Current Issues, Challenges & Success Stories Current Issues, Challenges & Success Stories Of Bangladesh in Agricultural/Rural Financing Of Bangladesh in Agricultural/Rural Financing

& Development& Development

Shitangshu Kumar Sur Chowdhury Deputy Governor, Bangladesh Bank

THE 62nd EXCOM MEETING AND CEO’s OPEN FORUM OF APRACA

25February-1 March2012

Bangkok and Phuket, Thailand

Presentation Outline

I . Country ProfileII. Background/Introduction

III. Issues and Challenges

IV- Objectives of the Government of Bangladesh

V. Some Initiatives and Success Stories of Bangladesh in Agriculture/Rural development

VI. Food Security Status of Bangladesh

VII. Initiative taken by Bangladesh Bank in Agriculture & Rural Financing & Development

VIII. Conclusion

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Country Profile Country Profile Area : 144000 Sq.KmArea : 144000 Sq.Km

Population : 150 MillionPopulation : 150 Million

Male : Female : 71.2 Million : 71.0 Male : Female : 71.2 Million : 71.0 MillionMillion

Birth Rate : 1.34%Birth Rate : 1.34%

Population density : 964/ sq. Km.Population density : 964/ sq. Km.

Villages (rural) : 87,319Villages (rural) : 87,319

Rural professionRural profession : Agriculture : Agriculture (70%) (70%)

Scheduled Banks : 47 Scheduled Banks : 47

Non-Bank Financial Institutions : Non-Bank Financial Institutions : 3030

Microcredit Institutes : 553Microcredit Institutes : 553

Cooperative Agencies : 57,000Cooperative Agencies : 57,000

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Background/IntroductionBackground/Introductiono Agriculture is one of the prime sectors of Bangladesh‘s

economy.

o About 80 percent of the total population lives in rural

areas, with 70 percent of them employed in agriculture.

o Agriculture contributes about 20 percent to the country's

GDP, about 15 percent of which is contributed by the crop

sector alone.

o Food security, employment creation and poverty alleviation

are closely related with the development of agriculture.

o The government has set a target of 8% GDP growth within

2015. Besides, there is another issue on achievement of

self-sufficiency in food production within 2013.

o In Bangladesh, it is possible to reduce rural poverty and

raise the living standard of common people by establishing

agriculture as a profitable sector.

Issues and ChallengesIssues and Challengeso Rapid increase of population and shrinkage of

agricultural Land .o Agriculture is dependent on the impulse of nature

and is risky.o Widespread poverty among the population

engaged in agriculture.o Inadequacy of appropriate technology considering

farmers' socio- economic conditions. o Decreasing yields of different crops due to slow

expansion of modern technology as well as unplanned use of soil and water.

o Uncertainty of fair price of agricultural commodities due to underdeveloped marketing system.

o Absence of efficient as well as effective farmers' organization at the grass root level.

o Inadequate use of improved seeds, fertilizers, irrigation and other inputs.

o Very weak backward-forward linkage in agriculture.

o Climate change and variation

Objectives of the Government of Objectives of the Government of BangladeshBangladesh

oTo make the nation self-sufficient in food through increasing production of all crops. oEnsure a profitable and sustainable agricultural production system and increase the purchasing power of the farmers.oPreserve and Develop land productivity.oReduce excessive dependence on any single crop to minimize the risk.oIncrease production and supplies of more nutritious food crops and thereby ensuring food security and improving nutritional status.oTake up programmes for the introduction, utilization and extension of bio-technology.oProduce and supply of agricultural commodities as required by the industrial sector.

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o Take appropriate steps to develop an efficient irrigation system and encourage farmers in providing supplementary irrigation during drought with a view to increasing cropping intensity and yield.

o Establish agriculture as a diversified and sustainable income generating sector through strengthening of 'Farming System' based agricultural production and agro-forestry programmes.

o Take effective steps to ensure input supplies to the farmers at fair prices in a competitive market and remove difficulties at the farmers' level.

o Create opportunities for establishing agro-processing and agro-based industries, and

o Develop contingency management system to combat natural disasters.

