Bank loans, deposits in rural areas shrink

Commercial banks' spotlight on rural Bangladesh keeps fading with the decreased disbursement of formal credits, while deposit collection in the countryside continues to fall.

At the same time, the number of bank branches in the least-developed areas remains stuck for months, leaving the potential of local economy in the lurch.

Officials and bankers have identified several factors, such as the rising cost of funds and production in this higher-interest and -inflation regime, that markedly lowered the demand for credits in the rural areas after the Covid-induced shocks.

As a result, the flow of fresh disbursements in the rural communities continued to drop in recent months.

In fact, banks, as part of their cost-cutting mechanism, keep reducing the number of rural outlets. Instead, they serve their rural clients through agent banking.

According to the Bangladesh Bank (BB) data, banks altogether had invested Tk 17.13 trillion in various sectors across Bangladesh up to March 2025, with the share of rural areas being 7.98 per cent or Tk 1.37 trillion.

The remaining Tk 15.76 trillion (92.02 per cent) was invested in the urban regions.

The share of bank loans in rural territories was 12.02 per cent in June 2023.

Since then, it kept falling to reach 8.16 per cent or Tk 1.37 trillion at the end of December 2024, while the share in urban areas ballooned to 91.84 per cent or Tk 15.46 trillion amid the centripetal banking paradigm shift.

Seeking anonymity, a Bangladesh Bank official said alongside the disbursement of loans, the rural deposit portfolio of banks also dropped significantly in recent months probably because of the higher inflationary pressure.

Citing data, the central banker said the share of rural deposits was 21.27 per cent or Tk 3.59 trillion until June 2023, but it dropped to 7.98 per cent or Tk 3.01 trillion by the end of March this year.

Asked about the conundrum, which is seen as bad for a balanced economic growth, Managing Director of Shahjalal Islami Bank Mosleh Uddin Ahmed said the central bank introduced refinancing schemes for the cottage, micro, small and medium enterprises (CMSMEs) to assist them in recovering from the Covid-induced shocks.

But the one-year funds have already been repaid and no fresh refinance scheme has been introduced yet, he said, mentioning it as a reason for such situations.

The experienced banker feels the higher inflationary pressure and rising interest rates badly affect the operations of CMSMEs and the result is obvious - the cost of both funds and production continues to mount.

"So, their [CMSMEs] products keep losing competitiveness against the imported goods, which is probably another reason behind the falling demand for credits in rural region," he said.

Giving the agriculture sector's example, he said the rate of interest for bank credits for it was 8.0 per cent a couple of years ago, but now it has crossed 12 per cent.

"It really becomes tough for rural entrepreneurs to be competitive under the current interest rate regime," he added.

Regarding the falling number of rural branches, Mr Ahmed said commercial banks probably suspended their branch-based expansion plan under the current context because maintaining full-scale rural branches under the current liquidity tightness has become costly and unviable.

"I think financial inclusion like agent banking is the right instrument for rural development now."

President of Barishal Metropolitan Chamber of Commerce and Industry (BMCCI) Mohammad Nizam Uddin says the entrepreneurs in the region, particularly in rural areas, have been suffering severely over the years due to poor access to formal credits.

"We keep informing higher bank officials of this pain, but nobody listens to us even though entrepreneurs have all the documents required for getting funds. I do not know why bankers are so shy about giving credits," he told The Financial Express frustratingly.

"Because of the reluctance of the top bank management to give loans in rural areas, the entrepreneurs are getting demoralised for not receiving bank financing, which is the key to industrial and employment growth," the business leader said.

According to the central bank, the number of rural bank branches remained static at 5,260 for the last several months.

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