Agricultural Credit In Bangladesh 215116

WELCOME

GROUP LINEUP Name Omar Faruk Reza Nurtaz Jaman M.H Jamil Md. Shamsuddin Imran Estehad Chowdhury Md. Salman Hossain

Registration No: 2010731010 2010731023 2010731046 2009731012 2009731029 2009731004

SUPERVISED BY:

Mohammad Ashraful Ferdous Chowdhury Lecturer, Department of Business istration, Shahjalal University of Science and Technology, Sylhet-3114

SEMINAR REPORT ON “ROLE OF BANKS ON AGRICULTURAL DEVELOPMENT: A STUDY ON SYLHET REGION”

Agricultural credit is crucial for realizing the potential gain from agriculture as a profitable activity. Ensuring access to credit to small farmers who are operating at the subsistence level is a substantive issue. Small farmers in Bangladesh do not have sufficient assets to carry on with their production expenditure. They depend on agricultural credit from institutional and non-institutional sources to meet the various expenses of agricultural productivity. There are various inefficiencies in the institutional sources regarding interest rate and other conditionality. Indebtedness of peasants in Bangladesh has long been a phenomenon caused by shortage of cash funds. Alternative credit system is required for providing peasants with necessary funds. Unless the farmers get secured access to the sources of credit, they will not be able to invest in land and as such sustainable development in agriculture will not be possible. Therefore, intervention is needed from the state as well as from the private sector. But proper implementation of the adopted policies needs to be seriously monitored. It is necessary for the state and different organizations to carry on with their initiatives for increasing farmers ‘access to institutional credit. It is indispensable to construct a strong institutional base which would be able to provide farmers with sufficient credit facilities as and when necessary.

CHAPTER ONE: INTRODUCTION

Agriculture is one of the prime sectors of Bangladesh‘s economy. This sector contributes about 20% of the country‘s Gross Domestic Product (GDP) and employs 44 per cent of the total labor force. Agricultural sector contributes significantly in respect to attaining marginal food sufficiency creating employment opportunity, improving standard of living, and finally reducing poverty. The success has achieved due to continuous reform of agricultural policies and its implementation. The agricultural credit has been considered one of the crucial factors toward sustainable development of agricultural sector particularly to increase agricultural production. It is apparent from previous studies that credit plays an important role in increasing agricultural productivity. The central bank of Bangladesh has recently shifted agricultural credit policy through incorporating all scheduled banks (including Private Commercial Banks and Foreign Commercial Banks) under agricultural credit program. In fact, agricultural credit plays an important role in enhancing productivity of agriculture and the participation of all formal banks obviously added extra value. Agricultural credit system has been adopted by the Bangladesh Bank, that is, Agricultural Credit Monitoring System. This seminar paper also tries to show the relationship between agricultural credit and agricultural development.

CHAPTER TWO: Literature Review

Studies by Farid Ahmed M. (1980) and Hasanath Ali M. & Serazul I.M (2005) refer to earlier stages of the disbursement process . The latest works on Bangladesh agriculture efficiency were made by Chowdhury (2002). Khalily M.A.B & R.L. Meyer (1993) their results the findings of other studies that reform efforts initiated by the Bangladesh government from 1991 to 2005 have not yet led to a real improvement in the agricultural sector. Agricultural credit program was given more importance from 2009 by Bangladesh Government. There is not enough seminar paper or research about Agricultural Credit & Development in Sylhet. Few researches were done on this topic (Farid, 2009). Their result showed that the agricultural development is likely related with disbursement of Agricultural Credit.

CHAPTER THREE: AGRICULTURE IN BANGLADESH

Agriculture is an economic sector that has to provide society with sufficient amount and quality of food and fiber production, avoiding harmful environmental effects on land, soil, air and water livestock. Agriculture is crop and animal husbandry for producing food stuffs, raw materials and services (including biodiversity and landscape) for the society. Sectors of Agriculture: Crop Fisheries Poverty

alleviation Grain storage Live-stock Agriculture equipment Marketing Agriculture goods

CHAPTER FOUR: AGRICULTURAL CREDIT IN SYLHET

Agricultural credit is a financial term that refers to loans and other types of credit extended for agricultural purposes. It is a credit financing vehicle, such as a loan, banker’s acceptance or letter of credit that is designed specifically for agriculture producer. The credit needed by farmers to grow the agricultural sector is termed as Agricultural Credit.

