Transfer Of Rural Funds Through Branches Of Commercial Banks : A Note

The major thrust of the present paper is to find relevance in Banglades11 of the thesis developed by ~ ~ r d a l ' with regard to the flow of transfer of funds from less developed areas to the more developed ones. This process is termed by him as "backwash effects." The logic of such fund transfer, as shown by him, lies in the possibility of getting relatively higher return from investing funds in the more developed areas. It may be noted here that the present study is limited to the rural operations of commercial banks in Bangladesh. Comnlercial Banks are szlected for this purpose mainly because the same appears to be relatively more prominent2 in terms of the volume of transactions compared to other agencies operating in the rural financial market of Bangladesh. In Bangladesh, 87 % of her total population live in rural areas. As such, any organised effort to develop Bangladesh should be directed to the villages i.e. rural Bangladesh. Realising this, successive Governments of Bangladesh have been pursuing a consistent policy of bringing more and more rural Bangladesh under bank credit facilities in order to generate and intensify economic activities in the areas hitherto neglected. The result of such policy is apparently found to be enc~uraging as is evident from the growth of rural branches, rural deposits ard rural credit.


A. R. KHAN
The major thrust of the present paper is to find relevance in Banglades11 of the thesis developed by ~~r d a l ' with regard to the flow of transfer of funds from less developed areas to the more developed ones. This process is termed by him as "backwash effects." The logic of such fund transfer, as shown by him, lies in the possibility of getting relatively higher return from investing funds in the more developed areas. It may be noted here that the present study is limited to the rural operations of commercial banks in Bangladesh. Comnlercial Banks are szlected for this purpose mainly because the same appears to be relatively more prominent 2 in terms of the volume of transactions compared to other agencies operating in the rural financial market of Bangladesh.
In Bangladesh, 87 % of her total population live in rural areas. As such, any organised effort to develop Bangladesh should be directed to the villages i.e. rural Bangladesh. Realising this, successive Governments of Bangladesh have been pursuing a consistent policy of bringing more and more rural Bangladesh under bank credit facilities in order to generate and intensify economic activities in the areas hitherto neglected. The result of such policy is apparently found to be enc~uraging as is evident from the growth of rural branches, rural deposits ard rural credit.
The number of rural branches in 1971-723 was only 34; it increased to 3225 in 1983-84 showing more than nine-fold increase since liberation. During the same period, rural deposits and rural credits increased by 26.5 times and 376 times respectively. This is shown in Table I. Government of Bangladesh instructed the rural branches to extend more and more credit in the rural areas in order to achieve a C-D ratio of 75 %.
Taking this C-D ratio, it can be seen in Table I that Tk. 307 million was transferred from the rural areas in 1971-72 through the operations of commercial banks in rural Bangladesh. Such transfer of fund quadrupled to Tk. 1222 million in 1979-80. The situation was reversed in 1953-84 when additional inflow of funds instead of transfer was made to the rural areas to the tune of about Tk. 8000 million. It can also be gleaned from the Table that per branch transfer of funds was gradually declining before the position was reversed. Possible explanation for this trend was rapid exp;i,nsion of branches both in number and in sizes as well as in working experiences besides increasing familiarities of the rural people with the use of bank credit.
However, performance of the rural branches with regard to transfer of funds as indicated above gives an aggregate of their operations and does not show individual performance of different types of rural branches. This paper is, therefore, devoted to an examination of the transfer of rural funds, if a;ny, from a sample of 69 rural branches5 selected at random in order to find out : (i) whether or not and to what extent transfer of rural funds, if any, was made by our sample branches ; (ii) the characteristics of the branches transferring funds ; (iii) the sectors from which and to which transfer of funds takes place ; and (iv) the directions of rural regions where transfer of funds, if any, takes place.

ANALYSIS OF DATA
It was found that 69 branches in the sample mobilized atotaldeposit of Tk. 144.9 million of which Tk. 62.97 million was extended as credit to the rural people. But if we consider the target C-D ratio6 declared by the Bangladesh Bank, loans extended should have been Tk. 108.7 million. In practice, the sample branches seem to have transferred Tk. 45.7 million from the rural areas to the semi-urban and!or urban areas.

i. Transfer by Size 7 of Branches
Of the amount transferred by the sample branches, 66 % was made by large branches and 24% by the medium branches. An average-sized large branch transferred Tk. 1.8 million while it was Tk. 0.5 million in case of a medium branch. Per branch transfer of deposits was the lowest in case of small branches i.e. Tk. 0.1 million only. This is shown in Table 11. iii.

Inter-sectoral Transfer
The transfer of rural funds was more from business followed by agriculture. Of the total transferred amount through our sample branches, 74% was from business as may be seen in Table IV. m. These data are given in Table V. b. Transfer among Regions at Different Levels of Development A further analysis by different regions according to their levels of development is attempted. In the absence of any agreed criteria for determining the levels of development,we categorised rural Bangladesh into three 9 regions : developed, developing and less developed depending on the per acre value added from agriculture by districts.10 It is found that C-D ratio was the lowest in the developing districts (30 %) and the highest in the least developed districts. Of the 58 % of the total fund transfer made by the sample branches, 48 % was from the developed regions and 39 % from the developing regions. However, per branch transfer was slightly higher from the developing regions (Tk.0.9m) compared to the branches in the developing regions (Tk. 0.8m). Per branch transfer from less developed regions was the lowest i.e. 3 m. These can be seen in Table VI.

CONCLUSION
From the above analysis, we may conclude that relatively older and larger branches were important in transferring funds from the sample branches. There was no significant inter-regional transfer of funds in the rural Bangladesh ; on the other hand, the transfer was reIativeIy more from the developing regions and less from the Ieast developed regions. Relatively better credit operation in the developed regions can partly be attributed to the existence of higher demand for credit due to better infrastructural facilities in the region while that in the least developed regions was partly due to administrative pressure from both Government of Bangladesh and the Bangladesh Bank.
While looking into the trends of transfer of rural deposits through commercial banks, one should not also forget that commercial banks are not the only agency transferring rural savings to non-rural areas. Large number of rural Post Offices, Insurance Companies (mostly life) through rural premiums and other Public Limited Companies entitled to accept deposits from the members of public are also acting as agents for transferring rural funds to non-rural areas. Another important point to be borne in mind is that lending operations of commercial banks in rural areas can be different in different regions depending on a number of factors such as level of infrastructural development, availability of inputs, and magnitude of cooperative loan operations. Therefore, it will not be proper to put the entire blame on some 18-of the commercial banks' branches for not lending the total loanable funds in the rural areas.
However, commercial banks, particularly the nationalised ones, as the prime mover in the rural financialmarket should make all-out efforts to minimise transfer of funds from the rural areas. They should, in pursuance of Government commitments, make additional inflow of funds from non-rural areas in order to help faster development of rural areas. Appropriate credit planning based on reliable relevant information for each of the rural branches depending on it size, age and location could do a lot in this regard. For this purpose, proper credit requirement estimates need be made by each of the individual branches for its command area. And such estimates should be comprehensive enough to include specific needs of different asset groups of rural populace indicating detail needs of various types of economic activities.