Document of

The World Bank

FOR OFFICIAL USE ONLY X pr v

Report No. 3348c-BD

BANGLADESH

AGRICULTURAL CREDIT PROJECT

STAFF APPRAISAL REPORT

April 17, 1981

Agriculture D DivisionSouth Asia Projects Department

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

The Bangladesh Taka (Tk) is fixed in relation to a basketof reference currencies, with the Pound Sterling serving as inter-vention currency. On February 26, 1981, the exchange rate was setat Tk 37.10 buying and Tk 37.20 selling per Pound Sterling. Dependingon exchange rate movements between Sterling and the US Dollar, theTaka/Dollar cross rate is subject to change. For the past five months,this rate has fluctuated at levels slightly above Tk 16/US$. Through-out this report, the rates shown below have been used:

US$ = Tk 16.0

Tk 1 = US$0.0625

Tk 1 million = US$62,500

WEIGHTS AND MEASURES

1 square mile (sq mi) = 259 hectares1 acre (ac) = 0.405 hectares1 foot (ft) = 30.5 centimeters1 maund (md) = 37.3 kilogramsI ton (ton) = 27.2 maunds1 cubic foot per second (cusec) = 0.0283 cubic meters per second1 imperial gallon = 4.545 liters

ABBREVIATIONS AND ACRONY4S

ADB - Asian Development Bank

BADC - Bangladesh Agricultural Development CorporationBB - Bangladesh Bank

BKB - Bangladesh Krishi Bank

BSBL - Bangladesh Samabaya Bank LtdCB - Commercial Bank(s)

DCCB - District Central Cooperative Bank(s)DTW - Deep Tubewell(s)

GOB - Government of BangladeshHYV - High Yielding VarietiesIRDP - Integrated Rural Development ProgramKSS - Krishi Samabaya Samiti (Village Credit Society)STW - Shallow Tubewell(s)

TCCA - Thana Central Cooperative Association

FISCAL YEAR (FY)

July 1 - June 30

FOR OFFICIAL USE ONLY

GLOSSARY

Description of Rice Crops

B. aus - broadcast aus - mostly broadcast sown in March-Apriland harvested July-August

T. aus - transplanted aus - transplanted in March-April andharvested early July-August

B. aman - broadcast aman - deep water rice - broadcast sownMarch-April and harvested November-December

T. aman - transplanted aman - the main crop - transplantedJuly-September and harvested November-January

Boro - irrigated transplanted crop - transplanted December-January and harvested May-June

This diumnt has a restricted duiWbution at may be used by recipients only in tbe performanceof thi odicial duties Its contents may not oterwise be disckiesd without World Bank authorization.

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BANGLADESH

AGRICULTURAL CREDIT PROJECT

Table of Contents

Page No.

I. THE AGRICULTURAL SECTOR ................................. 1

General .................................. 1............... Potential and Constraints ................... ... 1......... Production Trends .. ..................................... 2

Irrigation ......... ..................................... 2

II. CREDIT INSTITUTIONS ...... ........................ 4Credit Operations ........... ..... . . .. . .. ............................ . 4

Bangladesh Bank ................................... .. 5Bangladesh Krishi Bank ...... ....................... 6Commercial Banks ......... . .. . . .. . . .. . ....................... 7

Cooperative Credit ........................ 9

III. THE PROJECT AREA ........................................ 11General ................................................. 11Climate, Topography, Soils .............................. 11Water Resources and Drainage ............ .. .............. 12Farm Size and Land Tenure ............................ ... 12Land Use and Agricultural Production .................... 13Transport Infrastructure ................................ 14

Inputs .................................................. 14

Electricity Network and Diesel Supply ................... 15Agricultural Credit ...... ............. .................. 15Agricultural Extension and Research ..................... 16Marketing, Storage and Processing .......... .. ........... 16

IV. THE PROJECT ............................................. 17

Project Genesis ......................................... 17Project Summary ..................................... ... 17

Detailed Features ....................................... 18

Environmental Aspects ................................... 22Project Phasing ...................................... ... 23

V. COST ESTIMATES, FINANCING, PROCUREMENT ANDDISBURSEMENTS ...................................... ... 23

Cost Estimate ........ ................................... 23

Financing ............................................... 24Procurement ...... . . ...................... 25

Disbursements ................. . .......................... 26

This report is based on the findings of the appraisal mission consistingof Messrs. G. Stern, and C. Hachero (IDA) and H. Babcock, P. Kotaiah andG. Nelson (Consultants), that visited Bangladesh during October/November1980.

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Table of Contents (continued)

Page No.

VI. PROJECT ORGANIZATION AND IMPLEMENTATION ................. 26Bangladesh Bank Project Department ...................... 26Lending Operations ......................... ............. 27Proposals for Restructuring Cooperative Banking .... ..... 29Proposals for Improving TCCA/KSS CooperativesOperations . ........................................... 30

Lending Terms and Conditions ................ ............. 31Training .......... ...................................... 33The Role of BADC ........................................ 33Project Coordination ...... ...................... ........ 33Tubewell Spacing and Groundwater Monitoring ............. 33Reporting Requirements and Evaluation ................ ... 34Accounts and Audits ...... ............................... 35

VII. PRODUCTION MARKETING, PRICES AND FINANCIAL PROJECTIONS .. 35Production ....................... ....................... 35Marketing and Prices .. .................. ................ 36Financial Projections ...... ......................... ........ . 37

VIII. BENEFITS AND ECONOMIC EVALUATION ........................ 38Benefits . ............................................... 38Economic Evaluation ...... ......................... .... . 38Beneficiaries ........................................... 39Risks ............ ....................................... 40

IX. RECOMMENDATIONS ......................................... 40

Schedule A - Lending Terms and ConditionsSchedule B - Agreed List of Diesel Engine Makes for Sale to Project Borrowers

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Table of Contents (continued)

ANNEX 1 - Credit InstitutionsTable I - Recovery Performance of Credit InstitutionsTable 2 - Bangladesh Krishi Bank Balance Sheets for Fiscal Years

1975/76-1979/80Table 3 - Bangladesh Krishi Bank Profit and Loss Statement--

Fiscal Year 1975/76-1979/80Table 4 - Consolidated Balance Sheet - Sonali, Janata and Agrani BanksTable 5 - Consolidated Profit and Loss Statement Sonali, Janata and

Agrani BanksTable 6 - Operation of IRDP CooperativesTable 7 - Bangladesh Samabaya Bank Ltd., Balance Sheets 1975/76-

1979/80Table 8 - Bangladesh Samabaya Bank Ltd., Profit and Loss Statement

1975/76-1979/80Table 9 - KSS Merit Criteria

ANNEX 2 - NW Region DataTable 1 - Land Utilization - NW RegionTable 2 - Production of Major Crops

ANNEX 3 - Cost TablesTable 1 - Project CostTable 2 - Shallow Tubewell CostTable 3 - Workshops Tools and Equipment Cost

ANNEX 4 - Disbursement Schedule

ANNEX 5 - Bangladesh Bank Project Department - Functions of ProjectImplementation Unit

ANNEX 6 - Guidelines for Loan Accounting for Loan Recovery Reporting Systems

ANNEX 7 - Cropping Patterns, Crop Production, Prices and Financial AnalysisTable 1 - Cropping PatternsTable 2 - Present Average Yields and Future Yields in the Project AreaTable 3 - Present and Future Crop Yields, Area and ProductionTable 4 - Financial and Economic PricesTable 5 - Crop Production Costs Per Acre at Financial PricesTable 6 - Five Acres Farm Model Projected Income and Financial ReturnsTable 7 - Ten Acres Farm Model Projected Income and Financial ReturnsTable 8 - Five Acres Farm Model Projected Income and Financial ReturnsTable 9 - Ten Acres Farm Model Projected Income and Financial ReturnsTable 10 - Financial Rates of Return and Switching Values

ANNEX 8 - Economic AnalysisTable 1 - Prices for Economic Analysis Traded Commodities, 1982-1990

AverageTable 2 - Crop Production Costs at Economic PricesTable 3 - Economic Analysis - Cost and Benefit StreamsTable 4 - Economic Rates of Return and Switching Values

ANNEX 9 - Related Documents and Data Available in the Project Files

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Table of Contents (continued)

LIST OF CHARTS

Chart No. WB 22503 - Project Organization and Credit Flow

Chart No. WB 22504 - Bangladesh Bank Project Department ProposedOrganization Chart

Chart No. WB 22505 - Implementation Schedule

LIST OF MAPS

IBRD 15591R - Tubewell Suitability and Banking System

TU1on Si9R - Land Use

BANGLADESH

AGRICULTURAL CREDIT PROJECT

I. THE AGRICULTURAL SECTOR

General

1.01 Bangladesh, with an area of 55,000 square miles and a population ofabout 92 million, is among the most densely populated countries of the worldand presents a complex development problem. The population is poor (percapita income about US$90), overcrowded (1,550 per sq mile), growing at 2.7%per annum, in many cases unemployed and largely illiterate (about 75%). Apartfrom agriculture, the country has few natural resources and the Government ofBangladesh (GOB) gives priority to agricultural development as the means tobenefit the largest number of people.

1.02 Agriculture dominates the Bangladesh economy, accounting for 57% ofGDP, 75% of all employment and directly or indirectly, over 80% of the country'sexports. Out of 35 H1 ac about 22.5 M ac are under cultivation at a croppingintensity of about 135%. Rice is by far the most important crop and accountsfor over 80% of the cultivated area; jute, the principal export and industrialraw material crop, for 6% and a variety of other crops such as wheat, pulses,oilseeds, sugarcane and vegetables for the balance. The dominance of rice isdue to the flat topography of the country, heavy monsoon rains and river flood-ing, which saturate most soils during the six months rainy season, a conditionwell suited for rice cultivation and tolerated by some jute varieties butunsuitable for most other crops.

Potential and Constraints

1.03 There is high potential for increasing agricultural production inBangladesh because of fertile soils; the climate, which is suitable for yearround cropping; and above all abundant and as yet hardly exploited groundwaterresources. However, there are also serious contraints to agricultural develop-ment such as scarcity of cultivable land, limited potential of part of thecultivated land, climatic hazards, lack of irrigation facilities, and deficienttransportation for moving farm inputs and produce. The major constraint is theheavy pressure of population on land. Most land holdings in Bangladesh aresmall and fragmented--a typical holding being about two acres split into sixplots. This constitutes an obstacle to efficient farm management and makesthe organization of cooperative irrigation systems difficult. An additionalconstraint is the agricultural tenancy arrangements, under which about 30% ofBangladesh farmers operate. Because of the customary rental arrangements, thetenant is normally expected to provide all of the inputs, but receives onlyabout half of the crop and has no right of occupancy. Under such an arrange-ment there is reduced incentive to develop land for irrigation or to adoptimproved farming practices.

1.04 Farmers in Bangladesh are receptive to proven innovations. Theirefforts have been, however, handicapped by inadequate amounts of inputs suchas seeds, fertilizers and pesticides on the one hand and inadequate technicaladvice on the other. GOB is addressing these problems by encouraging the

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private sector to take a much greater part in inputs distribution, expandinginputs storage, expanding seed production; 1/ and by its efforts to improveextension and research services. 2/ As a consequence, in the last two tothree years, the situation has much improved.

Production Trends

1.05 Foodgrain self-sufficiency has been the main government objectivesince preindependence days, and remains the cornerstone of GOB policy today.However, the objective has been elusive. Foodgrain imports, while down fromthe peak 2.8 million tons following the combined disruption of the war ofliberation and bad drought in 1972/73, have still averaged 1.3 M tons over thelast five years. Production has fluctuated with weather conditions but peakshave been rising from 11.3M tons in 1969/70, to 12.6 M tons in 1975/76, to 13.1M tons in 1977/78 and the current crop is estimated to break all records andmay exceed 15 M tons.

1.06 GOB policy of emphasizing use of inputs such as seeds, fertilizers,pesticides and irrigation and of supporting research and extension are begin-ning to pay dividends. Latest high yielding varieties (HYV) of rice and wheatreleased by research stations are finding increasing acceptance by farmers.Progress in promoting improved farming during the last decade has been encour-aging and includes increase of almost 1 million acres under modern irrigationmethods; growth in fertilizer consumption from about 300,000 tons per annumto almost 1 M tons (mainly during the last five years) and spread of rice andwheat HYV from less than 1 M acres to about 3.5 M acres.

1.07 There have also been disappointments that have caused the slower thantargeted increase in production, particularly the relatively modest increasein production from rainfed rice (about 85% of the paddy area and 75% of produc-tion), and the slower than anticipated development of irrigation. GOB in itsSecond Five-Year Plan (1980/81-1984/85) is determined to attain foodgrainself-sufficiency and the target is a production of 18 million tons foodgrainper annum by the end of the plan period. The Bank has assisted GOB in draw-ing up the Medium-Term Foodgrain Production Plan which indicates developmentactivities needed to attain the production target. Accelerated development ofprivately owned irrigation wells, to utilize the abundant groundwater resources,is the most important part of the plan. Because of all pervasive poverty inrural areas, outright purchase of wells and equipment would be possible foronly relatively few farmers and the Bank agrees with GOB that adequate creditwould be necessary for rapid spread of minor irrigation. Provision of suchcredit for accelerating minor irrigation and improvement of credit institutionsfor that purpose would be the main objectives of the project.

Irrigation

1.08 Because of abundant rainfall and fertile soils, it was only in the1950s that food requirements of the rapidly increasing population outstripped

1/ Supported by Credit 410-BD and a second project under appraisal.

2/ Supported by Credit 729-BD.

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supplies and the possibilities of intensifying agricultural production byirrigation were given prominence. At that time the Government realized thatirrigation would allow crop production during the dry season, when most landwas fallow and would help to ensure good yields during droughts in the rainyseason.

1.09 First government efforts to develop irrigation focussed on large-scale gravity schemes. These proved costly and slow maturing and the strategythen swung to relatively cheap and individually small (1-2 cusec) low lift pumpschemes based on surface water resources. Starting from scratch, in the late1950s the program has now extended to some 40,000 pumps irrigating an estimated1.3 million acres and is approaching the limit of available dry season surfacewater resources. Most low lift pumps are owned and maintained by theBangladesh Agricultural Development Corporation (BADC) and rented to farmers.Five IDA projects (Credits 340, 542, 605, 725, and 990) support low lift pumpdevelopment.

1.10 Large-scale groundwater development started in the late 1960s andto date has hardly made any impact on groundwater resources, that must beamong the richest in the world. Most of Bangladesh consists of deep, uncon-solidated alluvium which contains water bearing sands. The resultant aquiferis annually recharged by the heavy rains and by flooding and is virtuallyinexhaustible. In many areas groundwater level reaches the surface during therains and then rejects further recharge and even in the dry weather does notsink more than 10-20 ft below ground level. Such aquifers are ideal forexploitation by hand pumps or shallow tubewells (STW). In some parts of thecountry, groundwater levels are deeper and require more costly deep tubewells(DTW) for irrigation pumping. Apart from the coastal belt where groundwatermay be saline and small areas of nonalluvial rock, irrigation coverage fromgroundwater, of the greater part of the land not already served by surfacesources, should be possible. Intensified cropping, based on groundwaterdevelopment, has been given increasing priority in recent years.

1.11 Until four or five years ago, groundwater development emphasiswas on DTW, typically two cusec units capable of irrigating over 100 acres.Construction requires technically skilled supervision, which was mainlyprovided by BADC. About 11,000 DTW have been installed and the program hasbeen supported by IDA Credit 341-BD, which financed 3,000 of the DTW. Pro-gress of the IDA project was slow and beset by procurement and constructionproblems. Efficient utilization requires formation of sizeable farmers groupswhich is also a slow process. As with low lift pumps, DTW are mostly ownedand maintained by BADC at this time and rented at relatively nominal ratesto farmers groups that operate them. However GOB has recently introduced apolicy to sell both types of facilities to farmers.

1.12 Development of STW started in the mid 1970s and is being supportedby two IDA projects Credit 724 and part of Credit 631. Typically STW are about0.5-0.75 cusec units, easily and quickly installed by local drillers usingsimple equipment. About 20,000 STW have been installed; about half each by BADCand the Bangladesh Krishi Bank (BKB). While STW are privately owned either byindividuals or small farmer groups, procurement and installation has so far

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been centrally organized by the two agencies, which has led to considerabledelays. However, as a result of past STW programs, considerable farmers'demand has been created, numerous STW drilling contractors are available andthere is a network of small workshops and some village mechanics to cater forrepairs, particularly for STW installed by BKB. For the rest, BADC stillprovides spare part and repair services from workshops that also cater forlow lift pump and DTW maintenance. These services as well as procurement andconstruction of STW are proving increasingly burdensome to the Corporation.In the project, equipment supplies and STW repairs would be handled by theprivate sector.

1.13 Development of hand tubewells, each costing only about $100 andcapable of irrigating 1/2 to 1 acre of land, and thus most suitable for verysmall farms, is the most recent groundwater program. About 120,000 have beeninstalled to date and IDA is processing a project for providing a further180,000 to Bangladesh.

II. CREDIT INSTITUTIONS

Credit Operations

2.01 Institutional lending for agriculture is directed and coordinated bythe Bangladesh Bank (BB), the country's central bank (para 2.05) and channeledthrough cooperatives, BKB and the six nationalized commercial banks (CB).Lending, which was only for Tk 150 M per annum at independence, has expandedrapidly, particularly during the last four years when it rose from Tk 1,060 Min 1976/77 to Tk 2,684 M in 1979/80. Important features in development of therural lending program were expansion of the new TCCA 1/ / KSS 2/ cooperativesystem (para 2.20); expansion of BKB; involvement of CB in rural lending in1973 and rapid expansion of their rural branches; and introduction in 1977,of the Tk 100 crore 3/ scheme for crop production credit to be executed byBKB and CB. The annual lending program for each institution is drawn up byBB, which also provides refinance as required. In 1979/80 for instance, BBrefinanced about two thirds of total rural credit disbursements.

2.02 With almost 70,000 village cooperative societies, more than 3,400CB branches and 414 (at September 30, 1980) BKB branches, Bangladesh has anexcellent credit outlet network. Over the last four years, BKB and CB havemore than doubled the number of their branches, many of which are now notcovering costs. While there are plans for opening more branches, GOB and BBare taking stock and considering rationalization by branch mergers. Lendingachievements have been below target each year, particularly of the 100 croreprogram, which raises questions about credit demand and the need for so dense

1/ Thana Central Cooperative Assoc.ation.

2/ Krishi Samabaya Samiti (Village Credit Society).

3/ One crore = 10 million.

a credit network. However, demand for purchased inputs and hence for cropproduction credit remains limited due to lack of irrigation facilities, withoutwhich, heavy investment for inputs is often not profitable. The project wouldincrease the supply of minor irrigation facilities and this would help to buildup demand for credit and thereby improve profitability of the rural bankingsystem. Fast expansion of credit institutions has resulted in a shortage oftrained bank staff. All agencies are strengthening their training facilitiesand the project would also assist to expand training programs (para 4.13).

