Let amazing rural transformation lead Bangladesh towards more inclusive, climate resilient growth

That Bangladesh is faring better than many of its peers, defying the challenges put up by triple whammies — climate change, the pandemic and the Russia-Ukraine war — can be linked to the amazing economic transformation that has been taking place in the country since 2009. 

Of course, no one can deny the structural transformation in Bangladesh over decades, putting low-skilled manufacturing, both for domestic and global markets, as the emerging sector, replacing the age-old dominance of agriculture. 

The service sector, however, remains the major sector contributing to nearly half of the GDP. The contribution of agriculture to GDP has come down to about 13%, along with manufacturing providing 35% to the national economy. 

It may be noted here that agriculture contributed nearly 50% of the GDP in the early 1970s. Despite its low share in GDP, agriculture continues to provide more than 40% of rural employment. Moreover, it is the primary source of food security, with Bangladesh producing more than 95% of its staple food. 

The diversification and modernisation of agriculture in Bangladesh have been appropriately facilitated by the legacy of policy support since its birth. Bangabandhu Sheikh Mujibur Rahman was deeply focused on promoting agriculture as he realised that agriculture provided food, employment, and sources for demand for the domestic economy. So, it was responsible for faster poverty reduction in rural Bangladesh.

The cultural messages brought by urban and global remitters to their rural homes are strategic in changing the preferences and the nature of consumer demand in the rural sector. Surely, rural Bangladesh is now walking on two legs with necessary support from both farm and non-farm sectors. 

Undoubtedly, the First Five Year Plan (1973-78), spearheaded by Bangabandhu, provided nearly a quarter of the total investment allocation to agriculture. His support for the "green revolution" with enhanced investment support for technological diffusion in the rural economy in the forms of modern irrigation facilities, infrastructures for water management, research, innovation, rural institutional credit, and desired extension activities directed to quick adoption of modern agricultural practices by the farmers can hardly be overemphasised in preparing the solid base for the amazing socio-economic transformation which Bangladesh has been benefiting from. 

Policy entrepreneurship by subsequent governments, particularly by those led by Bangabandhu's daughter, has been providing the push for greater transformation in the rural economy of Bangladesh. 

The emphasis put by her government on the development of rural infrastructures within the framework of a higher level of connectivity facilitated by mega projects like the Padma and Kalna bridges, in addition to hundreds of roads and bridges recently inaugurated by the Premier in different parts of the country speaks volumes about the continuity of her policy push for rural advancement as dreamt by Bangabandhu. 

Bangabandhu was aware of the challenges of the rising population and urbanisation putting pressure on agricultural land. So, he went for the planned population control, raising the level of social consciousness of the masses by nationalising primary education and investing in the people engaged in the farm and non-farm sectors. 

This strategy of inclusive development with a special focus on agriculture and rural economic transformation was further bolstered by his daughter when she took over the government first in 1996 and subsequently in 2009 onwards. Her policy push for rural transformation has been broad-based, encouraging the participation of both state and non-state actors, including the vibrant private sector. 

The non-government sector played a strategic role in not only raising the bar of social development but also helping to ensure a higher inflow of institutional credit to emerging rural entrepreneurs by mobilising savings from their members and as well as working as development partners of PKSF and different banks with adequate policy support from the MRA and the central bank. The result has been phenomenal growth in micro, small and medium enterprises enhancing domestic consumption and demand. 

The growth of non-farm income in the process has also been exceedingly significant. Currently, nearly 60% of the rural income originates from the non-farm sector, with deeper links with the farm sector and related supply chains. The rural road and transport connectivity with adequate support from the rural electrification program and digital financial inclusion facilitated by the mobile financial services and agent and sub-branch banking has been creating a business-friendly environment which helped the rural entrepreneurs to thrive and remain connected with the national economy. 

The regular inflow of remittances from semi-urban apparel workers (mostly low-skilled women) and remitters working around the globe has also been a boon for rural entrepreneurial development in Bangladesh. The role of digital financial inclusion promoted by the banking system, led by a socially responsible central bank of Bangladesh, has been critical in maintaining the cash flow into the rural economy. This has helped immensely in making Bangladesh's fascinating rural economic transformation possible.

Indeed, the service sector has been growing significantly to keep pace with this enhanced financial inclusion. So, one should not be surprised to see rural entrepreneurs thriving in the guise of tea and coffee shops, restaurants, saloons, beauty parlours, kindergarten schools, coaching centres, health and community clinics, diagnostic centres, digital data centres, digital post office branches, sales centres of Walton, RFL, ACI and other domestic corporates, the mobile sale and repairing centres, the community centres for wedding receptions, cyber cafes and whatnot. 