Types of Agricultural Credit: i) Short-term Loans ii)Intermediate-term Loans iii)Long-term Loans

Source of Agricultural Credit:

Credit in the farm sector is available from two sources 1) Non-Institutional Sources 2) Institutional Sources Non-Institutional Sources i) Money lenders ii) Friends iii) Relatives iv) Landlords v) Shopkeepers vi) Commission agents

Institutional Sources i)Agricultural Development Bank ii) Commercial Banks

Programs & Policies of Bangladesh Bank in Agricultural Credit: Agriculture being the key driving force as well as the priority sector of Bangladesh economy, Bangladesh Bank (BB) has formulated Annual Agricultural Credit Program and Policy for the Fiscal year 2011-12 with view to ensuring food security of the country. Programs of Bangladesh Bank: The target for disbursement of agricultural credit has already been fixed at around Tk. 13,136.91 crore for FY 2011-12 & it has been increased by Tk.952.51 crore compared to that in FY 2010-11 (Tk. 12,184.40 crore). Programs of Bangladesh Bank in Agricultural credit on Sylhet region: Target( in Crore)

Disbursement(in Crore)

FY 2009-10

374

237

FY 2010-11

497

411

FY 2011-12

639

193 (July-Feb)

Policies of Bangladesh Bank: A

farmer may be sanctioned credit for up to 15 bighas (5 acres) of cultivable land as determined by credit norms. As

per Agricultural Credit Policy, in disbursement of agricultural credit three core sectors of agricultural credit have to be given priority compared to other sectors. Sixty percent of agricultural credit has to be disbursed to grain and crop sectors only. Banks

are encouraged to disburse group-based loans to fishermen in various water bodies, haors and pools. Bangladesh

Bank will consider providing refinancing facility to encourage credit distribution programs in haor and coastal areas areas. Banks

and other concerned institutions are directed to provide necessary credit to successful farmers so that other farmers to get inspired by their success.

Contribution of Commercial Banks to the Credit Market: All

banks collectively disbursed Tk 13,136.91 crore, or 95 per cent of the target, in farm loans in the just concluded financial year of 2011-2012 according to the Bangladesh Bank data. State-owned,

specialized, private and foreign commercial banks had a target to disburse Tk 13,800 crore in FY 2012. In FY 2011, the banks disbursed Tk 12,431.93 crore, or 96.50 per cent, in agriculture loans against the target of Tk 12,184.40 crore. state-owned commercial banks — Sonali, Janata, Agrani and Rupali and the two specialized banks, Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank — in the FY 2011-12 had disbursed Tk 8,314.16 crore in farm loans or 97.70 per cent of their annual loan disbursement target of Tk 8,510 crore. In FY 2010-11, the six banks disbursed Tk 8,457.62 crore, or 102.95 per cent of their annual loan disbursement target of Tk 8,215 crore. The

The PCBs and FCBs disbursed Tk 4,822.75crore in agriculture loan in FY 2011-12, which was 91.17 per cent of their total annual loan disbursement target of Tk 5,290 crore. In FY 2010-11, the banks had disbursed Tk 2,974.31 crore, or 81.91 crore of their annual loan disbursement target of Tk 3,631.40 crore. 

Contribution of Commercial Banks to the Credit Market on Sylhet region: Bank Name

Target amount( in Lakh)

Actual disbursement(in Lakh)

State-owned Commercial Bank

7713.2

3373.02

Specialized Bank

36477

11410.24

Private Commercial Bank

12005.4

1972.4

Islami Bank

6897

1894.09

Foreign Commercial Bank

807

600

Table: Total Target & Actual Disbursement of Agricultural Credit on Sylhet Region by Various Banks (FY - July, 2011-Feb, 2012)

CHAPTER FIVE: Data Analysis & Findings

Target & Disbursement

639

497 411 374

237 193

FY 2009-10

FY 2010-11 Target( in Crore)

FY 2011-12

Disbursment( in Crore)

Figure 1: Target & Disbursement of Bangladesh Bank in Agricultural Credit on Sylhet Region

Disbursement Rate

30% 63%

FY 2009-10 FY2010-11 FY 2011-12(July-Feb)

83%

Figure 2: Disbursement Rate of Bangladesh Bank in Agricultural Credit Program on Sylhet Region