2.03 There are several aspects of loan recovery performance that requireattention. There is no uniform recovery reporting system and therefore nobasis for accurate comparison of loan recovery performance. BB will introducea suitable system (para 6.09). The older institutions including BKB and tradi-tional cooperatives are burdened with a legacy of old overdues, some dating topreindependence that obscure their recent improved collection efforts and wouldneed special treatment. CB repayment collection record ranges from 37% to 72%of demand 1/ (Annex 1, Table 1). Part of their overdues problem may stem fromadverse climate and poor crops during 1978/79 and part from early lending underthe 100 crore scheme, with inadequate staff and having to rely on local govern-ment personnel for selection of borrowers. CB's staffing position has nowimproved. TCCA/KSS practice a strict lending discipline that disqualifies KSSfrom lending unless recovery is 80% for current lending and 100% for previouslending. Consequently, their recovery record is quite good, over 60% duringthe last two years. While TCCA/KSS borrowers may often be unable to pay verypunctually, overdue loan installments more than three years old are negligible.In general, recovery efforts of recent lending appear to have been reasonablysuccessful and overdues (excluding the older overdues referred to above) arein the nature of delayed repayments rather than potential bad debts. Never-theless, further improvement of collection is necessary and is described inpara 6.09. On the whole, the credit system with strengthening described inChapter VI is suitable for implementing the project. Main agencies aredescribed below.

Bangladesh Bank

2.04 The Bangladesh Bank established in 1972 is the central bank. Itis managed by a GOB appointed governor, assisted by a deputy governor, threeexecutive directors, an economic advisor and an officer on special duty withthe rank of deputy governor. BB has five main departments--Banking Control,Exchange Control, Agricultural Credit, Research and Statistics and therecently established Projects Department that would implement the project.Its capital of Tk 30 M is fully owned by GOB. BB in 1979/80 made a netprofit of Tk 1,010.5 M.

2.05 Apart from performing all central banking functions, BB through itsAgricultural Credit Department draws up the annual credit program, devises newcredit schemes (such as the 100 crore scheme), advises credit institutions on

1/ Repayments of capital and interest fallen due during the year pluscapital and interest repayments due at the beginning of the year.

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rural credit matters, inspects CB, BKB branches and major cooperatives engagedin rural credit operations and channels refinance for rural lending to them.The Agricultural Credit Department also collects statistics on agriculturallending. The Department is performing its functions competently.

2.06 Based on recommendations of consultants employed under IDA assistanceto review agricultural credit practices and to propose improvements and invest-ment opportunities, BB, in November 1979, established the Projects Departmentfor identifying, preparing and implementing long-term credit schemes. Theconsultant had suggested that a unit for long-term credit should be set up inthe Agricultural Credit Department, but BB considered that rapid expansion oflong-term agricultural credit warranted a separate department. The Departmentis headed by the Officer on Special Duty and has nine professional officers.It has been closely associated with preparation of this project and has alsoprepared a shrimp rearing and banana cultivation scheme and is preparingseveral other schemes. Preparation documents of those schemes show that moreexperience in technical and financial evaluation is needed by the Department.Proposals for strengthening the Project Department are described in paras 6.01

through 6.05.

Bangladesh Krishi Bank

2.07 The Bangladesh Krishi Bank, established in 1973 as an autonomousGOB owned bank is the successor of the local division of the AgriculturalDevelopment Bank of Pakistan. It is now the largest single source of institu-tional credit for agriculture, and in 1979/80 accounted for 53% of institutionallending to agriculture. Its lending volume increased eightfold over the lastsix years from Tk 176 M in 1974/75 to Tk 1,415 H1 in 1979/80. During this timeBKB benefitted considerably from its association with the Asian DevelopmentBank (ADB), including technical assistance for a range of managerial and tech-nical subjects which is still continuing. BKB operates through 18 regionaloffices and 414 branches. Further branch expansion is contemplated, butbecause only 204 branches covered their costs in 1979/80, such expansionrequires caution. The Managing Director, who is Chairman of the seven memberGOB appointed Board, is an experienced professional banker and heads a staffof over 5,000. Senior staff all have long experience in agricultural banking.To cater for training new staff employed as a result of the recent fast expan-sion, BKB has been or is in the process of establishing four training centers,including one at Bogra in the project area. BKB has a detailed loan manualfor guidance of its staff and branch managers are authorized to approve STWloans up to Tk 24,000 and other loans up to Tk 5,000. To support its STWlending, BKB has established an engineerrng department which is being furtherstrengthened.

2.08 Total assets increased from Tk 811 M in 1975/76 to Tk 2,960 M in1979/80 while net profits fluctuated between Tk 17 M in 1975/76 and Tk 32.0 Min 1979/80 (Annex 1, Tables 2 and 3). Because borrowing from GOB and BB hadincreased fourfold, from Tk 406 M in 1975/76 to Tk 1,742 M in 1979/80, GOBalmost doubled BKB's paid up capital from Tk 120 M to Tk 220 M. In view offurther proposed expansion, GOB will increase paid up capital by a furtherTk 160 M over four years, so that BKB would have a satisfactory capital basefor future lending. BKB has not fully complied with ADB's request to provide

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an annual allocation equal to 2% of loan disbursement for bad debt reserves,but GOB has converted part of its past loans into a contingency reserve tosuppiieti)'LL BDLl provision for bad and doubLful accounts.

2.09 Loan recovery has improved steadily from 38% in 1975/76 to 57% in1979/80, reflecting better staffing and management, resulting in part fromADB assistance. BKB is making efforts to improve collection further andretirement of some of the oldest debts should be considered. While collectionperformance is not accurately recorded by lending purposes, there are indica-tions that recovery of early STW lending is less than the average recoveryrate, due to initially inadequate appraisal and follow up. Both of thesefeatures have improved considerably in recent years.

2.10 BKB is expected to play a leading role in the project and is wellequipped to do so. Points that will need watching are adequacy of interestspread to allow continued profitable operations; expansion program to ensurethat BKB does not overstrain its resources; and further improvement of loancollection efforts.

Commercial Banks

2.11 General. The six nationalized CB--Sonali Bank, Janata Bank, AgraniBank, Rupali Bank, Pubali Bank and Uttara Bank--were established in December1971, at the time of independence of Bangladesh, from ten banks operating inthe country at that time. Each one has management vested in a GOB appointedseven man board with representation from the Ministry of Finance, Ministry ofCommerce and BB and is staffed by competent bankers. Since they are fullygovernment-owned, they have been able to operate with a small amount of paidin capital and a resulting high debt equity ratio; up to 119:1. To supportfurther large-scale expansion of operations, consideration may need to begiven to increasing CB's equity. The first three are the largest of the CBwith total assets of Tk 39,726.0 M for fiscal year ending 1979/80. Theirbranches represent 68% of all CB branches in the country. Because of theirbigger resource and staffing base, they would be the only CB to participatein the project initially. They have participated in the First and SecondSmall-Scale Industries Projects (Credits 353-BD and 285-BD) and are helpingto implement the recently agreed Third Small-Scale Industries Project (Credit1065-BD). For purposes of planning the 100 crore program, BB appointed eachbank as lead bank to a number of unions 1/ in which they would be responsiblefor developing agricultural lending. To date, agricultural lending by CBremains small, representing 22% of total agricultural lending in Bangladeshand less than 3% of CB total lending.

2.12 Sonali Bank - is the largest CB in Bangladesh with most experiencein agricultural lending, including refinance for TCCA/KSS lending and forJute Associations under the Jute Project (Credit 765-BD); and direct lending,virtually all short term, for the 100 crore program and for a variety of pur-poses. Sonali is also participating in the Shallow Tubewells Project (Credit724-BD) both for refinancing TCCA/KSS loans and for direct lending but, upto November 1980, had processed very few STW loans. Total agricultural lendingin 1979/80 reached Tk 512 M which included Tk 206 M refinancing for TCCA/KSS.

1/ Administrative subdivision.

2.13 Sonali operates through 917 branches (63u rural) and has establisheda rural credit department with a 28 man professional staff at head office,headed by a deputy general manager. Field staff consists of 950 krishi (agri-cultural) clerks--one per union for which Sonali is lead bank--supervised by37 agricultural graduates and 60 farm technologists (diploma holders) and isadequate for present level of business. Sonali has excellent training facil-ities, but agriculture has hardly featured in the training programs to date.

2.14 Sonali's total assets increased from Tk 8,965 M to Tk 17,595 M(Annex 1, Table 4) between 1976/77 and 1978/79, while deposits grew fromTk 4,661 M to Tk 8,388 M over the same period. In 1978/79 total incomewas Tk 611 M and net profits amounted to Tk 96 M (Annex 1, Table 5). Whileprofitable overall, 55% of branches (mostly newly established) showed losses.Sonali has been most successful of the CB in recovering agricultural loanswith 72% collection reported for 1979/80.

2.15 Janata Bank - is the second largest CB and operates through 729branches (September 30, 1980) of which 483 are rural. Agricultural lendingamounted to Tk 205 M during 1979/80 predominantly for loans under the 100crore scheme. Janata does not have an agricultural credit department, butinstead has a rural credit division in its loans department. The divisionis headed by an assistant general manager and has a staff of 11 professionalsat headquarters. Field staff consists of 762 rural credit assistants, onefor each lead bank union, which is adequate for the present level of business.

2.16 Total assets stood at Tk 14,446 M at December 31, 1979 (Annex 1,Table 4) and deposits amounted to Tk 6,628 M. Total income for 1978/79 wasTk 725 M resulting in a net profit of Tk 96 M (Annex 1, Table 5). As withSonali, while overall profit was considerable, 71% of the branches showedlosses. Agricultural loan recovery has been only fair at 53% for 1979/80.Relatively high overdues could be the result of an expanding loan portfolioor the after effects of the 1978/79 drought. Janata is making efforts toimprove recoveries.

2.17 Agrani Bank - is the third largest CB and operates through 694branches (September 30, 1980) of which 459 were rural. Like Janata, its agri-cultural credit division forms part of its loans department. Headed by anassistant general manager with an 11 man professional staff at headquarters,agricultural credit field staff consists of 15 rural credit officers whosupervise 350 rural credit assistants. Total agricultural lending was onlyTk 87 M1 for the same purposes as Janata. Present staff would be adequate tosustain a higher agricultural lending level. Agrani also has staff trainingfacilities that, as with the other two banks have concentrated mainly ongeneral banking training.

2.18 In 1978/79, total assets stood at Tk 7,685 M (Annex 1, Table 4) andare rather lower per branch than Sonali and Janata. Income totalled Tk 353 M,of which net profit was Tk 46 M (Annex 1, Table 5). Recovery of agriculturalloans has not been satisfactory and has deteriorated each year to 37% in1979/80. Therefore, as a condition of participating in project lending, Agraniwould implement a loan recovery program, satisfactory to BB and the Association.

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Cooperative Credit

2.19 General. At present, two cooperati.re systems operate i- Bar½lpdesh,both involved in agricultural credit operations--the traditional system consist-ing of the Bangladesh Samabaya Bank Ltd (BSBL) as apex financing 16 LandMortgage Banks, 12 Central Sugarcane Growers Societies and 62 District CentralCooperative Banks (DCCB), to which about 30,000 village and union multipurposesocieties are affiliated. The TCCA/KSS (para 2.20) is of more recent originand was, until 1973, refinanced by BSBL and since then, because of BSBL'sresource constraint, by Sonali Bank. GOB guarantees 30% of loans by Sonali toTCCA. The two systems have existed in parallel, to some extent to each othersdetriment. Recently GOB decided that the two systems should merge and thatall primary societies should become KSS and affiliate with TCCA and that BSBLshould become the apex bank of the unified system. Implications are discussedin para 6.10. The two cooperative systems are briefly described below.

2.20 TCCA/KSS. The TCCA/KSS system is based on a model developed by theBangladesh Academy for Rural Development at Comilla. lMain objectives are toform a KSS of 40-60 farmers in every village and to federate KSS at the thanalevel into a TCCA. KSS should collect thrift deposits, introduce group manage-ment of irrigation equipment and provide regular training, institutional creditand at a later stage possibly inputs and marketing services. Adopted afterindependence as national program, the system spread rapidly and now covers 267thanas and comprises almost 40,000 KSS with 1.3 M members. Capital formation(savings and shares) stands at Tk 92 M. Lending, almost entirely short term,also expanded rapidly from Tk 45 M in 1975/76 to Tk 205 M in 1979/80, (Annex1, Table 6) despite much higher short-term loan interest rate--17.5%--thanthat charged by other institutions--up to 12%. However, as explained below(para 2.22), TCCA/KSS development would have been even greater if interestrates had been more in line with those of other banks and if lending criteriaand procedures had been less restrictive. As already indicated (para 2.03),loan recovery has been quite good, to date. Capital and savings more thancover overdues, and were not less than 50% of annual borrowing compared toother institutions that range from 9:1 for BKB to over 100:1 for some CB.Lack of irrigation equipment has been a major constraint to credit businessexpansion, so that the project would help development of TCCA/KSS cooperativesgreatly. The cooperatives are participating in the Shallow Tubewell Project(Credit 724-BD) and since 1979/80 have started financing medium and long-termcredit. Early indications are that KSS groups tend to achieve better STWutilization than other owners.

2.21 To support TCCA/KSS Cooperatives, GOB established the IntegratedRural Development Program (IRDP) with headquarters at Dacca and districtoffices. GOB through IRDP supports TCCA financially at a rate of Tk 850-1,000per constituent KSS, which helps to pay training costs and the cost of two orthree senior staff per TCCA. Recent surveys indicate that TCCA should becomefinancially self-sufficient about six years after formation. IRDP has intro-duced a grading system--Classes A to E--for KSS, based on membership coverageof the village, and savings and share capital contribution, borrowing andrepayment performance and training attendance of members, which is illustratedon Table 9 of Annex 1. Only A and B class cooperatives with 80% and 60% grad-ing in most categories, including loan recovery, would participate in the

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project. One weakness at present is delay in auditing accounts by the Coopera-tives Department which would need to be improved (para 6.26). However, on thewhole, TCCA/KSS has proved itself a reliable credit channel. In fact, becauseof demonstrated ability to reach the large number of smallholders, and initiatefarmers group formation, which would be necessary for STW development in viewof small farm size and fragmentation of holdings, TCCA/KSS cooperatives areexpected to play a major role in the project.

2.22 GOB and IDA have recently conducted a joint review of TCCA/KSS coop-eratives, which has identified major constraints to the development of thesecooperatives. While increase in KSS membership and lending has been reasonable,the higher interest rate to final borrowers than that charged by other banks(para 2.20) has slowed down the pace and had adverse effects on operations bystopping many farmers from joining and many members from borrowing. GOB hasrecognized the need for reasonably uniform interest rates for similar loans

granted by different institutions, and is considering necessary steps fornarrowing the gap in short-term credit interest rates between TCCA/KSS coop-eratives and other credit institutions. Restrictions to KSS and farmers'eligibility for borrowing, represent another constraint to operation of thecooperatives. Restrictions are caused by GOB credit ceilings, central planningof the seasonal lending program, limited range of farming activities whichqualify for loans, and rules that prevent TCCA/KSS from employing their ownresources for lending to members. Procedures for preparing seasonal lendingprograms are cumbersome and often cause late sanctioning of loans. As aresult, members usually receive much smaller loans than they apply for, fre-quently late; consequently, many members have stopped borrowing. In view ofthe importance of TCCA/KSS cooperatives to the project, the major constraintsto their rapid and sound development described above, require to be addressedas soon as possible. Proposals for measures for effecting change in loaneligibility criteria are discussed in para 6.13.

2.23 Traditional Cooperatives - date back to 1904. BSBL, the apex isthe successor of the East Pakistan Provincial Agricultural Bank established in1948. BSBL does not have branch offices and has not been able to supervise orguide constituent societies. Of the intermediate cooperatives, Land MortgageBanks have offices only at district headquarters and their level of businesshas remained quite small; mainly for land purchases and some land improvement.DCCB have senior staff seconded from the Cooperatives Department and overallstaffing is inadequate in most cases for supervising and guiding affiliatedprimary societies. Many of the latter are moribund due to heavy and chronicoverdues. They would not participate in the project unless they can be reor-ganized in future and qualify as A or B class KSS, affiliated to TCCA.

2.24 Because of lack of resources of constituent societies, performanceof BSBL reflects that of the whole traditional cooperative system. Total lend-ing volume increased from Tk 100 M in 1975/76 to Tk 270 M in 1979/80, but loanrecovery performance at 32% of demand at June 30, 1980 remains unsatisfactory.While recovery on current loans has averaged about 60% over the same periodthe size of overdues in relation to outstanding debts and owned capital causesconcern. Overdues at June 30, 1980 amounted to Tk 298 M and included aboutTk 147 M from loans granted between 1960/61 and 1974/75. Total overdues amountto 53% of outstanding loans and chronic overdues are far higher than ownedcapital of Tk 78 M consisting of paid in capital and reserves (Annex 1, Table

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7). Financial rehabilitation would be needed and reorganization and strength-ening of staff before BSBL would be a suitable apex bank for a unified coop-erative system or suitable for participating in the project. Proposals tothis effect are outlined in para 6.12. Until BSBL is so qualified, SonaliBank would continue to be the refinancing agency for TCCA/KSS for project andother lending transactions.

III. THE PROJECT AREA

General

3.01 The project would cover the Rajshahi Division in northwest Bangladesh,comprising Rajshahi, Dinajpur, Rangpur, Bogra and Pabna Districts (Map no. IBRD15591), divided into 14 subdivisions and 111 thanas. The total area is 13,370square miles with a population estimated at about 21.6 M, over 90% of which isrural. There are only eight towns with population over 50,000 which are admin-istrative, educational, communication and trade centers and house most of the,as yet, relatively small industrial development of the Division. To alloweffective development of necessary institutions, the project area would notbe too large and would be confined to a reasonably compact area. The RajshahiDivision has been chosen because of its known groundwater resources, high cropproduction potential and relatively well developed agricultural servicesdescribed below.

Climate, Topography, Soils

3.02 Rainfall is high and averages between 60 and 90 inches per year invarious parts of the area. Over 90% usually occurs as monsoon rains betweenMay and October and precipitation is inadequate in remaining months for highcrop yields. Monsoon rains are preceded by "Norwester" showers during March-April which are important for sowing jute and broadcast rice crops. They tendto be erratic and for that reason yield of the early sown rainfed crops arepoor. On average about twice in a decade rainfall is much below averagecausing considerable yield drop of rainfed crops.

3.03 November to February are the coolest months with mean minimum inthe low to mid 50 F and mean maximums in the upper 70 F range.0 April to Julyare the hottest months with maximum temperatures in the mid 90 F range whichdrop to the upper 80 F range during the monsoons. Hot season and monsoonseason temperatures are suitable for tropical crops while cooler winter weatherallows production of wheat, potatoes and a variety of temperate zone vegetables.

3.04 The land slopes gently to the southeast with elevations touching 300ft in the northwest going down to 25 ft above mean sea level in the southeast.Topography is almost flat and consists of wide shallow basins and ridges.Soils are all alluvial and vary from sandy ridge soils grading through loamsand silts to heavy clays. Free draining sandy and loam soils are most commonin Dinajpur and Rangpur Districts. The Barind tract, situated in Western Bograand Rajshahi Districts, consists of heavy clay soils that set hard during thedry weather and., without irrigation, are difficult to cultivate at that time.In most other parts silt and clay soils predominate with more permeable loamsconfined to narrow ridges. There are no major soil fertility problems andcrops respond well to standard fertilizer applications.

