Commercial banks' position in rural Bangladesh keeps weakening with the constant fall in formal credit disbursements and the number of branches in the least- developed areas, bankers say.
As a result, the condition of cottage, micro, small and medium enterprises (CMSMEs) in rural areas is worsening as they gradually lose their market to imported goods.
Bankers have identified several reasons behind this, including the rising cost of funds and higher inflation that blighted the demand for credit in rural areas after the Covid-induced shocks.
On the other hand, the lower possibility of making profits in rural areas having the least lending opportunities prompted commercial banks to concentrate more on high-yielding urban territories, they said.
Consequently, the flow of fresh credit disbursements among rural communities continued dropping in recent months.
Besides, banks, as part of their cost-cutting measures, keep reducing the number of rural branches. They serve rural clients through alternative arrangements like sub-branches and agent banking outlets.
According to the Bangladesh Bank (BB) data, banks invested Tk 16.20 trillion in various sectors across the country till September 2024, including Tk 1.25 trillion in rural areas. The remaining amount was invested in urban regions.
The share of bank loans in rural territories continued declining to reach 7.70 per cent (Tk 1.25 trillion) at the end of September 2024 from 7.90 per cent (Tk 1.26 trillion) in June that year.
On the other hand, the share of loans in urban areas rose to 92.30 per cent (Tk 14.95 trillion) in September 2024 from 91.10 per cent (Tk 14.71 trillion) in June that year.
Seeking anonymity, a central bank official said banks' lending in rural areas continued falling in recent months despite the rise in deposits in such regions probably because of profitability.
Citing data, he said the volume of rural deposits was Tk 1.20 trillion in September 2023. It rose to Tk 1.24 trillion in December that year, Tk 1.25 trillion in March 2024, and Tk 1.26 trillion in June. But then it dropped slightly to Tk 1.25 trillion in September, he also said.
"Economic activities remained almost standstill. This could be the main reason behind the fall in rural lending," he added.
Managing Director and Chief Executive Officer of Mutual Trust Bank Syed Mahbubur Rahman told The Financial Express continuing rural banking with full-fledged branches is not financially viable for the lender because of fewer lending opportunities there.
"That is why banks are now concentrating on rural banking with alternative arrangements like sub-branches, microfinance institutions, and agent banking outlets," he said.
The experienced banker also said the demand for formal credit in rural areas, like elsewhere in the country, kept falling due to persisting economic sluggishness.
Secretary of Barishal Metropolitan Chamber of Commerce and Industry Md Humayun Kabir said entrepreneurs in the region, particularly in rural areas, have for years been suffering severely due to poor access to formal credit.
"We keep requesting banks' high officials to address the issue, but nobody listens. Even entrepreneurs having all the required documents to secure loans do not get it. I do not know why banks are so reluctant to lend to rural clients," he told The Financial Express.
"Because of this reluctance, entrepreneurs, particularly small and medium ones, are getting demoralised. Bank financing is key to industrial and employment growth, but rural entrepreneurs do not have access to that," the business leader added.
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