Policy Advocacy, Challenges, Threats, and policy Directions on Risk Management for smallholder Farmers and communities: The Bangladesh Bank Experience
Policy Advocacy, Challenges, Threats, and policy Directions on
Risk Management for smallholder Farmers and communities:
The Bangladesh Bank Experience
Shitangshu Kumar Sur Chowdhury
Deputy Governor, Bangladesh Bank
REGIONAL POLICY FORUM ON RISK MANAGEMENT
FOR SMALLHOLDER FARMERS AND COMMUNITIES
• About 80 percent of the population of Bangladesh is residing in the rural
• 54 percent of total rural people are engaged in agriculture and the
remainder in other small income generating activities.
• The rural economy contributes a significant portion to the national GDP,
with agriculture (including crops, livestock, fisheries and forestry)
accounting for about 19 percent.
• Most of the farmers in Bangladesh are either landless or functionally
landless owning less than 0.05 acre of land.
• Banks and formal financial institutions are sometimes reluctant to finance these
farmers as they think the investment would be risky.
• But, the scenario is gradually changing as a result of strong initiatives taken by
• Bangladesh Bank formulated "Agricultural and Rural Credit Policy and
Programs" which include guidelines for the bankers regarding sub-sectors of
agriculture to be financed, preferred group of farmers, crop-wise credit norms
and crop calendar, technique for managing risk etc.
• Bangladesh Bank made it mandatory to extend agricultural and rural credit to
the farmers amounting at least 2.5% of total loans and advances outstanding.
Risk Management in Agriculture
Keeping in mind the inherent risks in agriculture, Government, as well
as Bangladesh Bank, is increasingly seeking effective and sustainable
strategies and approaches to mitigate, transfer, or cope with these risks.
The farmers of Bangladesh also lack access to both modem
instruments of risk management- such as Agricultural Insurance, Future
In that case farmers rely on different ‘traditional’ coping strategies and
risk-mitigation techniques, such as contract farming, joint-liability
Bangladesh Bank is working towards identifying and quantifying
agricultural sector risks, and would suggest useful techniques to
minimize them. The agricultural risk management framework could be
used for planning and investment purposes to reduce sectoral volatilities
and improve sustainability.
Major challenges in the agricultural sector of Bangladesh
Loss of arable land
Imbalanced use of fertilizers
Inefficient water use
Pests and diseases
Lack of quality seeds
Unfair price of agricultural
Weaknesses in agriculture sector of Bangladesh
• Agricultural marketing system is comparatively weak.
• Post-harvest loss is high.
• Farmers own capital for agricultural activities is inadequate.
• Access to institutional agricultural credit is limited.
• Farmers’ organizations are inadequate and ineffective.
• Input use (water, fertilizer, pesticides) efficiency is low.
• Technology to meet export market requirement is inadequate.
• Private sector investment in Research and Development is insignificant.
• Trained scientists and infrastructural facilities for advanced agricultural
science are inadequate.
• Diversification in agriculture is low.
• Quality control of agricultural input mechanism is weak.
• Coordination among the public and private universities and research
organizations is minimal.
• Use of ICT in extension system is almost insufficient.
• Opportunities for farmers and entrepreneurs training are inadequate.
• Inadequate production and supply of quality inputs persists (e.g.
Weaknesses in agriculture sector of Bangladesh……..
Threats in agriculture sector of Bangladesh
Environmental vulnerability (climate change, flood, drought, storm,
salinity, pest and diseases, river erosion) prevails.
Soil health is declining.
Cultivable land and water resources are shrinking.
Uncertainty of fair prices of agricultural commodities is causing
disincentive to farmers.
Agricultural biodiversity is eroding.
Agricultural environment is degrading.
Budgetary allocation for agriculture, especially for research is inadequate
use of agricultural land for non-agricultural purpose is increasing.
Modern technological know-how is available for dissemination.
Scope for expanding hybrid technology exists.
Prospects for adoption of advanced technology in agriculture are bright.
