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Research Monograph 005 i

RESEARCH MONOGRAPH 005

Innovations in Rural Banking : Farmers Accounts and Sharecropper Financing

Abed Ali Faculty Member, BIBM

Sk. Nazibul Islam

Faculty Member, BIBM

BANGLADESH INSTITUTE OF BANK MANAGEMENT Mirpur, Dhaka

Research Monograph 005 ii

Innovations in Rural Banking:Farmers Accounts and Sharecropper Financing

Abed Ali

Sk. Nazibul Islam

Published: April, 2013 Published by Bangladesh Institute of Bank Management (BIBM) Plot No. 4, Main Road No. 1 (South), Section No. 2 Mirpur, Dhaka-1216, Bangladesh PABX : 9003031-5, 9003051-2 Fax : 88-02-9006756 E-mail : [email protected] Web : www.bibm.org.bd

Printed by Agami Printing and Publishing Co., Dhaka, Bangladesh

The views in this publication are those of authors only and do not necessarily reflect the views of the institution where they work.

Research Monograph 005 iii

Foreword

s part of the ongoing dissemination of its research outputs, BIBM presents this research report on “Innovations in Rural Banking: Farmers Account and

Sharecropper Financing.” The report is based on a field survey conducted by two staff members of the Institute in early-2011 in different areas of Bangladesh. The report brings out the benefits and deficiencies of the two important policy initiatives on Inclusive Finance initiated by the Bangladesh Bank at the field level.

I hope this monograph will provide useful feedback to the policymakers, academicians and the banking community at large on Bangladesh Bank’s developmental and promotional initiatives in the past few years on promoting access of the general populace to banking services.

As always, BIBM welcomes the feedback of the readers of our publications which would enable us to improve upon our research activities in the coming years.

Dr. Toufic Ahmad Choudhury Director General

A

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Acknowledgements

he authors are grateful to the Governor, Bangladesh Bank for involving the BIBM in the project and to Dr. Toufic Ahmad Choudhury, Director-General, BIBM for

overall guidance. Various banking professionals across the areas surveyed gave valuable support, for which the authors are thankful.

We are really thankful to Dr. Prashanta Kumar Banerjee, Professor & Director (Research, Development & Consultancy), BIBM for his thoughtful contribution and comment in drafting and finalizing the report.

Our sincere appreciation goes to our field assistants for helping us in obtaining a wide range of information from the field level. We are also thankful to Ms. Papon Tabassum, Research Officer, BIBM; Mr. Sarder Aktaruzzaman, Proof Reader, BIBM, Mr. Md. Awalad Hossain, Computer Operator and Mr. Md. Nasir Uddin, Computer Operator, BIBM for their support.

Abed Ali Sk. Nazibul Islam

T

Research Monograph 005 v

RESEARCH MONOGRAPH 005

Innovations in Rural Banking : Farmers Accounts and Sharecropper

Financing

Research Monograph 005 vi

Research Monograph 005 vii

Contents

Sl. # Title Page No. List of Abbreviations Executive Summary

Viii

1 Introduction

1.1 Objective of the Study

1.2 Methodology, Coverage and Presentation

1 1 2

2 Concepts and Issues

3

3 Survey Findings

7

4 Summary observations and Recommendations

11

References

13

Post-Script

14

List of Tables

Sl. # Title Page No. Table-1 Number of Farm Holdings in Bangladesh 5 Table-2 District-wise Position of Farmers' Accounts Opened 9 Table-3 Disbursement of Sharecropper Loan in the Areas Surveyed 10

List of Box

SL. # Title Page No. Box-1 A Success Story 12

List of Abbreviations

Abbreviation Elaboration BRAC Bangladesh Rural Advancement Committee BKB Bangladesh Krishi Bank RAKUB Rajshahi Krishi Unnayan Bank ADB Asian Development Bank

Research Monograph 005 viii

Executive Summary

The study is based on field-level survey conducted in 26 upazillas in 8 districts of both farmers and bank officials. The upazillas were selected on the basis of purposive sampling, keeping in mind geographical coverage of the entire country. As many as 54 bank officials of the state-owned banks in various areas were interviewed and the relevant issues were discussed informally with a total of 107 farmers in a Focus Group Discussion format.

The survey findings show that, as far as the Farmers' Account (no-frill accounts with a nominal deposit of Taka 10, mandated by Bangladesh Bank) is concerned, 95% of the branches surveyed extended this facility to farmers and most farmers were aware of this facility. The highest number of accounts were opened in the selected upazillas of Jessore (25.35%) and the lowest number was recorded in Feni (2.01%). Simple documentation needs were welcomed by the farmers.