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Water Resources and Drainage

3.05 The project area is bounded in the south by River Ganges and in theeast by the Brahmaputra (Jamuna). The Tista River crosses the northeast cornerof the region and a number of small rivers cross the region in a north-south orsouth-east direction. In the rainy season, partly due to river flooding andpartly to locally impeded drainage, much of the land is flooded but only about15% deeply (more than three feet). In the dry season, however, surface irriga-tion potential is small and already largely utilized by traditional irrigationdevices and about 4,500 low lift pumps operating in the area. There may be roomfor only another 1,000 such pumps. Total surface irrigation is estimated atabout 650,000 acres and large-scale increase would only be possible if suppliesare augmented by major river regulation or other construction works, some ofwhich are under consideration.

3.06 By contrast, groundwater resources are rich and sufficient for irri-gating the greater part of the cultivated area. Depth to water is within 10to 20 ft below the land surface in much of the region even at the end of thedry season, making it suitable for STW development. However, in the westernparts of Bogra and Rajshahi Districts, in the older alluvium, depth to wateris greater or storage capacity of the shallow aquifer is relatively low andtherefore the area is more suitable for DTW development (Map IBRD 15591).Water quality is excellent throughout the area.

3.07 By June 1979 a total of about 10,500 STW and 4,200 DTW had beeninstalled in the project area. Estimates based on a computer model projectedthat about 60,000 additional STW and 15,000 DTW could be fielded. However,the assumptions used were very conservative and based on conjunctive use ofDTW and STW, and an irrigated area of 15-20 acres per STW and 80 acres perDTW. The assumed areas per well are high. Substituting 10 acres per STW,which is more in line with present utilization and which gives satisfactoryfinancial returns (para 7.06), would increase the potential to over 100,000STW. The computer model is being updated and will be based on maximizingSTW development, which should raise the potential numbers of STW that canbe fielded considerably. Ongoing IDA and ADB projects and GOWB commitmentsprovide for about 33,500 STW and 1,850 DTW for the project area, so that thereis still a long way to go before the full potential for groundwater developmentcan be attained.

Farm Size and Tenure

3.08 There are no regional data for farm size or farm size distributionsince the 1960 agricultural census. At that time average farm size in theproject area was 4.5 acres (compared to the 3.5 national average), rangingfrom 3.8 acres in Bogra to 5.5 acres in Dinajpur. About two thirds of theland was in holdings of more than 5 acres and was farmed by one third of theland holders. About half the farms were owner operated and most of the restwere operated by owners that rented in land, mostly on a sharecropping basis.Pure tenants comprised less than 10% of farm operators. As in the rest ofthe country, farms were severely fragmented, which makes farm management,particularly irrigation, difficult but provides some safeguards againsttotal crop failure.

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3.09 The main change since that time is the increase in numbers of hold-ings, estimated by a national sample land occupancy survey in 1977 to be about30%. Accordingly average farm size in the project area would now be about 3.5acres. A sample of villages in Dinajpur indicates increase in holdings of lessthan one acre from about 15% to 30% of holdings and a decrease in holdings overfive acres from 30X of total to 20%. A pilot agricultural census survey of athana in Dinajpur showed the average farm consisting of six fragments withfragmentation ranging from 12 to about 4 depending on holding size. Tenurearrangements seem to have changed little over the last 20 years. Because ofsomewhat smaller than national average population density and slightly largerfarms, provision of services to farmers would be easier and potentially creditworthy borrowers more plentiful than in many other parts of Bangladesh.

Land Use and Agricultural Production

3.10 Out of the total area of about 8.5 M ac about 6.8 M ac are cultiv-atable and net cropped area and current fallow account for about 6.6 M ac(Annex 2, Table 1). Multiple cropping is common and total or gross croppedarea is about 9.6 M ac, giving a cropping intensity of 145% of net croppedarea and current fallow or about 140% of cultivatable land.

3.11 Rice is by far the most important crop and is grown on about 7 Mac (73% of total cropped area), followed by jute on about 0.6 M ac (Annex 2,Table 2). Other important food crops are pulses and oilseeds and in recentyears wheat production has spread rapidly and 0.65 M acs were reportedly grownduring 1978/79 mostly on residual moisture during the cool weather. About halfthe sugar cane and tobacco area of Bangladesh is in the region which producesa little over half of Bangladesh's sugar and tobacco. In addition, a widevariety of vegetables is grown on the lighter soils.

3.12 There are three major land use systems determined by soil typeand flood levels during the monsoons (Map IBRD 15590). In the deep floodedsouthern portion, deep water rice (broadcast aman) 1/ is the dominant crop,mixed with early season rice (aus) 1/ and followed during the dry weather bypulses and oilseeds grown on residual moisture. To date, there is no rotationproven on a large scale, that yields reasonable returns on investments forirrigation in these areas. For instance, introduction of an irrigated boro 1/crop in the dry season (normally the most profitable option when irrigationbecomes available) has not proved profitable because it replaces all othercrops, since its harvest is too late to allow sowing of deep water rice.Higher boro yield does not compensate for higher production costs. Farmersand GOB research services are exploring alternative rotations to improvereturns to dry weather irrigation in deeply flooded ares, which comprise0.7 M ac or about 11% of the cultivated land in Rajshahi Division. Large-scale minor irrigation development in these areas may therefore be possiblein future, but is unlikely during the project period, unless flooding in anylocality is controlled by drainage works, which would convert the land usesystem into one of the shallow flooded categories, which are described below.

1/ The various rice crops grown in Bangladesh--b. aus, t. aus, b. aman,t. aman and boro are explained in the glossary.

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3.13. On the heavy Barind clays on which flooding is shallow, only one mainseason rice crop--transplanted aman (t. aman) 1/ is commonly grown under rain-fed conditions and irrigation would add a second paddy crop--boro--during thedry weather. In the rest of the project area flooding is shallow or absent,soils are lighter and a large variety of crops are grown, including most ofthe jute, wheat, tobacco and vegetables of the region. Rice crops are moreadversely affected by drought conditions and irrigation would help improvemain season crops in drought years. The main effect of irrigation would becropping intensification during the dry season by increasing wheat area andyield, encouraging cash crop production, allowing boro cultivation and conver-sion of low yielding broadcast aus to HYV transplanted aus (t. aus). 1/

3.14. Rice production in the five districts has fluctuated over the lastfive years between 3.2 and 3.5 M tons per annum increasing very gradually.By contrast, wheat production has grown eightfold over the same period, from50,000 to over 400,000 tons. Main increases in rice production had beenexpected from increased fertilizer use in all seasons, spread of HYV t. amanand the impact of irrigation, particularly on aus and boro production. Spreadof irrigation works is too recent for impact except over the last two years,1979/80 and 1980/81. In 1979/80 effect of improvements was masked by extremedrought but production would have been substantially lower without irrigationdevelopments of the preceding two or three years. The current harvest, whichis forecast to be an alltime record high, was helped by favorable weather, butmay be a sign of the impact of improved technology.

Transport Infrastructure

3.15. The region is furthest from ports and access is difficult due tothe two major rivers--Ganges and Brahmaputra that divide it from other partsof the country. A 500 mile paved highway and a 600 mile railways system linkmain towns. These systems are adequate for agricultural inputs supply andcrops transport, provided enough lead time is given for movement of goods.Internal communications are poor and villages are connected by dirt roadspassable only on foot or by bullock carts during the main rain. Bullock cartstherefore remain the main mode of transport for inputs or produce. Whileimproved communications would be desirable, existing infrastructure wouldbe adequate for the proposed project.

Inputs

3.16 BADC is responsible for import or local procurement of fertilizersand for distribution and storage down to thana level. Its storage system isbeing strengthened by assistance from USAID. IDA has also supported improve-ment of fertilizer supplies through four credits, two for fertilizer manufac-turing 2/ and two for fertilizer imports. 3/ Retailing is done by private

1/ The various rice crops grown in Bangladesh--b. aus, t. aus, b. aman,t. aman and boro are explained in the glossary.

2/ Credits 527-BD and 1023-BD.

3/ Credits 944-BD and 1044-BD.

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dealers. Arrangements are satisfactory and fertilizer use has almost trebledover the five-year period 1974/75 to 1978/79 from about 70,000 tons to almost200,000 tons and continues to expand. Pesticides, formerly imported anddistributed by the Department of Agriculture, are now handled by the privatesector. Distributor change coincided with removal of the subsidy and resul-tant steep price rise has temporarily reduced demand. A satisfactory dealersnetwork has been established and improved packaging has also started. Produc-tion, import and distribution of most seeds is BADC responsibility and has notbeen altogether satisfactory to date. Improvements are supported by an ongoingIDA supported Credit 410-BD and are to receive further support from a follow-up project being processed at present. Supply of paddy seed has not proved aproblem, but wheat and potato seed have been scarce at times and the proposedseed project would address these problems. Overall supply and distributionarrangements for major inputs are adequate for the project.

Electricity Network and Diesel Supply

3.17 The rural electricity network has not been sufficiently developedin the project area to provide power for a significant number of irrigationpumps. Considerable rural electrification work is in progress, notably theUSAID supported rural electrification scheme, and IDA is also planning a projectto support rural electrification. As a result, during the later stages of theproject, installation of electrical pumps may become possible in small partsof the project area. However, the main source of power for pumps during theproject period would continue to be diesel engines. Importing, bulk distribu-tion and storage arrangements of diesel and lubricating oil by the BangladeshPetroleum Corporation and three nationalized oil marketing companies areadequate for the project. BADC and oil marketing companies agents and subagentsretail diesel in the project area. BADC initially sold fuel only to farmersusing BADC or BADC installed pumps, but latterly has agreed to sell to otherfarmers as well. With about 1.5 million gallons bulk storage at 48 thana ordistrict centers, stocks of drums at most other thana headquarters and withplans for considerable expansion of bulk storage, BADC aims to cater for atleast 50% of rural diesel fuel demand. Oil company agents are in major urbancenters, but there are subagents, selling kerosene in every village, whoreceive supplies in drums by bullock cart. They already handle diesel fuelduring the irrigation season and are expected to do so increasingly as demandexpands. The supply network is therefore adequate and farmers have rarelyexperienced diesel shortages in the past. However, they have complained aboutpoor quality of fuel at times, particularly that purchased from oil companyagents and subagents and fuel quality would need to be monitored during theproject.

Agricultural Credit

3.18 There are 756 CB branches (546 rural), 93 BKB branches and almost11,000 KSS affiliated to 76 TCCA in the project area (Map IBRD 15591). Ofthese about 550 CB branches which belong to Sonali; Janata and Agrani Banks;all BKB branches and about 4,000 A and B class KSS would be available forproject lending and comprise a very adequate credit outlet network. With theexception of BKB, which has financed over 5,000 STW in the area, other creditinstitutions have so far dealt predominantly with short-term credit. In

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1979/80 for instance all but about 2% of about Tk 210 million disbursed byCB and KSS in the region was for short-term crop production credit. However,loans for about 1,500 STW had been processed during the year by KSS as partof implementation of two IDA supported projects, Rural Development Project I(Credit 631-BD) and Shallow Tubewells Project (Credit 724-BD). The capacityof credit institutions to process STW loan applications needs to be expanded,but the considerable experience with short-term credit will facilitate provi-sion of adequate crop production credit to support investments in irrigationequipment.

Agricultural Extension and Research

3.19 Agricultural research is coordinated by the Bangladesh AgriculturalResearch Council and conducted by a number of GOB or semiautonomous institutesincluding the Bangladesh Rice Research Institute, Jute Research Institute andBangladesh Agricultural Research Institute. The latter works on most crops notdealt with by specialist Institutes and has substations in the project area.Rice research supported by the International Rice Research Institute has beenmost successful to date and the IDA supported Agricultural Research Project(Credit 828-BD) is helping to strengthen staff, equipment and other facilitiesof the Bangladesh Agricultural Research Institute.

3.20 Two IDA supported projects--Extension and Research Project (Credit729-BD) and the Jute Project (Credit 765-BD)--are helping GOB to improveextension and field research in the project area. Both projects are using"Training and Visit" extension concepts. Impact of the Jute project has beenquite promising to date and the general extension services have also made someprogress, but their advice has so far reached the field level only in someparts of the project area. Efforts are continuing to improve performanceelsewhere as well. The two projects will help ensure that the RajshahiDivision will have well staffed and well-equipped extension services.

Marketing, Storage, and Processing

3.21 Marketing, storage and processing facilities for main cash crops--jute, sugarcane and tobacco are reasonably satisfactory and the Jute Project(para 3.20) is exploring ways of further improving Jute storage and marketingarrangements. While the bulk of rice is used for subsistence an average ofabout 200,000 tons foodgrain per year (mainly rice) is procured by the GOBFood Ministry in the Rajshahi Division. For that purpose and for storage tomeet foodgrain deficits in part of the area, the GOB Ministry of Food maintainsabout 245,000 tons foodgrain storage capacity in the project area. The IDAassisted Second Foodgrain Storage Project (Credit 787-BD) is adding 90,000tons storage there and a third storage project, to be prepared in 1981 wouldexplore additional storage requirements. Grain procurement arrangements donot work smoothly in all areas, particularly during good crop years andgreater participation by the private grain trade in procurement would help tostabilize prices. In fact, GOB expects that the greater the demand for grainsfrom private traders, the less harvest time prices would have to fall to equatemarketed supply and effective demand. Inadequate storage has been identifiedas a major constraint to private sector participation in grain trading and GOBhas recently instructed CB to provide credit to grain traders for storageconstruction. The project would support the GOB program (para 4.11).

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IV. THE PROJECT

Project Genesis

4.01 The Government of Bangladesh has for some time been exploring thepossibility of Bank Group support for agricultural development through credit.In the early post independence years the Bangladesh agricultural credit sectorwas weak and in 1977, assisted by the First IDA Technical Assistance Project(Credit 409-BD) GOB employed consultants (Messrs. Robert Nathan and Associates,Inc.) to review the agricultural credit system, suggest improvements and iden-tify investment opportunities through agricultural credit. The consultantspublished their final report in August 1979. Based on their report, theFAO/World Bank Cooperative Program identified a project in January 1980 andfollowed up in May 1980 to prepare the project. The project is based on theAugust 1980 Report of the FAO/World Bank Cooperative Program and on thefindings of an October/November 1980 appraisal mission.

Project Summary

4.02 This would be the first IDA assisted agricultural credit project inBangladesh. Its main objectives would be (a) to establish a replicable systemfor delivery of long-term agricultural credit, and (b) to increase agriculturalprcduction,rural incomes and employment opportunities. The project periodwould be four years and the project would cover the five districts of theRajshahi Division of northwest Bangladesh. As indicated in para 3.01, thecompact project area would allow concentration of efforts to develop a long-term lending system that could then be spread to other parts of Bangladesh.The Bangladesh Bank and participating credit institutions (particularly CBthat have done virtually no term lending to date) would concentrate effortsin a confined geographical area or on a relatively small part of their branchnetwork, to build up long-term lending capacity. Similarly, the compactproject area would allow more effective organization, initially, of equipmentsupplies, workshops and drilling contractors, compared to dilution of suchefforts over a wider area. However, extension of the project to other areasof high development potential could be considered jointly by GOB and IDA,later during the course of the project. Main emphasis of the project wouldbe on provision of credit to farmers or farmers' groups for installation ofSTW. There would also be a pilot component to help develop diversifiedlending including grain storage. In addition, to improve tubewells repairand maintenance, there would be credit for equipping workshops and villagemechanics. Finally, to strengthen participating credit institutions, therewould be funds for technical assistance and for local and overseas training.The following is a list of project components:

(a) Credit

(i) to farmers' groups and farmers for constructing andequipping STW;

(ii) to workshop owners for equipping tubewells maintenanceand repairs workshops;

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(iii) to village mechanics for purchasing toolkits and bicycles;

(iv) for construction of grain storage; and

(v) for pioneering new lines of credit for such investmentsas water distribution channels and for various itemsof farm equipment.

(b) Funds for Participating Credit Institutions

(i) for a technical assistance program of about 56 man-months consultants time; and

(ii) for local training programs and about 70 man-monthstraining abroad.

While it is difficult to forecast the exact quantity of each component thatbeneficiaries would borrow for, financing of 27,000 STW; 50 sets of workshopequipment and 500 toolkits for village mechanics has been assumed for thepurpose of estimating project cost.

Detailed Features

4.03 General. The project, by supporting long-term credit to agriculture,would be a continuation and acceleration of IDA assistance for developing theminor irrigation potential of Bangladesh (paras 1.09-1.13). It would fit inwell with the Manually Operated Tubewells Project, which has also been recentlyappraised and which has been specifically designed to benefit very small far-mers who own less than 1 acre of land and who might not have opportunity toparticipate in an STW program in the project area. There is great scope forrapid increase in agricultural production by providing credit to farmers forinstalling irrigation facilities. The project area is particularly suitablefor this type of development, with its high production potential; well-developed banking network; proven groundwater resources; improvement, partlythrough IDA support, of supporting services such as extension and research;and existence of farmers' demand and construction and maintenance facilitiesfor tubewells created by earlier development schemes. However, there are twopreconditions of success for developing minor irrigation through agriculturalcredit. The first is to adapt the credit delivery system to long-term lendingand steps to develop such system are described in paras 6.01 through 6.09.The second is an adequate supply of equipment in rural areas available toborrowers and cash customers on demand. Measures to gear up such supply arediscussed below.

4.04 Equipment Supplies. In the past, supplies of irrigation equipmenthave been unsatisfactory. Centralized procurement through BADC or BKB has notplaced enough equipment into rural areas or provided it at the right time. Asa result, there is no equipment for sale in shops in the project area. GOBand IDA agree that the solution to the equipment supplies problem would be tolet the private sector import or manufacture equipment and distribute it. Thefirst step towards such an arrangement was taken with the Shallow TubewellsProject (Credit 724-BD). Procurement based on "farmers' choice", from a number

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of makes tested and found to be satisfactory in Bangladesh was introduced andhelped to speed up the project, which earlier was seriously delayed due toproblems in procurement by BADC. Further measures towards private sectorsupplying minor irrigation equipment were taken in the Low Lift Pump Project(Credit 990-BD), which includes procurement of pumpsets (essentially the sametype as those used for STW) in two stages. The first batch of 1,500 are to beprocured by BADC, based on the farmers' choice system, but the second batchof 4,000 sets are to be imported by selected private sector dealers of enginemakes identified by the farmers' choice system, for direct sale to farmersparticipating in the project. Involvement of the private sector in supplyof irrigation equipment was further emphasized by the Ninth Imports ProgramCredit (Credit 1071-BD), which includes funds for import and direct sale toany farmers of STW equipment, by dealers of makes previously qualified underCredits 724-BD and 990-BD. Based on measures evolved in the above threeprojects, STW equipment for the project described in this report would besupplied by the private sector and stocked in the project area, so thatfarmers would be able to purchase equipment of their own choice.