Potentials for proper utilization of hilly areas including agro-ecologically
disadvantaged regions exist.
Export potentials exist for high-value crops to upstream and ethnic
Scope for crop diversification and intensification exists.
Scope exists for value addition to agricultural produces.
Market for value added products exists.
Agriculture sector has capacity to absorb labor force and to generate
Scope for reducing yield gaps exists
Policy direction of Bangladesh Bank in Risk Management
in Agriculture Sector
all commercial banks operating in Bangladesh (state owned or private
sector owned, domestic or foreign) are now extending agricultural credit,
either directly, through regulated Micro Finance Institutions (MFIs) or
through intermediaries in value chain.
The core spirit of the Agricultural and Rural Credit Policy is that the share-
croppers and marginal farmers get priority in getting agricultural credit.
The policy also directs banks for providing collateral free credit to farmers
who are cultivating a maximum of 5 acres of land against crop
Total disbursements of agricultural and Rural credit are on a steadily rising
trend; Taka 92.84 and 146.68 billion respectively from FY09 to FY13.
Since FY 2009-2010, Bangladesh Bank has brought all banks
including the private and foreign banks under the mandatory annual
target declaration for agricultural & rural credit disbursement.
For private and foreign commercial banks, remedial/punitive
measures have been introduced for any shortfall in achievement of
A bank failing to achieve target has to keep the unachieved portion
with Bangladesh Bank for a period of one year. BB provides interest
at bank rate (currently 5%) for such deposit.
Mandatory disbursement of Agricultural & Rural credit
for all banks
Agricultural and Rural Credit to the women
Under the ‘Lead Bank’ system, respective bank branches shall
disburse their credit in crops and other agricultural sectors to
the unions allotted to them.
Area Allocation for Disbursement of Agricultural Credit
Pass book is a mandatory requirement for disbursing credit
under agricultural credit programs. Credit shall be provided to
new borrowers along with a passbook. It may be mentioned
that bank statement can be accepted as alternative of pass
Introduction of Pass Book for Agricultural Loan
In order to facilitate disbursement, monitoring and recovery of loan
properly and timely by the bank branches, a crop calendar has been
However, banks may change schedule of disbursement and recovery
considering the local factors.
Credit Disbursement in Due Time According to
Crop Production Calendar
Agricultural credit facilities may be provided to the interested farmers for
producing associated crops (jointly cultivatable crops) with main crops in
the potential areas.
In order to make the country self-sufficient in food production and to ensure
balanced and nutritious food supply, it is necessary to increase the
production of potato, pulse, oil seeds, maize etc. through the “crop
diversification initiatives”. Banks/financial institutions were advised to give
more emphasis on providing loan to these profitable crops over their normal
Introduction of Mixed Crop/associated Crop/Relay cultivation
Crop Diversification System
Agricultural credit shall be disbursed following Area Approach emphasizing
the comparative advantages of producing certain crops in certain regions.
Uses of Area Approach
Adequate credit shall be
disbursed for producing
vegetables, onion, ginger,
garlic, pulse, bau-kul,
strawberry, palm, banana,
orange, agor, betel leaf,
pepper, potato etc. in the
areas suitable for production
of the same.
In order to ensure that the real farmers, especially the small farmers and
sharecroppers get the agriculture credit, particularly the crop loans, easily
and timely in a transparent manner, banks shall disburse the loans as far as
possible publicly at the union level in presence of local public
representative, concerned agricultural officers, teachers and other locally
Disbursement of Agricultural Credit in a Transparent Process
Banks were encouraged to open deposit accounts for farmers with a minimal
opening balance of Taka 10 as a part of financial inclusion drive. These accounts
are to be used to receive subsidies, credit disbursement, regular deposit and
withdrawal, remittances, and other banking activities.
Introduction of Farmer's Tk. 10 Account
Around 10 million accounts
of farmers have been
opened by the State-owned
Banks with an initial deposit
of Tk. 10/- only (<20 cents).
