Role of Banks in Agricultural Development in Bangladesh

Submitted To: Mr. A.B.M. Anisuzzaman, Additional Director, Bangladesh Bank

Name Roll SAP ID

Asif Ahmed 18 19410440

Md. Jony Hossain 21 19610464

Sultan Mohammad Monsur 22 19610466

Mahbub Hasan Talukder 32 19710490

Md. Nure Alam Ziku 41 19110505

48th Foundation Training Course for Assistant Directors (General)

Bangladesh Bank Training Academy (BBTA)
Mirpur-2, Dhaka-1216
Date of Draft Submission: 13 November, 2023

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 Table of Contents

Abstract

1. Introduction
2. Scope & Objective
3. Literature Review
4. Methodology
5. Limitations
6. Overview of agricultural sectors in Bangladesh
7. Contribution of banks in agricultural sectors in Bangladesh
8. Analysis of findings
9. Problems and solution
10. Prospects
11. Conclusion
12. Recommendations
13. References

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 1. Introduction

Bangladesh gained independence in 1971. Since her independence, agriculture has been the core
sector of Bangladesh economy. Most of the labour force are employed in agricultural activities.
Bangladesh is an agrarian country where agricultural sector plays vital role in accelerating the
economic growth by providing inputs to agro-based industries, creating employment, attracting
foreign direct investment. In that case timely and adequate flow of agricultural credit can meet
farmers demand to ensure agricultural productivity. It can increase quality and quantity of input used
in the production process. Bangladesh is a developing country where the banking system plays a vital
role in the progress of its economic development. As mentioned earlier that Bangladesh is an agrarian
country, the economic growth will be slowed down if the finance is not provided to the agricultural
sector. Keeping this in mind, for the development of agricultural sector the Government of
Bangladesh has established two specialized banks namely; Bangladesh Krishi Bank (BKB) and
Rajshahi Krishi Unnayan Bank (RAKUB). These banks are continuously working for the
development of agricultural sector; Firstly, they are trying to promote saving among middle and lower
middle class of urban and rural areas. Secondly, these banks increase investment in different sectors
of agriculture, industry, trade. These banks also provide micro-credit which will help the
disadvantaged people to become self-sufficient. Day by day both public, private and foreign
commercial banks are incorporated under agricultural credit program. Specialized and commercial
government bank as well as NGO & MFIs have their decentralized branch network system in remote
areas throughout the country. These formal sectors provide agricultural credit to the poor farmers in
the rural areas (small, marginal and landless farmers) so that farmers can purchase agricultural input
timely which help to stimulate food production and improve the livelihoods of poor farmers.
Agricultural credit plays an inevitable role in agricultural productivity. Most of the labour force of the
country is engaged in agriculture. It also makes a significant contribution to the growth of the service
sector. In addition, we cannot deny the role of agriculture in ensuring food security for a growing
population from the declining arable land as well as the impact of climate change. So, the contribution
of banking sector is increasing day by day in Agricultural development.

2. Scope and Objectives

Agricultural development determinants are crops, purchase and installation of irrigation equipment,
livestock, marketing of agricultural goods fisheries, poverty alleviation and income generating
activities. Banks also disburse loan on each of these sectors. So, banks play an important role on
agricultural development in Bangladesh. Timely and adequate flow of agricultural credit can meet
farmers demand to enhance agricultural productivity. The scope of this assignment paper is to
determine the role of banks on agricultural development in Bangladesh. Considering the importance

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of agri-credit made by banks in Bangladesh, the scope of this assignment paper tries to find out the
major contributions of banks to this primary sector.

The specific objectives of the study are as follows:

1) To find out the role of Banks on agricultural development in Bangladesh.

2) To find out the barriers of Bank on agricultural development in Bangladesh.

3) To find out the problems and initiatives taken by Bangladesh Bank.

4) To offer some suggestions on the basis of findings for policy implication on agricultural credit.

5) To find out the prospects of Banks on agricultural development in Bangladesh.