Total Target & Actual Disbursement 40000 36477 35000

30000

25000

20000

15000 12005.4

11410.24 10000

5000

7713.2

6897 3373.02 1972.4

1894.09

807

600

0 State-owned Commercial Bank

Specialized Bank

Private Commercial Bank

Target amount( in Lakh)

Islami Bank

Foreign Commercial Bank

Actual disbursement( in Lakh)

Figure 3: Total Target & Actual Disbursement of Agricultural Credit on Sylhet Region by Various Banks (FY - July,2011-Feb,2012)

Disbursement Rate (FY : July, 2011 - Feb, 2012)

44% State-owned Commercial Bank Specialized Bank

74%

Private Commercial Bank

31%

27%

Islami Bank Foreign Commercial Bank

16%

Figure 4: Disbursement Rate of Agricultural Credit on Sylhet Region by Various Categories Bank in FY 2011-12(July-Feb).

Total Disbursement, Outstanding & Recovery 100%

10661.57 80% 60%

158.5

30.5

14.5

7819.24 11.5

40% 18480.81 20%

170

0 30.5

1.25

15.75

109.22

3.42

112.64

0% Krishi Bank

Dhaka Bank

Trust Bank

Total Disbursment( in lakh)

Uttara Bank

IFIC Bank

Outstanding (in lakh)

26.3

198.05

0

2.45

26.3

Mercantile Bank Ltd

200.5

Pubali Bank

Recovery (in lakh)

Figure 5: Total Disbursement, Outstanding & Recovery of Agricultural Credit on Sylhet Region by Various Bank in FY 201112(July-Feb).

Interest rate Krishi Bank

10%

Pubali Bank

13%

Uttara Bank

13%

13%

Mercantile Bank

Trust Bank

13% 15%

Dhaka Bank

13% IFIC Bank

Figure 6: Interest Rate of Agricultural Credit on Sylhet Region by Various Bank.

Total Number of Borrower & Defaulter 90000 80000

79714

70000 60000 50000

43045

40000 30000 20000 10000 572

7

56

4

30

0

27

0

425

12

258

7

0 Krishi Bank

Pubali Bank

Uttara Bank

Total borrower

Mercantile Bank

Trust Bank

Dhaka Bank

IFIC Bank Ltd

Total defaulter

Figure 7: Total number of borrower & defaulter in agricultural credit program on Sylhet region from 2009-2012 (July-Feb).

180000 155345

160000 140000 120000

116794

110611

100000 80000 60000

48502

40000 20000 0 Sylhet

Moulovibazar

Hobigonj

Shunamgonj

Total Number of Farmer's Bank

Figure 8: Total number of farmer's bank (2006-12) in four district of Sylhet division.

3500000 3000000 2500000

2000000 1500000 1000000

A.P (k-1) in M.T A.P (k-2) in M.T A.P ( R) in M.T Total Production ( in M.T)

500000 0 2007-08

2008-09

2009-10

2010-11

2011-12

Figure 9:Total Production

oThe

actual production in Khorip-1 (Aamon), Khorip-2 (Aaush) and Robi (Boro) seasons was respectively 261266 metric ton, 760594 metric ton and 1537602 metric ton in FY 2007-08.The total production was 2559462 metric ton in 2007-08. In 2008-09 the actual production in Khorip-1 (Aamon), Khorip-2 (Aaush) and Robi (Boro) seasons was respectively 245581 metric ton, 825531 metric ton and 1391442 metric ton. The total production was 2559462 metric ton in 2007-08. o

oIn

2009-10 the actual production in Khorip-1 (Aamon), Khorip-2 (Aaush) and Robi (Boro) seasons was respectively 253493 metric ton, 900535 metric ton and 1555690 metric ton. The total production was 2709718 metric ton in 2009-10. oIn

2010-11 the actual production in Khorip-1 (Aamon), Khorip-2 (Aaush) and Robi (Boro) seasons was respectively 228628 metric ton, 931953 metric ton and 1669404 metric ton. The total production was 2829985 metric ton in 2010-11. oIn

2011-12 the actual production in Khorip-1 (Aamon), Khorip-2 (Aaush) and Robi (Boro) seasons was respectively 293099 metric ton, 994462 metric ton and 1715462 metric ton. The total production was 3003023 metric ton in 2011-12