Recently Bangladesh Bank has formulated a Revolving Refinance Fund of Tk. 2.00
billion from its own source in order to expand the institutional financial inclusion
program by including the 10 Taka account holder who are small, marginal and
landless farmers, lower income earner who are affected by natural disasters,
marginal/small businessmen, handicapped people and women entrepreneur.
Another perspective to create this fund is to mobilize the rural economic activities by
providing credit with very easy terms & conditions in order maintain the 10 Tk
Banks can disburse credit to the 10Taka account holders through directly or using MFI
Revolving Crop Credit Limit System
In order to ensure continuous credit flow a 3 (three)-year revolving crop
credit limit system has been introduced. Farmers engaged in continuous crop
cultivation will get facilities under this scheme.
The contract farming system (contract between primary producer and
enterprises using bulk agricultural goods) may play an important role to
remove the marketing problem as well as to ensure fair price for the produces
of the farmers.
Credit to the Farmers/Entrepreneurs engaged in
All scheduled banks including the private and foreign banks operating in
Bangladesh are undertaking Agricultural Credit Program. Banks, operating
with minimum branches in rural areas, may conduct the agri and rural credit
operations in partnership with the Micro Finance Institutions (MFIs)
approved by Micro Credit Regulatory Authority (MRA) under some terms
Agricultural and Rural Credit Activities through
Partnership with MFIs approved by MRA
The activities of agriculture loan disbursement and recovery
need close monitoring.
If banks have insufficient manpower, then If not possible to
appoint regular employees, banks may appoint employees on
daily basis (no work, no pay) or may engage a
company/institution as an agent or intermediary to select
borrowers, to prepare loan proposal and to run other activities
related to evaluation, sanctioning, credit disbursement,
monitoring, recovery, etc. for its rural credit operation.
Outsourcing in Disbursing and Recovering
Agricultural and rural Credit
For smooth implementation of the Agricultural & Rural Credit Policy and
Program, the norms to be followed by the banks and MFIs are as under:
•Credit norms prepared on the basis of crop-wise cost of inputs and
maximum credit limit per acre received from the Agricultural Extension
Department under the Ministry of Agriculture.
•Annual production plan for classification/mixed cropping/associated
Credit Norms and Determination of Credit Limit
The use of chemical fertilizer
increases the agricultural
production temporarily but the
fertility of the land decreases
Agriculturists and scientists have
been giving importance on the
use of organic fertilizer to reduce
Credit for Vermicompost Production
Vermicompost can be a very good,
cheap and available alternative for
the chemical fertilizer which can
increase the agricultural production
as well as help in retaining the
fertility of the land.
Landless farmers (owner of less than
0.494 acres of land), small and
marginal farmers (owner of land more
than 0.494 acres but less than 2.47
acres) and the sharecroppers (the
farmers who cultivate other people’s
land and their ownership of land is
maximum 1 acre) shall be given priority
for extending credit.
Financing Marginal, Small Farmers and Sharecroppers
The sharecroppers directly
involved in agricultural production
will be eligible to have credit under
Special initiatives shall be taken to extend necessary finance to the
successful farmers. This initiative will have a demonstration effect on the
other farmers, and they will be encouraged to invest in similar initiatives.
Credit for Successful Farmers
A special credit scheme was initiated by Bangladesh Bank in the fiscal year
2009-10 to provide credit facilities in a timely, harassment-less, collateral-
free manner with low interest rate through BRAC to the sharecroppers who
have been so long remained deprived of bank credit.
Special Credit Program for Sharecroppers
As of April2014, an amount of
TK 12.83 billion agri. credit has
been provided through
Brac(MFI) to around 0.84
million sharecroppers in 250
upazillas of 48 districts.
2009-10 2010-11 2011-12 2012-13 2013-14(March)
credit towards sharecroppers through Banks
Besides, under the ‘Agricultural and Rural Credit Policy and Programs’
of Bangladesh Bank, all scheduled banks are advised to disburse agri-
credit towards sharecroppers on individual or group basis.
