mortgaged lands. The money that is borrowed by farmers to meet all such requirements is termed as “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. Rural credit is any type of lending program or line of credit that is aimed at impacting a rural population in some manner.
particularly the mohajons and the land owners had been charging exorbitant rate of interest on the money they lent out and. where small-scale farmers have always had difficulty gaining access to banks and credit societies. 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. (b) small business and (c) cooperative development. Because. However. But there is the allegation that.2. proper institutional arrangements are most essential. However. AGRICULTURAL & RURAL CREDIT AGENCIES IN BANGLADESH 2. rural credit agencies generally have to cater to the financing need of (a) agriculture. 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 . Friends and relatives also had a role to play in this respect. 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. Even well-designed programs can fail if the institutional framework is not adequate. these credit sources are considered a bane rather than a boon. hence. But an opposite view of this is also available which can hardly be overlooked. the basic truth is that everywhere including Bangladesh. they engage in large financial intermediation for the small groups and serves as friend in need. In an imperfect credit market. the Rural Financial Market (RFM) of Bangladesh had been controlled mainly by professional money lenders (mohajons) and land owners. are marked as "usurious monopolist". 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.2 Rural Financial Market From time immemorial.1 Need for Institutional Framework/Network For any credit program to be implemented effectively. This kind of situation also prevails in other developing countries. 2. For rural advancement of a nation. professional or regional status. Rural credit programs also have to be designed keeping the socio economic condition of the target people in view. in extreme distress. these agriculturalists-turned money lenders perform a socially useful function of financial mediation.
the Foreign Commercial Banks (FCBs) etc. 2. the specialized commercial banks like Bangladesh Krishi Bank (BKB) and Rajshahi Krishi Unnayan Bank (RAKUB). More often than not. 3. landowners etc. friends/ relatives. 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.investment is concerned. Semi-Formal sources include Palli Karma Sohayok Foundation (PKSF). Private Commercial Banks (PCBs). 1. Other sources include Bangladesh Rural Development Board (BRDB). Formal Financial Market Informal Financial Market 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. Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 10 . Informal sources of rural credit include moneylenders. Non Government Organizations (NGOs). traders. Cooperative Societies. They include Nationalized Commercial Banks (NCBs).
another source of rural credit is the NGOs. in 2000. Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 11 . about 6 million of the estimated 11 million functionally landless households have received the advantage of NGO credit. a large number of NGOs stepped in to supplying rural credit in remote areas as part of their social development programmes. Presently. It is estimated that. Following the success of the Grameen Bank.3 Non Government Organizations (NGOs) as Source of Rural Credit In the context of Bangladesh.Bangladesh Bank Nationalized Commercial Bank Bangladesh Krishi Bank BSBL RAKUB Branches UCCA Branches Branches KSS Farmers Members Individual Farmers Individual Farmers Figure 2: Channel of Agricultural Credit 2. These programmes targeted mostly women from landless and poor households. ASA and BRAC are mentionable among the large NGOs operating in Bangladesh and also involved in agricultural and rural financing.
Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 12 . SBL had expended its industrial credit programme by extending financial support for the establishment of large. commercial banks had played an insignificant role in agricultural and rural credit. also extends scheme assistance for rural irrigation. The agricultural credit activities of the NCBs in Bangladesh need to be examined in relation to the national banking policy on agricultural credit. the Swanirvar Self Reliance Programme and the Krishi Shakha Programme and extends credit to farmers for sugarcane.3. Even after this event.1 The Nationalized Commercial Banks. The Bank also extends direct financial support to fertilizer dealers. The major rural credit scheme of SBL provides credit suport for the SACP. SBL supports fisheries and shrimps development projects. It has also continued to follow government policies for financing people of smaller means on easy terms and conditions. rural housing and rural transport. GOVERNMENT ENDEAVOR IN THE PAST 3. 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). SBL commenced its rural financing programme in 1973 by financing the projects of Bangladesh Rural Development Board (BRDB). banana and jute cultivation. medium and small scale industries. Through the SACP. in order to strengthen the national economy to accelerate the pace of industrialization. SBL started directed financing programme for rural people from 1976.1 Sonali Bank Limited Sonali Bank Limited (SBL) has been extending financial support on priority basis to potential growth sectors in Bangladesh including agriculture. trade and commerce.1. and also finance the BRDB Scheme for establishing Central Cooperative Society at each Thana. Prior to the liberation of Bangladesh in 1971. 3. the GOB induces the NCBs to participate more actively in the disbursement of agricultural credit. SBL provides finance under the IFAD Credit Programme and Bangladesh Swiss agricultural project. For rural poverty alleviation. industry. The past endeavor for extending credit by the three major NCBs is analyzed next.
