To alleviate the existing inequalities in Bangladesh, the rural people have to be financially empowered and enabled. Ensuring access to finance and financial inclusion of the rural population can enable the entrepreneurial spirit within them, allowing the economy to grow and decrease inequality. Here is why the Palli Sanchay Bank is important.
In Bangladesh, the biggest obstacle facing entrepreneurs is the scarcity of funding or access to finance, especially for the female entrepreneurs. In terms of women’s social rights, inheritance practises, property other than land, and credit availability, Bangladesh is placed 97th out of 106 countries. Even though a significant number of NGOs like Grameen Bank works for the financial inclusion of rural Bangladesh, the services are only limited for women with interest rates ranging from 20% to 35% for borrowing.
20%-35%
Interest Rates for NGO Loans
On the other hand, the Microcredit loans usually have a weekly payback schedule. Throughout the course of the loan, the amount of each weekly payment may change based on the borrower’s cash flow. Usually, the loans have a 10- to 12-week term and require weekly repayments. It is tough for these borrowers to buy raw materials and implement these for better outcomes if they have a long term investment plan. Hence, the loans are unfavourable for pushing the rural people out of poverty, further crippling them into the continuous and vicious cycle of poverty.
10-12 Weeks
Repayment Schedule for Microcredit
Some other obstacles faced by Bangladeshi rural entrepreneurs are social, cultural, financial, and skill-related, yet they also have to overcome other challenges to continue their family businesses. Many lack the official training required to practise their job in a profit-making capacity. According to recent research, 75% of Bangladeshi families and about only 40% of the adult population have access to financial services.The limited financial literacy, gender gap, access to credit makes the rural people vulnerable enough to rely on informal markets where the interest rate and loan repayment cost is so high.
A Bank Partly Owned by the One house One Farm Project
To ease the financing process for rural people, in 2014, Palli Sanchay Bank was established after the Bangladesh government passed the Palli Sanchay Bank Act 2014. The Palli Sanchay Bank Act 2014 states that the Government of Bangladesh owns 51% of the bank’s shares, while the rest is owned by the participants in the One House, One Farm (Ekti Bari Ekti Khamar) project. Initially, the bank had authorised capital of BDT 10 billion and paid-up capital of BDT 2 billion.
“Previously I used to take loans from Mahajons (local money-lenders) with high interest rates to buy the raw materials for the maintenance of my domestic animals and vegetable production. Now ever since Palli Sanchay Bank came into my Union I became a VDA member and now we are doing good before with a long term repayment option and low interest rate. My children can now go to school, I don’t have any other loan as a burden.”
Savings of Underprivileged Individuals
Simple Loan Assistance
Financial Independence
The bank’s primary goal is to provide Bangladesh’s rural people with economic liberty. The bank provides a range of financial services, including investment, corporate, and consumer banking. The bank’s objectives are to increase savings for underprivileged individuals, offer simple loan assistance, transform every home into a profitable farm, and enable the impoverished to become financially independent via accumulated deposits from manufacturing commodities.
Grain Stock Loan for Farmers in COVID-19
In 2020, the state-owned Palli Sanchay Bank launched the Grain Stock Loan to help farmers who were having trouble selling their harvest amid the COVID-19 epidemic. The bank has already given 3,200 members nationwide, particularly in the Haor districts, a total of BDT 70 million. The bank is helping farmers avoid selling their produce at a cheap price by lending each member BDT 20,000 for the equivalent of 25 maunds of paddy. The farmers may sell their paddy after two or three months and return the loan with only a five percent service charge, or a total of just BDT 250 for the duration of the loan.
In addition to enabling farmers to store crops at home and sell them after two or three months, which might increase revenues, the loans are intended to guarantee fair prices for the farmers’ produce. Grain stock is used as security for the loans, and farmers are required to repay the money plus a five percent service charge which is 27% in microcredit programmes. The bank has concentrated on offering collateral-free loans to rural regions and bringing underprivileged individuals—particularly women entrepreneurs—under institutional financial services.
Village Development Association (VDA) under Palli Sanchay Bank
The Palli Sanchay Bank established the Village Development Association (VDA) as an organisation to offer its people banking and financial help. They solely provide banking and financial support to VDA members who wish to engage in revenue-generating activities as part of the “Amar Bari Amar Khamar” initiative. Only VDA members and their families are eligible to deposit money with the bank; the bank has 4.15 million members under 83,912 VDAs. In FY 2020–21, their deposits totalled BDT 27.69 billion.
BDT 27.69 Billion
Deposits held by the members with Palli Sanchay Bank in FY 2020-21
A business owner can obtain a loan of between Tk 10,000 and Tk 250,000, depending on their investment plan. The borrowers’ investment strategy determines how much the PSB will lend. A loan of BDT 10,000 to BDT 50,000 can be obtained by a small business owner, over BDT 50,000 to BDT 300,000 for a medium-sized business, and above BDT 300,000 to BDT 1,000,000 for a special-purpose business. All of the loans have an interest rate of 4% to 8%.
