Why Bangladesh’s agricultural credit buys subsistence, not growth

Every July, Bangladesh stages one of its most reassuring economic rituals. Bangladesh Bank announces a new agricultural credit target. The number is always large, always round, and always reassuring. 

This year, it is Tk39,000 crore. This is cheap money, subsidised by the state and dispatched to the countryside to drive food security and rural growth. Banks, in turn, report with great pride that they have met or nearly met the target. 

On paper, it is an all-round triumph of development finance. Pats on the back, one and all.

But there is a problem with this narrative. If we are channelling thousands of crores in cheap credit to the villages, why is productivity falling?

In 2024, despite record credit disbursements, agricultural labour productivity in Bangladesh fell by 2.42%. This was the first contraction since the post-pandemic recovery, according to Bangladesh Bureau of Statistics and World Bank data. 

We are pouring more money in but getting less out. This is the paradox of Bangladesh's rural economy: liquidity circulates, but capital does not accumulate.

Growth is built on accumulated assets, not on recycled survival. Yet the machinery of our rural credit system is designed to fund exactly the latter.

The root of this paradox lies in what the money is actually used for. In the first nine months of the current fiscal year, 47% of all agricultural credit was disbursed as crop loans. These are short-term facilities, lasting six to nine months, financing consumables such as seeds, fertiliser, and diesel. 

The money goes into the ground, the crop is harvested, the loan is repaid, and the farmer is back to zero.

We have achieved a perfectly balanced circularity. The money keeps the farm alive, creating just enough surplus for the loan not to turn bad, but not enough for the farm to grow. From the perspective of the financial sector, these transactions have been "derisked". 

From the producer's perspective, the risks float downstream. It is a bad deal, but it is the only deal on offer.

The thousands of crores absorbed annually by crop loans represent operational expenditure. It maintains the status quo. Real transformation requires capital expenditure: machines that drive efficiency, assets that compound, and infrastructure that raises productivity over years rather than seasons. 

A power tiller, a harvester, a cold storage facility, or a solar irrigation pump does not just support a single crop cycle. It reshapes what a farmer can produce, store, and sell.

This is not a novel insight. In peer economies such as Vietnam, Thailand, and Indonesia, sustained gains in agricultural productivity were driven not by seasonal credit, but by long-term financing for mechanisation, storage, and post-harvest infrastructure. Yet Bangladesh's rural credit system remains structurally incapable of supporting this kind of lending.

A 2025 assessment by the International Food Policy Research Institute reveals how stark this incapacity has become. While nearly one in three medium farmers now uses some form of mechanised equipment, only 6% of those purchases were financed through formal bank credit. 

The rest were funded through personal savings or informal borrowing, often from moneylenders charging interest rates of 22% or more. Bangladesh Bank's own guidelines allocate just 2% of agricultural credit to farm machinery, amounting to less than Tk800 crore nationwide. For every taka lent to long-term agricultural assets, more than twenty taka is lent to short-term consumables.

This imbalance persists not because mechanisation is unimportant, but because financing it requires effort. Lending Tk50,000 to a farmer requires almost as much paperwork and regulatory compliance as lending Tk50 lakh to a large industrial borrower, yet generates only a fraction of the profit. Faced with this asymmetry, private banks do the rational thing. They outsource.

Commercial banks typically wholesale their agricultural credit obligations to microfinance institutions at rates of 9 to 10%. The banks meet their regulatory targets and avoid last-mile engagement, while MFIs, bearing the cost of door-to-door collection, lend the same funds onwards at 22 to 24%. 

By the time the "cheap" credit reaches the village, most of the state subsidy has been absorbed within the financial system itself. A subsidy designed in Motijheel is effectively monetised in head offices and disappears before it reaches the field.

But even if cost were not the problem, access would still be.

Nearly 40% of Bangladesh's farm households are pure landless tenants, according to the Agricultural Census. Since banks lend primarily against land titles, these borgachashis, the farmers who actually grow the food, are excluded from concessional agricultural credit. 

Fewer than one in ten formal agricultural loans is issued without land-based collateral. Tenant farmers are pushed instead toward high-interest MFIs or predatory dadon arrangements.

The result is a perverse hierarchy. The absentee landlord can access a subsidised loan to buy a tractor he will rent out. The sharecropper cannot access a formal loan to buy the fertiliser he needs to grow.

To break this cycle, we need to stop obsessing over disbursement targets and start measuring asset formation. This does not require new subsidies or grand institutional reform. It requires using resources that already exist to spark innovation, which remains the only durable route to growth. 

Whether through digital warehouse receipt systems that allow farmers to borrow against their harvest rather than their land, or financing models that enable cottage and micro-entrepreneurs to build the basic infrastructure of modern agriculture, these pathways are already visible in peer economies such as Vietnam and Thailand.

Even allowing for data gaps and reporting noise, the direction of travel is unmistakable. Bangladesh disburses thousands of crores in agricultural credit every year, yet only a fraction of it survives as a productive asset beyond a single season. 

The question for next July is not how large the target will be. It is how much of that money will still exist as capital five years from now.

From the perspective of the rural economy, any policy that cannot answer that question is beside the point.

Saba El Kabir is a development practitioner and the founder of Cultivera Limited. He can be reached at saba@cultivera.net.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.