in order to strengthen the economy of Bangladesh. silk weaving. another leading NCB. Rural Electrification and Transport. agricultural and irrigation equipment including power pumps.75 per cent in 2004. industry. Its credit activities have extended to most sub sectors of rural financing including agricultural and non agricultural credit programmes.3. and so on. the Swanirvor Self Employment Programme and rural finance projects. Since then. Agrani Bank Limited has been involved in rural finance since 1975 to 1976. Under rural infrastures. 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. Community Schools. Agrani Bank Limited has witnessed an expansion in terms of deposits. under which Agrani Bank Limited took over the assets and liabilities of the Habib Bank Limited and the Commerce Bank Bank Limited which had functioned in East Pakistan. 4 Circle offices. 54 Zonal offices and 38 branches handling foreign exchange. Credit operations by ABL are dominated by general lending.1. advices and branches. tannery. Thus although it has been an active participant in the rural credit sector. commerce and trade. including its Head Office. was brought into existence by the Bangladesh Bank (Nationalization) Order of 1972. ABL finances Grameen Godown and Food Godown Projects.2 Agrani Bank LImted Agrani Bank Limited (ABL). it had a network of 888 branches located through out the country. JBL has been extending credit assistance to priority production activities like tea. jute. sault manufacture. DANIDA/NRDP I & II. ABL supports Grameen Development Projects and the BRDB Rural Poor Programmes. The bulk of its credit resources Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 13 . of which 528 (61 per cent) were rural branches. At the time of commencing operations. Village Machinery. 582 branches (66 per cent) of the Agrani Bank’s 888 branches were located then in rural areas. and livestock loan and shrimps culture and small scale duckery and poultry projects. The principal rural finance schemes of ABL provide credit support for the crop loan programme. banana and coconuts plantations and the cultivation of minor corps.3 Janata Bank LImted Like other NCBs.1. the share of agricultural credit in its lending portfolio amounted to a meager per cent in 1997 and 2. Rural Housing. 3. By the end of 2002 the total number of branches had risen to 870. and finances small farmers under IFAD.
fisheries development and salt production. Its rural credit programmes thus cover the gamut of rural activities in Bangladesh and seek to accelerate rural development. small traders and so on. and is examined next. Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 14 . 3. Rajshahi Krishi Unnayan Bank (RAKUB) and BSBL comes to the fore. rural artisan. Despite the wide base of their financial operations. destitute women. rural transport. cotton and tea. as well as allied activities like horticulture. rural electrification. The credit policies and programmes of JBL are designed to cover all occupational groups among the rural population. blacksmiths. Hence the role of the specialized agricultural banking institutions like Bangladesh Krishi Bank (BKB). as well as project loans to small farmers. livestock and poultry rearing.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. development of cottage industries. JBL has financed rural activities covering the cultivation of different seasonal crops. Crop Loans through CIDA assistance. rural house construction and so on. Land mortgages and livestock loans for the purchase of bovine livestock like buffalo and cattle are also supported. Under its rural lending programmes. paddy processing. petty business. the Swanirvor Credit Programme and Small Farmers Development Project (SFDP). Some of its major rural credit schemes include the SACP. shrimp culture. educated youth. JBL extends credit to weavers and supports self-employment programmes for trained rural youths. weaving. horticulture development loans and loans for the purchase of irrigation equipment and powered pumps sets.are deployed among traders and industrialists in the urban areas as well as in rural finance to farm and non farm activities. In the non-farm sector. installation of irrigation equipment. their commitment of financial resources towards the declared policy objective of strengthening agriculture and rural development is meagre and leaves much to be desired. It also extends infrastructural credit for rural transport and rural electrification and finances rural house building. beef and goat fattening. fishermen. loans for the cultivation of sugarcane. including landless farmers’ labors. JBL also finances a variety of rural schemes. Like the other NCBs.
