Rural Financial Services key to growth for rural businesses and farmers

Contacts:

In Dhaka:  Mehrin A. Mahbub  (880-2) 8159001, mmahbub@worldbank.org

In Washington: Erik Nora (202) 458 4735, enora@worldbank.org

 

 

Dhaka, September 14: The rural small businesses and farmers are severely constrained by lack of access to finances. Three-quarters of Bangladesh’s population live in rural areas. The rural small businesses and the farmers are central to country’s development, in terms of both current employment and contributions to gross domestic product (GDP). Yet the operations of the rural agricultural and nonagricultural enterprises suffer due to their inability to access finance from both banks, and microfinance institutions (MFI).

 

Today, a seminar jointly organized by the Bangladesh Bank, the World Bank, Palli Karma-Sahayak Foundation and Insurance Association of Bangladesh discussed the key findings of the recently completed Bangladesh Access to Rural Finance Study.

 

The report ‘Access to Rural Finance in Bangladesh: The forgotten Missing Middle’ indicates that that for every taka deposited or collected in rural areas, only half of it goes back as loans. This is mainly because the institutions operating in rural areas, was unable to develop appropriate financial products matching the demand of the farmers or rural small business. Fortunately, recently, the MFIs started to craft financial and non financial products and delivery mechanisms befitting to rural economy.

 

‘Recognizing the need to expand rural outreach for financing is very important’. Said Mohamed Alhousseyni Toure, Operational Advisor, World Bank Bangladesh ‘The commercial and agricultural banks along with the micro finance institutes needs to develop new business models to increase farmers' and rural micro and small enterprises access to finance on a sustainable manner.’

 

The commercial banks need to re-engineer their operations to enter a new market segment profitably for both parties. The MFIs on the other hand, needs to transform from the conventional group methodology to individual lending which several MFIs have already started.

 

Farmers suffering from the weather fluctuations and natural disasters like floods are very common.  Innovative products such as index based agricultural risk insurance schemes are needed to objectively reduce the risks.

 

 

For more information on the World Bank in Bangladesh, please visit: http://www.worldbank.org/bd