Bangladesh - Rural finance

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The rural sector is central to Bangladesh's development strategy and agriculture has a pivotal role in rural growth. This study finds that small and marginal farmers, a majority of the fanning population of Bangladesh, and other small entrepreneurs in rural areas are generally unable to access appropriate financial services. . They possess too few assets to be of interest to banks, but have too much income to qualify as "poorest of the poor", the target of most NGOs and member-based institutions such as Grameen Bank. For broad based development, it is crucial to substantively include this potentially dynamic section of the rural economy in the growth process.

According to this report, rural financial markets in Bangladesh are fragmented and inadequate. Reform of the formal banking sector is essential as it is central to the financial system by virtue of its ability to mobilize resources with appropriate prudential oversight, economies of scale and ability to pool risks. Most important is to remove political interference in bank operations, which have often led to loan write-offs and interest remissions. The authors suggest: strengthening the management capabilities of the Bangladesh Bank, the lifting of interest rate ceilings on agricultural credit and replacing refinance facility for the agricultural banks by a re-discount window as for other banks. As an integral component of the process of financial intermediation, savings mobilization must be given high priority.

In terms of the legal environment, the report suggests implementing changes in laws to permit a wider range of collateral security and repossession. They also propose the introduction of regulatory and supervisory provisions for loans secured by accounts receivable and chattel paper; improving public registries; and promoting credit bureaus to improve the information and signalling systems for all types of loans.

With regard to the NGO sector, the report suggests integrating them with commercial financial markets is vital, e.g. encouraging large NGOs to become banks, encouraging banks to “wholesale” funds to established NGOs and use smaller NGOs as brokers or to mobilise self-help savings groups, channelling grant assistance for training and capacity building through support and network NGOs, etc.

Document Information

Document Type Report
Author The World Bank
Year of Publication 1996
Publisher The World Bank
Number of Pages 70 pp.
Edition World Development Sources, WDS 1996
Region / Country Global, Asia, Southern Asia / Bangladesh
Primary Language English (en)
Keywords Rural Financial Markets, Financial Intermediation, Legal Environment
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