As the pioneer specialized agricultural bank in Bangladesh. warehousing or processing of agricultural produce. 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. Since the purposes of both two state-owned institutions were similar.61 crore (91 per cent) was paidup and fully subscribed by the Government. policies and functions of BKB deserve special attention. The primary objective of BKB is to provide credit facilities of individuals and cooperative those are engaged in crop (i. 1973 (President’s Order No. However.3. The Bangladesh Krishi Bank (BKB) is the direct successor of ADBP.e. After the liberation of Bangladesh in December 1971. the need for a specialized agricultural credit institution was acutely felt. BKB has played a vital role by supplying nearly 60 per cent of the institutional credit support received by agriculture. they were merged in February 1961 and renamed the Agricultural Development Bank of Pakistan (ADBP). the Government established the Agricultural Bank of Pakistan in 1957 to supplement the credit effort of the ADFC. of which Tk. 27 of 1973) published in April 1973.2.1 Bangladesh Krishi Bank (BKB) As it name suggests. Consequently.00 crore. BKB also extends financial and technical assistance to individuals and cooperative societies engaged in agro-based cottage industries. 50.45. IN the interest of agricultural development in Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 15 . and in storage. 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 Bangladesh Agricultural Bank or BKB) is to provide credit support for the promotion of agricultural and allied activities. After the large-scale migration of private professional moneylenders to Indian following the creation of Pakistan in 1947. Hence the history. The authorized capital of the Bank was Tk. non-plantation) production. To meet this need. objectives. the specific function of the Bangladesh Krishi Bank (literally. the demand for agricultural credit was so large the ADFC was unable to cope with the situation. the Government of Pakistan established the Agricultural Development Finance Corporation (ADFC) in 1952 to extend medium and long-term credit to agriculture.
RAKUB is the largest agricultural credit institution operating in the Division. The genesis of RAKUB lay in the special circumstances faced by Rajshi as one of the more backward and impoverished regions of Bangladesh. The Head Office of RAKUB is located at Rajshahi. This number increased significantly to 936 in 2004-05. In 197273. Of the 936 BKB branches that now exist. implying nine-fold growth in the BKB branch network compared to 1972-73. 815 are located in rural areas against 121 in urban areas.50 million was paid-up in the year of RAKUB’s establishment. stood at 349 as on June 2004. total paid-up capital of RAKUB had increased to Tk. The number of RAKUB branches. Regional offices of RAKUB were opened at each to the 18 district headquarter in Rajshahi Division. 3.00 crore. 1987. Under the provisions of the BKB charter. 58 on 1986 and started functioning within the administrative sheer of Rajshahi Division on March 15.2 Rajshahi Krishi Unnayanb Bank (RAKUB) The Rajhsahi Krishi Unnayan Bank (literally. BKB aims to increase agricultural output and thereby to improve the economic and social conditions of the country’s farmers. in order to liaise with the Government and NGOs. from which Tk.Bangladesh. nearly all of them located within the Divison. the Rajshahi Agricultural Development Bank. 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. In March 1999. To extend the banking facilities available to the rural population.1500 million. BKB only had 102 branches. the divisional headquarters.2. A single RAKUB branch was established outside the Division in Dhaka. a 7-member Board of Directors was constituted in January 1988 and entrusted with the responsibility Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 16 . The authorized capital for RAKUB was set at Tk.128. BKB has been continuously expanding its network of branches throughout the country. In accordance with the Ordinance governing RAKUB. or RAKUB) was constituted under the President’s Ordinance No. 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.
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. RAKUB’s lending portfolios provide financial support to the production of various seasonal crops.Like BKB. beef and goat (mutton) fattening and the development of fisheries. which operates throughout the country. The Managing Director of RAKUB thus fulfills dual responsibilities as an ex-official Director on the Board. RAKUB also offers technological credit for the supply of low-priced shallow tube-wells. while also functioning simultaneously as commercial bank. irrigation equipment and farm machinery. . Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 17 . RAKUB also finances activities aimed at rural poverty alleviation and employment generation through farm as well as no-farm activities. and to small traders located in urban areas. RAKUB extends credit support to weaving activity and the development of cottage industries. as well as paddy processing. livestock and poultry rearing. In addition to agricultural and agro related activities. etc. Besides these. with the help of its divisional network of 349 branches located at municipal settlements and rural growth-centre and other areas in Rajshahi Division. RAKUB also fulfils the functions of a specialized rural credit bank. petty trade. and the installation of irrigation equipment. loans towards crop production and crop intensification by the marginal and small-farming system. and extends credit support to the Women’s Entrepreneurship Development Programme. Major rural credit activities undertaken by RAKUB include SACP and the Swanirvar self-reliance schemes. loan disbursements towards livestock acquisition and fisheries development. RAKUB funds other allied activities like horticulture development.of steering the operations of RAKUB in the desired direction.
