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Monday, June 16, 2008

Banks fail to reach rural borrowers

Source: Daily Star

The percentage of bank lending going to rural areas has fallen by 50 percent during the past decade, despite concerted attempts by the government to increase access to credit in the countryside.

According to recently released data from Bangladesh Bank, bank advances to rural areas were 16.93 percent of the country's total advances in 1998, but fell to 8.39 percent at the end of December 2007.

While micro-credit institutions have been able to provide small loans in rural areas the failure of banks to reach out into the countryside and provide more sizable credit has been seen as a major factor for slow development.

Since the mid1990s, Bangladesh's banking sector has been growing considerably. Despite the boom and the government's efforts to increase access to finance in rural areas, rural financial markets have shrunk in relative terms, according the World Bank.

As a result, access to finance by micro, small, and medium-size enterprises and marginal, small, and medium-size farmers - the "missing middle" - remains limited. The WB regards this failure as significant as it terms these groups as the engines of growth in rural Bangladesh in terms of employment, contribution to GDP, and prospects for future growth.

Nearly 40 percent of the country's population live below the poverty line (less than $1 per day), according to government's Household Income and Expenditure Survey (HIES) 2005. Most of these poor people live in rural areas.

?The percentage of bank lending going to rural areas has fallen by 50 percent during the past decade, despite concerted attempts by the government to increase access to credit in the countryside.

According to recently released data from Bangladesh Bank, bank advances to rural areas were 16.93 percent of the country's total advances in 1998, but fell to 8.39 percent at the end of December 2007.

While micro-credit institutions have been able to provide small loans in rural areas the failure of banks to reach out into the countryside and provide more sizable credit has been seen as a major factor for slow development.

Since the mid1990s, Bangladesh's banking sector has been growing considerably. Despite the boom and the government's efforts to increase access to finance in rural areas, rural financial markets have shrunk in relative terms, according the World Bank.

As a result, access to finance by micro, small, and medium-size enterprises and marginal, small, and medium-size farmers - the "missing middle" - remains limited. The WB regards this failure as significant as it terms these groups as the engines of growth in rural Bangladesh in terms of employment, contribution to GDP, and prospects for future growth.

Nearly 40 percent of the country's population live below the poverty line (less than $1 per day), according to government's Household Income and Expenditure Survey (HIES) 2005. Most of these poor people live in rural areas.

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