Md. AlauddinFaculty

Department of Economics

IUBAT-International University of Business Agriculture and Technology

Financing of Agricultural Technologies and Small Scale Food and Agro Processing Entrepreneurship in Bangladesh

Overview

• Agricultural Growth/Development is key for the overall development of Bangladesh since agriculture still employs the largest share (47% ) of its total labor force though the sectoral contribution came down to 19% in 2013.

• The growth of agriculture is dependent on the Investment in various subsectors of agriculture which is possible through accelerating entrepreneurships.

• One of the major difficulties promoting growth is the lack of development of enterprises and potential entrepreneurs who can contribute in innovations as well as create more job opportunities for the mounting labor force.

• So Financing in Agriculture, in particular in Agricultural Technology adoption, is a pressing need in the overall agricultural development and accelerating agricultural innovations in Bangladesh.

Overview Contd…

• The National Agricultural Research System (NARS) and Universities so far developed and released nearly 380 agricultural technologies, a large fraction of those have been shown to be commercially viable and profitable.

• However, technology transfer and adoption requires farmers' participation, capacity building, entrepreneurship development and contract farming to ensure fair market price for the technology-based products and sustainability of the transferred technologies.

• In 2013, a book published by CIMMYT (Mexico) titled “Made in Bangladesh: Scale-appropriate machinery for agricultural resource conservation”, where the authors claimed that Bangladesh is doing extremely well in the agricultural innovation but lagged behind is commercialization of those products.

• According to them: lack of standardization is responsible for limiting further scope to agricultural innovations. Essentially, most workshops create a unique machine every time a new piece is fabricated, which drives up costs to both manufacture and repair the machinery. Quality control is also an issue.

• However, Since October 2008, participation in agricultural credit programme to finance research and commercialization has been made mandatory for all scheduled banks operating in Bangladesh including the private and the foreign banks.

Current Scenario in Brief

• Govt. directly allocated BDT 60 Billion on average in the last 5 years in agricultural development and in the FY 2014-15, BDT 90 Billion is proposed for agricultural development with highest priority in RESEARCH which is 7.6% of National budget and 1.42% of the Total GDP.

• Specialized and State Owned Banks totally distributed an average of BDT 110.5 Billion agricultural loan per year in the last 5 years.

• Finance Minister announced to set up 600 “Farmers’ Marketing Group” and 6200 “Farmer’s Club” and establish 4 agro-product processing centers to facilitate the commercialization and knowledge sharing of agricultural technology.

• Allocations, mentioned above, are mainly dedicated to expenditure in subsidies (TK 9,000 crore) and other traditional support.

• Beyond subsidies and traditional financing there is need to focus on technology like the use of fertilizer after soil test, specialized research based cultivation, availability of inputs, proper marketing and market linkage, insurance, fair pricing etc.

Current Scenario in Brief• Bangladesh Agricultural Research Council (BARC) outsourced the technology

transfer activities under ATTP to the Apex Agency, Training and Technology Transfer (TTT) and its associates PMUK and MIDAS for implementation. The value of the contract was Tk.72,096,860/- and the duration was from April 01, 2008 - June 30, 2011.

• The Apex Agency selected 31 promising technologies, through organized workshop discussion and 50 technology-based sub-projects (SPs) through competitive bidding.

• The programmes are: technology transfer among the farmers, promotion of entrepreneurship and contract production, and capacity development of the concerned key players, especially thefarmers, were implemented through local level selected 34 NGO partners.

They initiated their 50 sub-projects (SPs) implementation activities through establishing 282 demonstrations, training 4,148 farmers and organizing near about 102 field days so far for showing impact both to the direct beneficiaries and the neighboring farmers

National Agriculture Policy - 2013

• It was mentioned in 2013 National Agricultural Policy that Technology Transfer in agriculture is a priority sector for govt. and current govt. is taking it importantly. It gives a clear indication of financing in innovation and transferring agricultural technology

• In terms of financing Research it will follow the bottom-top approach. • Public-Private Partnership will be encouraged in financing agricultural

research• Both the producers and users will be financed from the govt. and partner

organizations• Govt. will provide financial incentive to producers, marketers and users of

new special technology so that the it can reduce adaptation problem. • It has ensured to follow the timeframe and demand in financing the Research. • It was stated that producing skilled manpower in agriculture is a major

challenge for Bangladesh. Govt. will set up formal and informal training institutions and will give stimulus to participate in skill development programs.