The use of information technology may
play a positive role in improving the
standard of living of all spheres of people.
As far as possible, the banks shall take
initiatives to preserve the mobile phone
number of the borrowers at branch level.
Use of Information Technology in Agricultural
The bank branches/higher authorities
of the concerned bank shall make
phone calls to the farmers to know
about the loan disbursement and
Bangladesh Bank also make calls to
farmers from time to time to know
the problems in loan disbursement
In order to ensure more effective monitoring of the implementation
of the Agricultural/Rural Credit Policy undertaken in the interest of
the real farmers largely dependent on agriculture, a monitoring cell
at Head Office and monitoring units at branches of Bangladesh Bank
are in place.
Monitoring at Central Bank Level
The District Agricultural Credit Committee has been playing an
effective role in successful implementation and coordination of the
Agriculture/Rural Credit Program at field level under 'Lead Bank’
The District Agricultural Credit Committee holds monthly meeting to
discharge its supervision and coordination functions related to
The following tools are considered as useful to expedite the
agricultural/rural credit recovery:
•The banks may award certificate/incentives under their own
policy to encourage the officials for recovery of loan.
•Arranging 'Agricultural Credit Recovery Camp' at places of
farmers gathering with prior publicity to recover loan.
•Use of information technology to recover agricultural and rural
Special Initiatives for Agricultural and Rural Credit Recovery
Bangladesh is major among the countries most affected by climate change,
mainly due to its geographical location.
Flood and water logging of mid-region, sudden flood of north-east region,
draught and salinity of north-west and south-west region and the high tide
of coastal may create acute problem for the agriculture of Bangladesh.
Since the recovery of agricultural credit becomes risky with the damage of
crops, the banks shall be conscious about the adverse impact of natural
calamities vis-a-vis climate change and encourage the farmers to take the
•Bring necessary change in the loan disbursement and recovery schedule
from area to area;
•Cultivating salinity-resistant crops in the salty areas;
•Cultivating water- resistant crops in the water-logged and flood-prone
Addressing the Adverse Effects of Climate Change
•Cultivating drought- resistant crops in the drought-prone areas;
•Arrange for irrigation during dry season to avoid low production
and loss of crops;
•Encouraging of using surface water instead of ground water for
•Using organic fertilizer and insecticide by natural means instead of
using chemical fertilizer and pesticides;
•Banks shall be conservative to provide agricultural credit for
cultivating land destroying forest or hills;
•Credit facilities shall be continued for cultivating fruits, vegetables,
social forestry, livestock, duck, poultry and gardening at the home-
stead normally in flood-free years.
Addressing the Adverse Effects of Climate Change……….
At present disbursement of agricultural credit is compulsory for
all banks. Participation of private and foreign banks in agriculture
and rural Credit program is relatively new.
Besides, a number of new items have been incorporated in the
policy. As such, initiatives shall be taken to make the bankers at
various levels, including field level, aware of the objectives,
priorities and provisions of the Agricultural/Rural Credit Policy.
With this end, the banks shall take necessary steps including
training and workshop program.
Awareness and Training
Bangladesh Bank is trying to introduce some high level risk management technique
in agriculture such as Crop insurance, weather index based crop insurance, etc.
To increase the bargaining power of the farmers, contract farming system has been
introduced. Bangladesh Bank is trying to make this system effective and beneficial
for the farmers.
Bangladesh government should review the present Land Usage Policy with the
relevant experts, professionals, and farmer's representatives and update it based on
their comments and suggestions.
The policy should be enacted and put into operation immediately to stop further loss
of arable land . Lands that are arable should not be used for housing.
It is highly imperative that the twin problem of arable land loss and population
growth is addressed by the government simultaneously to ensure production
sustainability and food security.
Since investment in agricultural research is highly rewarding and beneficial, the
government should raise the investment significantly. The increased investment will
certainly encourage scientists to develop technologies to cope with the hazards of