As for Sharecropper Loan, the highest amount was disbursed, again in Jessore, and the lowest in Sunamganj. BRAC, a financing partner under this scheme, together with BKB, disbursed 91 per cent of the total loan in the areas surveyed. RAKUB and the other three leading state-owned banks (Sonali Bank Ltd., Agrani Bank Ltd. and Janata Bank Ltd.) fared rather poorly in terms of disbursement. Farmers in most places appealed for further simplification of the documentation requirements.

Research Monograph 006 1

Innovations in Rural Banking : Farmers Accounts and Sharecropper Financing

1. Introduction

Agriculture is the mainstay of the Bangladesh economy. Though its contribution to the GDP 20.2 per cent in FY 2009/10 is declining over time (as is expected in the development process), the agriculture sector will continue to remain important for the economy, if for no other reason than for feeding the growing population, estimated at 146 million at end-June 2010 [BB, Annual Report, 2009-10]. But, agricultural productivity depends crucially on the timely availability of key inputs, including credit. This credit is presently made available by the banking system and the micro-finance institutions. Current thinking is that credit coverage must be inclusive, that is, credit opportunity must be accessible to all the participants in the production process, including the sharecroppers.

The role of the agricultural finance institutions, including the banks, becomes important at this point. Sharecroppers and marginal farmers, as one of the production agents in the agricultural sector, have traditionally been shunned by the collateral-based banking system, which does not consider them as credit worthy. In the recent past, Bangladesh Bank made the landmark decision to extend credit facilities to the sharecroppers. They have also been accorded entry into the formal banking system by facilitating the opening of accounts with a small deposit of Taka 10.

Besides normal crop loan facilities available under the annual “Agricultural/Rural Credit Policy and Programme” of the Bangladesh Bank, following a proposal by BRAC one of the leading NGOs of the country the Bank has taken up a special refinancing scheme of Taka 500 crores, under which BRAC undertook to disburse Taka 450 crores as crop loan in the short term and Taka 50 crores for purchasing agricultural implements in the medium term. BRAC will borrow such fund at 5 per cent interest from Bangladesh Bank and disburse at 10 per cent interest in 150 upazillas under 35 districts across the country. The scheme was formally launched in October 2009 with the aim of providing financial and technological support to some 3 lakh sharecroppers in the next three years.

As for farmers' accounts, up to May 31, 2011, more than 9 million farmers have opened their accounts with banks to receive subsidy for agricultural inputs provided by the Government and conduct other banking transactions.

1.1 Objectives of the Study

In the backdrop of the above scenario, this study primarily aims at identifying the difficulties, if any, faced by the sharecroppers in receiving loan facilities and the performance of the financing institutions. It also aims at evaluating the effectiveness of


the farmers' accounts in reaching its goal. It is recognized that overall impact study of the scheme must wait for sometime more. More specifically, the objectives of the present study are as follows:

Farmers' Account

● Problems, if any, faced by the farmers in opening account with an initial deposit of Taka 10;

● What are the documentation requirements for opening accounts? Are the banks insisting on additional documents/papers beyond those prescribed by Bangladesh Bank?

● Are the farmers aware of the purpose of opening of the account?

Sharecropper Financing

● Are the sharecroppers aware of the availability of bank loan facility without collateral?

● What problems, if any, did the sharecropper face in obtaining for such loans and what are the documentation requirements of the banks? Are any additional documents demanded by banks beyond those prescribed by the Bangladesh Bank?

1.2 Methodology, Coverage and Presentation

As for methodology, the study has used both primary and secondary sources for securing information. Relevant officials of Bangladesh Bank (Agricultural Credit Department), a few state-owned banks including Bangladesh Krishi Bank, individual bank records, interview with some farmers under the scheme (in a Focus Group Discussion format) were the sources of primary information. The field-level survey covered 26 upazillas in 8 districts. The selection of upazillas was purposive and was made on the basis of the trend of sharecropper loans disbursed by the State-owned banks, including Bangladesh Krishi Bank. Adequate representation of all the regions of the country was also kept in mind in selecting the areas of investigation. Secondary information was collected from annual reports of the banks, journal articles and website.

The presentation plan of the paper is as follows. Section-2 examines the related concepts and issues and surveys the available literature on the subject in Bangladesh and elsewhere. Section-3 presents the detailed findings (including analysis) of the present study. The last section (Section-4) sums up the relevant issues and places some recommendations for consideration by the authorities.