fisheries and animal resources over other sectors in disbursing agricultural credit. The policy aimed at increasing the scope of agricultural credit and financial inclusion. The Government has therefore accorded highest priority to agriculture sector to enable the country to meet this challenge.17 billion higher by 13.6 percent marked by the remarkable participation of private sector banks through their branch network as well as linkages with Micro Finance Institutions MFIs). PRESENT SCENARIO OF AGRICULTURAL AND RURAL CREDIT IN BANGLADESH 4.17 billion in FY10.2 percent in FY10 which accounts for 19.0 percent in FY11 lower than 5. In line with Government efforts Bangladesh Bank also continued its proactive policy and programme support to boost up agricultural production.9 percent of GDP. 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. expanding banking services to rural areas using information technology. BB's policy highlights in agricultural/ rural credit policy and programme for FY11 ere: • Priority has been given in the 3 core sectors viz. Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 18 . 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.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. crop. The achievement against this target was 96. deciding the course of action for adapting to the adverse impact of climate change including credit norms for a number of new crops. In spite of favorable weather condition and strong policy support the agriculture sector grew moderately by 5.49 percent compared to the actual disbursement of Taka 111.4.
bio-gas and ETP sector has also been continued in the agricultural/ rural credit programme in FY11. A special refinance scheme for sharecroppers has been continued in FY11 which BB undertook in agricultural credit programme in FY10.Another refinance scheme for solar energy.Agricultural credit has been provided to the small. marginal farmers and sharecroppers by single or in a group following easy process. Women borrowers have been given priority in disbursing agricultural/ rural credit. coastal belt etc. Use of IT and mobile phone in agricultural credit system has been encouraged. including share-croppers.66 billion to more than 1.40 lac share croppers up to FY11. Under this refinance scheme BB has been refinanced Taka 2. • • For the sake of transparency in credit disbursement emphasis has been given on publicity of disbursement of agricultural credit at union level. BB has been provided Taka 0. • • • • . Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 19 . Successful farmers have been provided with necessary credit so that other farmers may get encouragement with their success.13 billion to refinance the banks under this scheme. especially n less developed and neglected areas (i. haor.). 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.e char.• To ensure timely availability of necessary amount of credit to the small and marginal farmers.
26 0.19 0.2 0.99 59.63 76.3 5.88 0.57 28.72 26.7 60.34 0. The target attainment in FY11 was 102.42 12.19 225.14 171.51 199.67 7.86 37.49 35.2 5.29 29.54 0.23 FY10 84.43 13.35 21.61 45.1 36.10 billion in FY11 against the disbursement target of Taka 89.04 34.65 16.Comparative Statement of Disbursement & Recovery of Agriculture loan (Billion Taka) Disbursement Disbursement (Target) A B C D E F G 2 A B C D E F G 3 4 5 6 7 8 9 Crops Loan Purchase & Installment of irrigation equipment Livestock Marketing of agricultural goods Fisheries Poverty Alleviation Other Agricultural activities Actual Disbursement Crops Loan(Other than tea) Purchase & Installment of irrigation equipment Livestock Marketing of agricultural goods Fisheries Poverty Alleviation Other Agricultural activities Term Structure of loan disbursed Short term Longer term Recovery Total outstanding Loan Overdue overdue as percent of outstanding FY09 74.11 82.62 3.79 billion in FY10.79 33.03 18.57 69.41 0.18 58.27 0.97 21.68 7.15 92.61 63.04 89.78 24.88 0.53 4.43 1.99 13.53 35.86 billion (excluding PCBs and foreign banks) was 11.52 percent as against 97.89 FY11 89. 4.55 23.16 30.77 52.79 3.06 3.7 6.66 31.3 4.2 4.2 Disbursement of Agricultural & rural Credit by Lenders in FY11 The actual disbursement of Taka 92.14 66.15 0.1 0.86 13.61 26.25 percent higher than the disbursement of Taka 82. 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 .52 4.66 31.08 0.94 percent (excluding PCBs and foreign banks) in the previous year.44 15.
