Business is business, not philanthropy
Monday, 22 September 2008
Shamsul Huq Zahid
The central bank has decided to make the farm credit disbursement mandatory for all banks, including local private commercial and foreign banks, within the current financial year with a view to achieving the much-sought-after food security of the country.
The decision taken by an 11-member committee, formed recently by the government with the senior deputy governor of the central bank as its convener, is aimed at strengthening the role of the private commercial and foreign banks in farm lending operations. The share of these banks in the total agricultural credit has been pitifully low.
Two specialized banks-the Bangladesh Krishi Bank (BKB) and the Rajshahi Krishi Unnyan Bank (RAKUB)-and the public sector banks have been the main providers of farm credit for decades. Until early nineties, the share of the private sector banks in farm credit distribution was negligible. However, the situation has improved in recent years but it has remained well below the expectation.
Explaining reasons for making credit disbursement mandatory for all banks, the convener of the committee said there was an urgent need to increase investment in agriculture for the sake of achieving food security. Increased investment in the form of credit alone, however, cannot achieve food security. It can be one of many more important measures that are necessary to attain that goal.
The central bank has decided not to impose any annual credit targets on banks. It will rather ask the banks to earmark a certain percentage of their annual credit for agriculture sector if the banks fail to ensure sufficient flow of fund to the sector on their own.
The central bank's objective is pious, no doubt, but it would not be that easy to attain. The overall size of the bank credit going to the agricultural sector is not that important as far as national food security is concerned. The loans flowing to agricultural marketing or agro-processing industries would surely contribute to the growth of the farm sector but those do not have any direct relevance to cereal production. There must be greater flow of credit to the farmers, large and small, directly engaged in the production of cereal crops to ensure national food security.
Now the question is are the local private and foreign commercial banks ready to extend crop loans to the growers at the grassroots level? Should the experiences gained by the state-owned specialized and commercial banks engaged in crop loan disbursement anyway influence the decision making process of the private banks to be involved in the same business in a big way?
The main sources of finance in agriculture have been the state-owned banks with the BKB having the largest share. The BKB alone disbursed nearly 52 per cent of the farm credit in the fiscal 2006-07, followed by the state-owned commercial banks, nearly 20 per cent. The agricultural lending by 30 local commercial banks and nine foreign banks though increased significantly in the fiscal 2007 was rather modest in comparison with the performance of their state-owned counterparts.
Why are the private banks so shy to make their presence felt in the farm sector? None other than the central bank has tried to give an answer to this question in its last annual report. It said: ' In addition to risk and uncertainties associated with agricultural and rural finance, the shortage of required manpower, high cost of undertaking intensive supervision and monitoring and lack of information or wrong information about customers and borrowers may have discouraged private commercial and foreign banks to dispense agricultural/rural credit'.
Besides, the state of affairs with the farm sector lending by the specialized banks and state-owned commercial banks is enough to keep the private sector away from putting their funds in the farm sector.
The overdue farm credit extended by the state-owned banks in the fiscal 2006-07 was nearly 60 per cent while that of BKB and RAKUB was over 42 per cent and 24 per cent respectively.
Why should the private sector banks venture in a big way in a sector where the state-owned players have burnt their fingers? However, the government and the state-owned banks themselves are responsible for the present deplorable situation with farm sector lending. The banks, on the one hand, have failed to ensure an efficient management and supervision for farm lending, which is different from other lending operations, and the government, on the other, from time to time, forced the unwilling banks to continue lending despite accumulation of huge overdue loans. However, poor and un-coordinated steps by these banks concerned to recover loans from their clients have contributed to the accumulation of huge overdue loan. But the burden of unrealized large amount of loans has been responsible for acute shortage resource base of the state-owned commercial banks and specialized banks which, again, emerged as major obstacles in their policies of recycling of resources for the sector.
What is more important is that if the government or the central banks is interested in ensuring food security, it will have to ensure disbursement of larger volume of crop loan, which now accounts for nearly 50 per cent of the total farm credit.
But how can the private commercial banks having their branches mainly concentrated in urban or semi-urban centres ensure disbursement of greater amount of crop loan? The situation is far more serious with the foreign banks which have around 50 branches across the country.
The central banks cannot ask the private or foreign banks to open branches at rural hats and bazaars just for the sake of farm credit disbursement? The banks are supposed to open and operate their branches under economic consideration, not to uphold philanthropic causes. Banks and other financial institutions do engage themselves in philanthropic and social service activities called corporate social responsibility (CSR). Those have nothing to do with business operational decisions.
The central bank decision to introduce a new mechanism of revolving crop credit limit for a three-year term with a view to relieving the farmers of making fresh applications for loans is right one. Another decision to ask banks to give loans to farmers having ID cards issued by the department of agricultural extension without the involvement of any middleman would only work if the bank officials concerned are sincere and honest.
Utilisation of the services of the micro-credit institutions at the grassroots could be the best way of disbursement and supervision of low-interest bearing crop loans under a refinancing facility by the central bank. But that seems difficult to implement now because of the huge stuck up fund of the state-owned specialised and commercial banks.
zahidfe@yahoo.com
The central bank has decided to make the farm credit disbursement mandatory for all banks, including local private commercial and foreign banks, within the current financial year with a view to achieving the much-sought-after food security of the country.