2. Concepts and Issues

Inclusive Finance

The ideological moorings of the Bangladesh Bank initiatives on “Farmers Account and Sharecroppers Loan” are tied in the concept of “Inclusive Finance.” Financial inclusion may be defined as a state in which an individual has access to the appropriate and desired financial product and service to meet his/her needs. Financial inclusion is not restricted to knowledge on deposit or credit alone; it even includes awareness about banks and banking services and the advantages of using those services. In other words, it involves making people financially literate.

This limited access to finance for large segments of the population is a concern, since this prevents them from integrating into the economy, actively contributing to its development while, at the same time, protecting themselves against economic shocks. Access to credit in the formal sector helps a large set of marginal or small borrowers to unleash their potentials in the form of upgrading their entrepreneurial skills and ability, thus contributing to lowering the prevailing income disparity in the society. Easy access to finance also helps reduce the growth of informal sources of credit, which are in most cases very costly and exploitative. Savings mobilization often a binding constraint in investment activities in developing countries also gains momentum with the increased coverage of banking services. This contributes to improve the allocative efficiency of financial resources. Inclusive finance can serve to increase production and employment and help people to increase income, acquire capital, manage risks and work their way out of poverty.

Mainstream for-profit financial institutions have largely ignored this segment of the market that includes the low-income and poor households, as well as small and medium sized enterprises, often called the “missing middle.” This is because smaller transactions tend to be less profitable and assuring the creditworthiness of lower-income borrowers and smaller firms, with little collateral, is believed to be more difficult (UN 2006).

The vision of inclusive finance is to significantly increase outreach to un-served household and enterprises. Supported by a sound policy, legal and regulatory framework the country should have a continuum of financial institutions that collectively offer appropriate products and services to all segments of the population. This would be characterized by access at reasonable cost of all households and enterprises to a range of financial services and sound financial institutions that provide access in a sustainable manner and to a wide array of providers and cost-effective services to customers. Building inclusive financial sector includes, but is not limited to, strengthening microfinance.


The significance of financial intermediation in tackling poverty has been recognized since long. However, the formal mechanism of facilitating financial intermediation generally fall short of providing appropriate and affordable financial services to the poor on a sustainable basis. In many developing countries, including Bangladesh, financial constraints rather than lack of skills and market opportunities can potentially impact the growth of access to finance for all sections of the society.

Agricultural Development and Food Security in Bangladesh

Poverty is the major factor affecting food security in Bangladesh. Despite the impressive increases in food grain production, around half of Bangladeshis remain below the established food-based poverty line. According to the World Bank, 33 million of the 150 million people in Bangladesh cannot afford an average daily intake of more than 1800 kilocalories (the minimum standard for nutrition set by the World Food Program). For people in most developing countries, the daily calorie average is 2,828; in Bangladesh, that average is only 2,190. Recent food price increases, regular natural disasters and strains on the global market have caused additional destabilization.

In this situation, increasing agricultural production through higher investment should be a top priority for Bangladesh. Appropriate steps should be taken to increase productivity in the agricultural sector. Investment in infrastructure should be highlighted as well as institutional reforms that will lead to enhanced agricultural production and distribution (Raihan and Khan 2007).

The Pattern of Landholdings

The ownership of agricultural land remains one of the most difficult problems in rural Bangladesh. During British rule, elite large landowners (Zamindars), many of them absentee landowners, owned most of the land in East Bengal. After 1947, new laws abolished large estates and set limits on the amount of land a person could own. Many big Hindu landlords moved to India, but the wealthy Muslims, who bought up their holdings, became the new landlord elite. Legal ceilings on land ownership resulted in little extra land for distribution to the poor, because landlords arranged ways to vest ownership in the name of relatives.

As a result, in most villages, a few families controlled enough land to live comfortably and market a surplus for cash, while a large percentage of families had either no land or not enough to support them. Studies have suggested that, in the mid-1980s, the richest 10 per cent of the village population controlled between 25 and 50 per cent of the land, while the bottom 60 per cent of the population controlled less than 25 per cent [Library of Congress Country Studies, September 1988]. The disparities between the richest and the poorest villagers appeared to be widening over time. The large number of landless or nearly-landless peasants reduced the average land holding to less than one hectare, down


more than a third since 1971. Because Islamic inheritance law, as practiced in Bangladesh, calls for equal division of assets among all sons, the large population increases led to increased fragmentation of landholdings and further impoverishment. Inheritance, purchase and sale left the land of many families subdivided into a number of separate plots, dispersed in different areas of the village.