Objectives…… (Objectives…… (Contd…..)Contd…..)

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Some Initiatives and Some Initiatives and Success Stories of Success Stories of

Bangladesh in Bangladesh in Agriculture/Rural Agriculture/Rural

DevelopmentDevelopment

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Women's Participation in Women's Participation in Agriculture Agriculture

Women are engaged in Agriculture related activities like:

post harvest operations, seed preservation, nursery business,

jute stripping, vegetable cultivation, homestead gardening,

floriculture, production of horticultural seeds, establishment and management of cottage

industries based on locally produced agricultural commodities etc.

Extensive training programmes are conducted and capital supports are provided to encourage women's interest and improve their skill in such activities.

Invention of Genome Sequence Invention of Genome Sequence of Jute of Jute

Jute was called the Golden Fiber of Bangladesh as Bangladesh was the largest jute production country of the world.

Recently, genome sequencing of jute has been discovered by Bangladeshi scientists.

This invention is treated as the prime success of Agricultural sector of Bangladesh.

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Government has taken a massive programme for the development of the quality of Jute.

An amount of Taka 200 per head was assisted among 1.54 million farmers through their bank account.

Besides 15396 pieces ribner are distributed among a group of 100 farmers (one pieces for each group).

The cost incurred for this program was about 337.9 million taka.

Cash Assistance for the Jute Cash Assistance for the Jute CultivatorCultivator

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Introduction of Agricultural Card & Introduction of Agricultural Card & Assistance of Diesel for irrigation Assistance of Diesel for irrigation

through this Cardthrough this Card There are about 13.8 million

Agricultural Cards are distributed among the farmers family.

Through these cards about 7220 million taka are distributed as assistance for purchasing Diesel for irrigation.

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Modernization of AgricultureModernization of Agriculture A project for about 1500 million taka is in the

pipeline for modernization and mechanization of Agriculture.

The farmers will get 25% subsidy to purchase modern agricultural machineries.

Purchasing of about 64,140 machines will be subsidized under this project.

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Rehabilitation programme for Rehabilitation programme for the farmersthe farmers There are about 0.39 million flood

affected farmers has got assistance through distribution of free fertilizers and Boro seed for cultivation of Boro rice.

About 484.90 million taka is subsidized by the government for this purpose.

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Subsidy in Agricultural Subsidy in Agricultural SectorSector

During the fiscal year 2010-2011 about 40,000 million taka were subsidized in the agricultural sector for purchasing urea, non-urea fertilizer and diesel.

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Accustom farmers with agricultural Accustom farmers with agricultural technologytechnology

Arrangement of special programme for the farmers in National Radio & Television.

Establishment of Community Radio station for the farmers.

Development of website (www.ais.gov.bd) with latest agricultural related information for the farmers.

Introduction of Agricultural Information & Communication Centre (AICC).

There are about 20 AICC are already running and about 225 are in pipeline though which 1000 Union Council will be covered for online video services.

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Addressing the Adverse Effects of Addressing the Adverse Effects of Climate ChangeClimate Change

o The climate change has resulted in changes in cultivation time of many crops and hampered traditional cultivation in many areas.

o Research are continued to invent flood, draught, salinity and high temperature tolerant crop variety.

o Bangladesh Rice Research Institute (BRRI) have already invented some climate adapted varieties of Rice and many others to cope with changes of climate.

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Food Security Status of Food Security Status of BangladeshBangladesh

The major cereal crops are rice and wheat although main focus is on rice production.

79.4 percent of the total cultivable land area under rice crop.

Almost 90% population depend on rice. Rice contributes to over 63% of the caloric intake for

urban consumers and over 71% for the rural population.