82 30.19 and 2.19 10.89 32.00 percent was in the form of long-term loans for irrigation equipments.92 28.98 23.31 26.29 121.14 52. four NCBs and BRDB although played key role in disbursement of agricultural and rural finance. agricultural machinery.18 11.84 121.62 29.97 Outstanding 64.79 121.3 Agriculture/Rural Credit Disbursement Target Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 21 .47 12. The total outstanding loan in the agricultural sector (including all banks) in FY11 increased by Taka 29.35 31.60 percent respectively.49 36.92 (Billion Taka) overdue as % of Outstanding 40.83 16. On the other hand.84 111.5 percent and 28.92 billion over the previous year's level Two specialized banks viz.1 5.31 126.28 29.15 10.77 60.54 0 4. NCBs.46 24.02.1 7. RAKUB.97 64.01 89.74 121.34 10. However.61 224.71 91.92 225.12 83. RAKUB.25 1.48 Overdue 25. 4.91 0. BKB.86 percent to Taka 254.02 About 63.18 23.00 percent of disbursement was as short term lending and the rest 37.95 3.31 percent respectively in FY11.06 36.17 Actual Disbursement 22. BSBL and BKB exceeded the disbursement target by 100.13 14.11 50. FCBs and BRDB fell short of targets by 20.36 116.08 89.48 101.40. 6.0 and 16. PCBs.17 39.93 254.91 6.Lender SCBs BKB RAKUB BRDB BSBL Sub Total Foreign Banks PCBs Sub Total Grand Total FY11 FY10 FY09 Disbursement Target 25.0 percent respectively of total short term loans.8 254.4 21.86 5.17 115.56 59.7 0.17 92.87 195. 14.37. 11. the remarkable contribution of foreign and private commercial banks are also imperative in this regard.8 26.25 60.05 billion or 12. livestock etc.72 0 1.84 Recovery 20. The lion's share of the short-term credit was for production of crops and poverty alleviation programmes constituting 63.04 60.91 0.99 3.5 0.22 33.92 Summary 126.12 93.65 0.75 45 11.4 7.02 92.7 4.
A target of Tk.00 99.800.00 169.00 141. Foreign Banks 1 Standard Chartered Bank 2 Bank Al Falah Limited 3 Commercial Bank of CL 4 Citi Bank N.00 87.00 19. Private Commercial Banks: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Premier Bank Limited AB Bank Limited Al-ArafahIslami BL Bank Asia Limited BASIC Bank Limited Bangladesh Commecrce Bank Ltd Brac Bank Limited Dhaka Bank Limited Dutch Bangla Bank Ltd Estern Bank Limited Exim Bank Limited First Security Islami Bank Limited IFIC Bank Limited Islami Bank Bangladesh Limited Jamuna Bank Limited Mercantile Bank Ltd Mutual Trust Bank Ltd National Bank Ltd NCC Bank Limited One Bank Limited Prime Bank Limited Pubali Bank Limited Shahajalal Islami Bank Ltd. Banks 1 Bangladesh Krishi Bank 4600.00 5.00 128.00 97.00 151.00 4 Rupali Bank Limited 130.00 232.00 6.00 129.00 104.00 11. break up of which as follows: Agriculture/Rural Credit Disbursement Target for the Banks in 2011-12 (Taka in crore) Sl No.00 172.00 2 Janata Bank Limited 750.00 97.00 85.00 198.00 78.00 AND RURAL CREDIT INITIATIVE BY BANGLADESH BANK Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 22 .00 D.00 Bank Sub Total 5820. 5 Habib Bank Limited 6 HSBC 7 National Bank of Pakistan 8 State Bank of India 9 Worry Bank Sub-Total 174. Social Islami Bank Ltd South East Bank Ltd Standard Bank Ltd City Bank Limited Trust Bank Limited UCBL Uttara Bank Limited Sub Total 96.00 200.00 16.00 547. Name of the Banks Target (Taka) Sl No.00 80.00 189. Name of the Banks Target (Taka) A.00 18.00 135.00 B.13.00 C.800 crore has been fixed up for FY2011-2012 by Bangladesh Bank.00 196. State-owned specialised Com.00 143.A.00 114.Total 2690.00 Sub.00 171.00 113.00 1. State Owned Commercial Bank 1 Sonali Bank Limited 1150.00 1000.00 179.00 115.00 2 Rajshahi Krishi Unnayan 1220.00 122.00 4743.00 99.00 105.00 3 Agrani Bank Limited 660. AGRICULTURAL Total Target 13.00 21.
