Savings

Rural savings accumulate through remittances

The increase in rural savings is mainly supported by remittance income, with 90% of incoming remittances distributed among recipients in rural areas

September 18, 2022, 10:50 p.m.

Last modification: September 18, 2022, 10:52 p.m.

Infographic: TBS

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Infographic: TBS

Bank deposits in rural areas of the country have more than doubled over the past five and a half years, indicating that the financial capacity of rural people is increasing rapidly, contributing to the building of a strong consumer class.

Total deposits in areas outside municipalities and municipal corporations stood at Tk 3.4 lakh crore in June this year, up from Tk 1.61 lakh crore at the start of 2016, according to the latest published data. by the Bangladesh Bank.

The surge in rural savings is mainly supported by remittance income, as 90% of incoming remittances are distributed among recipients in rural areas, according to central bank statistics.

Additionally, alternative transaction channels such as mobile banking and agent banking have brought financial services within reach of people living in rural and remote areas, bringing their money to the banking system.

For example, the number of mobile financial accounts crossed the 18 crore mark in July this year, surpassing the country’s total population which currently stands at 16.5 crore. And 56% of account holders are from rural areas, according to Bangladesh Bank.

Agent banking, the other fast-growing alternative banking channel, has also seen huge inflows of deposits from rural people.

Of the Tk 28,000 crore in total deposits channeled through banking agents up to June this year, 78% came from rural areas.

However, the share of rural deposits in total bank deposits increased slightly to 21.57% from 20% during the period, as rising urban incomes also contributed to the growth of deposits from this customer segment. .

The growth in rural savings suggests villagers have achieved economic solvency, said Md Arfan Ali, former managing director of Bank Asia and a pioneer of banking agents in Bangladesh.

He said rural deposits are mainly driven by remittances from expatriate Bangladeshis. In addition, the growth of economic activities and the development of communication systems through massive infrastructure development have brought economic solvency to rural people, he added.

Rural people have become accustomed to saving as financial services are now at their doorstep thanks to the proliferation of agency banking and mobile banking, he observed, adding that the increase in Rural savings are a good sign for the overall economy because a good part of these funds will be spent on the consumption of goods and services, resulting in a large increase in demand.

Sharing his experience as an agent bank with The Business Standard, he said lending through the agent bank channel is also on the rise, reflecting the consumption trend of rural people as they now want to spend more.

Banks are also focusing on lending to SMEs (small and medium-sized enterprises) in rural areas, which promote entrepreneurship and thus help make the rural economy vibrant, he added.

Banking agent data shows that deposits in rural areas grew faster than in urban areas, even amid strong inflationary pressures across the country.

Deposits through banking agents in rural areas recorded a growth of 13.37% in April-June this year compared to the previous quarter, while the growth of urban deposits was 5.62%.

Even though the overall growth of deposits in the banking sector has slowed during the post-Covid era, as people have started to spend more after the lifting of various restrictions on movement and opening of shops, savings rural continued to increase.

During the April to June quarter, total deposits increased by 3.89% compared to the previous quarter. During the period, rural savings growth was 4.36% and urban savings growth was 3.76%, according to Bangladesh Bank data.

The rural population received 90.71 percent of the total inbound remittances distributed through the banking agent channel during the June quarter, according to the central bank.

Increasing financial capability is shifting people towards the consumer class, which is also evident from a global study that forecasts Bangladesh to be among the top 30 consumer markets by 2030.

Brookings, a Washington-based research organization, has published a blog that predicts Bangladesh will become the world’s 11th largest consumer market by 2030, overtaking the UK and Germany, from its 28th position. current.

Research projects indicate that Bangladesh will be among the fastest growing countries with a very high increase in consumer class in this decade.

Today, 35 million people in Bangladesh spend more than $11 a day. By 2030, the number of people spending this amount every day will be 85 million, according to the research.

Meanwhile, the growing use of cards in villages is prompting banks to install more ATMs in rural areas.

Banks have installed about 1,200 new ATMs in rural areas over the past two and a half years, according to central bank data.

During the same period, the number of debit card users jumped from 1.28 crore to 2.79 crore.

The monthly value of card transactions also increased almost threefold over the same period, reaching Tk 35,400 crore at the end of July.

The rise in sales of electronic products has increased in rural areas, indicating the shift of rural savers to the consumer class.

For example, 60,000 retail stores selling electrical products, such as fans, lights, switches, circuit breakers, cables and generators have sprung up across the country since 2010, according to industry insiders. .

From production to marketing, at least 5,000 jobs have also been created over the past decade. A large part of them come from the villages, they said, adding that luxury is now added to the essential use of electrical products and there is also a massive increase in demand in different industries.

On the other hand, the consumer electronics market grew to Tk 30,000 crore. 100% electrification coupled with tax relief for new investments has been a boost, boosting local electronics manufacturing.

The prices of products, such as mobile phones, refrigerators, air conditioners, refrigerators, washing machines and microwave ovens, have halved over the past decade as demand has increased dramatically due to massive electrification across the country.

At least 14 local and foreign brands have stepped up investment in the industry and created five million direct and indirect jobs.

The size of the domestic cable market has grown from Tk 2,000 crore to Tk 12,000 crore over the past decade thanks to nationwide electrification coupled with massive infrastructure development and booming industries, insiders said Of the industry.