The ready availability of a large number of poor laboureres and the fragmented character of many landholdings has perpetuated a labour-intensive style of agriculture and unequal tenancy relations. At least, a third of the households in most villages rent land. The renting households range from those without any land of their own, to those middle-level peasants who try to supplement the produce grown on their own land with income from produce grown on additional land. Sharecropping is the most common form of tenancy agreement. Traditional sharecropping arrangements heavily favoured the landlord over the sharecropper, with a 50-50 split of the produce and the tenant providing all inputs (labour and fertilizer). After decades of rural agitation, the Land Reforms Ordinance of 1984 finally established the rule of three shares one-third of the produce for the owner, one-third for the sharecropper and one-third split according to the costs of cultivation. Poor peasants who could not obtain land as tenants had to work as agricultural laboureres or find non-agricultural jobs. The 1984 Agricultural Labour Ordinance set the minimum daily wage at 3.28 kilograms of rice or its cash equivalent. Employers who broke this rule could, in principle, be brought to village courts and forced to pay compensation twice the amount of back wages. However, because village courts were dominated by land owners, there was little official redress for the grievances of agricultural labourers. In fact, the structure of rural land control kept a great deal of power in the hands of relatively small groups of landlords.

The pattern of landholdings for farming purposes may be seen in the following Table:

Table 1: Number of Farm Holdings in Bangladesh

Division Marginal

(0.05-0.49 acres)

Small (0.50-2.49 acres)

Medium (2.50-7.49 acres)

Large (7.50› acres)

Total

Barisal Division 606619 506185 153647 20735 1287186

Chittagong Division 1083255 1236218 184691 16218 2520381

Dhaka Division 1537816 2185447 366120 33967 4123350

Khulna Division 826836 992504 216111 22061 2057511

Rajshahi Division 1454228 2192207 507328 61875 4225637

Sylhet Division 310056 409981 132878 22107 875021

Total 5828809 7522541 1560774 176962 15089087

Source: BBS (2010), p. 262.


One can see from the above Table that, if 0.05 to 0.49 acres of holdings constitute virtual landlessness, as much as nearly two-fifths of owners fall into the category of “hard-core” landless in Bangladesh. The majority of the rural population in the developing countries is dependent on land as their primary source of income, Bangladesh being no exception. The land-holding pattern is a major determinant of their economic solvency, social power structure and hierarchy. Landlessness often proves to be both the cause and the manifestation of poverty, indebtedness and powerlessness of the majority of rural households. Due to this phenomenon, there is an absolute increase in the asset-less people who cannot meet their livelihood requirements on their own, that leads to further poverty aggravation with its concomitant social problems. Thus, landlessness, which is a function of economic, demographic and environmental factors, is the major determinant of rural poverty. All these factors have definitive impact on the country's economy to destabilize the macroeconomic environment to a great extent. (Rahman and Manprasert 2006).

There are many reasons for the limited access to financial services, especially in the case of the poor. The poor face two significant problems in obtaining access to credit services from the formal sector. First, they typically have no collateral acceptable to the financial institutions and cannot borrow against their future income because they tend not to have steady jobs or income streams that creditors can track. Second, dealing with small transactions is costly for the financial institutions.

One major constraint facing the marginalized and landless farmers is the non-availability of low-cost financing from the banking system. They are left out by the banks in the prevailing collateral-based lending system. Bangladesh Bank's initiative on providing low-cost finance and generally bringing the marginal farmers under the banking network essentially aims at empowering the under-privileged to enable them to unleash their creative potentials in the agricultural sector.

A previous BIBM-sponsored study on sharecropper financing (choudhury et al. 2010) generated a wealth of information which, among others, attempted to identify the barriers to reach out to the sharecroppers, employed a model whereby the gaps between borrowers' expectations and offered financial services by the NCBs, BKB and BRAC could be brought into focus and recommended for the removal of perceived lacuna in the credit disbursement process and its follow-up.

The Pitfalls of Low-cost Financing

While low-cost financing of underprivileged people is based on a lot of sophistry and specious argument and has political appeal for winning over the rural electorate, it has its downside, as pointed out by some analysts. Thus, Professor Dale W. Adams, in an incisive piece entitled “Are the Arguments for Cheap Agricultural Credit Sound?”


(Adams et al. 1984) has questioned the rationale of low-cost financing as follows: “Interest rates are critical in determining the performance of financial markets and cheap credit policies are a major reason for the poor performance of rural financial markets in low-income countries. They destroy the incentives for rural households to save in financial form and seriously distort the way lenders allocate loans. Arguments used to defend cheap agricultural credit are unsound, are based on value judgments that go counter to economic logic and/or are not supported by empirical evidence. Much of the confusion about interest rates would disappear if policymakers stopped thinking of credit as an input, recognized the importance of real rates of interest and clearly understood fungibility. Many of the problems in rural financial markets would also be eased if flexible nominal interest rate policies were adopted that resulted in stable and generally-positive real rates of interest on both loans and deposits in rural areas. Sound policies cannot be built upon unsound assumptions and unsound arguments.” (Adams, op. cit., pp.75-76).