3. Research Methodology:

This study has been done mainly based on secondary data. The relevant data and information were
collected from annual reports of Bangladesh bank and websites of various bank on Bangladesh,
Bangladesh Economic Review (BER) and Bangladesh Bureau of statistics (BBS) publication of
various years. In this study we analyze data for the period 2001 to 2020. The data analysis includes
the view point of lenders, agricultural sub- sector, overall agricultural credit performance etc. MS
excel software was used for analyzing and presenting data in a meaningful way.

4. Literature review:

Md. Nazirul Islam Sarkar et al. (2016) perceived that for rural residents, timely and sufficient credit
availability is essential, especially in times of resource constraint and uncertainty. In the rural area,
convenient and cost-effective amenities may be even more crucial for mitigating income and
expenditure fluctuations. Families are also forced to depend on expensive, inconvenient, and
inefficient alternatives due to a lack of savings options. Agricultural credit can be a way out in this
situation. As most of the agricultural credits are micro credits, it will enable the poor farmers to be
able to borrow funds from lending institutions and buy products for agricultural purposes. [1]

5. Limitations of the Study:

This paper presents a study on the role of Banks in Agricultural Development in Bangladesh.
However, it is essential to acknowledge several limitations that may affect the scope, depth, and

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generalizability of the findings. The key limitations include reliance on secondary data sources and
potential bias in the secondary data.

6. Overview of agriculture sector in Bangladesh:

There is a growing middle class (about 30 million people), which has increased demand for superior
agricultural products. Crops, livestock, fisheries, and forest products employed around 40% of the
workforce and contributed roughly 12.2% of Bangladesh's GDP, according to the Bangladesh Bureau
of Statistics for FY 2022–2023. The majority of Bangladesh's agricultural output is classified as
traditional subsistence farming. A wide range of agricultural goods, including rice, wheat, corn,
legumes, fruits, vegetables, seafood, meat, and dairy products, are produced in Bangladesh. The
primary food staple of Bangladesh is rice. In order to boost production and satisfy future demand, it is
more critical than ever to develop innovative agricultural technology, such as salt- or submergence-
tolerant seed varieties, due to the scarcity of arable land and natural resources. Abiotic and biotic
stressors like floods and cyclones can also have an impact on agricultural earnings and productivity.
Bangladesh imports bulk commodities like pulses, wheat, and soybeans, but there are chances to join
specialized markets for high-value agricultural products, especially in more affluent cities like
Chittagong and Dhaka. Imported dairy goods, tree nuts, and fresh fruits are in high demand from
consumers, as are processed food items.

7. Contribution of banks in agricultural sectors in Bangladesh

In light of evolving global conditions and the imperative of food security, banks are mandated to
prioritize lending to the agricultural sector. The banking sector has been providing financial assistance
to farmers for a long time. Farmers can open a bank account with only 10 taka. Bangladesh Bank sets
the credit target for each bank during a period of time. Banks use their own network (branches, sub-
branches, agent banking, contract farming, group loan disbursement) and bank-MFI linkages to
achieve the target of disbursement of loans.

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 8. Analysis & Findings:

8.1. Year-wise Agricultural and Rural credit disbursement target and achievement

(in crore taka)

Fiscal Year Disbursement Target Disbursed Amount Increase in Disbursement

2021-2022 28,391 28,834.21 3,322.86 (13.03%)

2022-2023 30,811 32,829.89 3,995.68 (13.86%)

2023-2024 35,000 - -

[Source: Agricultural Credit Department, Bangladesh Bank]

Every year the credit disbursement target for the banks is increasing. The banks that fails to meet up
their target are penalized by Bangladesh Bank.

8.2. Agricultural and Rural Credit Disbursement Target 2023-24

Agricultural and Rural Credit Disbursement Target 2023-24 (in Crore

taka)
1047

3280

8750

21923

State Owned Commercial Banks Specialized Banks

Private Commercial Banks Foreign Commercial Banks

[Source: Agricultural Credit Department, Bangladesh Bank]

Although Private Commercial Banks provide most of the targeted amount, considering the number
and portfolio of Specialized bank, they play a key role in the credit disbursement target.