BKB.. especially on matters governing crop loans. sector-wise and target group-wise credit needs of farmers to enable effective channelization of finance. The major functions of the Bangladesh Bank that define its role in relation to agriculture credit are discussed below- 5. utilization and recovery of agricultural credit for implementation through the NCBs. it allocates funds for the credit program to different Banking institutions and closely monitors the implementation of policy guidelines. The policy guidelines also make specific mention of the norms on borrower eligibility. Specific time schedules are announced for disbursement of various types of credit. In view of the country’s primary dependence on agriculture.1 Policy Formulation Agricultural Credit and Financial Inclusion Department of Bangladesh bank issues detail policy guidelines for proper disbursement. This policy is implemented through the credit operations of the NCBs as well as BKB and RKUB. Bangladesh Bank also provides institutional supports for efficient implementation of agricultural credit policies. Bangladesh Bank has the authority to announce the agricultural credit policy applicable for each year. Participating banks are expected to follow these schedules and norms meticulously.As the apex monetary institution of the country. rules and regulations that govern institutional credit and also monitors all development activities in the national economy. After the annual agricultural credit program has been formulated by Bangladesh Bank in consultation with the Ministry of Agriculture. the quantum of credit support to be disbursed for various crops. It formulates the polices.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 Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 23 . 5. Bangladesh Bank exercises ultimate control over all banking programmes in Bangladesh. In farming credit norms for financing the agricultural sector. the bank takes account of the crop wise. Bangladesh Bank also functions as the lender of the last resort. and RAKUB. While resolving any difficulties that may be encountered by banking institutions. and the period over which credit recovery is to take place.
Refinance facilities were provided to banks and financial institutions at the bank Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 24 .64 37.03 5.16 0.0 billion from November 2001 out of its own fund.45 1.28 39. Details of Bangladesh Bank's refinance to different institutions are shown in the following Table.12 59.3. Bangladesh bank earlier used to prepare an annual agricultural credit program to be followed by all financing banks and institutions. Bangladesh Bank has expended liberal refinance facilities to all formal sectors agricultural credit.58 1.04 4.73 41.91 17.12 57. 5.04 3.64 billion (including interests) was recovered from different banks and institutions leaving an outstanding balance of Taka 56.94 2.26 0.90 0.40 1.20 0.80 17.1 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.86 billion from Bangladesh Bank.crop production and achieving overall development of the agricultural sector.04 3.42 0.58 2.84 0.12 56. Bangladesh Bank’s Refinance against Agriculture Loans Lender Refinanc e FY 09 ReOutstandin payme g nt Refinanc e FY 10 ReOutstandin paymen g t Refinanc e (billion Taka) FY 11 ReOutstandin paymen g t BKB RAKU B BSBL BRDB Total 1. An amount of Taka 3. No other institutions availed refinance facilities from Bangladesh Bank in FY11.80 1.86 2.21 0.3 Credit Refinancing To ensure smooth and timely disbursement of agricultural credit to farmers at reasonable rate of interest.94 2. Bangladesh Bank launched a scheme of Taka 1.96 17.27 1.30 0.00 1.03 billion (including interests) as on end June 2011.42 0. only RAKUB has enjoyed refinance facilities to the tune of Taka 1.40 1. During FY11. institutions since 1983.86 1.
3 Bangladesh Bank Fund: Bangladesh Bank introduced a refinance scheme named Small Enterprise Fund (SEF) of Taka 6.3. 5. Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 25 . 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.2 Refinance for Small Enterprises 46 banks and non-bank financial Institutions have signed participation agreement with Bangladesh Bank for financing SME sector under following schemes: 5. Recovery against refinanced loan will be used as a revolving fund for financing SME sector.0 billion out of its own fund for supporting the development of small enterprises in the country.rate under the scheme.3. usually left out by the formal sector financing.3 billion has been disbursed under this scheme till end June 2011. The scheme demonstrated a high market demand. An amount of Taka 1. Refinance facilities under the scheme were extended for the banks and financial institutions at bank rate against their financing to the small entrepreneurs.
