The urban-rural lending divide

Bangladesh is predominantly a rural country, with around 68 per cent of its population living in rural areas. A large segment of this population is deprived of formal banking services due to a lack of bank branches in remote areas. Although agent banking has helped improve financial inclusion over the past decade, it has largely focused on deposit collection rather than extending credit. As a result, bank loan disbursement has remained heavily skewed. According to a recent report, as of September 2025 rural areas accounted for nearly 16 per cent of total bank deposits, amounting to more than Tk 3.0 trillion. In contrast, their share in loan disbursement stands at a meagre 8.0 per cent, with an overwhelming 92 per cent of bank credit concentrated in urban areas.  This is yet another reflection of skewed development priorities and deprivation of small entrepreneurs of vital financial support. 

In the absence of bank loans, or due to the difficulty of accessing them, small entrepreneurs in rural areas are often forced to turn to informal financial channels that are unreliable, insecure and costly. For example, a recent study by the Bangladesh Institute of Development Studies (BIDS) reveals that about 20-30 per cent of rural borrowers still rely on mahajans or loan sharks to meet their urgent financial needs, despite the fact that they charge an average interest rate of 145 per cent. Meanwhile, Microfinance Institutions (MFIs), particularly non-governmental organisations (NGOs), are the primary source of credit in rural areas. However, interest rates on microcredit are also considerably higher than those offered by banking channels. This high-cost loan drives up production costs and undermines the competitiveness of rural entrepreneurs.

This limited access to formal banking channels in rural Bangladesh is not merely a matter of inadequate banking penetration, it poses a serious threat to the very notion of balanced and sustainable development. When rural clients are systematically excluded from access to capital, it stunts their economic potential and limits opportunities for upward mobility. Growth becomes increasingly urban-centric, while poverty and underemployment become deeply entrenched in the countryside. Farmers and rural entrepreneurs, who play a vital role in the national economy, are left to grapple with persistent financial challenges often worsened by natural disasters such as floods. Strengthening credit availability at reasonable rates is, therefore, essential to easing these constraints and promoting sustainable development in rural areas.

To this end, long-term policies must be adopted that prioritise rural financial inclusion and ensure that credit reaches underserved populations effectively. Financial institutions -- both banks and NGOs -- need to simplify loan procedures by minimising paperwork and tailoring requirements to the realities of rural borrowers.  This is not only about bridging the urban-rural divide so far as access to credit is concerned. It has the potential to empower millions of people, particularly women, by enabling them to participate more actively in economic activities and by fostering the growth of small and micro-entrepreneurs. Economic growth can become truly balanced and inclusive only when small entrepreneurs are not starved of funding.