As if rural Bangladesh has been deeply urbanised and globalised. 

The cultural messages brought by urban and global remitters to their rural homes are strategic in changing the taste preferences and the nature of consumer demand in the rural sector. Surely, rural Bangladesh is now walking on two legs with necessary support from both farm and non-farm sectors. 

Notwithstanding the significant contributions of all the stakeholders, particularly the non-state actors, it can be safely argued that the entrepreneurial government played a strategic role in bringing all of them onto the stage for playing this well-coordinated orchestra called rural transformation. 

It may also be stated that the developmental role of the central bank of Bangladesh in promoting financial inclusion and providing several regulatory leads in creating necessary refinances and linkage programs to bring the money to the real sector, like farm and non-farm entrepreneurs, deserve to be noted. 

This complimentary role of the central bank in realising the goal of Digital Bangladesh, in addition to the unprecedented response to cope with the fallouts of the pandemic and the Ukraine war in innovating and implementing the stimulus packages for the affected economic actors has, indeed, been both strategic and farsighted.

The focus has been on the bottom of the social pyramid, which provides most of the support for domestic consumption and demand, leading to persistent macroeconomic resilience and, hence, the stability so badly needed at the difficult time of the prolonged global economic slowdown. This innovation in our central banking was well thought out and should be taken forward. Fortunately, the central bankers and Bangladesh have been conscious of their role in stabilising the economy with a stronger base supported by financial inclusion. 

They are certainly aware of their role in enhancing the number of entrepreneurs in the farm sector through formal financing; preparing and implementing necessary financing policies for the micro, small and medium sectors; prioritising women while creating new sources of finance for the small entrepreneurs; and pushing the agenda of sustainable finance by leading the policymaking in that direction with the participation of all the financial institutions. 

And for that matter, no one can deny the need for deeper coordination between the fiscal and monetary policies which Bangladesh Bank has been trying honestly to push forward. I must also thank the Ministry of Finance for supporting the central bank with necessary subsidies for interest and credit guarantee schemes to make the financing more inclusive and less costly to small and medium entrepreneurs. 

The commentators rightly appreciated the recent moves by the central bank to create several low-cost refinancing schemes for farmers and MSMEs. However, there is a need for greater monitoring and handholding of the banks and financial institutions to see how much of these well-intentioned programs are implemented and helping the real economy. For that matter, top regulators, including the governor and deputy governors, may have to go out of Dhaka to touch the ground to see the end-use of the fund created by the central bank. 

Fortunately, the digital financing infrastructures are now in better shape, and the central bank can also use these innovative tools for digital monitoring of the implementation processes. 

Bangladesh Bank has certainly come of age. Its focus on rural refinance, along with innovations in the financial payment system, including a mobile financial system transacting more than forty million Taka daily, allows many under-served citizens like remitters and rickshaw-pullers to have easy access to instant finance, which was beyond their imaginations. 

The agent banking system has become an agent of change which does not provide the taste of banking-like services to new users but also creates thousands of entrepreneurs to promote banking services like rural credit, remittance payments, social protection services, and scholarship payments to school-going students. 

Millions of bank accounts have been provided to students under the banner of 'school banking' to provide financial literacy and services to the younger generation. Similarly, the ten-taka no-frill accounts to the farmers and receivers of social protection programs have, indeed, revolutionised the rural financial landscape creating a new opportunity for further financial inclusion. 

The nano credit program, which is now being experimented with by the City Bank and MFS service provider bKash, uses Artificial Intelligence to track the depth of the financial transaction by MFS users to create small loans for the new digital entrepreneurs in minutes. Bangladesh Bank, with the support from the ICT Division of the government, has already launched "binimoy", a unified Payment Interface, to make the digital payment system more interoperable to make the best use of the services of the existing National Payment Switch. 

The central bank is also mulling over providing licences to a few digital banks to make digital financing universal in Bangladesh. All this has the potential to accelerate the process of transformation of the rural economy in Bangladesh to consolidate its gains in financial inclusion and sustainable growth for the many, and not a few.

Surely, this financial transformation in the rural economy of Bangladesh has laid the platform for a higher level of entrepreneurial development which can be more inclusive and climate-resilient. However, we will have to remain vigilant against the deficit in our governance, besides the growing inequality, to live up to our Prime Minister's dream, who is keen on making Bangladesh more equal, safer, and greener. 

Dr Atiur Rahman is an economist and a former Governor of Bangladesh Bank. He can be reached at dratiur@gmail.com