Bank lending to agriculture, small businesses decreasing
Monday, 2 July 2007
FE Report
Bank lending to agriculture and rural small businesses have been decreasing significantly in recent years, a report said.
"Rural small businesses and farmers are unable to play their due role in growth and employment generation due to limited access to rural finance," said a study on 'Access to Rural finance' by the government, the World Bank (WB) and the Department for International Development (DFID).
The study found that for every taka deposited or collected in rural areas by banks, only half of it was lent in rural areas.
"While microfinance plays a very important role in rural Bangladesh, small enterprises and small and medium farmers are not microfinance's traditional clients and there are only limited products targeted at this market segment," it added.
The study was initiated to formulate a realistic strategy to increase farmers' and rural micro and small enterprises access to finance on a sustainable basis. In the process, the whole spectrum of financial institutions, including state-owned agricultural banks -- Bangladesh Krishi Bank (BKB) and Rajshahi Krishi Unnnayan Bank (RAKUB), -- commercial banks and microfinance institutions were examined.
While the two agricultural banks provide limited services to the agricultural sector, their outreach, the study found, is seriously constrained by their very weak financial performance. In addition, the two banks act as "insurer" of last resort on behalf of the government, by waiving principal and interest in time of natural calamities.
On the other hand, private commercial banks do not serve rural areas partly because they have a limited branch network and partly because their products and procedures are not customer-friendly and are not suitable for low value transactions, it added.
The government is likely to undertake an initiative to increase access to rural finance to help rural people play their full development potential, after considering various recommendations of the workshops and findings of the study.
The WB is ready to support the government initiative, which may eventually include components such as reform at BKB and RKUB, formation of a natural disaster fund, and support for MFIs to develop programmes for small and marginal farmers and MSEs.
The possibilities to introduce commercial index based weather insurance will also be explored.
Bank lending to agriculture and rural small businesses have been decreasing significantly in recent years, a report said.
"Rural small businesses and farmers are unable to play their due role in growth and employment generation due to limited access to rural finance," said a study on 'Access to Rural finance' by the government, the World Bank (WB) and the Department for International Development (DFID).
The study found that for every taka deposited or collected in rural areas by banks, only half of it was lent in rural areas.
"While microfinance plays a very important role in rural Bangladesh, small enterprises and small and medium farmers are not microfinance's traditional clients and there are only limited products targeted at this market segment," it added.
The study was initiated to formulate a realistic strategy to increase farmers' and rural micro and small enterprises access to finance on a sustainable basis. In the process, the whole spectrum of financial institutions, including state-owned agricultural banks -- Bangladesh Krishi Bank (BKB) and Rajshahi Krishi Unnnayan Bank (RAKUB), -- commercial banks and microfinance institutions were examined.
While the two agricultural banks provide limited services to the agricultural sector, their outreach, the study found, is seriously constrained by their very weak financial performance. In addition, the two banks act as "insurer" of last resort on behalf of the government, by waiving principal and interest in time of natural calamities.
On the other hand, private commercial banks do not serve rural areas partly because they have a limited branch network and partly because their products and procedures are not customer-friendly and are not suitable for low value transactions, it added.
The government is likely to undertake an initiative to increase access to rural finance to help rural people play their full development potential, after considering various recommendations of the workshops and findings of the study.
The WB is ready to support the government initiative, which may eventually include components such as reform at BKB and RKUB, formation of a natural disaster fund, and support for MFIs to develop programmes for small and marginal farmers and MSEs.
The possibilities to introduce commercial index based weather insurance will also be explored.