Hence. 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.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. and those maintain good relation with bank personnel in selecting the borrowers. Bangladesh Bank has upgraded agricultural/rural credit policies particularly sets target for individual lenders and offering some incentives. CHALLENGES OF AGRICULTURAL/RURAL FINANCING AND PROPOSED REMEDIAL MEASURES In the past.6. Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 26 . Sometimes. 6. However. bank branches are situated at upazilla level. it is suggested to adopt cost sharing mechanism or Bangladesh bank should consider providing soft loan to limit the lending cost. Hence. Thus. performance of various lenders is determined based on credit disbursement. following section tries to address the major challenges for agricultural and rural financing and proposes some remedial measure to overcome these difficulties. the selection bias is still prevail as bank officers given special priority to their relatives. outstanding loan. appropriate monitoring and supervisory approach should be adopted by the central bank to reduce the tendency of malpractices by the bank personnel.1 Inadequate Rural Branch Offices Branch network of the banks in the rural areas are not adequate. Therefore. lot of questions and complaints were raised by the farmers at field level on the effectiveness of credit polices. However. friends. 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. Encouragingly. recovery rate etc. While selection/judgment of the appropriate clients and harassment for obtaining credits are neglected. So. there is still scope for further improvement. 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. Typically. 6.
complex application procedures. hence it is proposed to adopt group guarantee approach same as NGO-MFIs to expedite the agricultural credit disbursement. 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. has not gained much success as small and marginal farmers find difficulties to accomplish the requirements. farmers have to keep some of his/her assets as mortgage for obtaining loans from scheduled banks. RAKUB) due to lower interest rates. there should have frequent motivation and propaganda for encouraging farmers to repay their loans on time. the formalities and procedures are complex requires longer time. Even. To address such challenges. government pressure on subsidized interest rate for agriculture sector etc. potential of credit risk due to natural calamity. group lending approach is so successful in Bangladesh. they prefer to borrow from NGO-MFIs as easily accessible to them and require less formality. farmers are enthusiastic to borrow from formal lenders particularly from specialized banks (BKB. claim on bribe. Despite recent initiative for extending credit to marginal and small farmers through guarantee of land owners or responsible person from village. Not to mention. lack of required amount of credit and in timely fashion etc. 6. As most of the farmers are illiterate. Hence.3 Collateral Requirements Typically. most of the farmers face difficulties to borrow from them due to collateral requirement. it is suggested to adopt simple application and loan approval process Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 27 . However.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 is quite challenging to make balance between farmer preference and the reality of agricultural credit market. Besides taking legal action against default farmers. 6. So. There are concerns that NGO-MFIs are little shy to lend to farmers in absence of a real group model. they caution about the formalities/contract eventually they lost their intention to borrow from formal banks.5 Balancing Farmer Preferences Generally.6.
6. bank directors have recruited on political consideration. The initiative to channeling credit through NGO-MFIs is not so productive.9 Uneven Distribution of Agricultural Credit Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 28 .the directors use the banks' vehicles for their personal purposes as well as based on political wishes. It is expected that agricultural loans should be advanced at the beginning of crops farming.6 Interest Rate and Repayment Methods Generally. the higher interest rate may shirk the market access of PCBs and FCBs. allocation of agricultural credit should be increased considering growing demand and importance of agricultural credit. fish farming etc. after adding their cost the mark-up interest rate on credit become above 20-22%. hence farmers waited for further opportunities and delay to repay their loans.by the scheduled banks. 6.8 Agricultural Credit Share Over Total Bank Advances The percentages of agricultural credit over total bank credit are still comparatively low. In addition. Generally. meanwhile NGO-MFIs should be encouraged to extend their group lending approach in agricultural lending.7 Political Interferences In the past. farmers have to pay higher interest rate for the loans they borrow from NGO-MFIs. It is regarded that the allocation for agricultural credit was unrealistic considering the importance of agricultural sector for achieving self-sufficiency in food. 6. Thus. NGO-MFIs provide credit for short period of time and ask for weekly repayment which may not be suitable for agricultural sector. So. 6. there were several evidences on exemption of interest rate for agricultural credit due to political favor. This is because the NGO-MFIs borrow these funds from PCBs/FCBs at high interest rate. livestock and poultry raising. The concern is that the credit became costly for the farmers to have their production profitable. So. and repayment should be made after getting returns from the investment. it is suggested to keep financial intermediaries away from such political good will. which is well above the market rate of interest available for agricultural credit. In the meantime. the interest rate for agricultural credit should be caped at minimum level considering agricultural as priority sector.