It is evident that financial access varies widely across social strata. It is not enough to say that the market will take care of it. Market failures related to information gaps, the need for coordination on collective action and concentration of power mean that governments everywhere have an extensive role in supporting, regulating and, sometimes, directly intervening in the provision of financial services (World Bank 2008). If access to financial services is a powerful tool for mitigating poverty, an a priori case may be made for subsidization. But without strong institutional support in the form of prompt follow-up, strict surveillance and monitoring to ensure that the subsidized fund reach the target group, resources are likely to be preempted by powerful rent-seeking interest groups in the rural society and the pious wishes of the government may remain unrealized.

3. Survey Findings

Financing Marginal, Small Farmers and Sharecroppers: BB Policy Stance

Landless farmers (owner of land less than 0.49 acres), small and marginal farmers (owning more than 0.49 acres but less than 2.47 acres) and sharecroppers (i.e., farmers who cultivate other people's land) has been given priority in extending credit, according to the Bangladesh Bank's policy decision, as articulated in the “Agricultural/Rural Credit Policy and Programme for FY 2010/11.” The sharecroppers directly involved in agricultural production have been made eligible to have credit under this policy directive. After identification of real sharecroppers, credit shall be disbursed, following the crop credit norms laid down by Bangladesh Bank.

Regarding documentation requirements, sharecroppers residing permanently in the areas under the financing bank branch may avail of credit facilities by submitting a certificate given by the owner of the concerned land. If the certificate from the owner is not


available, banks may provide credit to the sharecroppers against a certificate by a local responsible and respectable person. The applicant sharecropper should also have the National ID Card as also the “Agricultural Inputs Assistance Card (AIAC)” issued by the Agriculture Extension Department. For farmers who do not have the AIAC, a certificate given by the local Union Parishad Chairman or Headmaster/Principal of a local school/college or any other person acceptable to the bank for identifying the applicant may be accepted for this purpose.

As for Farmers' Account, Bangladesh Bank has given directives to all State-owned Commercial Banks and the Specialized Banks (through BRPD Circular #1 of January 17, 2010) to allow farmers to open accounts with them with an initial deposit of Taka 10 against National ID Card/ AIAC submitted by them. No minimum balance requirement can be imposed on these accounts nor can any charge/fee be levied on the accounts.

Bangladesh Bank policy also lays down that, agricultural credit shall be disbursed either individually or on a group basis in order to ensure the availability of bank credit to small/marginal farmers and sharecroppers.

Field Investigation

The field-level survey undertaken by the BIBM covered selected Upazillas (numbering 26) of 8 districts1*(the choice of Upazillas was made on the basis of the trend of sharecropper loans disbursed by the state-owned banks, particularly, Bangladesh Krishi Bank). The instruments used for collecting information at the field-level were, firstly, interviews of bank managers (numbering 54) through questionnaire (Appendix-1) and, secondly, discussion with farmers (numbering 107) under a Focus Group Discussion format. Twelve such FGDs were organized in different areas.

Farmers' Account

The facility of opening accounts by farmers with an initial deposit of Taka Ten was fairly well-known in the areas surveyed, though less so in some of the remote areas in Sunamganj, Rajshahi and Khagrachari. Ninety-five per cent of the bank branches surveyed extended this facility to farmers. Among the banks, Bangladesh Krishi Bank was in the leading position (contributing about 45% of the total), followed by Sonali Bank Ltd. (about 24%), Rajshahi Krishi Unnayan Bank (16%), Agrani Bank Ltd., Janata Bank Ltd. and Rupali Bank Ltd. (about 5% each).

Of the 5 per cent bank branches which did not extend this facility, the reasons cited were either lack of demand (non-awareness among farmers) or banks' reluctance to open small accounts. It may be mentioned here that, of the bank branches surveyed, 89 per cent were located in rural areas and 11 per cent in urban areas. 1*The districts covered were: Dinajpur, Gopalganj, Feni, Jessore, Khagrachari, Munshiganj, Rajshahi and Sunamganj.


A district-wise analysis of farmers accounts shows that the highest number of accounts were opened in Jessore (25%), followed by Gopalganj (23%), Dinajpur (21%), Khagrachari (14%), Rajshahi (6%), Sunamganj (6%), Munshiganj (3%) and Feni (2%). The comparative position may be seen in the following table.

Table 2: District-wise Position of Farmers' Accounts Opened

Source: Survey Data.

