Banking the Unbanked: Tailoring Financial Services for Bangladesh’s Livestock Sector

This post was authored by Paul Newall, Associate Director of Partnerships and Investments at ACDI/VOCA.

Sajeda Begum purchased a bull for $330 after receiving a cattle loan from the Society Development Committee for the first time. After four months of rearing, she sold the bull for $1,180, earning a huge profit. She plans to reinvest the money in purchasing another bull to continue contributing to her household’s income.

Sajeda lives in Faridpur, Bangladesh, where people are continually battling natural disasters, especially river erosion, rain, and floods. The district mostly consists of chaar areas, where people rear cattle as their livelihoods. Every year, many families like Sajeda’s lose their shelters along with their belongings and livelihoods due to extreme weather, drowning them in endless financial troubles. Access to finance is a critical aspect of a functioning market system; however, access is not spread equally among all segments of Bangladesh’s economy. In particular, smallholder farmers and small businesses in poor, rural regions often struggle to access finance because of their inability to comprehend basic financial literacy.

The access to finance gap is due in large part to an information asymmetry that leads to issues in lending. Agricultural businesses often do not have the organized financials necessary for credit assessments, and financial service providers (FSPs) do not understand the sector or the businesses that operate within it. Even within the agricultural sector, sub-sectors are unique and require tailored financial products. 
Bangladesh's livestock is one such sector that requires tailored financial products.  It is characterized by a large number and types of actors compared to other sectors. Its businesses are often geographically disbursed, including in regions that are vulnerable to climate change. Both are challenges for FSPs to overcome when reaching borrowers. 

The Feed the Future Bangladesh Livestock Production in Nutrition Activity has fostered linkages between FSPs and farmers to solve the information asymmetry between borrower and lender and to bridge the access gap for farmers.

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The Activity worked directly with several FSP partners to improve their products and services offered to the livestock sector. These efforts centered around addressing the factors that initially inhibited FSPs from actively lending to livestock businesses, specifically the perceived risk of lending to smallholder farmers. 

The Activity partnered with the Society Development Committee to develop a livestock-specific loan that especially targeted beef fattening farmers. The loan was designed to align with the borrowers’ business models, including flexible payment options, a higher loan ceiling, and risk mitigation features. The product also contained non-financial benefits for borrowers, such as market linkage facilitations and connections with livestock service providers. To date, the product has been a significant success:

• 36,100 loans worth $16,350,464 provided to farmers  
• 1,500 farmers trained in livestock productivity and financial literacy 
• 6,300 farmers successfully paid back cattle rearing loans 
• $452 average ticket size of loans     

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A partnership with the Bangladesh SME Corporation Limited (BSCL) also allowed FSPs to match with micro, small- and medium-sized enterprises using its i-SME platform. Use of this platform resulted in the following:

• $167,440 in financing for 390 dairy enterprises
• 962 bank accounts opened 
• 900 trained in dairy farm management 
• 1,810 trained in financial literacy 
• $429 average ticket size of financing facilitated

Tailored financial products and increased linkages have a beneficial impact on the financial inclusion of borrowers, namely women. In rural Bangladeshi households, it is common for women to secure a loan and for men to decide how to spend it. Through partnerships facilitated by the Activity, FSPs provided women with detailed information about the loan itself. FSPs also helped the women build their financial literacy skills and assess how financing might assist the growth of their businesses. These services were not previously available to women and receiving such services has empowered them to make financial decisions about how to use the loans they receive.

“I initially took out three small-sized loans of BDT 20,000, BDT 30,000, and BDT 50,000 from one of BSCL’s microfinance partners. But I could not efficiently use them to buy bigger cattle or expand my livestock farming. After paying off all of those loans, BSCL helped me to secure a loan from Bank Asia worth BDT 130,000 that I can now use to expand my cattle shed and buy more cattle.” — Parvin Begum, a cattle farmer in Jashore

The tailored approach has produced benefits for both FSPs and rural Bangladeshi households. For FSP lenders, the livestock-specific loan product was a success, and the Society Development Committee has since integrated it as a major product in its loan portfolio. The Society Development Committee also expanded the loan to more geographic areas and borrowers who were not directly linked to the Activity. One of its donors, the Palli Karma-Sahayak Foundation, has introduced the loan through other partner organizations. 

On the borrower side, rural households were able to increase their financial literacy and gain more profit by producing healthier and higher-quality livestock in a shorter period of time, which also led to households applying for larger loans the second time around. FSPs increased households’ access to cattle support services and facilitated market linkages between traders and farmers, resulting in a more stable and profitable market for cattle farmers.