Rural savings pile up on remittance inflow

Bank deposits in rural areas of the country more than doubled in the last five and a half years, which indicates that the financial capacity of rural people is rising fast, contributing to building a strong consumer class. 

Total deposits in areas outside the municipalities and city corporations stood at Tk3.4 lakh crore in June this year, up from Tk1.61 lakh crore at the beginning of 2016, according to the latest data released by the Bangladesh Bank.

The surge in rural savings is mostly backed by remittance earnings as 90% of the inward remittances are distributed among beneficiaries in rural areas, the central bank's statistics show. 

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

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

Agent banking, the other fast-growing alternate banking channel, also experienced huge deposit flows from rural folks.

Of the Tk28,000 crore in total deposits channeled through agent banking till June this year, 78% came from rural areas.

The share of rural deposits in total bank deposits, however, increased slightly to 21.57% from 20% during the period as the rising income of urban people contributed to a growth in deposits by this segment of clients also. 

The growth in rural savings suggests that village people have attained economic solvency, said Md Arfan Ali, former managing director of Bank Asia and the pioneer of agent banking in Bangladesh. 

He said rural deposits are mostly driven by remittances from expatriate Bangladeshis. Moreover, growing economic activities and developed communication systems on the back of massive infrastructural development brought economic solvency to rural people, he added. 

Rural people developed a habit of saving as financial services are now at their doorsteps thanks to the proliferation of agent banking and mobile banking services, he observed, adding that rising rural savings are a good sign for the overall economy as a good portion of these funds will be spent on the consumption of goods and services, leading to a surge in demand. 

Sharing his agent banking experience with The Business Standard, he said loans through the agent banking channel also are on the rise, which reflects the trend of consumption by rural people as they now want to spend more.

Banks also are focusing on SME (small and medium enterprise) loans in rural areas, which are promoting entrepreneurship and thus contributing to making the rural economy vibrant, he added. 

Data on agent banking show that deposits in rural areas grew faster than in urban areas even amid high inflationary pressure across the country. 

Deposits through agent banking in rural areas posted 13.37% growth in April-June this year when compared to the previous quarter, while the growth in urban deposits was 5.62%. 

Even though the overall deposit growth in the banking sector slowed down during post-Covid era as people started to spend more following the lifting of various restrictions on movement and shop opening, rural savings kept rising.  

In the April-June quarter, the overall deposits grew by 3.89% as compared to the previous quarter. During the period, the growth in rural savings was 4.36% and that in urban savings was 3.76%, according to the Bangladesh Bank's data. 

The rural population received 90.71% of the total inward remittances distributed through the agent banking channel in the June quarter, says the central bank. 

The increase in financial capacity is shifting people to the consumer class, which is also evident in a global study that projects that Bangladesh will be among the top 30 consumer markets by 2030.

Brookings, a Washington-based research organisation, published a blog that forecasts that Bangladesh will become the 11th largest consumer market in the world by 2030 surpassing UK and Germany, from its current 28th position. 

The research projects that Bangladesh will be among the top movers with a very large 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 the amount every day will be 85 million, according to the research. 

Meanwhile, the increasing use of cards in villages is prompting banks to install more ATM booths in rural areas. 

Banks installed around 1200 new ATM booths in rural areas in the past two and a half years, central bank data show. 

During the same period, the number of debit card users surged by 1.28 crore to 2.79 crore. 

Monthly card transaction value also increased by nearly three times during the same period, reaching Tk35,400 crore at the end of July. 

Rising sales of electronic products increased in rural areas, which indicates the shift of rural savers to the consumer class. 

For instance, 60,000 retail shops selling electric products, such as fans, lights, switches, circuit breakers, cable, and generators have sprung up across the country since 2010, according to industry insiders. 

From production to marketing, at least 5 lakh jobs have also been created over the last decade. A big portion of them is from villages, they said, adding that luxury now adds to the essential use of electric products and there is also a massive rise in demand in different industries.

On the other hand, the consumer electronics market has grown to Tk30,000 crore. The 100% electrification coupled with a tax break for new investment was a shot in the arm, propelling local manufacturing of electronics products. 

Prices of products, such as mobile phones, refrigerators, air conditioners, fridges, washing machines, and microwave ovens, have halved over the last decade as demand has increased significantly because of massive electrification across the country.

At least 14 local and foreign brands have stepped up with investments in the industry and created five lakh direct and indirect jobs.

The size of the domestic cable market has grown from Tk2,000 crore to Tk12,000 crore over the past one decade thanks to nationwide electrification coupled with massive infrastructural development and burgeoning industries, said industry insiders.