The contribution of Banks & Financial Institutions to the financing of Rural Development

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1 The contribution of Banks & Financial Institutions to the financing of Rural Development Shitangshu Kumar Sur Chowdhury Deputy Governor, Bangladesh Bank - Bangladesh #FinAgri13 140

2 Overview of Presentation Background The potential and Approaches to Rural Finance Bangladesh: Supportive use of inclusive financing Rural Economy of Bangladesh Banks and FIs initiatives in rural development in Bangladesh Agricultural & Rural Credit Achievements 141

Rural Economy of Bangladesh Banks and FIs initiatives in rural

3 Banks and FIs initiatives in rural development in Bangladesh (1) BB has got the entire Bangladesh financial sector engaged enthusiastically in inclusive financing initiatives by invoking their corporate social responsibility, and by steering facilitation and adoption of cost saving modes of off-branch delivery and management of numerous loans to SMEs in dispersed locations. Supervisory attention to End use, recovery rates and asset quality of loan portfolios in the new customer bases accompany the inclusive financing facilitation efforts. BB s caution-mixed inclusive financing promotion initiatives are serving Bangladesh economy well, as evidenced by stable, steady economic growth amid the global financial crisis and the lingering global growth slowdown. 142

Supervisory attention to End use, recovery rates and asset quality of loan portfolios in the new customer bases accompany the inclusive financing facilitation efforts.

4 Banks and FIs initiatives in rural development in Bangladesh (2) Credit flows for output activities of SMEs in Bangladesh held steady and did not suffer exclusion crunch during or following the global financial crisis; upholding internal demand and output activities on steady long-run growth path. Main thrusts of the BB initiatives for promotion of inclusive financing include: I. Articulation of commitment to inclusive financing in BB s Monetary Policy Statements issued ex-ante on half yearly basis to anchor inflation expectations. II. Spearheading and guiding the mainstreaming of Social Responsibility in corporate ethos and objectives of financial institutions. 143

Main thrusts of the BB initiatives for promotion of inclusive financing include: I.

5 Banks and FIs initiatives in rural development in Bangladesh (3) III. Promoting and facilitating adoption of cost saving options of financial service delivery to numerous clienteles in dispersed off branch locations, including mobile phone/smart card based banking using Micro Finance Institutions (MFIs) and other locally active area agents. IV. Liquidity support refinance to lenders against their loans to the inclusive financing target sectors including agriculture, SME and green initiatives. The refinance lines are mainly funded by development partners, with small BB participation within the overall monetary growth envelop of monetary policy stance. V. To bring down high borrowing costs for SMEs, a partial risk guarantee scheme for lenders to SMEs with development partner support is expected soon. 144

using Micro Finance Institutions (MFIs) and other locally active area agents. IV.

6 Banks and FIs initiatives in rural development in Bangladesh (4) VI. Direct SME financing facilitation is being supplemented by factoring or discounting of their receivables against credit sales to buyers of good credit standing, easing pressure on their finances. VII. A BB supervised, government funded Equity and Entrepreneurship Fund (EEF) extends partial equity support to agro based and IT sector enterprises including SMEs. Private sector venture equity providers have also come up lately. VIII.To facilitate delivery of financial and other services, SMEs are being drawn into suitable local or regional clusters convenient for networking between themselves and with their backward and forward linkages. 145

7 Formulation of Agricultural & Rural Credit Policy Every Fiscal year Bangladesh Bank formulates Agricultural & Rural Credit Policy and Program with a view to: expanding banking services to rural areas using information technology, From the FY all private and foreign commercial Banks along with state owned banks and specialized banks are advised to disburse agri/rural credit BB made mandatory for all banks to disburse a specific percent of their total loans & Advances in agriculture and rural sector from FY

foreign commercial Banks along with state owned banks and specialized banks are advised to disburse agri/rural credit BB made

8 Major area covered for Rural Financing Crop Fisheries Livestock Agri-Equipments Irrigation Equipments Grain storage and marketing Poverty Alleviation Employment generating activities Solar energy, bio-gas etc. 147

storage and marketing Poverty Alleviation Employment

9 Bank wise Agri & Rural credit target for the FY Total target for FY is billion BDT 148

10 Trend of Target last Five FY The agricultural and rural credit disbursement target has gradually increased over the year. The target for FY is billion which is 3.29% more than previous year s target of

the year. The target for FY 2013-14 is 145.

