While the number of bank branches in rural areas of Bangladesh has grown, key financial indicators such as rural deposits, loan disbursements, and the loan-deposit ratio in agent banking show a worrying decline, undermining efforts toward financial inclusion in these regions.

Data from the Bangladesh Bank reveal that the number of both private and public bank branches in rural areas increased from 5,069 in 2019 to over 5,400 by the end of December last year. Despite this expansion, rural banking activities have faced significant setbacks.

In a striking development, rural deposits saw their first decline in five years, dropping by 21 percent year-on-year to Tk 266,415 crore in the last quarter of 2023, even as national savings grew due to higher fund inflows in urban centers.

Similarly, the share of bank loans in rural areas continued to fall, reaching only 8.05 percent or Tk 1.24 trillion by the end of December 2023. In contrast, urban areas accounted for a whopping 91.95 percent or Tk 14.15 trillion of the loans, highlighting a stark shift towards urban-centric banking.

This decline is partly attributed to several factors. Experts suggest that inflation has significantly eroded rural savings, while concerns over bank stability and mergers have prompted increased cash withdrawals at rural branches.

The share of rural savings in national deposits has subsequently fallen to 15 percent as of the end of 2023.

Bankers also point to rising costs of funds and production in a higher-interest and inflationary environment as critical challenges dampening the demand for rural credit post-Covid. The increased interest rates

are impacting all business sectors, with the demand for credit in rural economies falling faster than in urban areas, leading banks to reduce their rural credit operations.

This reduction in credit availability has severely affected cottage, micro, small, and medium enterprises (CMSMEs) in rural areas, which are major sources of rural employment.

The products they produce are becoming more expensive and less competitive in the market.

The central bank’s data since last June, under a contractionary monetary stance aimed at containing inflation, further shows that the growth of rural enterprises like CMSMEs has been stifled in recent months as the rate of fresh loan disbursements continues to decline.

Meanwhile, advances to enterprises in cities have grown by 15 percent.

This disparity highlights the increasing economic divide between urban and rural Bangladesh.