4.05 Up to now, the private sector has mainly supplied equipment on thebasis of orders and, has not had to risk investments in sizeable equipmentstocks to be sold in the open market. All firms concerned assured the appraisalmission that they would welcome open market competition to develop the poten-tially lucrative STW equipment trade in Bangladesh. However, participatingfirms would need encouragement, particularly in the early stages, to build upadequate equipment supplies. Three prerequisites for encouraging adequateimports by private firms would be: adequate open import licenses for STWequipment and spares; foreign exchange; credit for holding stocks; and asatisfactory profit margin. GOB undertook to provide these facilities andconditions to participating firms under the Ninth Import Credit and wouldcontinue to do so for this credit.

4.06 Importing firms would apply to the Chief Controller of Imports andExports for necessary imports licenses and inform BB of foreign exchange andcredit requirements. BB would immediately recommend all qualified applicationsand arrange adequate foreign exchange and credit through the applicants' CB.To reduce interest cost to importers, standard margin requirement at the timeof opening letters of credit for STW imports would be maintained at 20%compared to 25% for most other purposes, as agreed by BB for the Ninth ImportCredit. In addition, since BADC is likely to remain a major STW equipmentsales agency for some time, the safeguards against subsidized sales by BADCthat could undercut private sector competitiveness, and which were agreedfor the Ninth Import Credit, would also be maintained for this project. Thesafeguards required BADC to include import duty (currently 15% of c.i.f.value) plus a 14% margin based on c.i.f. or local ex-factory equipment cost,to cover handling costs and profit margin. The latter two measures shouldensure a reasonable profit margin for private suppliers of STW equipment.To replenish equipment from time to time as needed, import licenses would berenewed, based on recorded sales in the project area. To ensure satisfactoryservices to farmers, assurances were obtained that open import licenseswould only be provided to firms with an adequate distribution network in theproject area with spares, repairs and STW construction facilities satisfactoryto the Bangladesh Bank.

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4.07 There are already eight engine brands identified by farmers' choiceprocedures under Credits 724-BD and 990-BD or established under other schemes,mainly BKB lending, which have been tested and have proved to be satisfactoryfor Bangladesh conditions. The equipment ranges from more costly modern, tocheaper equipment for which design may be outdated in developed countries,but which has proved its value in developing countries. Competition betweenrepresentatives of different makes for attracting "farmers' choice" ordersthrough the public sector has been intense and is expected to continue whenfirms will have to sell equipment stocked at their own risk. In addition,most of the makers of engine brands in common use, have made arrangements forlocal manufacture or are discussing plans with GOB for doing so. Because oflimited market size, introduction of additional brands would discourage exist-ing agencies from making the necessary investments needed for an adequateequipment supply for the project and would make provision of spares and main-tenance facilities difficult. The appraisal mission therefore agrees withGOB that only engine brands established by farmers' choice procedure or other-wise already widely distributed should qualify for project supplies, and thelist of such brands was agreed at negotiations (Schedule B). So far, two firmswho are represented on the agreed list have started small-scale production ofdiesel engines in Bangladesh. It would be important to maintain a reasonablechoice of equipment for farmers and adequate competition between qualifiedfirms. Therefore, if any manufacturer or dealer withdraws from the agreedlist, or proves unsatisfactory, GOB would encourage a new dealer/manufacturerto enter the market, provided the concerned firm has suitable equipment andcan establish satisfactory repairs, spares and distribution facilities in theproject area.

4.08 The representatives of the selected engine suppliers would couplethe engines to pumps, which they would purchase locally or import. There are12 manufacturers of pumps in Bangladesh and their prices are generally compe-titive despite very high tariffs on the raw materials needed for pump manufac-ture. The items - scrap metal, steel, coke and synthetic sand - make up55%-75% of pump manufacturing costs and bear import tariffs of between 60%and 120%. GOB is discussing with IDA ways and means of stimulating itsengineering industry. A reduction in currently burdensome tariffs on rawmaterials is likely to be one method selected and this should increase thecompetitiveness of domestically made pumps. The engine represents about 73%of a pumpset cost and the pump and coupling materials about 27%.

4.09 Shallow Tubewells. Long-term loans would be provided to groupsof farmers or farmers for purchase and installation of about 27,000 STW. Atypical STW would consist of approximately 90-110 ft of 4 inch diameter pipingincluding blank piping in the upper portion with about 40 ft well filter atthe bottom and a pumpset on a metal frame consisting of a centrifugal pumpcoupled to a 5-6 hp diesel engine. Well discharge would range from 0.5-0.75cusecs. Drilling would be by local contractors, who are available in adequatenumbers, using inexpensive locally made equipment. The Technical Cell of BB'sProject Department (para 6.03) would, in consultation with groundwater engi-neers of the Bangladesh Water Development Board, BADC and BKB provide guide-lines for STW designs, particularly with regard to drilling depth and lengthof strainer to suit different geohydrological conditions in the project area.Normally the pump and engine would be placed at ground level, but in some

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cases water levels may fall lower than 20 ft below ground level and at suchdepths centrifugal pumps beccome ineffective. In such cases the pump and enginecan be placed in a shallow pit, but when the pit needs to be deeper than threeft, either the engine should be fitted with an elongated exhaust pipe Lo avoiddanger from fumes or should be placed at ground level and connected to thepump by belt and pulley. Need for pits deeper than three ft is expected to besmall. Since individual fields are small and pumpsets portable, one pumpsetcould service a number of well points that would represent only one third ofthe cost of an SB;. By this means small farmers unable to afford an STW couldparticipate, as could landless people who would be able to borrow for purchaseof a pumpset to service well points, or pump water from pools or streams. GOBhas already initiated this type of lending on a small scale and the projectwould provide opportunity for greater participation of landless people inprofitable utilization of the country's water resources.

4.10 Workshops, Equipment and Tools for Mechanics. Most STW repairstake place on farm, but for major repairs engines are taken to workshops.At present BADC provides workshop and field mechanic services for its ownedor installed equipment. In addition there are several private workshops ineach major urban center and a growing number of village mechanics. BADC isinterested in scaling down its workshop activities on the one hand and on theother the number of irrigation pumps, particularly STW is increasing rapidlyso that privately operated repair and maintenance facilities will have toexpand. The project would finance basic equipment such as lathes, drills,grinders and supporting tools for 50 workshops. Funds for buildings are notneeded since workshops operators prefer rented premises. In addition fundswould be lent to 500 village mechanics to purchase tools necessary for STWmaintenance and repairs; and a bicycle each. These investments would augmentfunds for equipping workshops provided by Credit 724 and by the recentlyapproved ADB Second Credit Project. There is an adequate source of trainedmechanics from politechnics, an ILO funded mechanic training scheme and fromon-the-job training in BADC and existing workshops to take advantage of thispart of the credit.

4.11 Grain Storage. To support the GOB program to expand the role ofthe private sector in foodgrain marketing (para 3.21), the project wouldprovide credit to private investors for constructing grain storage. Demandfor credit for storage has not been determined and participating banks havelittle experience to date with this type of lending so that total construc-tion under this component may only be modest and may not exceed capacity for10,000 tons foodgrain storage. Stores would be from 100 to 500 tons capacity.Design would generally comprise raised concrete floors, brick walls and eithercorrugated iron or reinforced concrete roofs, but use of new designs, at pre-sent under development would not be excluded. To ensure satisfactory design,only borrowers using plans satisfactory to BB would qualify for project loans.

4.12 Other Diversified Lending - would include funds for lending formiscellaneous farm implements, irrigation water distribution systems and otheras yet not identified lending purposes. Any schemes for lending under thispart of the project would require BB approval.

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4.13 Training. Basic training in commercial or cooperative banking isprovided by each CB and by cooperative training institutes, but only BKB hasundertaken agricultural credit training programs. The main gap is lack oftraining in appraisal, supervision and loan recovery of long-term credit.This would be provided by the project partly through short-term trainingabroad, but mainly through local training of the approximately 1,000 bankingstaff who would be needed for the project. GOB and participating institutionsagreed to a program of 50 short-term training fellowships abroad each of about4-6 weeks duration, a total of 70 man-months. Estimated cost would be aboutUS$4,300 per training month including air travel, local travel, subsistence,tuition and other minor expenses. Assurances were obtained that the programfor training abroad, satisfactory to the Association would commence beforeNovember 30, 1981.

4.14 The much larger local training program had not been finalized by GOBat appraisal and an outline plan for such training was agreed at negotiations.The outline plan, on which cost estimates for this component have been prepared,provides for CB to train junior field staff in their own training institutes,BKB to train its own and cooperative staff in its recently opened trainingcenter in Bogra and for senior staff training to be initiated at the BangladeshInstitute of Bank Management which is already conducting some banking training.Training would take place in rented premises and the project would provideequipment, vehicles, furniture and recurrent expenses over the project period.Assurances were obtained that a detailed plan, satisfactory to IDA, would beprepared promptly and that execution of the agreed training plan would commenceby November 30, 1981.

4.15 Consultants. The project would finance 56 man-months of consultantstime. Of this, the following would be required for the Bangladesh Bank; 16man-months for two consultants--a credit specialist (10 man-months) and anagricultural economist (6 man-months)--to assist development of the ProjectDepartment of the Bangladesh Bank; 10 man-months for a training specialist,who would design and initiate the project training program; and 12 man-monthsfor a cooperative agricultural credit specialist to help plan and implement aprogram to improve TCCA/KSS operations (para 6.13). The balance of 18 man-months would be needed for two consultants (a management expert for 10 man-months and a cooperative credit expert for 8 man-months) to help strengthenand develop BSBL. Cost of consultancies has been estimated at US$10,000 perman-month, which would include air fares, living expenses and local travel.All consultants should be recruited as soon as possible, but there is specialurgency for appointment of the credit specialist for Bangladesh Bank and thetraining specialist. Assurances were therefore obtained that the creditspecialist for the Bangladesh Bank and the training specialist would beappointed on terms and conditions satisfactory to IDA by November 30, 1981,the cooperative agricultural credit specialist by December 31, 1981 and theothers by March 31, 1982.

Environmental Aspects

4.16 The project would have no adverse environmental aspects. Tubewellsinvestments would do no harm to groundwater resources, but might cause a smallincrease in malaria incidence, due to rice cultivation in the dry season.

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However, any minor ill effects would be far outweighed by improvement inhealth of project area inhabitants by provision of more widely spread drinkingwater sources and, through increased agricultural production, improved nutri-tion. In addition, GOB is already stepping up malaria control work in the faceof increased incidence in most parts of the subcontinent, in recent years.

Project Phasing

4.17 During the first year, lending activities may be quite modest whilesteps are taken to organize the BB Project Implementation Unit (para 6.02),training and staffing for participating credit institutions and the equipmentsupply pipeline. Nevertheless, GOB has been urged to take early action toencourage import and distribution of equipment for the first year, for whichorders should be placed by March 1981. In the second project year, allproject lending is expected to gain momentum, and reach a peak in the thirdyear. Notional achievement forecasts for project lending operations, used forcost estimates, are shown on Table 1 of Annex 3. Expenditure on consultantsand short-term training abroad is projected to take place during the first twoyears, while local training would continue during the whole project period.

V. COST ESTIMATES, FINANCING, PROCUREMENT AND DISBURSEMENTS

Cost Estimate

5.01 Total costs are estimated at US$62.4 million equivalent of whichUS$34.1 million or 55% would be foreign exchange costs and US$8.8 millionwould be duties and taxes. Estimates are based on October 1980 prices. Pricecontingencies for foreign exchange cost of 9% for 1981, 8.5% for 1982 and7.5% for 1983 onwards and of 7% compounded annually for local cost have beenapplied to base cost. Total contingencies amount to US$14.1 million or 23%of total cost. Detailed costs are given in Annex 3 and are summarized below.

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Summary Cost Estimates

% ofTk million US$ million Total

Category Local Foreign Total Local Foreign Total Cost

Credit

Shallow Tubewells 301.3 368.3 669.6 18.8 23.0 41.8 67Tools and Equipment

for Workshops 5.9 17.8 23.7 0.4 1.1 1.5 2Tools and Equipment

for Village Mechanics 2.2 3.3 5.5 0.1 0.2 0.3 -Grain Storage 14.3 2.5 16.8 0.9 0.2 1.1 2Other DiversifiedLending 17.6 14.4 32.0 1.1 0.9 2.0 3

Subtotal 341.3 406.3 747.6 21.3 25.4 46.7 74

Technical Assistanceand Training

Consultancies - 9.0 9.0 - 0.6 0.6 1Fellowships - 4.8 4.8 - 0.3 0.3 ) 2Local Training 9.0 2.2 11.2 0.6 0.1 0.7 ) 2

Subtotal 9.0 16.0 25.0 0.6 1.0 1.6 3

Base Cost 350.3 422.3 772.6 21.9 26.4 48.3 77

Price Contingencies 101.8 124.4 226.2 6.4 7.7 14.1 23

Total Project Cost 452.1 546.7 998.8 28.3 34.1 62.4 100

Incremental staff and other incremental expenses of project agencies were notincluded in the estimates because they are fully recovered by interest onloans paid by beneficiaries of the credit category.

Financing

5.02 The proposed IDA credit of US$40 million would be made to GOB onstandard terms and would cover about 75% of project cost net of duties andtaxes, 64% of total project cost or all foreign exchange and 21% of localcosts. The balance would be met by farmers, other investors, GOB, BangladeshBank and participating banks as shown in the following financing plan:

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Proposed Financing Plan

OtherBorrowers GOB BB Banks IDA TotalUS$M % US$M % US$M % US$M % US$M % US$M %

ShallowTubewell 3.2 6 - - 11.4 21 5.4 10 34.2 63 54.2 87

other Lending 0.4 6 - - 1.3 21 0.6 10 3.9 63 6.2 10Training andConsultant - - 0.1 5 - - - - 1.9 95 2.0 3

Total 3.6 6 0.1 - 12.7 20 6.0 10 40.0 64 62.4 100

5.03 GOB would make US$1.9 million of the IDA credit available to theBangladesh Bank and through it to other participating Banks to pay for train-ing and consultants expenses, on standard terms for such assistance to itsagencies. GOB would also execute a Subsidiary Agreement with Bangladesh Bankunder which it would onlend the balance of the credit, US$38.1 million, to theBangladesh Bank, repayable in periods depending on the repayment period ofBangladesh Bank refinance to participating credit institutions, but notexceeding 15 years, at an annual interest rate of 5% to banks lending directlyto ultimate borrowers and 3% to Sonali Bank for onlending to TCCA/KSS.GOB would bear the foreign exchange risk. It would be a condition of crediteffectiveness that the Subsidiary Agreement satisfactory to IDA had beenexecuted.

Procurement

5.04 Procurement involving relatively small investments by farmers andother borrowers would be based on farmers' choice through local dealers andcontractors. Typical items would be STW pumpsets, piping, screens and con-struction, workshop equipment, tools, bicycles (for village mechanics), andmiscellaneous farm implements such as sprayers, carts and threshers. STWequipment would be the main item and measures for building up an adequatesupply and choice for farmers has been described in paras 4.04 through 4.07.Construction of storage godowns would be based on contracts let under localprocedures, approved by the Bangladesh Bank. The procedures are satisfactoryto IDA. Furniture, equipment and vehicles for training establishments costingin total US$0.2 M equivalent would be procured over three years by localcompetitive bidding and remaining local training costs amounting to US$0.5 Mequivalent would be for staff pay, operating costs and trainee stipends andwould not be subject to tender procedures. Small off-the-shelf items, costingless than US$10,000 and not more than US$0.1 M in aggregate, which are urgentlyrequired for the project training component would be purchased by prudentshopping, through normal commercial channels.

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Disbursements

5.05 IDA disbursements of the credit would be against:

(a) 75% of amounts disbursed by Bangladesh Bank to refinanceloans made by participating credit institutions;

(b) 100% of consultants and training fellowships costs; and

(c) 90% of local training costs.

Disbursements for cost of consultancies and training fellowships would be madeagainst full documentation, to be supplied by GOB to IDA. Other disbursementswould be made against: (a) Bangladesh Bank's certified statements of loansmade by participating credit institutions and refinanced by Bangladesh Bank;and (b) Bangladesh Bank's certified statements of expenditures for expensesincurred for local training. Documents in support of the certified statementsof expenditures would not be submitted to IDA, but would be retained by theBangladesh Bank and made available for inspection to the accredited representa-tives of IDA's supervision missions. Bangladesh Bank would verify each applica-tion for refinance by participating banks to ensure that it conforms withagreed lending terms and conditions. Each loan would be physically verifiedby the lending bank, which would issue a completion certificate for eachcompleted loan, and Bangladesh Bank would carry out sample checks. Certifi-cates of expenditure would be audited by independent auditors as part of theannual audit of Bangladesh Bank (para 6.26). A schedule of estimated quarterlydisbursements is shown in Annex 4.

VI. PROJECT ORGANIZATION AND IMPLEMENTATION

Bangladesh Bank Project Department

6.01 The Bangladesh Bank through its Project Department would be themain executing agency. It would be responsible for planning and supervisingall aspects of project implementation including adequacy of equipment supplies,and construction agencies; execution of the technical assistance and trainingprograms; and the refinancing of participating credit agencies for approvedproject lending to final borrowers. The agencies would be BKB, the three maincommercial banks--Sonali, Agrani and Janata Banks--and the TCCA/KSS coopera-tive system. Later during the project BSBL may also participate as apex insti-tute for the cooperatives (para 6.10). BADC would be an important supportingagency which would provide technical support to cooperatives (para 6.19).Project organization, credit flow and coordination is illustrated on Chart22503.

6.02 The Project Department, through its role in implementing this proj-ect should become an important development agency, capable of planning andimplementing agricultural credit schemes and helping Bangladesh credit agenciesto acquire similar capabilities. For these purposes the Department would bestrengthened, and organized into four Wings--the Planning Wing, the Operations

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Wing, the Monitoring and Evaluation Wing and the Special Schemes Wing. Thefirst three of the above Wings would constitute the Project ImplementationUnit, which would manage all aspects of the project, and would be headed bythe Project Director. He would report directly to the Department Head--theOfficer on Special Duty (para 2.06). To avoid disrupting ongoing operationsof the Department, present and planned lending schemes other than the projectwould be managed by the Special Schemes Wing. It would operate independentlyunder the Project Director and may, in time, merge with the Project Implemen-tation Unit. The above organizational arrangements (Chart 22504) were dis-cussed and agreed at negotiations.

6.03 The Operations Wing would include a Supervision Cell, a SuppliesCell and a Finance and Accounts Cell and would also control subunits forintensifying field supervision, to be set up later, one in each of the twoBB regional offices in the project area. The Planning Wing would have threeCells--Policy, Technical and Training. Functions of the Wings and Cellscomprising the Project Implementation Unit are described in Annex 5.