As for documentation requirements, most banks were satisfied with production of National ID cards and a photograph while submission of the farmers' ID card issued by the Agriculture Extension Department served as an additional document. More than three-fourths of the applicants for account opening were allowed to do so. But about per cent of the applicants in the survey area could not open accounts due to their inability to meet documentation requirements. It may be mentioned here that many non-farmers were also eager to open these accounts in almost all areas covered by the survey team. In many places it appeared to the team that even some of the bank managers were not fully knowledgeable about the features of the account and failed to inform the account holders regarding the benefits to be derived by opening the accounts. In particular, the information that all kinds of banking transactions can be conducted through these accounts (including remittances) were not disseminated properly to the farmers. But such instances were few and far between. The overwhelming majority of the bank managers were quite active and cooperative with new applicants who wanted to open such accounts. This is the impression we received by talking with the account-holders. Most account-holders were quite happy at being given the opportunity of opening accounts in a simplified manner. The team was told that previously they faced many hassles in receiving the subsidy money given by the Government. Local touts, in collaboration with a section of unscrupulous bank officials, sometimes misappropriated a portion of their due.

Name of District Covered by Survey Number of Accounts Opened Percentage of Total

Dinajpur 18961 20.78%

Feni 1842 2.01%

Gopalganj 21047 23.07%

Jessore 23123 25.35%

Khagrachari 12986 14.24%

Munshiganj 2289 2.50%

Rajshahi 5804 6.36%

Sunamganj 5155 5.65%

Total 91207


Sharecropper Financing

In the areas the team surveyed, five state-owned banks (viz., Agrani, Janata, Sonali, Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank) and BRAC were involved in loan operations. A composite picture of the disbursement position of “sharecropper loans” may be seen in the following Table.

Table 3: Disbursement of Sharecropper Loan in the Areas Surveyed

(Amount in Thousands of Taka)

District/Bank Sonali Bank

Agrani Bank

Janata Bank

BKB RAKUB BRAC Total

Dinajpur 285 - - - 1426 20378 22089

Feni 325 80 3000 11571 - - 14976

Gopalganj - - 1120 545 - - 1665

Jessore 418 - - 31500 - 40446 72364

Khagrachari 4120 - 127 8941 - - 13188

Munshiganj 200 450 - 840 - 15078 16568

Rajshahi - - 118 - 1979 14222 16319

Sunamganj - - - 518 - - 518

Total 5348 530 4365 53915 3405 90124 157687

Source: Survey Data.

As may be seen in the above Table, in the selected upazillas of the 8 districts covered by the present survey, the highest amount was disbursed at Jessore (45.9%), followed by Dinajpur (14%), Munshiganj (10.5%), Rajshahi (10.3%), Feni (9.5%), Khagrachari (8.4%), Gopalganj (1.1%) and Sunamganj (0.3%).

The share of disbursement of sharecropper loan of the financing agencies in the areas covered by the survey indicated that, the bulk amount of funds were disbursed by BRAC (57.1%) followed by BKB (34.2%), together constituting a little over 91% of the total. Among the rest, the share of Sonali Bank was 3.4 per cent, Janata Bank (2.8%), RAKUB (2.2%) and Agrani Bank (0.3%). The data also reveals that BKB and BRAC were the two financing institutions that assumed a leading part in sharecropper financing in the selected areas of Jessore district.

One common observation of the survey team was that, BKB, though severely constrained by staff shortages, took the most proactive role at the field level not only in disbursement but also in educating the farmers and disseminating information regarding this relatively new initiative by the Bangladesh Bank. RAKUB, specifically created for serving the farmers in the northern regions of the country, failed to deliver due to poor motivation


and lack of knowledge of its field staff. BRAC, with its extensive network in the remote areas of the rural community was, by and large, efficient in delivering services, though it preferred to deal with its own clientèle rather than the farmers in general. Among the other state-owned banks, both Sonali Bank and Janata Bank were relatively better positioned to deliver services with their large network of branches but the team's impression is that most branch managers were lackadaisical in their responsibility. Agrani Bank, in particular, performed poorly in most areas.

The team did not come across any complaints regarding serious misdemeanors by the bank staff, though in a few places, the managers appeared to be influenced by local influential persons in matters of selection of borrowers and rendering services. In FGDs conducted by the team, farmers in most places requested that procedures, especially regarding documentation, be relaxed and the loan amounts be made available in time to coincide with the sowing season.