Bangladesh Bank (BB) Policy

• Bangladesh Bank has taken a Financially Inclusive policy to provide credit facilities to all farmers.

• Around 9.59 million accounts of farmers have been opened by the state owned commercial banks with an initial deposit of BDT 10 only. BB has advised banks to disburse agricultural loan, to deposit and withdraw farmer's savings in addition to disburse the agricultural input assistance by the Government.

• BB has been monitoring the operation of these accounts regularly. Transactions of about BDT 2.24 billion have been occurred as credit disbursement for input assistance through these accounts in FY12

• BB announced its annual agricultural/rural credit policy and programme for FY13. The target for disbursement of agricultural credit has been fixed at BDT 141.30 billion which is 7.60% higher than the actual disbursement of BDT 131.32 billion in FY12.

• A Customers' Interests Protection Centre (CIPC) has been set up in BB to protect the customers' interest including agricultural/rural credit, to give hassle free banking service and quick solution of any complaint of the customers.

• A total amount of BDT 85.04 billion was disbursed and BDT 60.48 billion recovered during FY12 under a few such ongoing projects/programmes - the Agro based Industries and Technology Development Project (ATDP), Marginal and Small Farm System Crop Intensification Project (MSFSCIP), Shashya Gudam Rin Prokalpa(SHOGORIP), Northwest Crop Diversification Project (NCDP) and Second Crop Diversification Project (SCDP) etc.

Ministry of Finance (MoF)

• To achieve the target of food security by 2013 the government distributed 1.40 crore ‘Agricultural Inputs Support Card’ among the farmers across the country.

• To provide solutions on farmers’ information needs, a new initiative ‘e-Agriculture’ has been implemented.

• Information Centers have been opened with video conferencing and SMS functions for knowledge sharing.

• Currently, the agricultural information communication centers in 95 unions have started their activities and steps have been taken to open such centers in another 150 unions.

National Agricultural Technology Project (NAPT)

• The NATP is a comprehensive project with focus on revitalizing the agricultural technology system and increasing agricultural productivity in Bangladesh. The Government of Bangladesh (GoB) is implementing NATP through a financial assistance(IDA) effective from 25 March 2008 from the World Bank and International Fund for Agricultural Development (IFAD) as co-financier.

• A period of 15 years in three phases the total project cost of NATP: Phase-I is Tk. 62209 lakh; of which PA is Tk. 57391 lakh and GoB contribution Tk. 4818 lakh.

NAPT Contd…

• The Project has four components viz. agricultural research support component, agricultural extension support component, supply chain development component and project coordination and management component.

• These components are being implemented through 7 implementing units. These are:

i) Project Coordination Unit (PCU),Ministry of Agriculture (MOA);

ii) Project Implementation Unit (PIU), Bangladesh Agricultural Research Council (BARC);

iii) Project Implementation Unit (PIU), Department of Agriculture Extension (DAE);

Iv) Project Implementation Unit (PIU), Department of Fisheries (DOF);

v) Project Implementation Unit (PIU), Department of Livestock Services (DLS);

vi) Krishi Gobeshona Foundation (KGF); and

vii) Hortex Foundation (Hortex).

Notable Current Programs/Schemes

• The existing programs/Schemes can be categorized into three parts:

1) Public Sector Programs

2) Private Sector Programs

3) Non-Governmental Organization Programs

Public Sector Programs

• Bangladesh Bank (BB)• Poverty Alleviation and Micro-credit

Programs/Projects• Board of Investment, Prime Minister’s Office• Sonali Bank Limited• Bangladesh Krishi Bank (BKB)• Janata Bank Limited• Rupali Bank Limited • Rajshahi Krishi Unnayan Bank (RAKUB)• BSBL and BRDB etc.