6.04 Early recruitment or deputation of key staff would be important,in particular, appointment of the Project Director who should be at least ofChief Officer rank; a senior supplies officer and a training officer. TheProject Director's appointment, satisfactory to the Association has beenconfirmed and that of the other two key personnel, would be a condition ofeffectiveness. Each wing would be headed by an officer of at least DeputyChief Officer rank and appointment of this staff, together with nine suitablyqualified officers as preliminary staffing for various cells and subunitsshould also take place soon, and would also be a condition of project effec-tiveness. Appointment of the supplies officer would be particularly impor-tant to undertake the difficult task of initiating the project equipmentpipeline. Appointment of the training officer would be equally importantto establish the project training program.

6.05 As already indicated (para 4.15) the Department would be supportedby three internationally recruited consultants. The first would be a creditspecialist, who over a 10-month period would help to establish the Unit,draw up an operations manual and design reporting, loan appraisal and loanrecovery systems. He would be needed as soon as possible. However, pre-liminary lending operations guidelines to ensure early start of lendingoperations, would be provided by the Department even prior to arrival of theconsultant. The second would be a credit training specialist to help to planand organize the project training program, he would also be needed as soon aspossible; and the third consultant would be an economist to establish schemeevaluation systems and would be needed by March 1982 to initiate studies thatwould start in the fall of that year.

Lending Operations

6.06 Under a subsidiary loan agreement with the Bangladesh Bank (para5.03) GOB would onlend the main part of the credit to the Bangladesh Bankfor refinancing BKB, the three commercial banks and through Sonali Bankthe TCCA/KSS cooperatives which would provide loans to farmers and otherborrowers. Participation of these institutions in project lending would

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be subject to completion of a participation agreement satisfactory to theAssociation, between BB and the institutions. Sonali Bank as their refinan-cing agency would cover lending by TCCA/KSS cooperatives in its participationagreement with BB. The agreement would embody lending terms and conditionsrelevant to any one of the institutions. Assurances were obtained that par-ticipation agreements satisfactory to the Association would be completed byparticipating credit institutions. Bangladesh Bank would prepare a bankingplan that would include inter alia the Bangladesh Bank role in project imple-mentation; proposals for banking coverage of the project area and allocationof specific areas and types of loans to each institution; lending targets andphasing; staffing and training arrangements and norms; loan processing cri-teria and procedures; procurement and construction procedures; supervision,monitoring and reporting requirements; coordination arrangements; and servicesto be provided by other agencies. Completion of the banking plan satisfactoryto IDA would be a condition of effectiveness.

6.07 The following table shows proposed areas and lending purposes ofparticipating credit institutions:

Credit Institution Area Lending Purposes

BKB All areas except STWthanas served by theADB Second AgriculturalCredit project

All areas All other purposes

Commercial Banks All areas All purposesfor direct lendingto borrowers

TCCA and "A" and All areas covered by STW"B" Class KSS "A" and "B" Class KSSrefinanced bySonali Bank

To avoid confusion, particularly in applying for project refinance from ADBand IDA, BKB would not lend for STW in thanas included in the Second Agricul-tural Credit Project recently agreed between GOB and BKB with ADB, which alsofinances STW.

6.08 Organization and basic staffing patterns of participating institu-tions are generally satisfactory but staffing would need strengthening forsuccessful project implementation. BKB would appoint a senior officer inthe Special Projects Department at headquarters to oversee the project. Inthe field, where the organization has not already been strengthened for theADB project, BKB would designate a senior officer at each regional office (onein each district) to be responsible for project implementation and appoint agroundwater irrigation engineer at that level and junior engineers and loanofficers (investigation officers and supervisors) according to banking plannorms (para 6.06). Participating CB would also appoint a senior official in

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each of their headquarters agricultural credit departments and at each regional(district) office tc be responsible for the project. They would also employone senior groundwater irrigation engineer at headquarters and at least onegroundwater engineer initially at each regional office. For appraisal andsupervision one trained farm technologist or senior agricultural clerk couldbe used for a group of branches initially. Both engineers and loan officerswould be increased when lending expands, according to banking plan norms.Participating TCCA would each designate two of its most experienced inspectorsand the Deputy Project Officer for project loan appraisal and follow up andarrange for appropriate training. As with other credit agencies, the numberwould be increased as specified by the banking plan, to cater for increasedlending as well as short-term lending of each TCCA. While BKB and CB wouldbe responsible for technical aspects of appraisal and verification, TCCA wouldrely on BADC for those services. TCCA would, however, in common with BKB andCB help borrowers to contact dealers for choosing equipment and contractorsfor STW construction.

6.09 Improvement of loan recovery would be necessary for most institu-tions, As a first step, GOB and BB would obtain accurate information on loanrecovery status of agricultural loans of each institution, and assuranceswere obtained that the information would be collected by December 31, 1981.Data for short-term and term loan recoveries should be presented separatelyand guidelines for drawing up a loan recovery reporting system are shown inAnnex 6. Where recovery of any outlet in the project area is less than 60% ofdemand, the institution would develop a program satisfactory to BB and IDA toimprove recovery. Such program would include employment of adequate trainedstaff for appraisal, supervision and loan collection efforts; secondment byGOB of special loan recovery officers, particularly to CB to accelerate loanrecovery through GOB revenue collection; adoption of special loan recoveryprograms; and measures for dealing with debts that are more than five yearsold. However, no credit outlet in the project area would be eligible forparticipation in project lending if loan recovery drops below 40% of demand,and, after December 31, 1983, below 50% of demand, for as long as loan recov-ery remains below those respective levels and assurances to this effect wereobtained. In addition, assurances were obtained that during the course of theproject GOB would develop performance criteria to be agreed by IDA beforeDecember 31, 1983 that would determine eligibility of any credit institute toreceive GOB or BB refinance for agricultural lending.

Proposals for Restructuring Cooperative Banking

6.10 GOB is planning to reorganize agricultural cooperatives. Whilethere had been no detailed planning as yet, broad proposals under discussionsby GOB at appraisal included unification of the two cooperative systems byaffiliating traditional primary cooperatives with TCCA; retaining DCCB, butin a greatly reduced role; establishing thana banks as TCCA banking outlets;and replacing Sonali Bank as a refinancing institution for TCCA/KSS coopera-tives by BSBL, as apex and sole refinancing institution for the unifiedcooperative credit system.

6.11 Unification of the two cooperative systems is desirable but representsan enormous and complex task which, to avoid disrupting ongoing operations,should be carefully planned and phased. Assurances were therefore obtained

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that reorganization of the cooperative credit system, if undertaken in theproject area, would only take place in phases, on the basis of a detailedplan, satisfactory to IDA. BSBL would need considerable strengthening beforeit could assume the task of sole refinancing agency for cooperative credit,including refinancing project credit (para 2.24). GOB has therefore agreedthat Sonali Bank would continue to refinance TCCA/KSS in the project area forthe time being and that participation of BSBL in the project, if eventuallyconsidered desirable, would be subject to successful implementation of adevelopment and strengthening program satisfactory to IDA. To assist BSBLin carrying out such program, the project would provide two consultants; amanagement expert for 10 man-months and a cooperative credit expert for 8man-months, who would be appointed by March 31, 1982 (para 4.15).

6.12 BSBL would need staff restructuring and reorganization and establish-ment of regional offices should also be considered. However, in addition,financial rehabilitation would be needed in view of low capital base andhigh level of loan default (para 2.24). Measures to be considered for suchrehabilitation should include:

(a) Determination during 1981-83 of balances of short-term loansgranted prior to 1974/75 and overdue installments of otherloans at June 30, 1975, placing them into a special suspenseaccount and by conversion of GOB loan to BSBL, credit anequal amount to bad debt reserves;

(b) Increase of paid in capital to Tk 50 M by a GOB injectionof at least Tk 29.8 M through payment of Tk 15 M in 1981/82and Tk 14.8 M in 1982/83 partly by converting remaining GOBloans to paid in capital; and

(c) Annually, starting in 1982/83, transfer of loan paymentsoverdue five years or more as under "a" above by conversionin the same year an equal amount of GOB loan to bad debtreserves.

Proposals for Improving TCCA/KSS Cooperatives Operations

6.13 Constraints to TCCA/KSS cooperative development due to existingcriteria that determine loan eligibility of the cooperatives, were discussedin para 2.22. The GOB/IDA review mission of the cooperatives recommendsconsiderable changes such as eligibility based on internal resources of thecooperatives, including a part of the members' savings and on performance ofindividual TCCA/KSS. The review also recommends TCCA/KSS lending for allagriculture related production purposes including some, like sugarcane pro-duction and fisheries, which are, at present, reserved for special agencies.However, such sweeping changes require careful study and phased introduction.For that purpose, Bangladesh Bank would establish a working party with member-ship from Ministries of Finance, Local Government and Cooperatives, andAgriculture, IRDP, and Sonali Bank that would co-opt representatives of otheragencies or the public as necessary. The project would finance 12 man-monthstechnical assistance for employment of a cooperative agricultural creditspecialist to conduct studies of the impact of existing criteria and pro-cedures, on which proposals for changes would be based. He would help with

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planning and subsequent implementation of those changes. His work may neces-sitate several short assignments. The study and planning period would requireabout one year and subsequent implementation would be over a two-year period.The working party would initiate the study not later than December 31, 1981by which time the consultant would also have been appointed. To ensure thatimprovements are implemented as soon as possible, assurances were obtainedthat, by December 31, 1982, GOB would furnish a plan, based on the study andsatisfactory to IDA, for improving loan eligibility criteria of TCCA/KSS andplanning of lending operations. The plan should include a timetable forprompt implementation of its recommendations.

Lending Terms and Conditions

6.14 Loans to final borrowers would, as far as possible not be in cash,but instead in the form of payment for authorized and verified constructionor equipment purchase. Lending terms and conditions are detailed in Schedule"A" and were agreed at negotiations. They would form part of the participa-tion agreement between BB and participating credit institutions (para 6.06).Interest charged to final borrowers would be not less than 13% on loanschannelled directly through BKB and CB and not less than 14% on loans channeledthrough the TCCA/KSS system of cooperatives. The higher rate for cooperativeslending is justified because of additional services to borrowers which makeborrowing more accessible and convenient. Projections of future inflationrates indicate that these interest rates would be positive in real terms.Although overall inflation has been estimated at over 17% during FY80, whenrice prices increased sharply in response to the severe drought and seriouscrop shortfalls, the agricultural situation has improved considerably in FY81and inflation for the year as a whole is currently projected at slightly over8%. For the medium-term future, aggregate price levels are expected to riseon average by about 8-10% annually. In view of possible changes in inflationrates, consultations on interest rates would be undertaken, between GOB andIDA from time to time.

6.15 Interest spreads at 1% for BB; 7% for CB and BKB for direct lending;2-1/2% for Sonali for refinancing TCCA/KSS loans and 7-1/2% for TCCA/KSS wouldcover lending costs and ensure reasonable returns to participating agencies.Borrowers' contribution would be 5% by groups borrowing through cooperativesor small farmers or landless borrowers, and 10% by other borrowers. Thecontributions to be made for different investments by borrowers and participat-ing institutions and annual interest rates to be paid by them are illustratedin the following schedule:

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L o a n s f o rSTW, Village Mechanics' Tools, Grain Storage

and Diversified Lending and Workshop Equipment-----------By ------- ------By----Small Farmers Other All Borrowers

Contribution and Groups Borrowers

Borrowers' Contribution minimum 5% 10% 10%TCCA/KSS Loans /a up to 95% 90% 90%Sonali Bank Refinance /b up to 100% of TCCA/KSS Loan -CB and BKB Loans /a up to 95% 90% 90%BB Refinance up to 90% of CB and BKB Loans and Sonali Bank RefinanceGOB On-lending --------- 75% of BB Refinance-------IDA Disbursement ----------75% of BB Refinance-------

Annual Interest Rate

TCCA/KSS Loans /a -----------------14%--------------…Sonali Refinance /b ----------…--6.5%------------…--CB and BKB Loans /a -----------------13%-------------…--BB Refinance a) 6% to CB and BKB for direct lending

b) 4% to Sonali Bank for refinancing TCCA/KSS

GOB Loans to BB a) 5% for refinancing CB and BKB for direct lendingb) 3% for refinancing Sonali Bank for refinancing

TCCA/KSS loans

IDA to GOB -----------------Standard-----------

/a Loans to final borrowers./b Sonali Bank refinance to TCCA/KSS for loans to members.

6.16 Loan repayment would be according to ability of borrowers to repay,but would not exceed the life of the asset and would also be on concessionaryterms for groups and small farmers. Typical examples of repayment periods fordifferent loans would be: 9 years including up to 18 months' grace period forKSS or small farmers for STW loans, and up to 7 years for others; 7 years formechanics tools; 12 years including 1 year's grace for workshops equipment;and up to 15 years including 2 years' grace for grain stores loans. Securitywould be according to agreement between Bangladesh Bank and participatingBanks.

6.17 Concessionary terms by way of smaller contributions and longerrepayment periods are designed to attract large-scale participation by smallfarmers and cooperative groups and assurances were obtained that at least50% of lending would be to groups, small farmers 1/ or landless borrowers.

1/ Defined as owning not more than three acres of land.

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Training

6.18 Training, particularly in methods of appraising, supervising andrecovering long-term loans would be one of the most important institutionbuilding project components. About 1,000 management and field staff wouldrequire such training over the project period. The training cell of theBangladesh Bank Project Division (para 6.03), supported by a consultant,would plan and direct the training program outlined in para 4.14.

The Role of BADC

6.19 Field staff of BADC would assist TCCA/KSS in technical appraisal andcertification of satisfactory completion of STW and, if necessary, identifica-tion of suitable STW drillers. BADC has the staff and ample experience forthis task.

Project Coordination

6.20 While Bangladesh Bank would be responsible for executing the projectand for coordinating activities of participating agencies, there would be aproject and district coordinating committees to help keep all participatingand supporting agencies informed; deal with problems that BB could not settle;review work programs and progress; and deal with policy issues. The ProjectCommittee would include: The Secretary for Agriculture as Chairman, and Secre-taries or senior representatives of the Ministry of Finance; Local Government,Rural Development and Cooperatives; Director General of IRDP, Chairman BADC,head of each participating bank and the head of BB Project Division. TheProject Director would be convener and secretary and would provide the Commit-tee Secretariat.

6.21 Each District Coordination Committee would be chaired by the DeputyCommissioner and would have representation from BB, IRDP, other participatingbanks, BADC and Department of Agriculture. Meetings of both committees wouldbe held as frequently as necessary, but not less frequently than once everythree months. Establishment of the committees would be a condition of effec-tiveness.

Tubewell Spacing and Groundwater Monitoring

6.22 Because of rich groundwater resources the aquifer would not beexhausted in most areas, even if each farmer pumps enough water to irrigateall his land, and there is little chance of interference between STW. Spacingwould therefore be more on economic than technical grounds. In general adistance of about 500 ft between STW could be used as a rule of thumb butcloser spacing would also be acceptable, and STW siting would be responsibil-ity of the Banks. To keep check of installed tubewells and to facilitatemonitoring, each well should be marked on the thana irrigation maps which havebeen made under the Shallow Tubewell Project. BADC is maintaining these mapsat present, but GOB is considering whether they should not be maintained by alocal government body such as the Thana Council. GOB would ensure that themaps would be maintained at all times by a competent agency; while BangladeshBank would ensure that all facilities financed by the project would be markedon the maps.

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6.23 The greater part of the project area is suitable for STW, except for

a relatively small part, roughly indicated on Map IBRD 15591, in which onlyuse of DTW could provide large-scale irrigation. Because of high cost of DTW,GOB finds it necessary to subsidize DTW sales or rentals to farmers heavily.Consequently, to optimize results from scarce development resources, DTWconstruction should be confined to areas unsuitable for STW. Furthermore, DTWpumping causes considerable drawdown of water levels, which could interferewith STW operations. The two types of tubewells should not, therefore, beconstructed in the same area. This reinforces arguments for limiting DTW toareas unsuitable for STW, which need to be defined. Assurances were thereforeobtained that GOB, before December 31, 1981, would define localities in theproject area that, on geohydrological grounds, would not be suitable for STW

development and agree such areas with IDA, and would not allow any DTW con-struction that would adversely affect STW irrigation. DTW construction wouldvirtually be confined to areas unsuitable for STW.

6.24 At present the Groundwater Circle of the Bangladesh Water Develop-ment Board is responsible for groundwater survey and monitoring. It has a

competent technical staff and has benefitted from UNDP financed technicalassistance and training. BADC, the main tubewells construction agency isalso monitoring many of its existing wells and is responsible for supervisinggroundwater computer modelling in the project area by consultants financed byIDA. The model was made in 1978 and is now being updated and, if continuallyupdated, as intended by GOB, on the basis of accurate thana maps, should pro-vide a good tool for groundwater resource management. It would be used forannual planning of district and thana groundwater development programs.At present there is no urgent reason for transferring the model to anotheragency, but in time the groundwater survey and monitoring agency should takeover responsibility for it. Both the Groundwater Circle and the BADC monitor-ing unit are part of a tubewells construction agency. Experience in othercountries has shown that the survey and monitoring agency functions best whenindependent from construction agencies. GOB is therefore considering trans-forming the Groundwater Circle into a directorate under the Irrigation Ministry

and giving it sole responsibility for groundwater survey and monitoring. IDAwould strongly support such development.

Reporting Requirements and Evaluation

6.25 The Bangladesh Bank would prepare quarterly progress reports cover-ing all aspects of the project. The format would be mutually acceptableto GOB and IDA and reports should reach IDA within two months after the endof the reporting quarter. These reports would constitute a monitoring systemfor GOB and IDA of the progress of the project. In addition, studies wouldbe required to measure the impact of the project on agricultural production,rural incomes, employment and to identify different beneficiary groups. Suchstudies would be conducted or commissioned by the evaluation cell of theBangladesh Bank Project Division. The studies would form part of the projectcompletion report covering all aspects of the project including performanceof all participating agencies, to be prepared within six months of the com-pletion of the project. Assurances were obtained that the above reportingprocedure would be observed and that evaluation studies would commence bySeptember 30, 1982.

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Accounts and Audits

6.26 Bangladesh Bank, and other participating credit institutions wouldmaintain separate records of project expenditure, which together with mainaccounts of BB, BKB and CB would be audited annually by auditors acceptable toIDA. Audited project accounts of BB and annual accounts of BKB and CB togetherwith auditors' comments would be sent to IDA within six months of the close ofeach fiscal year. Because of large number of TCCA and KSS involved, BB wouldbe responsible for ensuring maintenance of adequate accounts and completion ofsatisfactory audits. Assurances were obtained that the above accounting andauditing procedures would be followed. Auditing procedures of participatinginstitutions are satisfactory, but auditing of cooperative credit institutionsin the project area is not up to date. Assurances were therefore obtainedthat the GOB Registrar of Cooperatives would: (a) by December 31, 1981prepare an inventory of TCCA/KSS cooperatives in the project area showing thedate of last audit for each and prepare a phased plan for bringing the auditup to date by June 30, 1983, with the plan indicating the number of auditingstaff to be used and the number of cooperatives to be audited each year; and(b) submit a quarterly report on progress of the audit program to reach BB notlater than one month after the end of each calendar quarter, for forwarding toIDA.