4. Summary Observations and Recommendations

Some Observations

Both “Farmers' Account” and “Sharecropper Financing” initiatives have been welcomed by the farmers in all the areas surveyed. But, as with any new venture, teething problems cropped up at the initial stage. The Team found that farmers have been benefited by their bank accounts in the sense that they can no longer be exploited by influential Union Parishad chairmen/members and other village touts who took a cut on the subsidy the farmers received for various purposes. Also, the accounts helped the farmers in developing the savings habit, besides providing them with other facilities of the bank account, such as, receiving remittances. It was a significant step in promoting inclusive banking in the country. However, this important initiative by the Bangladesh Bank was not adequately publicized in the remote rural areas. The Team found that, in some remote areas, a large number of farmers were either totally ignorant about the facility or were confused about the purpose and benefits to be derived by opening accounts in a bank.

Bank financing of sharecroppers with easy documentation requirements was another ground-breaking decision of Bangladesh Bank. In this area, the most frequent problem the sharecropper faced was in respect of procuring certificate from the owner of the land. The owner feared that, by issuing such certificates, they would become liable for unrealized loans, should the borrower become a delinquent. Another problem in group-based loans in particular is that, if there are one or two rogue elements among the group, the rest suffer in matters of repayment and getting fresh loan. In this case also, there is lack of adequate publicity among the potential borrowers. In general, it has been found that sharecroppers are quite enthusiastic about the scheme though less sure about marketing their produce and getting adequate returns. However, the team interviewed


some farmers who were quite successful in reaping good returns which encouraged them to ask for repeat bank loan. The Team feels that a few success stories will gradually have a trickle-down effect on the rural community and unleash creativity among farmers. One such success story is documented in the Box below.

Box 1: “A Success Story”

Name and Address of Farmer

Kazi Nazrul Islam, S/o Kazi Amjad Hossain

Village Juanpur, Ward No. 6, Manirampur, Jessore

This farmer owns 93.5 decimal land and rents 3 bigha land for cultivating various seasonal crops. In the current year, he availed of a sharecropper loan of Tk. 40,000/- from BKB, Manirampur branch (at 2% rate of interest) and harvested turmeric (holud) on the rented land. He has rented the land for one year and pays rent at Tk. 15,000/- per bigha. He got an output of 300 maunds, which he sold for Tk. 500,000/-. Though he could not give an exact figure of his profit, but he was highly satisfied with the deal. He repaid his bank loan and plans to apply for loan again for this or some other crop next year.

Recommendations

Based on interviews conducted among an assortment of bank officials and FGDs among a cross-section of farmers, the Team places the following recommendations for consideration :

1. In respect of “Farmers' Accounts,” more publicity needs to be undertaken in the remote areas of the country, for which the Regional/Zonal offices of the state-owned banks should gear up their campaigning activities. Also, the Department of Agricultural Extension (DAE) of the Ministry of Agriculture should chip in and synchronize publicity drives with the banks. In meetings with farmers, the facilities offered by a bank account should be highlighted. Field officers of the banks should also be motivated to play their part in disseminating information.

2. The Team found some bank managers somewhat reluctant to open and operate small accounts, the reason being pervasive staff shortages, especially in the BKB. This problem should be addressed by the bank management and branch managers should be sufficiently trained and motivated in this respect. Regarding “Sharecropper Financing,” one recurring theme coming up in field-level meetings was the hassle of getting certificate from owners of land and/or certification from the local elite. DAE, which issues farmer ID should coordinate with the banks in identifying the genuineness of a farmer. The officials of the banks may also play a vital part in this respect by thorough investigation at the field level.

3. Monitoring and supervisory activities for sharecropper loans by the banks needs to be strengthened so that there is no diversion of funds to other activities and to


ensure timely repayment. Without intensive supervision, as practiced by BRAC, the effective use of the loan cannot be ensured. Regional/Zonal managers should periodically visit the branches for this purpose and collect periodical returns from the branches. The inspection activities of different offices of Bangladesh Bank should also be geared up.

4. Computerization of the bank branches should proceed in a planned way so that the hardware does not sit idle due to lack of operator (as the Team found in some branches). Digitalization should be employed, wherever possible, for storage and retrieval of information, which can assist the manager in monitoring activities.

5. As the cropping pattern and cost of cultivation is not uniform across all regions, loan ranges may be established by the bank management for different areas and different crops.

REFERENCES

Adams, Dale W., Douglas H. Graham and J.D. Von Pischke (eds.) (1984): Undermining Rural Development with Cheap Credit, Boulder, Colo.: Westview Press.

Akanda, M., Aminul Islam (2008): Process of Agricultural Development in Bangladesh, Dhaka: Academic Press.

Bangladesh Bank (BB) (2010): Agricultural/Rural Credit Policy and Programme for the FY 2010-2011.

..................(2010), Annual Report, 2009-10.

Bangladesh Bureau of Statistics (2010), Yearbook of Agricultural Statistics 2009, August.