The decision taken by an 11-member committee, formed recently by the government with the senior deputy governor of the central bank as its convener, is aimed at strengthening the role of the private commercial and foreign banks in farm lending operations. The share of these banks in the total agricultural credit has been pitifully low.
Two specialized banks-the Bangladesh Krishi Bank (BKB) and the Rajshahi Krishi Unnyan Bank (RAKUB)-and the public sector banks have been the main providers of farm credit for decades. Until early nineties, the share of the private sector banks in farm credit distribution was negligible. However, the situation has improved in recent years but it has remained well below the expectation.
Explaining reasons for making credit disbursement mandatory for all banks, the convener of the committee said there was an urgent need to increase investment in agriculture for the sake of achieving food security. Increased investment in the form of credit alone, however, cannot achieve food security. It can be one of many more important measures that are necessary to attain that goal.
The central bank has decided not to impose any annual credit targets on banks. It will rather ask the banks to earmark a certain percentage of their annual credit for agriculture sector if the banks fail to ensure sufficient flow of fund to the sector on their own.
The central bank's objective is pious, no doubt, but it would not be that easy to attain. The overall size of the bank credit going to the agricultural sector is not that important as far as national food security is concerned. The loans flowing to agricultural marketing or agro-processing industries would surely contribute to the growth of the farm sector but those do not have any direct relevance to cereal production. There must be greater flow of credit to the farmers, large and small, directly engaged in the production of cereal crops to ensure national food security.
Now the question is are the local private and foreign commercial banks ready to extend crop loans to the growers at the grassroots level? Should the experiences gained by the state-owned specialized and commercial banks engaged in crop loan disbursement anyway influence the decision making process of the private banks to be involved in the same business in a big way?
The main sources of finance in agriculture have been the state-owned banks with the BKB having the largest share. The BKB alone disbursed nearly 52 per cent of the farm credit in the fiscal 2006-07, followed by the state-owned commercial banks, nearly 20 per cent. The agricultural lending by 30 local commercial banks and nine foreign banks though increased significantly in the fiscal 2007 was rather modest in comparison with the performance of their state-owned counterparts.
Why are the private banks so shy to make their presence felt in the farm sector? None other than the central bank has tried to give an answer to this question in its last annual report. It said: ' In addition to risk and uncertainties associated with agricultural and rural finance, the shortage of required manpower, high cost of undertaking intensive supervision and monitoring and lack of information or wrong information about customers and borrowers may have discouraged private commercial and foreign banks to dispense agricultural/rural credit'.
Besides, the state of affairs with the farm sector lending by the specialized banks and state-owned commercial banks is enough to keep the private sector away from putting their funds in the farm sector.
The overdue farm credit extended by the state-owned banks in the fiscal 2006-07 was nearly 60 per cent while that of BKB and RAKUB was over 42 per cent and 24 per cent respectively.
Why should the private sector banks venture in a big way in a sector where the state-owned players have burnt their fingers? However, the government and the state-owned banks themselves are responsible for the present deplorable situation with farm sector lending. The banks, on the one hand, have failed to ensure an efficient management and supervision for farm lending, which is different from other lending operations, and the government, on the other, from time to time, forced the unwilling banks to continue lending despite accumulation of huge overdue loans. However, poor and un-coordinated steps by these banks concerned to recover loans from their clients have contributed to the accumulation of huge overdue loan. But the burden of unrealized large amount of loans has been responsible for acute shortage resource base of the state-owned commercial banks and specialized banks which, again, emerged as major obstacles in their policies of recycling of resources for the sector.
What is more important is that if the government or the central banks is interested in ensuring food security, it will have to ensure disbursement of larger volume of crop loan, which now accounts for nearly 50 per cent of the total farm credit.
But how can the private commercial banks having their branches mainly concentrated in urban or semi-urban centres ensure disbursement of greater amount of crop loan? The situation is far more serious with the foreign banks which have around 50 branches across the country.
The central banks cannot ask the private or foreign banks to open branches at rural hats and bazaars just for the sake of farm credit disbursement? The banks are supposed to open and operate their branches under economic consideration, not to uphold philanthropic causes. Banks and other financial institutions do engage themselves in philanthropic and social service activities called corporate social responsibility (CSR). Those have nothing to do with business operational decisions.
The central bank decision to introduce a new mechanism of revolving crop credit limit for a three-year term with a view to relieving the farmers of making fresh applications for loans is right one. Another decision to ask banks to give loans to farmers having ID cards issued by the department of agricultural extension without the involvement of any middleman would only work if the bank officials concerned are sincere and honest.
Utilisation of the services of the micro-credit institutions at the grassroots could be the best way of disbursement and supervision of low-interest bearing crop loans under a refinancing facility by the central bank. But that seems difficult to implement now because of the huge stuck up fund of the state-owned specialised and commercial banks.
zahidfe@yahoo.com