ADB to Support Small-Scale Agribusinesses in Bangladesh

MANILA, PHILIPPINES (7 November 2005) - ADB aims to help alleviate rural poverty in Bangladesh through a new US$42.5 million loan for an Agribusiness Development Project to stimulate commercial activities in the agriculture sector.

To promote agribusiness investment and expansion, the project will provide a $36 million credit line that will allow about 28,000 small-scale agribusinesses throughout the country's rural areas to access loans ranging from $500 to $5,000 from reputable and experienced nongovernment organizations (NGOs) and wholesale banks.

"The project will help expand current commercial activities in the agriculture sector, from pre-production support to processing and marketing," says Jiangfeng Zhang, an ADB Economist. "This will help generate jobs and economic growth in the rural economy."

Technical and marketing support will be provided to the borrowers to help ensure the successful operation of their agribusinesses. In addition, information dissemination by agribusiness associations on income opportunities and technology will be strengthened through awareness raising activities such as publicity drives, trade fairs, and seminars.

To promote efficient credit implementation and management, the project will strengthen the agribusiness lending of participating NGOs and wholesale banks.

Last, the project will help make entry into agribusiness more attractive for entrepreneurs by improving the business climate through policy, legislative and regulatory changes, as well as reorientation training for staff of public sector agencies.

Small-scale agribusinesses, numbering about 2.6 million, dominate Bangladesh's agribusiness sector, yet they constitute a "missing middle" market that is underserved by the commercial banking system and the country's microfinance NGOs.

"Their financing needs are usually higher than the microcredit provided by nongovernment organizations, but these needs are typically perceived as too small and risky by the commercial banks. By up-scaling NGO lending to small-scale agribusiness enterprises, it is hoped that the commercial banks will, over time, come to see this sector as presenting an opportunity for their own operations," says Mr. Zhang.

Productive agricultural land and a hardworking rural population are among the country's major resources and assets. But with almost all cultivable land in Bangladesh already in use, future rural economic growth can come from expanding activities related to agriculture sector, which will in turn stimulate more commercially oriented farm production.

A $600,000 technical assistance grant accompanies the loan to help the Ministry of Agriculture and Department of Agricultural Marketing establish a focal point within the Government for agribusiness promotion.

ADB's loan, which covers about 70% of the total estimated project cost of $60 million, comes from its concessional Asian Development Fund. It carries a 32-year term, including a grace period of 8 years, and an interest rate of 1% per annum during the grace period and 1.5% per annum after.

The Government will contribute $2 million equivalent, the sub-borrowers $15.3 million, and agribusiness associations and other contracted service providers $200,000.

The Ministry of Agriculture and the Ministry of Finance are the executing agencies for the project, which is due for completion in December 2010.

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