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 8.3. Comparative Position of Disbursement and Recovery of Agricultural Loan

(Billion BDT)
Disbursement FY20 FY21 FY22

1. Disbursement (target) 241.2 262.9 283.9

a) Crops loan (other than tea) 131.9 156.6 169.4

b) Purchase and installation of irrigation equipment
c) Livestock 13.0 9.8 9.5
d) Marketing of agricultural goods 24.4 29.3 32.8
e) Fisheries
f) Poverty alleviation 5.7 4.5 4.8
g) Other agricultural activities
24.5 28.5 31.0

15.8 11.2 11.8

26.1 22.9 24.5

2. Actual disbursement 227.5 255.1 288.3

a) Crops loan (other than tea) 114.0 128.9 128.4

b) Purchase and installation of irrigation equipment
c) Livestock 2.7 4.4 4.78
d) Marketing of agricultural goods 31.7 35.3 54.3
e) Fisheries
f) Poverty alleviation 1.3 1.8 1.8
g) Other agricultural activities
26.1 29.5 35.9

20.9 20.4 21.1

30.9 34.9 42.2

3. Term Structure of loan disbursed 227.5 255.1 288.3

a) Short term 191.5 220.7 238.9

b) Long term
36.0 34.5 49.5

4. Recovery 212.5 271.2 274.6

5. Due for recovery 279.8 336.6 351.2

6. Total outstanding loan 455.9 459.4 498.0

7. Overdue 60.6 58.7 59.5

8. Overdue as percentage of outstanding 13.3 12.58 11.9

*Excluding Bangladesh Rural Development Board and Bangladesh Samabay Bank Ltd.

Source: Agricultural Credit Department, Bangladesh Bank

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8.4. Target for Agricultural Credit Disbursement in FY23-24

Target for Agricultural Credit Disbursement in FY23-24

11% a) Crops loan (other than tea)

b) Purchase and installation of

7% irrigation equipment

c) Livestock
10%
d) Marketing of agricultural goods
55%
2% e) Fisheries

10%
f) Poverty alleviation

5% Other agricultural activities

8.5. Agricultural Credit Disbursement in FY22-23

Agricultural Credit Disbursement in FY22-23

14% a) Crops loan (other than tea)

b) Purchase and installation of

irrigation equipment
9%
c) Livestock

50% d) Marketing of agricultural

11% goods

e) Fisheries

1% f) Poverty alleviation
14%
Other agricultural activities

1%

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 8.6. Agricultural credit performance by lenders

FY20 FY21 FY22

SCBs BKBs RAKUB PCBs FCBs Total

Disbursement 241.24 262.92 31.95 60.00 18.50 166.64 6.82 283.91

target

Actual 227.49 255.11 29.29 67.41 20.29 163.23 8.12 288.34

disbursement

Recovery 212.45 271.24 27.39 76.69 26.71 135.39 8.46 274.64

Overdue 60.60 58.65 24.47 13.27 13.26 8.49 0.00 59.49

Outstanding 455.93 459.40 125.11 186.29 33.91 149.15 3.56 498.02

*Excluding Bangladesh Rural Development Board and Bangladesh Samabay Bank Ltd.

Source: Agricultural Credit Department, Bangladesh Bank

9. Problems & Solutions:

Problems:

Promotion of New Invention: Bangladeshi agriculturists have some glorious inventions that can
change the scenario of our land. But unfortunately, because of negligence of different part of
government these inventions cannot be promoted and reached to farmers door that ultimately brings
zero result.

Credit Concentration: Agricultural credit is mostly concentrated on large Agri-based organizations. It

is mostly seen that people who aren't eligible for agricultural loan get the benefits of these agricultural
credits.

Access to Credit: Access to credit is a major challenge for small and marginal farmers in Bangladesh,
who often lack the resources and collateral required to secure loans from formal financial institutions.

Accessibility to High Officials: Access to Farmers can't reach the high officials of the banks when
they face any unsolvable problem by the employees of the bank.

Financial literacy: Many farmers in Bangladesh have limited access to formal banking services, which
hinders their exposure to financial literacy initiatives.

Farmers Response to Bank's: The central bank announced a Tk5,000 crore refinancing scheme at 4%
on November 17 for farm loans ahead of Boro season to help farmers meet their cash needs amid

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growing input costs. But the response from farmers so far remains poor, according to reports from
several districts.