Private Sector Programs

• Islamic Development Bank (IDB)

• Asian Development Bank (ADB)

• IFIC Bank Limited

• Islami Bank Bangladesh Limited (IBBL)

• Prime Bank Limited

• Eastern Bank Limited etc.

NGO Programs

• Palli Karma Sohayak Foundation (PKSF)

• Palli Daridra Bimochan Foundation (PDBF)

• Microfinance for Marginal and Small Farmers Project by IFAD

• Krishi Gobeshona Foundation (KGF)

• BRAC

• ASA

• Grameen etc.

Bangladesh Development Bank Limited (BDBL)

• Under the program of ‘Development Banking’ BDBL finance in Agro-based ventures depending on indigenous raw materials (like Jute Twin / Yarn and other Industries)

• SME Loan ‘Khamar Bari’ for Processing of Agricultural Commodity. Repayment period highest 5 years. Eligibility: Minimum 1 year experience

Poverty alleviation and Micro-Credit Programs/Projects

Credit program for the landless and Marginal Farmers

• Beef fattening Joint Program• Swanirvar Credit Program• Small Farmers & landless Labourers Development Project (SFDP)• South Asia Poverty Alleviation Program• United Nations Capital Development Fund(UNCDF)• Rural Women Employment Creation Project ADB Loan No 1067 BAN(SF)• BKB-NGO Micro Credit Program• Credit Under National Poverty Alleviation Program through Goat Rearing• Milching Cow Credit Program for the Women• Special Micro Credit Program for the Disabled• Monipuri Small Traders Credit Program• Special Credit Program for the Rakhains under the district of Cox`s Bazar• Establishment of Breeding Farm of Black Bengal Goat Program• Community Based Resource Management Project• Poverty Alleviation through Production and Improvement of Sheep

Rajshahi Krishi Unnayan Bank (RAKUB)

• RAKUB has a network of 376 branches. Excepting one branch at Dhaka the rest are spread out over 16 districts of northwest Bangladesh.

• The bank has introduced a special credit program titled "RAKUB-Small Enterprise Credit Program (SECP)". The project aims at promotion of entrepreneurship in agro-based small enterprises and non-farm activities in Northwest region of Bangladesh. Norwegian government and RAKUB has jointly provided credit fund for the project. Ministry of Finance, Government of Bangladesh monitors the project activities. Maximum credit limit for a single enterprise has been fixed at BDT 0.5 million.

Two Target Programs1) Irrigation Equipment & Farm Machinery

To cope with the present need financing power tillers, tractors, tube wells, power-pumps, fertilizer and pesticide application devices turned into the priorities for loan.

2) Agro-industry & Agri-Business

The operational jurisdiction of the Bank is noted for its agricultural potentials. The Bank pays due importance to setting up agro-industries for preservation, processing and marketing of agricultural produces having backward linkage with basic sub-sectors of crop, fishery, livestock and forestation. Manufacturing and marketing of agricultural implements are also encouraged.

BB Initiated SME Funds

• Financing of SMEs:

Currently there are 5 funds available to finance SMEs.

1)Bangladesh Bank Fund

2)Fund for Women Entrepreneurs

3)Enterprise Growth and Bank Modernization Programme (EGBMP) Fund

4)ADB Fund

5)JICA Two Step Loan Fund

Bangladesh Krishi Bank (BKB)

• BKB has been established under the Bangladesh Krishi Bank order 1973 (President's Order No 27 of 1973).

• BKB finances the following 7 priority sectors, namely: Crop, Fisheries, Live Stock, Farm and Irrigation Equipment, Agro based Industrial Project, S M E, Continuous Loan (Working Capital and Cash Credit), Micro Credit (Small Loan)

• Considering the needs of the target groups since late seventy`s BKB has been implementing a series of Micro-Credit programs out of which 10 programs have recently been completed and 31 programs are in operation at present.