VII. PRODUCTION MARKETING, PRICES AND FINANCIAL PROJECTIONS

Production

7.01 Project irrigation investments for tubewells are expected to beconfined to Barind and the other shallow flooded parts of the project areas.In the deep water rice areas, where irrigation would allow only substitutionof the deep water or mixed deep water/aus paddy crop by boro, returns toirrigation investments are low and may even be negative. The main effectof irrigation in the Barind by contrast would be to add a boro crop to thepresent t. aman dominated cropping pattern and in the other shallow floodedareas to add t. aus (in partial replacement of B. aus) to an already fairlydiversified agricultural system. There would also be a small increase int. aman production mainly by enabling farmers to irrigate during droughtperiods, which would give them confidence to put more land under HYV varietiesand use more inputs. In addition, small increases in wheat, jute and horti-cultural crop production in most areas would be likely and in some localitiesincreased production of such crops as tobacco and sugarcane. However, therelatively small production of pulses and oilseeds now grown on residualmoisture after the aman crop would most probably be replaced by more profit-able crops, when irrigation water becomes available. Cropping intensities,at present 115% in the Barind and 160% in the other shallow flooded areaswould be expected to increase to 190% and 210% respectively with irrigation.Borrowers are projected to reach full benefits from increased production overfour years--O% in year 1, 50% in year 2, 75% in year 3 and 100% in year 4.Cropping patterns, yield and production projections are shown in Annex 7,Tables I through 3.

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7.02 At project maturity, after about eight years from project start,the 27,000 STW would irrigate about 270,000 acres, based on 10 acres perSTW. The shallow flooded areas outside the Barind are most suitable for STW,while part of the Barind can only be irrigated by DTW. The appraisal missiontherefore estimates that only about 8,000 STW would be constructed in theBarind and the remaining 19,000 STW in other shallow flooded areas. While anSTW with 0.5-0.75 cusec capacity would have enough water to irrigate 25 acresof land with the cropping patterns likely to be adopted, an average commandarea of only 10 acres per STW is projected because of difficulty of coveringmore land, even by sale of water, due to small farm size and high landfragmentation.

7.03 On the basis of assumptions in para 7.02, at project maturity,incremental foodgrain production is estimated to reach about 210,000 tons perannum consisting of about 180,000 tons clean rice (from 275,000 tons paddy)and 30,000 tons wheat. Current yield levels are based on Bangladesh Bureauof Statistics crop cutting data and cost and returns studies, and for deepwater rice on special crop cutting studies conducted by the Bangladesh RiceResearch Institute over the last four years. Future with project projectionsare broadly consistent with those of the numerous IDA supported agriculturalprojects in Bangladesh. Projected future paddy yield of 45 mds/ac (1.65tons/ac) for 48,000 ac boro to be grown under the project and 40 mds/ac(1.45 tons/ac) for 114,000 ac t. aus are considered to be reasonable. Theyare slightly above officially recorded averages, which include partially ormanually irrigated crops with lower yields.

Marketing and Prices

7.04 The traditional marketing system is well developed, but only about20-25% of national agricultural production is estimated to enter the commer-cial market. There is a chain of primary markets usually within two miles ofany village, where traders purchase all types of produce. Traders may alsopurchase at the farm gate. Small lots of produce are then aggregated and maybe resold at larger secondary markets for distribution to processing plants orfinal markets. Because Bangladesh is far from food self-sufficiency, there isno danger that incremental grain from the project could not be sold. However,prices fluctuate from year to year, particularly in grain surplus areas.Prices well below GOB officially announced floor prices in good crop yearsdiscourage production in subsequent years. Partly to purchase more grainlocally, in place of imports for its food distribution program and partly tostabilize prices, GOB through its Food Ministry has been stepping up grainpurchases and may now procure about 10-15% of grain entering the commercialmarket. Its purchasing arrangements and storage facilities are not yet adequatefor effective price stabilization, particularly in peak production years suchas 1980/81. The ongoing Foodgrain Storage II Project (Credit 787-BD) and aproposed follow up project, which is under preparation, are designed toimprove GOB's capacity to stabilize prices. The Agricultural Credit Projectwould also help by financing storage construction for the private sector toimprove grain holding capacity in the project area. Horticultural produce isalso sold and aggregated through the markets for distribution to urban centers.The market can be quickly glutted and that is why only a small part of the

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farm is normally devoted to such crops. With the increase in the number ofcold stores in the project area the potato crop is expanding and cold storeoperators often make purchasing arrangement with producers. No seriousmarketing problems are anticipated.

7.05 Government provides guaranteed support prices for paddy and wheat.The latest procurement price for 1980 for paddy is Tk 115 per maund and forwheat Tk 110 per maund. However, as already indicated, GOB is not yet ableto ensure that farmers receive the guaranteed price and for that reason afive year average farmgate price of farm produce (1975/76-1979/80) has beenused, expressed in 1980 taka for financial projections in this report (Annex7, Table 4). Ruling 1980 retail prices have been used for purchased inputsas well as current rates for hired labor and working animals.

Financial Projections

7.06 Financial returns were calculated for four STW farm models (Annex 7,Tables 5 through 10). In each STW case, one set of models for each agricul-tural area (Barind and other shallow flooded areas) shows returns when thefarmer irrigates the entire command area (10 acres per STW) and the other,when he irrigates five acres and sells water to neighbors for an additionalfive acres. Water sale price was assumed at cost plus 50% which gives waterbuyers satisfactory profits, increasing net returns per acre by about 70%,equal to about Tk 1,000 per acre. Returns to STW owners are satisfactory inboth cases, ranging from 28% for the with water sales model to 40% for thefully owner cultivated model. Returns to farmers' equity taken at 10% ofinvestment cost are very high--ranging from 85% to over 100%. Cash flowprojections show that with a moratorium on principal for one year, borrowerscan service their loans and complete repayment within 7 years, well within thelife period of the investment estimated as being about 9 years for pumps andengines and possibly 15 for wells.

7.07 Sensitivity tests show that all models are highly sensitive tochanges in gross production values; a 10% drop would reduce returns by between7-10 percentage points. Returns are less sensitive to changes in investmentcost or operating costs, for which a 10% increase would change returns by arange of 3-4 percentage points. The sensitivities were confirmed by calculat-ing switching values of main variables that would reduce the rate of return to12%, the estimated opportunity cost of capital in Bangladesh. The calculationsshowed these values to range between 20% and 27% for reduction in output value,only between 64% and 155% for increase in capital investment costs and between38% and 47% in operating costs. Analysis also shows that even with only 5acres under irrigation and no water sales, the IRR would still be acceptableat 17-19% but there would be little cushion in case of fall of revenue.

7.08 At present BB, on the behalf of GOB, draws up the annual, nationalshort-term credit program for each bank. When all STW and DTW have beeninstalled, total short-term credit to support full tubewells utilization isestimated at Tk 120 M per year, based on 50% of incremental operating costsof land irrigated by a tubewell. Adequacy of short-term credit for projectborrowers would be kept under constant review by BB and the Project Coordina-tion Committee, to ensure that project borrowers would have adequate financefor crop production, to allow optimum use of STW in the project area.

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VIII. BENEFITS AND ECONOMIC EVALUATION

Benefits

8.01 Principal benefits would come from grain production, employmentgeneration and effect on rural incomes (para 8.05). Annual incremental grainproduction at project maturity is estimated at 210,000 tons resulting from270,000 acres irrigated by the 27,000 STW to be financed by the project.The increased grain production would make an important contribution towardsendeavors by the people of Bangladesh to attain food self-sufficiency. Theextra grain would represent a gross foreign exchange value of about US$80 Mper annum and taking account of additional imported inputs would stillrepresent US$60 M net foreign exchange value. Rapid realization of benefitsis a particularly important aspect of the project. STW installation takesonly two to three days and farmers obtain at least 50% of incremental benefitsduring the first year of operation. Therefore, development by the project ofa long-term credit delivery system that can be replicated on a large scale,together with improvement of equipment supplies to the rural areas, wouldlay the foundations for greatly accelerated development of Bangladesh's richgroundwater resources. Such development is the key element of GOB plans toachieve and maintain food self-sufficiency. Benefits would also accrue fromthe minor lending components of the project by way of improving irrigationpumps maintenance, possibly with foreign exchange savings from local fabrica-tion of simple diesel engine spares. The experimental storage component couldalso become significant, if successful, as precursor to much larger lendingto improve storage to preserve produce and stabilize prices, particularly infoodgrain surplus districts.

Economic Evaluation

8.02 The illustrative models used for financial analysis (para 7.06) havebeen adjusted for calculation of economic rates of return. Costs were adjustedto exclude subsidies and taxes. For internationally traded commodities, inputsand outputs, border prices were taken as an average of 1982-1990 forecastsderived from IBRD (November 1980) projections, expressed in 1980 constant terms,and adjusted for freight, handling and quality differential (Annex 8, Table 1).For non-internationally traded commodities or services, a standard conversionfactor of 0.75 was applied to reflect their economic opportunity cost on thesame basis as internationally traded goods. In view of seasonal unemploymentor underemployment, labor costs (for family and hired labor) were taken at Rs6.8, the rates calculated for several recent IBRD schemes and adjusted by thestandard conversion factor. There is not as yet accurate information on thecost of lending in Bangladesh. Best estimates put the cost at about 6% ofloan amount. To cover the expenses, 4% of total investment cost has beenadded to operating costs, in each model, based on loans of 90% of totalinvestment cost and application of the standard conversion factor.

8.03 Economic rates of return (Annex 8, Tables 3 and 4) are higher thanfinancial rates ranging from 57% to 63%. A weighted average ERR for theproject is 60% based on 8,000 STW in the Barind and 19,000 STW in other shallowflooded areas. Rates show similar sensitivities to those in financial analysis;

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from 10 to 12 percentage points reduction with 10% drop in output value (or inproduce prices and yields), only about 2 percentage points reduction with 10%increase in investment costs and about 7-8 percentage points reduction with10% increase in total operating costs. In the unlikely event of a delay ofone year in attaining project benefits, accompanied by only 33% reductionof incremental operating costs the ERR would still be 29% for STW in othershallow flooded areas, and 31% for STW in the Barind. Such delay must beconsidered as a highly conservative assumption, implying that the borrowerattempts to operate the equipment in the year following construction, butfails to derive any benefits. In fact, delays in obtaining benefits from STWare rare since many farmers manage to increase production within 3-4 monthsof STW construction. The above sensitivities were confirmed by calculatingswitching values that would reduce the rate of return to 12%. Such reductionin returns would result from 38% drop in output values (or in produce pricesand yields); over 100% increase in investment costs and between 63% and 77%increase in operating costs including crop production and tubewells operatingcosts.

Beneficiaries

8.04 On the assumption that at least half of the STW would be sold togroups of four to eight farmers and that even those sold to individuals wouldon average be operated by two or three farmers, as seems the case with pastlending, about 100,000 farm families would benefit from the project. Of thetotal rural population, about 50% are classified as landless or with less thanhalf acre of land and of this group, farmers with small plots could benefiteither as members of an STW group or even if they have no land, as watersales entrepreneurs. However, participation of this group may not be toolarge and it w-ld be better served by the Manually Operated Tubewells Projectwhich has recently been appraised. The profile of project beneficiarieswould, therefore, most probably resemble land ownership distribution in theproject area (para 3.09). The project would ensure that at least 50% ofinvestments would go to households with less than three acres. Evaluationsurveys (para 6.25) would monitor composition of beneficiaries.

8.05 Because of intensified cropping, the project would generate consider-able employment. At maturity, 80,000 additional labor years would be neededfor farming operations, of which an estimated 40% would have to be hired labor.Income of participating borrowers on the Barind is projected as increasing byabout Tk 1,250 per acre from Tk 1,550 to Tk 2,800 after loan service and byabout Tk 1,200 from Tk 2,000 to Tk 3,200 in other shallow flooded areas.Consequently, on a three acre farm, income would rise from Tk 2,300 to 3,100(US$145-190) or US$24-32 per capita assuming an average family size of six, tobetween Tk 8,000 to Tk 9,000 (US$525 and US$600) per year or about US$90-100per capita, just above the estimated average income in Bangladesh. Ruralincomes and employment would be further improved by complementary activitiesarising from tubewells maintenance and handling of increased amount of inputsand resultant crops. As elsewhere on the subcontinent, intensive minorirrigation, for which the project area is particularly suitable, can transformpoverty stricken people into a lively and reasonably prosperous community andthere appears to be every likelihood of such tranformation in the project area.

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Risks

8.06 Main risks are those facing any first project in a subsector.

Firstly, there could be doubts whether BB will manage the project successfully

and measures have been proposed (para 6.01 through 6.05) to establish a strong

project implementation unit. A second risk is related to switching from

traditional centralized public agency procurement for irrigation equipmentto supplies being provided by the private sector according to market demand.

Since the traditional method has been ineffective, there would be little-lossfrom switch to any other procurement system, but measures have been included

for encouraging private sector participation and for constant monitoring of

supplies pipeline (para 4.04 through 4.08). Conceivably, flow of supplies

could be slower than anticipated, but is likely to develop in view of promis-ing market opportunities for minor irrigation equipment. Finally, there is a

risk of inadequate fuel supplies and GOB has assured the Association of highpriority for diesel fuel imports to support food production. Credit for minor

irrigation development has been highly successful on the subcontinent for

achieving rapid increase in agricultural production with attendant increasein rural incomes and employment. In view of exceptionally rich groundwaterresources in Bangladesh a similar program is very likely to succeed there too.Therefore, and because of high potential benefits, the risks described aboveare worth taking.

IX. RECOMMENDATIONS

9.01 Assurances were obtained at negotiations that:

(a) GOB would provide adequate open import licenses for STWequipment only to participating firms which would have anadequate distribution network in the project area and spares,repairs and STW construction facilities satisfactory to theBB (para 4.06);

(b) the programs for local training and training abroad,satisfactory to the Association would commence beforeNovember 30, 1981 (paras 4.13 and 4.14);

(c) consultants would be appointed on terms and conditionssatisfactory to the Association as detailed in para 4.15;

(d) BB would complete a participation agreement satisfactoryto the Association with each participating creditinstitution (para 6.06);

(e) Bangladesh Bank would, before December 31, 1981, obtainaccurate information on loan recovery status of each parti-cipating institution. If recovery of any outlet in theproject area is less than 60% of demand, the institutionconcerned would develop a program satisfactory to BB andthe Association for improving loan recovery; if less than

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40% and after December 31, 1981, 50%, the outlet wouldnot be eligible for project refinance for as long asrecoveries remain below those levels (para 6.09);

(f) GOB would develop, before December 31, 1983, performancecriteria, to be agreed by IDA, to determine eligibility ofany credit institute to receive GOB or BB refinance foragricultural lending (para 6.09);

(g) reorganization of the cooperative credit system in the projectarea, if undertaken, would take place on the basis of a detailedplan, satisfactory to IDA (para 6.11);

(h) by December 31, 1982, a plan satisfactory to IDA, to implementchanges in TCCA/KSS cooperatives' loan eligibility criteriaand loan program planning procedures would be furnished toIDA (para 6.13);

(i) lending terms and conditions detailed in Schedule "A" wouldbe applied (para 6.14);

(j) at least 50% of project lending would be for small farmers(para 6.17);

(k) GOB, before December 31, 1981, would define localities inthe project area that, on geohydrological grounds would notbe suitable for STW development and agree such areas withIDA and would ensure that new DTW would not be constructedthat would adversely affect STW (para 6.23); and

(1) reporting and auditing arrangements described in paras 6.25and 6.26 respectively would be followed including strengthen-ing of TCCA/KSS auditing arrangements in the project area tobring audits up to date (paras 6.25 and 6.26).

9.02 The following would be conditions of credit effectiveness:

(a) signing of a subsidiary loan agreement satisfactory to IDAby GOB and BB (para 5.03);

(b) employment of the Senior Supplies Officer, the TrainingSpecialist, officers in charge of BB Project Department Wingsand at least nine other professional staff for the ProjectImplementation Unit (para 6.04);

(c) completion of the project banking plan satisfactory to IDA(para 6.06); and

(d) establishment of the project and district coordinationcommittees (para 6.21).

- 42 -Schedule APage 1

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Lending Terms and Conditions

1. GOB to BB

(a) annual interest rate of 5% for BB refinancing participatingbank lending directly to ultimate borrower and 3% for onlend-ing through TCCA-KSS;

(b) repayment periods up to 15 years inclusive of up to 2 years'grace period; and

(c) GOB shall bear the foreign exchange risk.

2. BB to Participating Banks

(a) interest rate to be not less than 6% per annum for directlending and 4% for onlending through TCCA-KSS;

(b) installment repayments to coincide approximately with agreedcollections from ultimate borrowers; and

(c) refinancing up to 90% of individual loans. 1/

3. Participating Banks to TCCA

(a) interest rate to be not less than 6-1/2%;

(b) installment repayments to coincide approximately with agreedcollections from ultimate borrowers; and

(c) refinancing up to 100% of individual loans.

4. Participating Banks to Ultimate Borrowers

(a) interest rate to be not less than 14% per annum to borrowersthrough KSS and not less than 13% to other borrowers;

(b) borrowers' contribution (including obligatory purchase ofKSS shares, own labor and other contributions in cash orkind):

1/ Inclusive of loans to TCCAs.

- 43 -Schedule APage 2

(i) STW, other diversified lending and tools andequipment for village mechanics: a minimum of 5%of investment cost by KSS groups and small farmers,10% by other borrowers;

(ii) grain storage and tools and equipment for workshops:a minimum of 10% of investment cost;

(c) repayment periods to be based on the ultimate borrowers' repay-ment capacity, but generally not to exceed:

(i) STW: 9 years inclusive of grace period of up to18 months for lending to KSS groups and smallfarmers and 7 years inclusive of grace period ofup to 18 months to others;

(ii) tools and equipment for workshops: 12 years inclusiveof grace period of up to 1 year;

(iii) tools and equipment for village mechanics: up to 7years;

(iv) grain storage: up to 15 years inclusive of graceperiod of up to 2 years;

(v) other purposes: 9 years for lending to KSS groups andsmall farmers and 7 years to others;

(d) technical standards and appraisal norms, as laid down by BBtaking into consideration IDA guidelines where applicable, tobe observed.

4. General

(a) BB, participating banks, TCCA-KSS to maintain separate accountsfor lending under the project;

(b) TCCA-KSS to have their accounts audited in a manner satisfactoryto BB; and to submit audited accounts to BB within six monthsof the end of their financial year;

(c) security to be in accordance with arrangements between parti-cipating banks and BB;

(d) for lending other than for STW, workshops equipment,village mechanic tools and storage, schemes prepared byparticipating banks must be acceptable to BB;

- 44 -Schedule APage 3

(e) any participating credit institute shall be financiallysound, with staffing and organizational structure (includingappropriate number of branch offices) satisfactory to BBand the Association;

(f) Agrani Bank would implement a loan recovery program satisfac-tory to BB and the Association;

(g) Bangladesh Bank shall:

(i) cease lending, to be refinanced out of the proceedsof the credit, to a participating credit institution,in respect of any branch thereof, whenever loanrecovery by such branch over the preceding 12 monthperiod falls below (a) 40% of demand until December 31,1983 and (b) 50% of demand thereafter, until a loanrecovery level of 40% or 50% of demand, respectivelyis attained by such branch; and

(ii) cause any participating credit institution to implementa loan recovery program satisfactory to BB and theAssociation, in respect of any branch thereof in theproject area for which loan recovery drops below 60%of demand.

