White Elephants in Rural Finance in South Asia

This note explores the problems of state-owned agricultural development banks (SOADBs). It also questions their sustainability and the steps that could be taken towards reforming these banks in developing Asian countries.

The note discusses the case of three unreformed SOADBs in Bangladesh, Nepal, and Pakistan that continue to be major rural credit institutions in their respective nations:

• Agricultural Development Bank of Pakistan;
• The Bangladesh Krishi Bank;
• Agricultural Development Bank of Nepal.

In the backdrop of the successful reform of two banks - BRI -Unit Desa System, and the Bank Pertanian Malaysia, the note raises the following issues:

• Lack of adequate attention from policy makers;
• Operations of SOADBs directed by large amount of subsidies;
• Undermining of market-oriented rural financial development by SOADBs;
• Reasons for difficulties in making necessary policy and institutional changes;
• Steps to reform SOADBs.

Finally, the paper points that:

• The performance of SOADBs has been dismal in financial terms;
• Even by their standards, SOADBs' performance cannot be assessed satisfactory.

The performance results raise a series of interrelated issues:

• Benefits and costs of maintaining SOADBs;
• Benefits and cost of reforms;
• Other options and their benefits and costs;
• Role of donor agencies.