The agriculture sector has grown at 3.2 percent annually during 1991-2009.

Growth rate of agriculture sector during FY 2009-10 & 2010-11 were 5.2 & 5.1 .

This trend resulted Bangladesh as the self sufficient country in production of food grain from the year 2010.

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Actual & Projected population, Food grain requirement and production

Year Mid-year population

(million)

Food grain

requirement

Total production

2010 148.10 24519.60 27587.04

2015 156.70 25943.42 29797.54

2020 166.90 27632.14 30947.00

Food Security Status of Food Security Status of BangladeshBangladesh(Contd…)(Contd…)

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Initiatives taken by Initiatives taken by

Bangladesh BankBangladesh Bank in in

Agriculture & Rural Agriculture & Rural Financing & Financing &

DevelopmentDevelopment

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Background of Formulation of Background of Formulation of ACPACP

In line with the pro-poor agricultural policy of the government, Bangladesh Bank has formulated its own Agricultural & Rural Credit Policy and Programme with a view to:

expanding banking services to rural areas using information technology,

using the limited agricultural land for the best purposes of agriculture,

deciding the courses of action for adapting to the impact of climate change.

keeping the price level of foodstuff within the purchasing power of the mass people through increasing agricultural production.

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Background….. Background….. (contd….)(contd….)

Considering the importance of food security and employment of the country, Bangladesh Bank designing agricultural credit policy and programme since 1977 and implemented through nationalized and specialized banks.

From the FY 2008-2009 all private and foreign commercial Banks along with nationalized 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 2011-2012.

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Major Area Covered in ACPMajor Area Covered in ACP Crop Fisheries Livestock Agri-Equipments Irrigation Equipments Grain storage and marketing Poverty Alleviation &

Employment generating activities

Others

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Salient Feature of Annual Salient Feature of Annual Agricultural & Rural credit policy Agricultural & Rural credit policy

Of Bangladesh BankOf Bangladesh Bank Priority will be given to the major three sectors such

as Crop, Fisheries, livestock. Credit shall be disbursed in an area approach

method i.e. comparative advantages of producing crops in different regions.

Ensure timely availability of agricultural credit for the small and marginal farmers including share-croppers.

Less developed and neglected areas (i.e. char, haor, coastal belts etc.) shall be given priority.

Credit facilities shall be allowed at a concessional interest rate (4%) for cultivation of import substitute products such as pulse, oil seeds, spices and maize.

Other than Agricultural credit different self-employment/income generating activities are encouraged in order to stimulate the rural economy.

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Salient Feature of Annual Salient Feature of Annual Agricultural & Rural credit Agricultural & Rural credit policy Of Bangladesh Bankpolicy Of Bangladesh Bank

Women borrowers shall be given priority for disbursing agricultural & rural credit.

To ensure transparency, emphasis is given on disbursement of agriculture credit publicly(open credit disbursement) at union level.

High Value Crops shall be given priority in extending credit facility.

Contract Farming: Banks are advised to provide loan to the agro-commodities producing farmers engaged in contract farming as well as the entrepreneur to ensure fair prices of agri product.

Crop Diversification: Nutritious food such as potato, pulse, oil seeds, maize etc. are given

priorities to others. Banks and Financial Institutions are advised to disburse loan for

cultivating and to popularize the various ways of consumption of them.

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Salient Feature of Annual Salient Feature of Annual Agricultural & Rural credit Agricultural & Rural credit policy Of Bangladesh Bankpolicy Of Bangladesh Bank

Revolving Crop Credit Limit System:  To ensure continuous credit flow revolving crop credit limit system i.e. three year auto renewal of agricultural-loan has been introduced.

Climate Change Effect: Banks are advised to make flexible of the schedule of

credit disbursement and recovery to adapt the adverse effects of climate change.

Banks are asked to facilitate credit to cultivate salt tolerating crops in salty areas, water tolerating crops in flood affected areas, drought tolerating crops in drought areas.