For the purpose of the above condition, "demand" means principaland interest falling due over the preceding 12 month period inquestion plus overdues from previous years.

(h) BKB would not lend for STW under this project in thanas coveredby the Second Agricultural Credit Project agreed by GOB and BKBwith ADB;

(i) Borrowers would use designs satisfactory to BB for theconstruction of grain storage; and

(j) BB would ensure that all STW financed under the project would bemarked on the thana irrigation maps which are maintained by GOBor an appropriate GOB agency.

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Schedule B

Agreed List of Diesel Engine Mlakes for Sale to Project Borrowers

DeutzKirloskarKrishiKubotaMayurMitsubishiUshaYanmar

- 46 -

ANNEX 1Table 1

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Recovery Performance of Credit Institutions _/(in percentage) 2/

1975 1976 1977 1978 1979 1980

Nationalized Commercial Banks

Sonali Bank - - 70 72 57 72Janata Bank - - 79 61 42 53Agrani Bank - - 80 53 42 37

Bangladesh Krishi Bank 38 45 49 48 54 57

Bangladesh Samabaya Bank Ltd - 31 28 32 26 32

3'TRDP KSS - - - - 74 68 63

1/ The credit institutions do not have a uniform basis in computing over-dues and the figures above may not provide an accurate basis forcomparison.

2/ Amount recovered during the year against loans overdue at the beginn-ing of the year plus loans falling due during the year.

3/ Principal only.

SOURCES: Sonali, Janata and Agrani Banks, BKB, BSBL and IRDP.

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ANNEX 1Table 2

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Bangladesh Krishi Bank

Balance Sheets for Fiscal Years 1975/76 - 1979/80(Taka MillMon)_

Assets 1975/76 1976/77 1977/78 1978/79 1979/80

Current AssetsCash on Hand and in Banks 12.3 49.1 92.5 181.1 221.8Investments 36.5 52.5 22.5 50.0 58.0

A. Subtotal 48.8 101.6 115.0 231.1 279.8

Loans 713.8 864.7 1,147.0 1,510.6 2,419.0Other Assets 44.5 90.3 144A8 135.0 233.2Fixed Assets 3.6 6.5 11.1 15.3 27.9

B. Total Assets 810.7 1,063.1 1,417.9 1,892.0 2,959.9

Liabilities and CapitalC. Current Liabilities 52.4 60.1 75.5 113.6 146.3D. Deposits-Savings, Current 155.8 257.9 332.0 467.0 751.6E. Borrowings from GOB, BB, and others 405.7 466.7 729.0 1,020.5 1,742.4

F. Total Liabilities 613.9 784.7 1,136.5 1,601.1 2,640.3

Paid up Capital 150.0 200.0 200.0 200.0 220.0Reserves and Surplus 46.8 78.4 81.4 90.9 99.6

G. Total Capital 196.8 278.4 281.4 290.9 319.6

Total Liabilities and Capital 810.7 1,063.1 1,417.9 1,892.0 2,959.9

RatiosLiquidity Ratio

Current Ratio (A over C) 0.66:1 0.88:1 0.76:1 0.99:1Liquidity/Deposits (A over D) 0.31:1 0.39:1 0.35:1 0.49:1 0.37:1

Debt/Equity RatioLong Term Debt/Equity (E over G) 2.06:1 1.68:1 2.59:1 3.50:1 5.45:1Total Debt/Equity (F over G) 3.12:1 2.82:1 4.04:1 5.50:1 8.26:1

Average Assets 830.8 936.9 1,240.5 1,654.9 2,425.9Average Equity 153.4 237.6 279.9 286.2 305.2Average Loans 715.6 789.2 1,005.8 1,328.8 1,964.8

SOURCE: Bangladesh Xrishi Bank

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Bangladesh Krishi Bank

Profit and Loss Statement--Fiscal Year 1975/76 - 1979/80

(Taka million)

1975/76 1976/77 1977/78 1978/79 1979/80

Income

Interest and Discounts 80.7 77.0 107.9 149.8 228.4

Other Income 0.9 1.9 5.3 8.7 12.7

Total Income 81.6 78.9 113.2 158.5 241.1

Expenditure

Interest Paid on Deposits and Borrowings 33.1 35.7 53.2 72.0 119.3

Salaries and Allowances 25.2 26.1 37.5 53.5 64.9

Other Aduinistrative Expenditure 6.4 8.9 12.8 15.7 25.3

Total Expenditure 64.7 70.7 103.5 141.2 209.5

Net Income 16.9 8.2 9.7 17.3 31.6

Ratios

Net Income/Gross Income 21% 10% 8% 11% 13%

Net Income/Average Equity 11% 3% 3% 6% 10%

Administrative Expense/Average Loans 4.41 4.43 5.0 5.21 4.59

Administrative Expense/Average Assets 3.80 3.74 4.05 4.18 3.72

SOURCE: Bangladesh Krishi Bank

ANNEX ITable 4

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Consolidated Balance Sheet - Sonali, Janata and Agrani Banks

As of December 31, 1979(Taka Million)

Sonali Janata Agrani TotalAssets

Current AssetsCash on Hand and in Banks 885.0 995.8 724.7 2,605.5Investment - ghort-term 187.2 199.9 638.9 1,026.0

A. Subtotal 1,072.2 1,195.7 1,363.6 3,631.5

Loans 5,754.0 6,268.9 2,710.5 14,733.4Fixed Assets 100.2 55.9 37.3 193.4Others 10,669.0 6,926.0 3,573.6 21,168.6

B. Total Assets 17,595.4 14,446.5 7,685.0 39,726.9

Liabilities and Capital

Current LiabilitiesCurrent Liabilities 1,222.0 794.6 310.8 2,327.4Current Accounts 5,514.3 2,108.8 2,003.6 9,626.7

C. Subtotal 6,736.3 2,903.4 2,314.4 11,954.1

D. Deposit Savings (excludes current) 2,873.6 4,519.7 1,797.9 9,191.2E. Borrowings from Bangladesh Bank 1,845.9 2,496.1 607.7 4,949.7

Others 6,049.6 4,425.4 2,889.0 13,364.0

F. Total Liabilities 17,505.4 14,344.6 7,609.0 39,459.0

CapitalPaid-up Capital 30.0 30.0 30.0 90.0Reserves 60.0 71.9 46.0 177.9

G. Total Capital 90.0 101.9 76.0 267.8

Total Liabilities and Capital 17,595.4 14,446.5 7,685.0 39,726.9

RatiosLiquidity RatiosCurrent Ratio (A over C) 0.16:1 0.41:1 0.59:1 0.30:1Liquidity/Deposits (A over D) 0.37:1 0.26:1 0.76:1 0.40:1

Debt/Equity RatiosLong Term Debt/Equity (E over G) 20.51:1 24.50:1 8.00:1 18:1Total Debt/Equity (F over G) 1/ 119:1 92.70:1 61:1 92.50:1

1/ Excludes contra accounts in liabilities - Sonali Tk 6,797.0; Janata - Tk 4,899.8and Agrani Tk 2,963.0.

SOURCES: Sonali, Janata and Agrani Banks

- 50 -ANNEX 1Table 5

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Consolidated Profit and Loss Statement - Sonali, Janata and Agrani Banksfor the Year Ended December 31, 1979

(Taka million)

Sonali Janata Agrani Total

Income

Interest and Discount 511.1 603.8 279.5 1,394.4Other Income 99.8 121.4 73.6 294.8

Total Income 610.9 725.2 353.1 1,689.2

Expenses

Interest on Deposits and Borrowings 275.9 375.1 153.3 804.3Salaries and Allowances 168.1 148.6 112.1 428.8Other Administrative Expenses 70.7 105.0 41.4 217.1

Total Expenses 514.7 628.7 306.8 1,450.2

Net Income 96.2 96.5 46.3 239.0

Ratios

Net Income to Gross Income 16% 13% 13% 14%Net Income to Average Equity 1/ 113% 100% 62% 93%Admin. Expense to Average Loans 2/ 5% 4% 6% 5%Admin. Expense to Average Assets 3/ 2% 3% 4% 3%

1/ Average equity for the 3 NCBs - Tk 85.4 million.2/ Average loan for the 3 NCBs - Tk 4,360.6 million.3/ Average assets for the 3 NCBs - Tk 7,348.5 million.

SOURCES: Sonali, Janata and Agrani Banks

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Operations of IRDP Croopea

As of June 30., 19-80

1 75 1976 1977 1978 1979 1980

Nutber cs<q- .t,an•a3 c, -red by T1''As L631 162 2.00 250 2 6 2,6 7NuAheat e. Kt3zfis fat.ed 17<691 18,691, 2'2A7 4 27'445 3 3,11 39,610Numtaer o -ebere' t-nLrolleQ ('000) 4 8 0 0 526 6½ 049,o 8460.B I t1i 4 0 1.YM>12eat>CO.^,j 23 p.X-.:. mp ca4;ital (T'«lJcag inl)Lc-6^-<32 I I 3 13 n1 t 58 2, 4 3? 7)Arnwm of aovinfs and depoCol,to

QC3 loo :f:^t.ed j ,>offiz ynatte,tCiers (feJite m- ............ ................... Illion). . t -t ' .2 ', 2Nurterec cf 2sso ',o i borrowecl Qir< .dtij 2',r,, th,7 t,•i7ear 2J I £ ,t 4

N>eue of Sa., rs -lnanoeddr ing the year ('000C) 260. 12* Ja0 ? 0 t ; 3Loanp. Issued durinpg t-he year (1akT& Ylillion)

PaddyT. Aman 1, 88 1900 im2 33,1 242 _7J 50.7Boro 2115.9 27L9 28.9 48.1 45.4, 8510AUs B Arian -i .5 5. 13.6 21.0 33(-I 543

Potato 0.3 0 .' 2.1 .1 5c7 5.8Wheat _ - 0.6 2.5 4_ 4.0 8.2Total Loans 26.5 45.1 64.2 108.8 122.4 20&.5

Recovery Performance - 47% 68% 63%

Average number of KSS per Thana 110 115 114 110 126 148Average number of metbers per KSS 27 28 28 31 31 33Percentage of KSS which borrowed

to total number of KSS 35% 52% 53% 57% 46% 42%Average number of farmers financed

per KSS financed 21 26 26 26 26 18Percentage of farmers financed to

total memership 28% 49% 48% 49% 38% 24%

SOURCE: IRDP

-52 - ANNEX 1

BANGLADESH Table 7

AGRICULTURAL CREDIT PROJECT

Bangladesh Samabaya Bank Ltd.Balance Sheets 1975/76 - 1979/80 1/

(Taka Million)

Assets 1975/76 1976/77 1977/78 1978/79 1979/80

Current Assets

Cash on hand and in banks 24.0 28.8 32.9 35.3 39.7Investments 6.4 6.2 5.7 6.2 5.0

A Total Current Assets 30.4 35.0 38.6 41.5 44.7

Loans and Advances 335.9 343.9 382.6 464.6 566.3Interest Receivable 77.5 92.1 108.8 129.7 156.2Fixed Assets 2.1 2.0 2.0 2.1 2.1Other Assets 36.3 42.0 37.4 45.0 51.3

B Total Assets 482.2 515.0 569.4 682.9 820.6

Liabilities and Capital

C Deposits 21.3 22.0 19.7 19.6 19.9D Borrowings from Government, 330.5 336.9 367.7 451.6 545.7

Bangladesh Bank and Others 2/E Other Liabilities 3/ 82.5 100.6 120.6 143.0 176.9

F Total Liabilities 434.3 459.5 508.0 614.2 742.5

CapitalPaid in 4/ 16.5 16.5 16.5 16.8 20.2Reserve and other funds 31.4 39.0 44.9 51.9 57.9

G Total Capital 47.9 55.5 61.4 68.7 78.1

Total Liabilities and Capital 482.2 515.0 569.4 682.9 820.6

Ratios:

Liquidity RatioCurrent (A over C+E) 0.79:1 0.28:1 0.28:1 0.26:1 0.23:1Liquidity/Deposits (A over C) 1.43:1 1.59:1 1.96:1 2.12:1 2.25:1

Debt/Equity Ratio (F over G) 9.07:1 8.28:1 8.27:1 8.94:1 9.51:1

Recovery Performance:On all loans (overdue & current) 30.7 27.6 32.3 26.2 31.8On current loans 60.6 54.8 70.0 59.7 68.1

Average Equity 47.8 51.6 58.4 65.1 73.4Average Loan 335.9 340.0 363.2 423.6 515.4Average Assets 482.2 498.6 542.2 626.2 751.8

1/ Fiscal year July 1 to June 30.2/ Includes Government Bangladesh Bank and commercial banks borrowing: after 1977

loans are obtained only from GOB and BB.3/ Interest on borrowings and deposits of which about 98% are interest payable on

GOB and BB borrowing.41 TK 4.5 million paid in by GOB.

SOURCE: Bangladesh Samabaya Bank Ltd.

- 53 - ANNEX 1

Table 8

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Bangladesh Samabaya Bank Ltd.Profit and Loss Statement 1975/76 - 1979MO-R/

(Taka million)

1975-76 1976-77 1977-78 1978-79 1979-80

Income

Interest and Discount 27.5 28.1 28.9 31.9 40.1Other Income 7.5 6.9 7.5 7.4 8.7

Total Income 35.0 35.0 36.4 39.3 48.8

Expenditures

Interest paid on deposits and borrowings 26.9 25.5 27.0 29.3 38.4Salaries and allowances 0.6 1.0 1.3 1.8 1.7Other administrative expenditures 1.2 0.8 0.9 1.1 2.7

Total Expenditures 28.7 27.3 29.2 32.2 42.8

Net Income 6.3 7.7 7.2 7.1 6.0

Ratios

Net Income/Gross Income 18% 22% 19.7% 18% 12.2%Net Income/Average Equity 13% 15% 12.3% 11% 8.1%Administrative Expenses/Average Loans 0.5% 0.5% 0.6% 0.7% 0.8%Administrative Expenses/Average Assets 0.3% 0.3% 0.4% 0.4% 0.5%

1/ Fiscal year July 1 to June 30.

SOURCE: Bangladesh Samabaya Bank Ltd.

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Merit Criteria for KSS

Criteria Classification of KSS

A B C D E

Minimum coverage of farm families excludingabsentee landlords 60 50 40 30 up to 30

Minimum proportion of members on roll ofKSS who must make a weekly saving of atleast 50 paise 80 60 50 40 up to 40

Minimum proportion of members who mustcontribute at least one share annually 80 60 50 40 up to 40

Minimum proportion of members who mustuse credit facility of KSS 80 60 50 40 up tp 40

Minimum proportion of recovery of credit 80 60 50 40 up to 40

Minimum proportion of attendance of KSSchairman, manager and model farmer atweekly classes conducted at thana trainingand development center 80 60 50 40 up to 40 D X

Source: IRDP Directorate.

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Land Utilization NW Region - 1978/79(Area in '000 Acres)

1/ Irrigated 1/ 1/Not- Cultu 1/ Total Area from Irrigated Net- Total-/

Total Culti- able- Current- Area Power Area from Cropped CroppedDistrict Area vatable Forest-V Waste Fallows Irrigated Pumps Tubewells Area Area

Rajshahi 2,339 503 7 72 59 258 76 15 1,699 2,176

Dinajpur 1,670 296 24 62 167 125 25 36 1,156 1,681

Rangpur 2,371 521 5 84 84 174 14 25 1,689 3,124

Bogra 961 215 - 2 41 140 26 48 720 1,160

Pabna 1,201 233 _ 1 47 60 38 9 922 1,449

Total 8,542 1,768 36 221 398 766 179 133 6,186 9,590

Net Cropped Area = 72% Total Area (vs. 59% nationwide, or 67% excluding Chittagong Hill Tracts and the Sundarbans)

Cropping Intensity = 155 (vs. 153 nationwide) (Total Cropped Area * Net Cropped Area)

Irrigated Area = 12% Net Cropped Area (vs. 18% nationwide)

Total Rice Area = 75% Gross Cropped Area

1/ There is little variation from year to year: 1976/77 to 1978/79 3-year average figures are similar to 1978/79 figures.

SOURCE: Bangladesh Bureau of Statistics, Monthly Statistical Bulletin of Bangladesh, Vol. IX, No. 8, August 1980.Bangladesh Bureau of Statistics, 1979 Statistical Yearbook of Bangladesh.

t 1

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Production of Major Crops - NW Region 1/

Raishahi _ Dinajpur Rangpur Bogra Pabna Total

Crop Acreage Yield Production Acreage Yield Production Acreage Yield Production Acreage Yield Production Acreage Yield Production Abreage Yield Production

RiceB. Aus (Local) 2/ 458 0.34 154 452 0.35 158 967 0.31 295 265 0.29 78 358 0.30 106 2,500 0.32 791

I. Aus (HYV) 2/ 20 1.05 21 24 0.96 23 39 0.90 35 32 0.75 24 4 1.00 4 119 0.90 107

B. Aman (Local) 4/ 356 0.37 131 11 0.45 5 71 0.44 31 5 0.40 2 348 0.28 98 791 0.34 267

T. Aman (Local)21 661 0.45 300 743 0.50 382 1,121 0.50 561 524 0.51 268 137 0.48 66 3,186 0.49 1,577

T. Aman (HYV) 3/ 35 0.86 30 48 0.88 42 104 0.96 100 44 0.84 37 20 0.95 19 251 0.91 228

Boro (hYV) 5/ 64 1.09 7.0. _11 1.00 11 42 0.81 34 42 1.00 42 27 1,07 29 186 1.00 186

Total Rice 1,594 0.44 706 1,289 0.48 621 2,344 0.45 1,056 912 0.49 451 894 .38 322 7,033 0.45 3,156

Wheat HYV 5/ 6/ 29 0.79 23 32 0.78 25 27 0.74 20 25 0.84 21 33 0.80 26 l46 0.79 115

Jute 7/ 60 0.46 28 68 0.60 41 317 0.59 187 49 0.51 25 79 0.56 44 573 0.57 325

Potatoes 21 2.45 52 21 2.56 55 25 3.51 87 24 2.89 69 6 2.21 13 97 2.85 276

Rape & Mustard 9/ 50 0.24 12 49 0.22 11 45 0.29 13 11 0.27 3 44 0.30 13 199 0.26 52

Khesari 2/ 21 0.33 7 1.5 0.27 0.4 10 0.30 3 4 0.25 1 49 0.35 17 85.5 0.33 28.4

Tobacco 2/ 1.7 0.35 0.6 0.23 0.7 72 0.44 32 0.7 0.29 0.2 2 0.40 0.8 79.4 0.43 34.3

Total Other Crops Area 183 174 496 114 213 1,180

1/ Acreage in '000 acres; yield in tons/acre (for rice as clean rice equivalent); production in '000 tons.