11 Bank s share in Credit Disbursement in FY The specialized banks and state owned banks are the major player in disbursing agricultural credit. However, the contributions of private banks are increasing sharply in recent years. 150

12 Target Vs. Achievement last Four FY In FY , a total of billion of Agricultural and Rural Credit has been disbursed by the scheduled banks of Bangladesh, which is % of the target. 151

146.67 billion of Agricultural and Rural Credit

13 Sector wise credit disbursement by all Banks during FY Three core sectors; crops, fisheries and livestock got bn, bn, and bn of total Agri and Rural credit disbursement, respectively. 152

livestock got 64.34 bn, 13.21 bn, and 18.

14 Few Milestones (1) More than 9.5 million accounts of farmers have been opened by the SCBs and SBs with an initial deposit of Taka 10 only (<20 cents). Introduction of a special refinance program of Taka 5 billion exclusively for the sharecroppers/tenant farmers. As of June 2013, an amount of Taka 9,618 million Agri credit has been provided through BRAC (MFI) towards 0.7 million sharecroppers (in 250 upazillas of 48 districts). In financial year an amount of Tk billion were disbursed among 0.44 million women as agricultural and rural credit for crop production, running agro processing and agricultural related small business & activities, so that they can change their economic conditions. During FY around million taka was disbursed only at 5% interest rate among about 21,904 tribal farmers of Bangladesh. 153

As of June 2013, an amount of Taka 9,618 million Agri credit has been provided through BRAC (MFI) towards 0.7 million sharecroppers (in 250 upazillas of 48 districts).

15 Few Milestones (2) An ADB assisted crop diversification credit project is extending credit for growing of higher value crops (vegetables, fruits, flowers, spices, oilseeds) in the country s poverty ridden North-Western region through whole selling of MFI (BRAC). Special Refinance Program of Tk.2000 million for Solar energy, Bio gas plant etc. As of June 2013, an amount of Tk billion were disbursed for 8 solar energy driven irrigation pumps. As of June 2013, an amount of Tk.0.30 billion is re-financed in 820nos of Integrated cow rearing and Bio-gas plant. 154

Special Refinance Program of Tk.2000 million for Solar energy, Bio gas plant etc. As of June 2013, an amount of Tk. 0.

16 Achievements Agricultural and rural financing brings the following major changes in the country s overall economy: Agricultural production was increased due to huge credit flow in Agricultural and rural sector. As a result, Food price was stable during last four FY. The country is now self-sufficient in food. The food production has increased to 35 million metric ton compared to 30 million metric ton 4 years ago. Due to sufficient credit flow on agricultural sector, rural poverty was reduced to 35.2% last year from 43.8% in Despite Global Financial Recession, Bangladesh averaged more than 6% GDP growth per year, possibly due to the tremendous enhancement of Agricultural production. Now, Bangladesh has a healthy reserve of foreign currency (more than 15 billion USD) due to the reduced burden on foreign reserve to import foods. 155

The food production has increased to 35 million metric ton compared to 30 million metric ton 4 years ago. Due to sufficient credit flow on agricultural sector, rural poverty was reduced to 35.

RETREAT #6 - INCLUSIVE AND INNOVATIVE FINANCING FOR SUSTAINABLE DEVELOPMENT - BB EXPERIENCE

1 RETREAT #6 - INCLUSIVE AND INNOVATIVE FINANCING FOR SUSTAINABLE DEVELOPMENT - BB EXPERIENCE TARRYTOWN HOUSE ESTATE AND CONFERENCE CENTER TARRYTOWN, NEW YORK 15-16 FEBRUARY 2015 Md. Habibur Rahman, Bangladesh