Fish culture in cage: Banks are advised to disburse loan in fish culture in cage i.e. culture fish in a controlled environment to produce commercially viable fish.

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Salient Feature of Annual Salient Feature of Annual Agricultural & Rural credit policy Agricultural & Rural credit policy

Of Bangladesh BankOf Bangladesh BankDistribution of loan to coastal aquaculture: Banks are advised to disburse loan for cultivation of Mud

crab, Lates calcarifer, Gray mullet etc. in the potential coastal area of Bangladesh which are limited to shrimp cultivation.

A significant amount of foreign currency could be earned through export of this fish variety.

Credit Disbursement through 10 Tk. Farmer’s Account For Financial Inclusions instructions are given to the Banks

to open a farmers account by taking 10 Tk. initial deposit. To develop savings habit among the farmers and to attract

un-tapped rural savings, banks are instructed to allow higher rate of interest to these accounts.

Farmers are encouraged to channel their foreign remittances through these accounts.

Banks also instructed to allow credit up to 90% of their total deposit at a lower rate against the deposit on this account.

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Salient Feature of Annual Salient Feature of Annual Agricultural & Rural credit policy Agricultural & Rural credit policy

Of Bangladesh BankOf Bangladesh BankBesides the core agricultural sector, following

sectors are encouraged by Bangladesh Bank: Salt cultivators at 4% concessional rate of

interest. Tissue culture Jute cultivation Betel leaf cultivation Apiculture Mushroom cultivation Palm oil Cotton cultivation Weaver’s loom industry Silk industry

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Salient Feature of Annual Salient Feature of Annual Agricultural & Rural credit policy Agricultural & Rural credit policy

Of Bangladesh BankOf Bangladesh BankCredit for Green Banking activities:

Solar irrigation pump Bio-gas driven irrigation pump Integrated cow rearing and Bio-gas plant Bio-fertilizer Solar Home System Vermiposting: composting the earth worms

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Effective use of Bank-MFI Effective use of Bank-MFI partnershippartnership

Foreign and Private commercial banks which have limited branch coverage in rural areas are advised to provide agricultural & rural credit in partnership with the micro-finance institutions (MFIs).

To ensure that the bank funds disbursed through MFI partnership goes in agriculture, it is considered as disbursement by bank only when the fund is disbursed to the actual borrowers and not the Micro-Finance Institutions (MFIs)

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Low Interest Rate in Agricultural Low Interest Rate in Agricultural & rural Financing& rural Financing

Interest rate cap for agricultural & rural credit for banks is currently 13% on reducing balance method.

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Achievement & Success of Achievement & Success of Bangladesh BankBangladesh Bank

Disbursements of agricultural credit rises from Taka 92.84 to 131.37 billion respectively from FY09 to FY12.

A specialized department exercises oversight on hassle free credit disbursement and other customer interest protection issues.

Mobile phone based financial service delivery processes.

Facilitate cost effective agricultural credit delivery and recovery to and from farmers in remote areas.

More than 9.5 million accounts of farmers have been opened by the State-owned Banks with an initial deposit of Tk. 10/- only (<20 cents).

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Target Achievement Trend in last 5 yearsTarget Achievement Trend in last 5 years

Sector-wise Agricultural and Rural Credit Disbursement in FY 2011-12

(Tk. 131.32 billion)

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Banks’ Disbursement of Agri-loan in FY Banks’ Disbursement of Agri-loan in FY 2011-20122011-2012

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Special Refinance Program of Tk.2000 million

for Solar energy, Bio gas plant, ETP, HHK etc.

Green Banking Activities in Green Banking Activities in Agriculture and Rural financeAgriculture and Rural finance

Solar Irrigation Pump:Solar Irrigation Pump:As of December2012, an amount of Tk. 2.39 crore disbursed for 8 solar energy driven irrigation pumps. No. of beneficiary farmers are 618 and 920 Bighas of land will be cultivated with uninterrupted water flow in the land. 