Janata Bank Limited• Objective of Ag Banking:

• To increase agricultural production and improvement its quality.• To gear up socio-economic activities among rural people.• To create employment opportunities among rural people through

providing economic support.• Creating confidence among the beneficiaries on institutional credit

and their access to improved production practices / activities.• To build up asset by creating saving habit among the rural population.• Poverty reduction.

• Target Programs:• 1.Special Agricultural Credit program/ short term crop production loan• 2.Horticulture development (cultivation of banana, betel leaf, pineapple

etc.)• 3.Fish/ Shrimp production:- (a)Fishery loan program(b)Credit program for

fish cultivator selected by Directorate of Fisheries(c)Shrimp culture credit program

• 4.Irrigation and agricultural equipment

Sonali Bank Limited

• Sonali Bank is one of the largest Bank in Bangladesh which is operating through 1204 branches all over the country.

• This Bank provides two Broad categories of agricultural loan. Microcredit and Rural Credit Division.

• In Rural Credit Division there are 7 target programs among which are mostly dedicated to finance non-traditional farming activities.

• The micro-credit programs are divided into two parts: 1) Bank’s own program and 2) BRDB-UCCA Program

Rupali Bank Limited

• Bangladesh is mainly a land of agriculture. A vast majority of our people live in the rural areas and their main source of income is agriculture and agro-business. To produce agricultural output, promote agro-business, facilitate agro-based services, create and sustain employment opportunities, Rupali Bank Ltd. is disbursing agricultural loan/rural credit through its 401 branches all over the country.

Sectors of Financing::Rupali Bank Ltd. extends credit to the following rural sectors:

1) Fishery.2) Livestock.3) Shrimp Culture.4) Poverty Alleviation Programme.5) Micro-credit.6) Agricultural product processing and marketing.

Islamic Development Bank (IDB)

• In 2013, IDB came to a contract with Government of Bangladesh (GoB) to fund in agricultural development.

• The project was comprised on 5 components, among which the first component was Technology Transfer and Provision of Equipment.

• The total project cost was 17.04 Million US$.

• The service provided under that project: 575 Low Lift Pumps; 560 Power Tiller, 510 Power Thresher, 750 Hand Sprayer,400 Foot Pump,67 Grain Moisture Meter and 72 Salinity Refractor meter. This will be procured as a single lot through National Competitive Bidding.

IFIC Bank Limited

Krishi Saronjam Rin (for Agriculture Equipment) • IFIC Bank offers Krishi Saronjam Rin to individual /Group at micro level for

purchasing of agricultural machinery like new power tiller/power tiller with plough (tractor), single cylinder tractor with plough, power tiller with trolley, Rotavator etc.1) Eligibility: Any individual /Group (minimum 02 member maximum 10)

aged above 18 years and below 60 years at the time of sanction of loan. At least 3 years involved in agro-based production. Having homestead and permanently living in the area.

2) Loan Size: Minimum Tk.50,000/-Maximum Tk.1,500,000/-3) Loan Period: Minimum 12 (Twelve) months. Maximum 36 (Thirty six)

months.4) Nature of the Loan: Lease Financing / Term Loan. 5) Repayment: Equal Monthly Installment. 6) Collateral Security: Collateral security not required for loan up to Tk.

1,000,000/-.

Eastern Bank Limited (EBL)

• In order to ensure loan in agricultural sector, EBL has introduced 'EBL Krishi Rin’ facilities for the farmers without any collateral & zero processing fee.

• Loan for Individual Farmers/Share Cropper who are directly engaged in crop cultivation.

• Loan Limit Minimum BDT 10,000.00 and Maximum BDT 1,50,000.00• Loan may be given for one time or revolving basis.• Repayment depends on harvesting of the crops.• No collateral required.• No loan processing fee• Any individual Bangladeshi farmer/share cropper has minimum 1 year

experience in farming can apply for the loan• Loan will be extended up to 15 bighas cultivable land owners/7.5 bighas

for potato & sugarcane• Repayment tenor minimum 3 months and maximum 12 months

Islami Bank Bangladesh Limited (IBBL)• Rural Development Scheme (RDS)

'Rural Development Scheme' has been introduced to cater to the investment needs of the agriculture and rural sector to create opportunity for generation of employment and raising income of the rural people with a view to alleviate poverty.

