FE Today Logo

Bangabandhu's rural and agro-based development outlook and the ethical finance strategy

Shah Md Ahsan Habib | August 15, 2021 12:00:00

Bangabandhu's development approach and the outlook on ethical finance in independent Bangladesh was embodied in the founding of the First Five Year Plan (1973-1978) of the country. In line with the need of the war-devastated and highly exploited inhabitants, the plan document rightly targets the reduction of poverty, expansion of essential consumption items, and attaining self-sufficiency in food-grain production as the key objectives. The plan documents justly prioritised agriculture and industrialisation as the forces to count on. The dream of having a vibrant agriculture sector and rural economy has rightly been reflected in the budget allocation of the First Five Year Plan as well. The necessity of promoting agriculture was rightly perceived by the Father of the Nation as the supplier of the food to the people, provider of the income sources of the majority of the population, and supplier of raw materials to the industrial sector of the newly independent country.

Regarding focal areas of developmental goals, the primary feature of Bangabandhu's post-independent domestic policies was to empower marginalised sections covering farmers and the inhabitants of the rural areas. Rural economy received focal point of economic growth of the country in the planning documents. It was clearly reflected that agricultural development was then the most important prerequisite for sustainable and inclusive development of the country. Challenging initiatives were undertaken for rebuilding the agricultural infrastructure, ensuring supply of agricultural equipment on an emergency basis at concessional rates, ensuring adequate supply of seed, addressing loan default against farmers filed during the Pakistan period, ensuring fair prices for agro-products, supporting arrangements for poor and marginal farmers etc.

What could have been the right approach to design financial and banking sector of the country in line with the above mentioned development attempts? What the banking sector was like at that time? The banking system at the time of independence was mainly urban based that consisted of two branch offices of the former State Bank of Pakistan and seventeen large commercial banks, and fourteen smaller commercial banks. It was not only about rebuilding and reorganising, it was also about shifting focus from urban to rural development finance, and transforming banking services to back the basic goals of the First Five Year Plan. In line with these developmental goals and allocations, the plan documents strategised around the promotion of targeted finance to the chosen agriculture, rural economy, and selected industrial areas. The financing approach by the then government was designed to divert limited financial resources to the activities that were ethically right and associated with the lives and livelihood of the common people-- the 'Ethical Finance'.

In congruence with the First Five Year Plan and the development strategy, Bangabandhu rightly chose to go for state-led model and nationalised major banks and insurance companies, all jute mills, sugar mills and textile mills, and other major enterprises. It was practically logical that these enterprises were given to public ownership as part of Bangabandhu's deep commitment to social justice. However, there was outlook for creating an environment for the private sector in the medium and long-term planning strategies.

About specific initiatives for rebuilding the banking and financial sector, the foundation of the independent banking system in Bangladesh was laid through the establishment of the Bangladesh Bank, the central bank of the country in 1972 by Presidential Order No. 127 of 1972 (which took effect on December 16, 1971). To ensure social justice and equity, the nationalisation programme was applied to the banking industry, and the banks were restructured into six nationalised banks: Sonali, Agrani, Janata, Rupali, Pubali, and Uttara Bank under Bangladesh Bank Nationalization Order 1972. Foreign-owned banks were permitted to continue doing business in Bangladesh. Insurance companies were also nationalised along with the banks under Presidential Order No. 95 in 1972. This order was implemented through creation of five corporations which were later merged into two corporations namely, the Sadharan Bima Corporation for conducting general insurance business and the Jiban Bima Corporation for conducting life insurance business. The new banking system succeeded in establishing reasonably efficient procedures for managing credit. To strengthen credit facilitation, Bangabandhu's government established three more specialised financial institutions: Bangladesh Shilpa Bank, Bangladesh Shilpa Rin Shangstha, and Bangladesh Krishi Bank. The primary function of the credit system during the period was to finance trade and the public sector, which together accounted for four-fifth of total advances. Cooperative credit systems and postal savings offices were engaged in offering service to small individual and rural accounts.

It is obvious that the First Five Year Plan of Bangladesh (1973-1978) had its major focus on the country's rural economy in financing activities but the focus was shifted towards urban Bangladesh later although several special financing schemes were introduced targeting rural population in the following years. Today's ethical finance areas of Bangladesh comprise what we call sustainable finance and financial inclusion that drive mainly through the channel of banks, non-bank financial institutions, and microfinance institutions.

Our sustainable finance initiatives by the banking and non-bank financial institutions are basically driven by the central bank of the country. At this moment, Bangladesh bank has two departments-- Sustainable Finance Department and Financial inclusion Department to handle green finance, CSR, and financial inclusive issues. Moreover, the central bank has separate departments for micro and small enterprise finance, and agricultural finance to address vulnerable sections. The drives on the part of banks and financial institutions are also encouraging. By this time all banks and financial institutions of the country have their bank-specific policies, strategies, and efforts on the different areas of sustainable finance covering financial inclusion, CMSME, green financing, agricultural financing, and CSR activities. Achievements and economic implications of some of these areas are remarkable. However, despite several policy and regulatory efforts, success in the rural and agricultural financing has been limited. Probably, we could not maintain the desired momentum of giving due focus on the rural and agricultural sector comprehensively as prescribed in the First Five Year Plan document and that reflected in the developmental philosophy of the Father of the Nation.

There is no doubt that agricultural production and food security are notable achievements of the government of Bangladesh. Rural and vulnerable sections of the country have also been greatly benefitted from several policy interventions in rural Bangladesh. However, Bangabandhu's dream of building the rural economy and establishing agriculture as a sustainable income source for the rural population demands further attention. Especially, initiatives are needed in connection with the development of an efficient agricultural marketing system, and the development of associated financing modes targeting the agricultural and rural economy of Bangladesh.

Dr. Shah Ahsan Habib is Professor

(Selection Grade), BIBM. [email protected]

Share if you like