Green Banking Activities in Agriculture and Rural financeGreen Banking Activities in Agriculture and Rural finance

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Integrated Cow Integrated Cow Rearing and Bio-Gas Rearing and Bio-Gas PlantPlant

As of December2012, an amount of Tk.133.20 million is re-financed in 820nos of Integrated cow rearing and Bio-gas plant.

Some features of these Bio-gas plants:No. of Beneficiaries: 980 familiesNo. of cows in the project: 3550No. of Chicken in the project: 14150Volume of Bio Digester: 4089 cubic meterMilk production per day: 25560 litreProduction of Bio-gas per day: 1635 cubic meterOrganic Manure per day: 21300 kg

Effluent Treatment Plant(ETP):As of December 2012, an amount of Tk. 90.40 million disbursed for establishing 8 ETP which reduces environmental pollutions.

Green Banking Activities in Agriculture and Rural Green Banking Activities in Agriculture and Rural

financefinance

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Solar Home System(SHS):As of December 2012, an amount of Tk. 87.80 million disbursed for 3763 Solar Home systems through which at-least 3714 families will be benefited and the production capacity is 164100kwp per day. 

Solar Assembling Plant

As of Decemebr 2012, an amount of Tk. 248.80 million disbursed for establishing Solar PV module assembling plant.

Bio fertilizer

As of Decemebr2012, an amount of tk. 0.4 million has been disbursed through banks in Bio-fertilizer sector under a refinance program.

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Vermiposting : composting the Vermiposting : composting the earthwormsearthworms

Using worms in an indoor bin to break down scraps into compost, known as "vermiposting”, .

Bangladesh Bank has taken initiative and advised to the banks to promote this sector.

Nationalized banks already issued directive to provide credit to the farmers in this sector.

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Special Refinance Scheme for Special Refinance Scheme for providing finance to the providing finance to the

share-croppersshare-croppers

Introduction of a special refinance program of taka 5 billion exclusively for the share-croppers/tenant farmers.

As of December 2012 an amount of TK. 6929.59 million agri. credit has been provided through BRAC (MFI) towards 5,52,047 sharecroppers (in 250 upazillas of 48 districts) .

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Disbursement to the Sharecroppers Disbursement to the Sharecroppers

through Banksthrough Banks

All scheduled banks are advised to disbursed agri-credit towards sharecroppers on individual or group basis.

Agricultural Credit towards sharecroppers has been increased (in no. of farmers and amount) gradually from 2009-10 to 2011-12.

No. of Sharecroppers in lac

Disbursement amount in billion taka

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Credit at concessional interest Credit at concessional interest rate promoting cultivation of rate promoting cultivation of spices, lentils, oilseeds, etcspices, lentils, oilseeds, etc

Agricultural Credit for Pulse seed, oil seeds, Spices and Maize at 4% concessional rate has been increased due to media campaign (print and electronic) and weekly-basis monitoring from BB.

During FY2011-12, Private and Foreign Banks have participated in disbursing agri-credit at 4% concessional rate.

Out of Tk.816.30 million, PCBs and FCBs disbursed TK. 115 million .

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Credit Disbursement at Credit Disbursement at concessional Interest Rate (4%) concessional Interest Rate (4%) for Salt production in coastal for Salt production in coastal areasareas

Credit (against the interest loss subsidy provided by government) shall be made available on easy terms to the salt cultivators at a concessional rate (4%) from FY 2010-11 in the coastal belts of the country.

Financial Year No. of Farmers Disbursement(amount in million taka)

2010-11 1153 42.20

2011-12 1310 108.70

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Special Credit towards womenSpecial Credit towards women

In financial year 2011-12 an amount of Tk. 5.31 billion were disbursed among 0.27 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.