Objectives• To extend investment facilities to agricultural, other farming and off-

farming activities in the rural areas etc.

Target Groups• Farmers having land holding of maximum 0.50 acres.• Persons having derelict pond will be eligible for investment for re-

excavation and fish cultivation.• Destitute women and distressed people will be provided investment

for cows/poultry birds/ducks/goats etc. and other suitable off-farm activities for raising their supplementary income.

Prime Bank Ltd

Agriculture Banking

• Abad (Crop Loan)

• Khamar ( Farm/Non-Crop Loan)

• Nabanno (for Any Agri-purpose Loan)

Japan International Cooperation Agency

• On June 16, 2014 JICA signed loan agreement for 5 projects worth 1.18 Billion USD.

• One of those project is dedicated to financing in agriculture.

• Small and Marginal Sized Farmers Agricultural Productivity Improvement and Diversification Financing Project (97 million USD) will finance agricultural loans and providing agricultural training services through microfinance institutions to increase agricultural productivity and diversity of small/marginal farmers.

• Bangladesh Bank will work as Implementing Agency under Bank and Financial Institutions Division as Executing Agency of the project.

Palli Karma Sahayak Foundation (PKSF)• PKSF started the Micro Finance for Marginal and Small Farmer

Project (MFMSFP) in 2005. The success of this project led PKSF to design and introduce the Agriculture Sector Microcredit (ASM) Programme in 2008.

• ASM offers comprehensive training programmes for the farmers and staff of the MFIs to develop their capacity in agricultural lending. To improve ASM , attention is given to rigorous research, development of high-yielding seed, management of irrigation, optimum use of pesticides, mechanized and technology-based farming, and vocational education to produce skilled human resources and increased productivity.

• Under the ASM programme, PKSF disbursed BDT 3.62 billion, 96.79% of the programme budget, to concerned POs during FY 2012-13. On the other hand, POs disbursed a total of BDT 11.22 billion to their beneficiaries. As of June 2013, loan outstanding at the PKSF-PO level and PO-beneficiary level stood at BDT 2.12 billion and BDT 4.52 billion, respectively.

USAID• USAID Agricultural Extension Support Activity project of Dhaka

Ahasania Mission is working in 20 districts in the central and southwest areas of Bangladesh, (Barisal, Dhaka, and Khulna divisions), to implement capacity building and support creation of a farmer demand-driven agricultural extension system, synergized by use of information communication technology (ICT).

• Dhaka Ahsania Mission (DAM) in consortium with CARE Bangladesh and mPower implementing this project along with 5 local NGOs partners.

• Project Goal :Strengthen the existing agricultural extension system in 20 districts in southwest and central Bangladesh in order to sustainable improves food security and nutrition for 200,000 vulnerable women and smallholder farmers.

Microfinance for Marginal and Small Farmers Project by IFAD

• The goal of this six-year project is to improve the livelihoods of poor, small and marginal farmer households. The project is expected to:

• Establish viable microfinance institutions to provide opportunities for 210,000 small and marginal farmer households to invest in on- and off-farm enterprises

• Increase agricultural production through access to information, adoption of new technologies and linkages to markets

• Develop and mainstream PKSF operational procedures for lending to farmers and related agro-enterprises

• The project area includes 14 districts in the north-western and north-central regions of Bangladesh , selected because they have high levels of poverty and good agricultural potential. The total population of these districts is 28 million, and some 1.7 million will be reached by the project. The project focuses in particular on households that experience a food shortage (less than three meals a day) for more than two months a year, and on especially disadvantaged households (tribal households, those headed by women and those with unemployed youth).

BRAC Microfinance in Agriculture

• Over the past 12 years, BRAC's microfinance projects in agriculture have reached approximately 660,000 farmers, and have disbursed over USD 280 million. Each project achieves a loan repayment rate of 98%.

