The stagnation that has persisted in the rural economy for several years has intensified further. The flow of bank credit to rural areas has consequently continued to contract. Outstanding bank loans in the rural economy have not increased over the past year; instead, they have declined by more than BDT 45 billion, according to the central bank data. At the end of March 2025, outstanding bank loans in rural areas stood at around BDT 1.36 trillion. By March this year, that figure had fallen to around BDT 1.32 trillion.
The slowdown in the rural economy comes at a time when the country is receiving the highest remittance inflows in its history. Up to June 14 of the current fiscal year, expatriate Bangladeshis sent home $34.30 billion in remittances. In local currency terms, this amounts to more than BDT 4.22 trillion. A significant share of these remittances has flowed into rural areas. Since migrant families spend roughly two-thirds of remittance income on consumption, rural economic activity and demand for credit would normally be expected to strengthen.
Bankers, however, say that the rural economy has become largely subdued. The economic slowdown has forced many cottage, micro, and small industrial units in rural areas to shut down, while new ventures are not emerging. Demand for loans in rural areas consequently remains weak.
Many economists and stakeholders offer a different explanation. They argue that most banks lack the capacity to effectively extend credit to the rural economy. Despite years of urging, banks have failed to develop such capabilities. Initiatives introduced in the name of financial inclusion, such as agent banking and sub-branches, have primarily been used to mobilise deposits rather than expand lending. The ongoing crisis and instability in the banking sector have also negatively affected rural credit disbursement. To meet agricultural and rural lending targets set by the central bank, banks have become heavily dependent on microfinance institutions.
The main issue is a lack of demand for credit in the rural economy, said Mashrur Arefin, chairman of the Association of Bankers, Bangladesh (ABB). Speaking to Bonik Barta, the Managing Director of City Bank PLC, said: “Private-sector credit growth in the country has fallen to the range of 4 percent. In my entire banking career, I’ve never seen loan demand this low. If demand for credit is weak in urban areas, it’s not unusual that it has declined even further in rural areas. Many banks currently don’t even have the capacity to extend new loans. State-owned banks maintain a large branch network in rural areas, and we’re seeing stagnation in their credit growth as well.”
Mashrur Arefin noted City Bank is working to expand retail and small-scale lending through the extensive use of technology. “Through the MFS platform bKash, we’re providing unsecured digital nano loans ranging from BDT 500 to BDT 50,000. The outstanding balance of these microloans has now exceeded BDT 65 billion. Bangladesh Bank has announced new targets for agricultural and rural lending, along with several incentive packages. With political stability and a newly elected government having announced the budget, we hope that both the rural economy and the overall economy will recover quickly,” he further said.
Bangladesh Bank publishes Scheduled Banks Statistics every quarter, containing a wide range of banking-sector data. The latest edition shows that the total outstanding bank credit stood at around BDT 17.83 trillion at the end of March this year. Of this, around BDT 16.51 trillion was disbursed in urban areas, accounting for 92.59 percent of total bank lending. In contrast, outstanding credit in rural areas stood at only nearly BDT 1.32 trillion, representing just 7.41 percent of total bank loans, despite the rural economy contributing more than 30 percent to the country’s GDP.
Banks also collected nearly three times more deposits from rural areas than the amount of loans they disbursed there. At the end of March this year, outstanding rural deposits stood at approximately BDT 3.43 trillion, compared with around BDT 3.01 trillion in March 2025. This means rural deposits increased by BDT 424.80 billion over the past year. But outstanding bank credit in rural areas declined by BDT 46.12 billion during the same period.
Agricultural loans are also included within the total outstanding credit disbursed in rural areas. Outstanding agricultural loans stood at BDT 636.30 billion as of March this year, according to Bangladesh Bank data. But rather than increasing, the figure fell to BDT 632.47 billion in April. Banks have also become almost entirely dependent on microfinance institutions for the disbursement of agricultural loans.
Deposits collected from rural areas could have transformed the economy if they had been reinvested as loans within the same localities, believes Syed Mahbubur Rahman, managing director of Mutual Trust Bank. Speaking to Bonik Barta, he said, “It’s quite difficult for banks to deliver credit to the rural economy. Most banks lack both the capacity and the infrastructure required to extend such loans. Banks have consequently become dependent on NGOs for the disbursement of agricultural and rural credit.”
Regarding local lending, he said, “Services such as agent banking and sub-branches were introduced to promote financial inclusion. But marginalised communities haven’t yet fully benefited from these services. This is because banks are still using agents and sub-branches primarily to mobilise deposits. If the deposits collected from a particular area could be reinvested there as loans, the rural economy would become much more vibrant. Rural employment would increase as well. The opportunity hasn’t yet been lost. We’re trying to reach underserved communities through technology.”
Bangladesh has been experiencing high inflation for several years, while economic growth has slowed. GDP growth stood at 4.22 percent in FY 2023–24. It declined to 3.49 percent in FY 2024–25 and is projected to reach 4.14 percent in the current fiscal year. The inflation rate, meanwhile, stood at 9.42 percent in May, well above the target of reducing inflation to 6.5 percent set in the monetary policy.
Alongside economic stagnation, Bangladesh’s banking sector is also facing ongoing stress and instability. During the first quarter of the current year (January–March), non-performing loans (NPLs) increased by BDT 314.87 billion. By the end of March, total NPLs in the banking sector had reached around BDT 5.88 trillion, accounting for 32.26 percent of all outstanding loans.
The lending capacity of at least two dozen banks has become severely constrained. Even banks with excess liquidity or sufficient funds for lending aren’t extending adequate credit to entrepreneurs. Instead of increasing lending to the private sector, banks are showing greater interest in purchasing government Treasury bills and bonds. While private-sector credit growth has consequently fallen to 4.75 percent, credit growth to the government has exceeded 30 percent.
Former Chief Economist of Bangladesh Bank, Dr Mustafa K Mujeri, believes that survival itself has become increasingly difficult for rural entrepreneurs. Speaking to Bonik Barta, also the executive director of the Institute for Inclusive Finance and Development (InM), said, “The pressure of high inflation has made it extremely difficult for rural entrepreneurs to stay afloat. The decline in credit flows is also delaying their prospects of recovery and affecting their employment. Jobless people from rural areas are now migrating to cities. Banks and financial institutions need to become more proactive in providing credit in rural areas. The government must also come forward in this regard.”
The banks’ inability to adequately serve rural borrowers has led to the rapid expansion of microfinance institutions. The outstanding loan portfolio of 719 microfinance institutions, including Grameen Bank, has now reached BDT 2.05 trillion.
Government-supported organisations such as the Palli Karma-Sahayak Foundation (PKSF) and the SME Foundation have also expanded their activities in rural areas. Bangladesh Bank has now established a BDT 50 billion incentive fund for cottage and small entrepreneurs. PKSF has been entrusted with disbursing low-interest loans from this fund.
Commenting on the initiative, PKSF Managing Director Md Fazlul Kader told Bonik Barta, “The rural economy is experiencing a significant slowdown. To overcome this stagnation, microfinance institutions can play a more effective role than banks. PKSF is implementing a range of initiatives to address the situation. In addition to the BDT 50 billion being provided by Bangladesh Bank, another BDT 60 billion is being added through government support and our own financing. We’re working toward disbursing a total of BDT 110 billion in the rural economy. PKSF has more than three decades of successful experience as a catalyst for rural economic development and sustainable growth.”