Solution:

The government should encourage young energetic Brilliant’s of our country to innovative and bring
revolutionary change in the technological equipment in the agricultural sector. Banks need to develop
specialized financial products tailored to the unique needs and cycles of agriculture, such as flexible
repayment schedules based on crop seasons. Banks also need to do proper analysis before sanctioning
these loans. Bangladesh Bank's Banking Regulations and Policy Department and inspection team can
also play a key role in these regards. Implement risk-sharing mechanisms or insurance products to
mitigate the uncertainty associated with agriculture, making banks more willing to lend to farmers.
Improving access to credit for small and marginal farmers in Bangladesh, more work is needed to
ensure that all farmers have access to affordable and accessible credit. Introducing mobile banking
solutions to reach farmers in remote areas, will allow farmers easier access to financial services.
Authority can apply some new techniques so that clients can get access to the higher officials for any
kind of query or complaint. For example, GM should notice those are issued from his/her office, and
shares official contact information. To break the persisting bank phobia among small-scale rural
farmers, the agriculture ministry initiated a move engaging local administration to make loan
accessible to intended farmers. Massive campaigns to inform farmers about the simplified loan
schemes and opening of kiosks outside banks for targeted groups of farmers are in the plans. Financial
education programs to enhance financial literacy among farmers will help them understand the
benefits of formal credit and how to manage finances effectively. By adopting a combination of these
strategies, banks can contribute significantly to improving the financial inclusion of smallholder
farmers and fostering sustainable agricultural practices

10. Prospects:

Ongoing government initiatives to support agriculture, including subsidies, credit facilities, and
research and development programs, contribute to the sector's growth. Improvement of agricultural
equipment and technology due to the 4th industrial revolution can heavily boost our agricultural
production. Increasing adoption of modern agricultural technologies and practices, such as precision
farming, greenhouse cultivation, and improved irrigation systems, can enhance productivity. In the
vision-2041 and Delta plan-2100, the government envisioned a plan to boost agriculture side in the
blue economy sector. Banks can play a key role in helping agricultural development by funding these
projects. Continued efforts to enhance financial inclusion, especially for smallholder farmers, can

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provide them with better access to credit and financial services. Banking sector is the main player to
boost the contribution of agriculture sector in the GDP of Bangladesh.

11. Conclusion:

The multifaceted landscape of Bangladesh's agricultural sector demands a comprehensive and

innovative approach. From leveraging advanced technologies to tailoring financial products, the
collaboration between the government and banking sector is pivotal. Initiatives such as risk-sharing
mechanisms, mobile banking solutions, and financial literacy programs underscore the commitment to
improving access and sustainability. As the nation strives for increased agricultural productivity and
food security, the collective efforts outlined can serve as a blueprint for fostering a resilient and
inclusive agricultural ecosystem. Through these strategic measures, Bangladesh is poised to navigate
evolving global conditions, ensuring a prosperous future for both its farmers and the nation as a
whole.

12. Recommendations:

● One key recommendation is for banks to establish and promote accessible and farmer-friendly
digital platforms for financial transactions, aiming to enhance financial inclusion and
streamline agricultural banking processes in Bangladesh.
● The government should invest more on boosting technology based innovations and give
recognition & award to inspire others for agricultural development in Bangladesh through our
banking sector.
● Establishing bank syndication arrangements between government organization and
commercial, and specialized banks to support agricultural financing.
● Financing more on sea based agricultural products will not only diversify our food habits but
also bring foreign currency.
● Agricultural loan application and disbursement procedure needs to be simpler. So, the
commercial banks and financial institutions must take necessary measures to make it easier.
● There should be implementation of sustainable capacity-building training programs to
enhance the financial literacy of small and marginal farmers.

13. References:
1. https://www.academia.edu/download/52597481/
Role_of_Banks_on_Agricultural_Development_in_Bangladesh.pdf

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2. Agricultural Credit Policy FY 2022-23, Agricultural Credit Department, Bangladesh Bank

3. Agricultural Credit Policy FY 2023-24, Agricultural Credit Department, Bangladesh Bank

4. Chapter-9, Agriculture and SME Finance, Bangladesh Bank

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