BDT 10,000 to BDT 50,000
For Small Businesses
BDT 50,000 to BDT 300,000
For Medium Businesses
BDT 300,000 to BDT 1,000,000
For Special-purpose Businesses
4% - 8%
Interest on All Loans
Cow Fattening & Milking
Agro-industrial Tools & Spares
Vegetable & Spice Production
The loans are to be used for cow fattening, cow milking, agro-industrial tool and spare part manufacture, vegetable and spice production, agro-based small industry establishment, cottage industries, fisheries, and nurseries. It also encourages VDA members to save on a daily basis. Offering microloans and SME loans to help them start their own businesses are the primary operations.
Accountability and Transparency
The bank employs around 11,000 people. To ensure that the operations of the bank are transparent, up to 2023, about 18 audit teams have been employed, and so far, the teams have finished audits in 345 out of 490 branches.
Women Empowerment under PSB’s Ekti Bari Ekti Khamar
When the Village Development Associations (VDAs) were initiated, each VDA had 60 members. It is mandated that, of the sixty members, forty must be women. The existing gender bias in terms of financing in Bangladesh could be avoided through this endeavour. In addition to empowering women, the initiative aims to increase women’s sensitivity and awareness while educating the public about child marriage and dowries. Therefore, the primary goal of this initiative is to guarantee women’s empowerment via uplifting their social and economic standing.
Training and Supporting Small and Medium Enterprises (SMEs)
Palli Sanchay Bank (PSB) offers its members a range of training programmes with the goal of enhancing their abilities in agriculture, fishery, poultry, livestock, and horticulture.
To guarantee sound governance and integrity procedures at each bank branch, regional office, and head office, PSB conducts training seminars on the National Integrity Strategy‘s execution. To measure the effectiveness of training programs of VDA members, pre and post training assessment, feedback, job performance evaluation are done. In addition, Return on Investment (ROI) analysis and follow ups are done to analyse the financial impact on mass people.
Expansion of Branches
In Bangladesh, the Palli Sanchay Bank has been growing the number of its branches. After opening offices in 406 Upazilas by February 2018, the bank announced ambitions to open branches in 462 Upazilas (sub-districts) in 2018. The bank plans to create branches at the union level, even further down the grassroots, and by the end of 2023, it is supposed to have a branch in each Upazila as planned. Additionally, the bank has implemented online real-time core banking systems to deliver prompt services via the digital platform.
Online Service of Palli Sanchay Bank
Nowadays, almost all modern banks have online accessibility. Without online banking facilities, a bank cannot thrive in today’s market. Palli Sanchay Bank (PSB) has introduced a real-time online core banking technology to enable prompt services via the internet. All 485 of the bank’s branches provide the online service. Customers may pay their invoices, transfer money, and view their accounts online thanks to the internet system. The transaction-related data of around 22 lakh members from 40,215 cooperatives spread across 485 upazilas is online.
Downloading Application Form
Monitoring Payments
Retrieving User ID & Password
Obtaining Admission Cards
One of Bangladesh’s fastest-growing state-owned banks, Palli Sanchay Bank, will be able to employ Banglalink’s cutting-edge digital services, which include corporate connections, data connectivity, Banglalink’s 4G internet, SMS broadcast, and other top-notch digital solutions as part of a Memorandum of Understanding signed between Palli Sanchay Bank and Banglalink.
Banglalink MOU with Palli Sanchay Bank
The service can be accessed through a website which provides retrieving user IDs and passwords, obtaining admission cards, downloading application forms, and monitoring the status of payments. Additionally, the website has a support area to address any questions or concerns users may have.
Recommendation
Despite the advances made, the Palli Sanchay Bank has certain deficiencies which can be improved with the agenda of Smart Bangladesh to ensure a complete financial inclusion at the root level.
- PSB’s holdings in 2021 were 34.45 billion taka, down 2.74 billion taka from 2020 when they were 37.19 billion taka. A decrease in the bank’s financial performance is indicated by this (that might largely be attributable to COVID-19). This should be improved in future with strict measures.
- Loan forgery and embezzlement has been a matter of concern for the other banks. PSB should be prepared to prevent such cases with internal controls and governance of the bank so that such cases do not happen in PSB.
- To deconstruct the social and conservative barriers for women entrepreneurship, PSB can take the lead through a training program.
- PSB faces competition from the other banks due to hurdles of paperwork. Hence the paperwork should be limited as per the demand of the joining members.
- In the low- and middle-income area, less than 10% of the adult population has access to formal financial institutions for loans even after the central bank introduced digital financial programs in 2015. So financial literacy with informed investment decisions should be PSB’s priority.
About the Author
A R Tahseen Jahan is the Co-Founder and Head of Policy at The Confluence. An undergrad student of Development Studies at the University of Dhaka, she worked on topics of economic development and public policy analysis.