Burgess, Robin, Rohini Pande and Grace Wong (2004), “Banking for the Poor: Evidence from India”, mimeo.

Chowdhury, A.J., S. Najibul Islam and Mohammad Shafiullah (2010), “Reaching Out to the Sharecroppers of Bangladesh with Financial Assistance : Means, Techniques and Methods”, Banking Research Series 2010, Bangladesh Institute of Bank Management (BIBM), February.

Rahman, M.H. and Somprawin Manprasert (2006),“Landlessness and Its Impact on Economic Development: A Case Study of Bangladesh,” Journal of Social Sciences, Vol. 2, No. 2.

Raihan, S. and Enam A. Khan (2007),“Food Security in Bangladesh: Some Current Observations”, Dhaka: Shamunnay, Working Paper # 05/2007, December.

Sandhu, Baldhev, S.(1996), Banking and Rural Development: Promises and Performance, New Delhi: Deep & Deep Publications.


World Bank (2008), Finance for All? Policies and Pitfalls in Expanding Access, Washington, D.C.: The World Bank.

United Nations (UN) (2006), Promoting Inclusive Finance for Development, New York: G-24 Policy Brief # 29, May.

POST-SCRIPT

A year after completion of the present survey, the World Bank published a comprehensive survey report on “Global Financial Inclusion”* which shows that 50 per cent of adults worldwide have an account at a formal financial institution. The data also show wide disparities across regions, economies and individual characteristics in how people use financial services.

Until now, little had been known about the global reach of the financial sector, the extent of financial inclusion and the degree to which such groups as the poor, women and youth are excluded from formal financial systems. Systematic indicators of the use of different financial services had been lacking for most economies. Yet a formal account in a bank or financial institution makes it easier to transfer wages, remittances and government payments. It can also encourage saving and open access to credit. Through broad access to affordable accounts, an inclusive financial system can help reduce income inequality and support economic growth.

The Global Financial Inclusion (Global Findex) database provides such indicators. The report presents the first round of the Global Findex database, a new set of indicators that measure how adults in 148 economies across the world save, borrow, make payments and manage risk. The indicators are constructed with survey data from interviews with more than 150,000 nationally representative and randomly selected adults aged 15 and above. The survey was carried out over the 2011 calendar year by Gallup, Inc. as part of its Gallup World Poll and supported by the Bill and Melinda Gates Foundation.

Account Penetration: Global

Worldwide, 50 per cent of adults report having an account at a formal financial institution a bank, credit union, cooperative, post office or microfinance institution. This global average, however, conceals wide inter-regional disparities. While in high-income economies 89 per cent of adults report that they have a formal account, the corresponding share of East Asia and the Pacific (55%), Europe and Central Asia (45%), Latin America and the Caribbean (39%), South Asia (33%), Sub-Saharan Africa (24%) and Middle East and North Africa (18%) show the extent of variation.

* Demirgüc-Kunt, A., and L. Klapper, (2012): “Measuring Financial Inclusion: The Global Findex Database,” World Bank Policy Research Working Paper # 6025, Washington, D.C. (April).


Account Penetration: Bangladesh

As per the latest available statistics prepared by Bangladesh Bank (on 12th April 2012), 9.6 million Farmers' accounts were opened while another 3.2 million accounts were opened with an initial deposit of Taka 10 for the Government's social safety net programs and for freedom fighters, making a total of 12.8 million accounts1*. It is interesting to note that, according to the Findex survey, the percentage share of adults having an account is 40 for Bangladesh, which is above the shares of India (35%), Nepal (25%), and Pakistan (10%). Among the neighboring countries, only Sri Lanka achieved a higher rate (69%)2. This has to be seen in the context of the South Asian average of 33 per cent.

A recent Bangladesh Bank report 3 identified a number of factors that are inhibiting the spread of financial inclusion. These are:

(a) Poor banking infrastructure,

(b) Lack of proper documentation,

(c) Inadequate financial literacy,

(d) High requirement of minimum balance,

(e) Poor level of technological infrastructure,

(f) Low income,

(g) Lack of suitable product of banks/MFIs,

(h) High cost of product and

(i) Absence of credit bureau and insurance for borrowers.

In the present survey, some of these reasons were cited as an impediment to account penetration, especially in the rural areas.

1 The Daily Prothom Alo, 23rd April 2012, p.14. 2 Demigüc-Kunt and Klapper, op. cit., p.50. 3 Md. Ezazul Islam and Md. Salim Al Mamun (2011): “Financial Inclusion: The Role of Bangladesh Bank,”

Working Paper Series: WP 1101(Research Department, Bangladesh Bank), December, pp.13-14.

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