• Borgachashi Unayyon Project (BCUP) provides loan USD 200- 1500. This program has covered 370000 famers and trained 160000 farmers till date with 191 million USD disbursement.

• North-west Crop Diversification Project (NCDP) and Second Crop Diversification Project (SCDP): The two projects offer access to credit services and savings products, including loans of USD 100 - 4,000, as well as training on improved technologies, and marketing support such as linking of small farmers to markets.

• NCDP has reached 98000 and trained 95000 farmers with 72 million USD and SCDP has reached 192000 clients and trained 61000 farmers with 21 Million USD total disbursement.

Padakhep Manabik Unnayan Kendra

• Padakhep Manabik Unnayan Kendra is a local Non Government Organization is currently running a project named Agricultural Technology Transfer Project (ATTP) in 31 Districts in Bangladesh.

• 33 National/Regional/Local Non Government Organizations are involved in this project in different levels of implementations. Under this project substantial training, skill development and entrepreneurial support will be provided.

Palli Daridra Bimochan Foundation (PDBF)

• PDBF provides loans to avail agricultural input and machineries to the rural poor and marginal farmers as a means to poverty reduction process.

• At present PDBF has been operating with a network of 391 branches. However, like most of the non-government micro finance programs, it has an intermediate structure, which is known, as Region.

• The regional office oversees operations of the PDBF branches.

• There are at present 25 regional offices, which oversee 391 branches.

Krishi Gobeshona Foundation (KGF)

• KGF is a Govt. sponsored- non-profit organization established in 2007 under the Companies Act.

• KGF is responsible for providing research grants and technical supports to researchers working in public sector agricultural research institutes (ARIs), universities, government, non-government and private organizations.

• One of the important functions of KGF is to encourage and promote short to medium term research that has potentials to generate, validate, refine, up-scaling and adoption of technologies for increasing production and enhancing food security through Competitive Grants Program (CGP).

• KGF invites application through newspapers and website for submission of research proposals under CGP based on the priority researchable issues/areas identified by BARC as a national priority for agricultural research.

• KGF supports activities that generate and transfer knowledge addressing food security issues while sustaining environment. The GoB/World Bank financed NATP (NATP Phase I cr. 4386 BD) provides initial funding for KGF and CGP.

Micro Finance Institutions (MFIs)

• Financing in Agriculture is a new frontier of MFIs. Earlier days microcredit used to be disbursed for non-farm activities in most cases trading and businesses so that borrowers can regularly make week repayments.

• But even in earlier days a significant part (about 30-40%) of microcredit was disbursed for livestock rearing, one of the most popular activity for poor rural households.

• Similar to microenterprise segment some MFIs are gradually moving into directly financing crop sector. Selected Partner MFIs of PKSF under four (4) projects and BRAC are leading in this segment.

• Two types of loan come under this category: loan given to small and medium farmers for agriculture whether as one year loan or as seasonal loan (5-6 months) and loan given to any borrower for seasonal agricultural activities such as crops/horticulture, fisheries, and livestock.

MFIs Contd…

The main features of this product are: • Target group: small and medium farmers and loans are

mainly for field crops and horticulture. Seasonal loans are also mostly for crop production but may include agricultural activities;

• Loan range: Taka 10,000 to 50,000 but sometimes linked with size of land in case of crop production

• Duration: 5-6 months and one year • Repayment: weekly, monthly or lump-sum at the end of the

specified period (harvest or sale of livestock) • Interest rate: 10-15% (same as mainstream microcredit) • Lending technique: Group method

Concluding Remarks

• Though there are many financing schemes, institutionalsupport and mechanisms available for agricultural sector inBangladesh, lack of adequate focus on technology transferand commercialization could be one of the key reasonshindering agricultural innovation.

• Policy based interventions in the form of incentives, importsubsidies for technological inputs for sustainableagriculture and risk sharing mechanisms to supporttechnology development and commercialization can boostagricultural innovations and technology commercialization.

Thank You