Relation between total Disbursement & total Production

4500000 4000000 3500000

Total Disbursment ( in Thousand)

3000000 2500000

2000000 1500000

Total Production (in Metric Ton)

1000000 500000 0 FY 2009-10

FY 2010-11

FY 2011-12 (July-Feb)

Figure 10: Relation between total Disbursement & total Production Total

disbursement in FY 2009-10 was 2370000 thousand & total production was 2709718 metric ton, In

FY 2010-11 total disbursement was 4110000 thousand & total production was 2829985 metric ton, In

FY 2011-12 (July-Feb) total disbursement was 1930000 thousand & total production was 2203023 metric ton. So, Agricultural production is increasing as a result of increasing Agricultural credit

Statement 1: Agricultural credit is important for the development Importance of AC 80% 70% 70%

60%

50%

40% Importance of AC 30% 30%

20%

10% 0%

0%

0%

Disagree

Strongly disagree

neither agrees nor disagrees

0% Agree

Strongly agree

Statement 2: The performance of banks for agricultural development is not satisfactory Performance of Banks 60%

50%

40% Banks 30%

Farmers

20%

10%

0% Agree

Strongly agree

Disagree

Strongly disagree

Neither agree nor disagree

Statement 3: The procedure of getting agricultural credit is difficult Difficulties in getting AC 80%

70%

67%

60%

50%

40%

Difficulties in getting AC

30% 23% 20%

10%

0% yes

No

Statement 4: Agricultural credit is beneficial for the farmers of Bangladesh

Beneficience of AC 90% 84% 80%

70%

60%

50% Beneficience of AC 40%

30%

20%

16%

10%

0% yes

No

Statement 5: Agricultural credit helps to increase production Increase of production 100% 92% 90%

80%

70%

60%

50%

Increase of production

40%

30%

20%

8%

10%

0% yes

No

FINDINGS: Inadequate monitoring and evaluation Low default rate Uncoordinated credit policies. Loan has negative consequence rather than being benefited in case of failure to utilize it properly. As there have fewer numbers of branches of commercial banks in rural area, the farmers go hardly to them Farmers are engaged with NGO because it is near to them. Inadequacy of manpower in branch offices Farmers have to come to take loan, Bank gets difficulties to go to them Illiterate farmers don’t understand the policy Difficulties in getting agricultural credit Agricultural credit is important for the development Banks are willing to provide loan Agricultural credit is burdensome for some banks Agricultural credit is not profitable enough for the banks Interest rate problem Uneven distribution of agricultural credit. Increased productivity as a result of Agricultural credit

CHAPTER SIX: Recommendations and Conclusion

Recommendations: Sufficient

loans in time should be supplied to farmers so that they never feel the wants of agricultural capital to invest in farmland. Though interest rate is comparatively lower than other sectors, it is to be minimized between 5% to 6% Regular visiting and planned monitoring from banks should be increased so that borrowed money is utilized accurately to have a good return. Government must have to play a vital role in uprooting communication gap among banks and peasants through infrastructural development. More rural branches should be launched by banks to make direct link with marginal farmers. Awareness programs on loans and positive approach of it among marginal peasants are required to be organized. Expanding time duration of loan in case of failure to repay is to be kept under consideration. Promotional activities at root level is a crying need to involve farmers as well as first-hand training by banks especially by agricultural bank need to be introduced.

CONCLUSION: Agricultural credit thus assumes great importance in an agrarian county that us trying to modernize traditional agriculture. Agricultural sector financial access has expanded over the decades with the combined efforts of scheduled banks and NGO-MFIs. Not to mention, Bangladesh bank policy on agricultural credit has promoted the access to credit for small and marginal farmers. Although PCBs and FCBs contributed limited in respect to credit disbursement but their participation in agriculture financing deemed as major movement of formal private banks to financing in rural Bangladesh. Many PCBs and FCBs have formed linkages with NGO-MFIs for expanding market horizon in a viable and sustainable manner, while NCBs and SBs have been using their existing branch network to do so. Since, there is a significant positive relationship between agricultural credit and production, there should have demand for favorable agricultural credit policy and implication which can increase the budgetary allocation as well as will take steps to overcome the target shortfall. Finally, there should have incentive for financial intermediaries to encourage them to financing the agricultural sector and rural areas in a sustainable manner.

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