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Credit towards tribal farmers in Hill Credit towards tribal farmers in Hill

Tracts AreasTracts Areas

During FY 2011-12 around 273.90 million taka was disbursed only at 5% interest rate among about 13100 tribal farmers of Bangladesh.

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Special Credit program in supporting Special Credit program in supporting of Agricultural and rural of Agricultural and rural

developmentdevelopment

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).

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Agricultural assistance through Agricultural assistance through CSR(Corporate Social CSR(Corporate Social

Responsibility) ProgramResponsibility) Program CSR actions aim at mitigate the diverse environmental

impacts of the activities of the business and at reducing inequalities and alleviating deprivation and poverty in the communities across the country.

Bangladesh Bank (BB) issued a detailed directive titled "Mainstreaming Corporate Social Responsibility (CSR) in banks and financial institutions in Bangladesh“.

From the year 2009, 2010, 2011 & 2012 all banks disbursed an amount of Taka 550 million , 2330 million, 2190 million and 3046.69 million respectively in CSR program

Banks are advised to distribute free crops seed like oil pump, strawberry, baul kool, appel kool etc. to the farmers.

Some banks are disbursing interest free agricultural credit towards share croppers landless farmers in cyclone affected areas.

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ADB fund for improving brick kiln ADB fund for improving brick kiln

efficiency efficiency

A refinance scheme (ADB funded) for 50 million USD is ongoing to improve the efficiency of existing brick kiln for reducing carbon emission.

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Monitoring of agricultural credit Monitoring of agricultural credit

To ensure timely and hassle-free disbursement of agricultural Credit to real farmers BB has set up three-tier monitoring system. Such as:

Monitoring at disbursing bank level

Monitoring by Branch offices of BB Monitoring by HO of BB

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Flow Chart of 3-Tier Monitoring SystemFlow Chart of 3-Tier Monitoring System

BB Head Office Monitoring Cell(Under ACFID)

Commercial Banks Head Office

BB BranchesMonitoring Cell

Divisional/Regional Level

Branch Level

Farmers Farmers Farmers

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Monitoring at disbursing bank Monitoring at disbursing bank

levellevel Participating banks will establish a separate

monitoring system. The branch Offices of the participating

banks shall visit the farmers regularly, and arrange group discussion.

Head office of participating bank shall arrange fortnightly/monthly evaluation of the overall agricultural credit disbursement and recovery position and give necessary instruction to branches/regional offices.

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Monitoring by Branch offices of BB Monitoring by Branch offices of BB

Every branch office of BB has a monitoring cell.

They collect & evaluate the comprehensive statement regarding agricultural and rural credit disbursement and give necessary instructions to the regional office of the banks.

BB officers from Branch office attend in the meeting with government representative.

Representative from BB branch visit the farmers and the branch office of participating bank.

Finally branch office of BB send their findings to HO.

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Monitoring by Head offices of BB: Monitoring by Head offices of BB:

Off-Site SupervisionOff-Site Supervision

Collection of Basic Information of Loan disbursement & recovery of individual bank through prescribed Form.

Developing of broad Database for agricultural credit. Review and analysis of Data. Giving some instructions and decisions on the basis of

review and analysis.

On site supervision: On site supervision: Visit bank branches and their borrowers on sample

basis. Coordinate with BB branch office monitoring cell of BB

branch offices. Monitoring through District Agricultural Credit

Committee. Meeting with senior Officials of participating banks.

Success in agri & rural-credit will be awarded by:

giving permission of new branches opening foreign exchange dealership

license, Liquidity support and banks rating (CAMELS Rating).

Failure will punished by : Depositing the shortfall amount of total

target in BB for 1 year.

Reward & punitive measure for

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Concluding remark

The developmental role played by BB indicate that this role of a central bank can be carried out without conflict with the primary role of preserving monetary and financial stability. Central bank’s developmental role, therefore, act as an in-built stabilizer of the financial system; helping avert situation like those creating the global financial crisis of 2008-2009.

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