Access to Finance for Members of Producer’s Organization Bangladesh
After a long engagement of advocacy with one of the largest private banks in Bangladesh, Dhaka Bank developed a new adaptive financial product for farmers. The bank now provides seasonal loans to smallholder farmers with a low interest rate and without any collateral.
Finance is one of the most important elements that is needed by small producer groups - including women - and formalized cooperatives. Small producer groups basically consist of poor farmers; in most instances they produce agricultural products by leasing land from rich landowners or they are involved with sharecropping. The groups do not have enough cash in hand to invest in the agricultural and other production activities. Most of the banks and financial institutes have targets for the rich farmers and as such they developed financial products targeting the rich farmers. Smallholders farmers do not have access to banks and financial institutes due to the strict loan requirements such as collateral.
Bangladesh Bank, the supreme regulatory and delegation authority, monitors and ensures the rights of marginal farmers access to financial services. They control the public and private banks and other financial institutes. In the “Agricultural and Rural Credit Policy” Bangladesh Bank declared that small and marginal producers are eligible to get low interest loans from any public and private bank and especially women entrepreneurs should get privilege for loan. In this aspect, marginal farmers are the most valid customers of the bank but the reality is not reflecting this.
Smallholders requesting access to finance
In total 32 farmers’ federations of Gaibandha district whose are the apex body of more than 724 village level producers groups have taken several initiatives locally to address the issue. This included dialogues with local banks at upazila level and submitting individual and group wise loan proposals to concerned branches of public banks like RAKUB and Janata Bank. Several dialogues at district level with public and private bank officials were held to share the farmers’ needs and the context. A bi-lateral meeting was held with Deputy Commissioner of Gaibandha district who is the president of the District Agriculture Loan Coordination Committee. He assigned the Committee Secretary to find a solution. The farmers also met the divisional level bank officials of RAKUB to persuade the requirement and how the federation and their groups will assist the bank to assess the needs, disbursement process and pay back assurance. Moreover, the district Public-Private Partnership (PPP) committee of the agriculture sector led by the Department of Agriculture Extension arranged a meeting with local bank representatives to discuss the issue. In 2019, Civic Engagement Alliance organized a national level evidence based advocacy seminar with the banks and financial institutes to create an attraction of high official bank representatives as well. Along with all local level initiatives, with support from Helvetas, UFPO (Union Federation Producers Organization) and SPA (Service Providers Association) leaders started communication and showed their bankable business model with public and private banks to address the issue and motivate them to take initiative to provide small scale suitable crop loan programs for farmers.
A new product for smallholder farmers
In this response, Dhaka Bank, one of the prominent private banks of the country moved forward and showed interest to work with producers' groups and launched a new product for smallholder farmers. Before that they sent an assessment team to Gaibandha to assess the opportunity, the constraints and what kind of support they need to start a new suitable product for smallholders. They conducted a meeting with leaders of UFPO (Union Federation Producers Organization) and SPA (Service Providers Association) for finalizing the loan modalities for the farmers. It was decided that Dhaka Bank would start piloting at Gaibandha with one SPA and 2 UFPOs.
First smallholder farmers received their loans
Now, they have started the piloting process and - with the assistance of SPA and UFPO - a total of 52 medicinal plant producers from 4 producers organizations of Palasbari upazila of Gaibandha district have been selected. Dhaka Bank completed their bank account opening and loan assessment procedure as per Bangladesh Bank rule and distributed the assessed loan amount to the loan applicants on 4th December 2019. The loan amount limit is between 20,000- 50,000 BDT (9.5% interest rate without any collateral documents) for one producer. The total distributed amount of loan is BDT 1,610,000 (Euro 18,000). This is a seasonal loan and they have to pay it back after 9 months when the harvesting and selling of their produce to the company will be completed. Dhaka Bank will expand the opportunity for more farmers’ groups in future and basis of the result of the piloting. This is also a good example of the blended finance for this project in Bangladesh.