To reduce such deviation of agricultural credit there is nothing better than proper monitoring and supervision. The earlier initiative on crop insurance failed due to lack of government patronization. Considering the contribution of livestock and fisheries sub-sectors (2.11 Agricultural Insurance In Bangladesh.66 and 4. there is still lack of supervision and monitoring services from lenders side particularly it is true for NCBs and SBs. the target attained was only between 50 to 70%. the agricultural insurance system has not yet been developed. Therefore. fisheries etc.Within agricultural credit allocation among sub-categories. Hence. while other sub-categories almost reached their settled target even exceeded the defined target.10 Supervised Credit Despite central bank initiatives. farmers are transferring agricultural credit to non-farm or business purposes as farming is more risky compared to non-farming activities. and lack of interest from insurance companies due to higher risk in agricultural farming.49% agricultural GDP) the allocation need to be readjusted as well as must trace the reasons for lower target achievement. Even. the government patronize insurance company (Jiban Bima) should come forward to channeling the insurance facilities to agricultural sector (crops.) Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 29 . 6. livestock. 6. some like the livestock and fisheries sub-sectors were neglected.
there should have incentive for financial intermediaries to encourage them to financing the agricultural sector and rural areas in a sustainable manner. More concentrated effort is therefore called for. the majority of poor farmers cannot afford to undertake this investment. irrigation. chemical fertilizers and pesticides. while NCBs and SBs have been using their existing branch network to do so. Agricultural credit thus assumes great importance in an agrarian county that us trying to modernize traditional agriculture. Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 30 . 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. policy makers should emphasize on monitoring and supervision to extend the credit to the target clients. 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. The only solution that can benefit them is the smooth flow of agricultural credit in adequate amounts. Since. all of which require capital investment. Finally.7. In developing countries like Bangladesh. Meanwhile. mechanical power and so on. Many PCBs and FCBs have formed linkages with NGO-MFIs for expanding market horizon in a viable and sustainable manner. there is a significant positive relationship between agricultural credit and production. CONCLUSION Farmers need financial support for the shift from low-yielding traditional agriculture to more costly but highly productive modern agriculture. Agricultural sector financial access has expanded over the decades with the combined efforts of scheduled banks and NGO-MFIs. on the part of developing countries like us to initiate agricultural and rural development through the strengthening of credit services to farmers. Modern agriculture comprises the use of improved inputs like High Yielding Variety (HYV) seeds. Not to mention. Bangladesh bank policy on agricultural/ rural credit has promoted the access to credit for small and marginal farmers. 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.
8. A H Development Publishing House.M. 2006. The University Press Limited. Dhaka • • • • • • Bangladesh Bank (2012).bd www.mof. Bangladesh Bank. REFERENCES • Ahsan. Agricultural/Rural Credit Policy and Programme for the FY 2011-2012.org. Fakhrul Bangladesh Bank (2012). Dhaka Bangladesh Bureau of Statistics (2008). Rural Economy and Livelihoods Insight from Bangladesh.gov.brdb. Annual Report. R.org.bd www.bb. A.gov. Year 2010-2011.badc. Bangladesh Bureau of Statistics.S.bbs.gov. Bangladesh Bank.bd www. Banking Research Series 2010. Bayes (2009). Dhaka Hossain.bd Assignment on ‘Agriculture and Rural Credit Financing in Bangladesh’/Group#15 / Page 31 .bd www.bd www. Rural Financing and Agricultural Credit in Bangladesh: Future Development Strategies for Formal Sector Banks. Bangladesh Institute of Bank Management.moa. Dhaka Bangladesh Institute of Bank Management (2011).gov. 2010 Sarker. Yearbook of Agricultural Statistics of Bangladesh. A (2006). 2006 Website Visited: • • • • • • www.
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