2/ 3-year average (1975/76-1977/78)3/ 3-year average (1977/78-1979-80)4/ Crop-cutting surveys by the Bangladesh Rice Research Institute (BRRI) show a national 3-year average B. Aman rice yield of

0.62 tons per acre, with N. Bengal close to the average.5/ 4-year average (1975/76-1978/79)6/ HYV wheat acreage has increased rapidly each from the 1977/78 crop season.7/ 4-year average (1976/77-1979/808/ 2-year average (1977/78-1978/79)9/ 3-year average (1974/75-1976/77).

SOURCE: Bangladesh Bureau of Statistics, Monthly Statistical Bulletin of Bangladesh, Vol. IX, No. 8, August 1980.Bangladesh Bureau of Statistics, 1979 Statistical Yearbook of Bangladesh.

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Project Cost(Taka Million)

Foreign Exchange Local

Unit Price Year 1 Year 2 Year 3 Year 4 Total % Amount Cost

('000)

Shallow Tubewells 24.8 49.6 124.0 272.8 223.2 669.6 55 368.3 301.3

(2,000) (5,000) (11,000) (9,000)

Workshop, Tools and Equipment 742.5 2.4 4.7 9.5 7.1 23.7 75 17.8 5.9

(5) (10) (20) (15)

Mechanics Kit 11.0 0.6 1.1 2.2 1.6 5.5 60 3.3 2.2

(50) (100) (200) (150)

Storage 840.0 4.2 6.7 5.9 16.8 15 2.5 14.3

Other Diversified Lending - 5.0 5.0 12.0 10.0 32.0 45 14.4 17.6

Consultancy 160,000/man mo. 4.5 4.5 - - 9.0 100 9.0 -

Fellowship 1.6 1.6 1.6 - 4.8 100 4.8 -

Local Training Cost 2.0 3.5 3.5 2.2 11.2 20 2.2 9.0

Base Cost 65.7 148.6 308.3 250.0 772.6 55 422.3 350.3

Price Contingencies 7.7 30.0 91.6 96.9 226.2 55 124.4 101.8

Total Project Cost 73.4 178.6 399.9 346.9 998.8 55 546.7 452.1

D >4

- 58 -

ANNEX 3Table 2

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Shallow Tubewell Cost 1/

------- Taka - ---- -------- US$ ------Locall' Foreign Total Local3 Foreign Total

Diesel Engine (5-6 HP) 1,459 6,080 7,539 91.2 380.0 471.2Pump (3/4 cusec with

coupling etc.) 2/ 1,124 1,686 2,810 70.2 105.4 175.6GI Pipe (4") 60 rft. 1,498 2,248 3,746 93.6 140.5 234.1Strainer (4") 40 rft. 2,240 3,360 5,600 140.0 210.0 350.0Tubewell accessories 1,260 - 1,260 78.8 - 78.8Drilling and Commissioning 1,450 - 1,450 90.6 - 90.6Handling and Transport 300 - 300 18.8 - 18.8Contractor's markup 4/ 2,095 - 2,095 130.9 - 130.9

TOTAL 11,426 13,374 24,800 714.1 835.9 1,550.0

1/ 100 rft STW, 60 rft blind pipe, 40 rft GI core brass strainer.2/ BMTF (Bangladesh Mallines Tool Factory), Govt. owned company manufacturing pumps

whose prices are below privately owned pump factories. Local component about 40%.3/ Local cost includes Govt. levies, import duty, drilling cost, handling, markups and

local costs in producing pumps.4/ 10% on items 1 to 5 representing contractor's recommendation for sieves.

Source: BKB

-59 - ANNEX 3Table 3

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Workshop Tools and Equipment Cost(Tk)

Quantity Unit Cost Total

Nozzle Tester 1 6,500 6,500Electric Welding Set - 300 Amperes 1 19,000 19,000Gas Welding Set with Accessories 1 16,000 16,000Multi-Purpose Precision Lathe 1 123,000 123,000Electric Bench Drill 1 12,500 12,500Electric Bench Grinder 1 23,000 23,000Fitters Vices 4 600 2,400Hydraulic Jacks 2 2,300 4,600Diesel Engine Compressor Tester 1 3,700 3,700Tool Boxes 15 6,500 97,500Hand Grease Gun 3 800 2,400Micrometer (2), Vernier Calipers (1) 1 Set 19,000 19,000Tapes (2), and rules (2)

Lathe Tools 10 250 2,500H.S.S. Drill Bit - set 2 600 1,20012 piece set of taps and dies 1 4,300 4,300Piston Ring Band Spanner 2 300 600Valve Spring Pliers 2 200 400Stud and Bolt Extracter set 2 200 400Hand Drill 2 600 1,200Soldering Iron 2 1,500 3,000Pipe Wrenches 4 1,500 6,000Utility Knives 4 200 800

Total C.I.F. Cost 350,000

Import Duty 15% 52,500Handling 20% 70,000

Total 472,500

-60 - ANNEX 4

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Disbursement Schedule(US$ millions)

DisbursementsFiscal Year/Quarter Quarterly Cumulative

1981/82First Quarter 1/Second Quarter - -Third Quarter 0.1 0.1Fourth Quarter 0.2 0.3

1982/83First Quarter 0.2 0.5Second Quarter 0.1 0.6Third Quarter 2.0 2.6Fourth Quarter 3.2 5.8

1983/84First Quarter 2.7 8.5Second Quarter 1.0 9.5Third Quarter 4.4 13.9Fourth Quarter 5.2 19.1

1984/85First Quarter 2.7 21.8Second Quarter 1.0 22.8Third Quarter 5.0 27.8Fourth Quarter 6.0 33.8

1985/86First Quarter 4.0 37.8Second Quarter 2.2 40.0

1/ Signing date expected about July, 1981.

- 61 -

ANNEX 5Page 1

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Functions of Project Implementation Unit

1. The Project Implementation Unit would have three Wings each headedby a senior officer which would be: a Planning Wing, an Operations Wingand a Monitoring and Evaluation Wing. The Operations Wing would be mainlyinvolved in day-to-day management of the project with support from the otherWings.

2. The Planning Wing would have three cells--a Policy Cell staffed bybankers; a Technical Cell with groundwater and farm management experts ini-tially, with other technical experts to be added at later date; and a TrainingCell which would plan and supervise the project training program. The PolicyCell would provide guidance on such matters as lending and refinancing criteria,lending terms and conditions, staffing norms, allocation of areas to variousinstitutes, staffing norms and appraisal criteria and norms; and would alsodraw up policy circulars and documentation to be used in the lending operationssuch as loan application or loan appraisal forms. Together with the TechnicalCell, it would develop or appraise new lending schemes to be refinanced byBB, ensuring technical, organizational and financial feasibility. The Tech-nical Cell would also be needed to support project operations, particularlyon such matters as ensuring adequate groundwater monitoring arrangements andgroundwater development planning, provision, in consultation with BangladeshWater Development Board, BADC and BKB engineers, of STW designs suitable fordifferent conditions in the project area, delineation of areas suitable forSTW and suitability of irrigation equipment. BB should draw up a panel ofconsultants that could be hired to augment the expertise of the TechnicalCell particularly for subjects for which employment of full time technicalstaff would not be warranted.

3. The Operations Wing would have a Supervision Cell staffed with bank-ing staff that would be responsible for supervising project implementation;a Supply Cell that would have the very important task of ensuring an adequatesupply of irrigation equipment in the project area and would also monitorsales of each approved dealer in the project area, adequacy of constructionagencies, fuel supplies and other inputs supplies; and a Finance and AccountsCell headed by a Senior Accounting Officer that would keep the project accounts,deal with claims for refinance from participating institutions, prepare claimsfor IDA reimbursement and lay down project accounting and refinancing proce-dures. The Operations Wing would also supervise sub-units that would be esta-blished in regional offices in due course, to intensify project supervision.

- 62 -

ANNEX 5Page 2

4. The Monitoring and Evaluation Wing would design reporting systemsand would be responsible for obtaining management information, providingregular reports to management, preparing quarterly progress reports for useby the management and IDA and for preparing the Project Completion Reportafter the conclusion of the project. Initially the Wing would establishmonitoring and reporting systems, but in the second project year, it wouldstart evaluating project benefits by means of field studies and for thispurpose would require suitably trained economists.

5. The Project Director who would be in charge of the Project Imple-mentation Unit should be appointed at a very early date. Apart from him themost urgent appointment, which is needed equally early, would be the SeniorSupplies Officer, to organize early import, assembly and distribution of STWequipment. His most important tasks would be to ensure adequate participa-tion by private firms and to ensure that they obtain necessary import licenses,foreign exchange and credit expeditiously. Other early appointments shouldinclude: the officer in charge of each Wing; a banking officer, groundwaterengineer, farm management specialist and credit training specialist for thePlanning Wing; two banking officers, an assistant supplies officer (to workwith the Senior Supplies Officer) and the Senior Accounts Officer with appro-priate supporting staff for the Operations Wing; and one officer to assistthe officer in charge of the Monitoring and Evaluation Wing.

6. Important pre-project activities for Project Department Wings otherthan organizing equipment supplies, would be for the Planning Wing to drawup the project banking plan, establish project lending terms and conditions,refinance policies, participation criteria, loan appraisal criteria, imple-mentation programs and targets, and to draw up the project training program;in particular to make early arrangements for short term study programs abroadto train the trainers of participating banks. In addition, the Finance andAccounts Cell of the Operations Wing needs to draw up accounting and financingsystems, procedures and forms.

- 63 -

ANNEX 6Page 1

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Guidelines for Loan Accounting for Recovery Reporting Systems

1. At present, the systems used by CB, BKB, BSBL and TCCA/KSS forrecording loan transactions are not uniform. This results in varying methodsof presenting loan recoveries, making comparison of performance between insti-tutions quite difficult. The objective of measuring recovery performance isto observe: (a) loan repayment discipline practiced by the borrowers andachieved by the banks; and (b) effect of overdues and doubtful loan accountson the financial viability of the banks. The former is mainly ascertainablethrough overdue statistics, the latter partly by listing the overdues accord-ing to their age and partly, by comparing overdues or doubtful loan accountswith the amount of total loan portfolio and/or reserves. To achieve uniformpresentation of loan recovery performance, participating banks may need toinclude the following features in their loan accounting systems:

(a) control accounts for short-term loans and medium and long-term showing separately current loans, collections, (bothbroken down into principal and interest) past dues andbalances; total lending during the reporting period, totallending to date, and total loans outstanding;

(b) subsidiary ledgers for these control accounts which need tobe kept up-to-date and record the same information as in(a) above;

(c) records of all loans accounts for short-term loans andmedium and long-term loans need to show the maturity datesof all loans granted;

(d) "past due" accounts to which all loans unpaid at maturityshould be transferred. "Past due loans" control accountsfor both short-term and medium and long-term loans shouldrecord collection broken down into principal and interest;and should be supported by subsidiary ledgers for each"past due loans" control account;

(e) application of all payments first to accrued interest, ifany, and only the balance to principal. (Interest incomeshould not be credited unless interest is actually col-lected); and

(f) bad and doubtful loans accounts, to which an amount basedon the aging schedule (para 3) could be credited regularly.

- 64 -

ANNEX 6Page 2

2. The following is information that needs to be included into the loanrecovery performance reporting format during a reporting period (quarter, sixmonths or one year):

Principal Interest Total

(a) Loan Portfolio:

1. Amount outstanding(Principal) XXX - XXX

2. Number of loans outstanding - - XXX

(b) Amount Due for Collection:

1. Arrears: (overdues at thebeginning of the reportingperiod which can be takenfrom the past due controlaccount or from the previousreport) XXX XXX XXX

2. Current (amount due for reco-very during the reportingperiod, to be taken from theshort-term or medium andlong-term control accounts) XXX XXX XXX

(c) Amount Recovered During the Period

1. On arrears (from past duecontrol account) XXX XXX XXX

2. On current (to be takenfrom short-term and mediumand long-term controlaccounts) XXX XXX XXX

(d) Arrears at end of Year (to beTransferred to Next Report) XXX XXX XXX

(e) Recovery Percent - XXX

Recovery performance expressed as a percentage is the ratio of total collec-tion to total amount due for collection. Advance collection should not beincluded in computing recovery performance percentage, but should be includedamong collections at the time the corresponding loan becomes due.

3. Together with the above format, an aging schedule of loans is neededfor both short-term loans and medium/long-term laons. The format would be thesame for both types of loans except that long-term laons aging would cover alonger period. For example, a typical short-term aging schedule would be:

- 65 -

ANNEX 6Page 3

Short-Term Loans

Amount(a) Overdue No. Principal Interest Total

1-6 months6-12 months1-2 years2-3 years

Short-term loans overdue for three years or more should either be written offor transferred to a suspense account.

(b) A typical term loans' aging schedule could be:

Term Loans

AmountOverdue No. Principal Interest Total

Less than 1 year1-2 years2-3 years3-4 yearsOver 4 years

4. Provisions for reserves against bad or doubtful loans should alsobe reported; and the ratio, as percent, of overdues to bad and doubtful loansreserves.

- 66 -ANNEX 7Table I

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Cropping Patterns

I II

Other ShallowBarind Tract - _ Flooded Areas

Paddy P v W P W

B. Aus (local) - - - 20 20 -

T. Aus (HYV) - - - - - 60

T. Aman (local) 80 75 70 80 70 60

T. Aman (HYV) 20 25 30 20 30 40

Boro (HYV) - - 60 - - -

Sub-Total 100 100 160 120 120 160

Other Crops

Wheat 5 10 20 10 15 20

Jute - - - 20 20 20

Pulses and Oilseeds 10 10 - 10 10

Potatoes - - 10 - - 10

Sub-Total 15 20 30 40 45 50

Total Cropping Intensity: 115 120 190 160 165 210

1/ P = Present; W = Future Without Project; W = Future With Project.

- 67 -ANNEX 7Table 2

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Present Average Yields and Projected Future Yieldsf_ Crops in tbe Project_ Area_1/ _l_

Future FutureWithout With

Present (P) Project (v) Project(W)Md/Acre Ton/Acre Md/Acre Ton/Acre Md/Acre Ton/Acre

Paddy

B. Aus (Local) 14 .51 14 .51 14 .51T. Aus (HYV) 36 1.32 36 1.32 40 1.47B. Aman (local) 2/ 25 .92 25 .92 25 .92Aus/Aman Mixed 33 1.21 36 1.32 36 1.32T. Aman (local) 20 .73 20 .73 22 .81T. Aman (HYV) 25 .92 30 1.10 35 1.29Boro (HYV) 40 1.47 45 1.65 45 1.65

Other Crops

Wheat (HYV) 20 .73 20 .73 27 1.00Jute 16 .59 16 .59 22 .81Pulses & Oilseeds 9 .33 9 .33 12 .44Potatoes 85 3.12 95 3.49 120 4.41

l/ Derived from: Bangladesh Bureau of Statistics (BBS)Agro-Economic Research (AER), Ministry of Agriculture and Forests.Bangladesh Rice Research Institute (BRRI)

2/ Bangladesh Rice Research Institute (BRRI) Cropcut Surveys--1977, 1978 and 1979.

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Present and Future Crop Yield, Acreage and Production

Yield Production Incremental ProductionCrop (tonsLacre) Area ('000 Acres) ('000 tons) ('000 tons)

__T ~~~~~ -f ~~- w wwPddy r- w - X P T -- w _ -w w w=P

B. Aus (local) 0.51 0.51 0.51 35.0 35.0 - 17.9 17.9 - (17.9) (17.9)T. Aus (HYV) 1.32 1.32 1.47 - - 114.0 - - 167.6 167.6 167.6T. Aman (local) 0.73 0.73 0.81 211.2 189.2 170.0 154.2 138.1 137.7 (16.5) (0.4)T. Aman (HYV) 0.92 1.10 1.29 52.8 74.8 100.0 48.6 82.3 129.0 80.4 46.7Boro (HYV) 1.47 1.65 1.65 - - 48.0 - - 79.2 79.2 79.2

Total Paddy 0.74 0.80 1.56 299.0 299.0 432.2 220.7 238.3 513.5 292.8 275.2

Other Crops 00

Wheat 0.73 0.73 1.00 22.3 35.3 54.0 16.3 25.8 54.0 37.7 28.2Jute 0.59 0.59 0.81 35.0 35.0 38.0 20.6 26.6 28.4 7.8 1.8Pulses and Oilseeds 0.33 0.33 0.44 26.4 26.4 - 8.7 8.7 - (8.7) (8.7)Potatoes 3.12 3.49 4.41 - - 19 0 - - 83.8 83.8 83.8

Total other Crops 83.7 96.7 111.0Total Area Sown 382.7 395.7 543..0

Overall cropping Intensity (270,000 acres 142% 147% 201%farm land)

Total Food Grain ProductionRice (Paddy X2) 147 159 342 195 183

3

Wheat 16 26 54 38 28

Total 163 185 396 233 211 xP - PresentW - Future without ProjectW - Future with Project

- 69- ANNEX 7Table 4

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Financial and Economic Prices

Financial Price Economic Price(Tk/md) (Tk/md)

CROPS 1/

Paddy: Aus 105 142Am.an 115 153Boro 105 142

Wheat 105 158Jute 160 190Pulses & Oilseeds * 170 128 2/Potatoes 60 45 2/

INPUTS

Fertilizer: Urea 110 11/ 163TSP 90 11/ 195MP 70 11/ 131Manure 2 1.5 2/

Pesticides 3,360 10,080 3/

Seed: 4/ Paddy (HYV) 160 212Wheat (HYV) 170 236Potatoes 120 90

Animal Power (pair-day) 22 16.5 5/Hired Labor (man-day) 10 5.1 6/

9/ 10/Tubewell O&M: - STW 16.4 ( 8.2/hour) 14.3 ( 7.1/hour)(acre-inch) DTW 11.1 (22.2/hour) 9.7 (19.3/hour)

Sale of Water (per acre-inch) = Total Cost + 50%

Cropping Pattern I-STW 7/ 39 Costs includeI-DTW 8/ 37.5 fuel, lubricants sparesII-STW 7/ 45 repairs, amortization and

interest charges.

1/ Financial prices derived from 5-year average (1975/76-1979/80) valued in1980 Taka.

2/ Non-traded commodities adjusted by SCF = .75.3/ Pesticides used are subsidized at about 65%. Therefore, the price used in

the economic analysis is taken at the financial price.4/ Local paddy varieties plus jute and pulses and oilseeds are valued at crop

prices.5/ Adjusted by SCF = .75.6/ Economic wage of farm labor in view of periodic under and unemployment in

agriculture computed by IBRD at Tk 6.8 and adjusted by SCF = 0.75.7/ Assuming 10-acre command area.8/ Assuming 70-acre command area.9/ Fuel, lubricant, spares and repairs.10/ Adjusted to take account of international prices. Local costs adjusted by SCF = 0.75._1/ Reflects price increase of October 1980.

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Crop Production Costs per Acre at Financial Prices(Takas)

Aus/AmanB. Aus T. Aus B. Aman Mixed T. Aman T. Aman Boro Wheat Pulses &(local) (HYV) (local) (local) (local) (HYV) (HYV) (HYV) Jute Oilseeds Potatoes

Pr 17 W 2/ PIP I/ 5 1/ fff I P 3/ W 4/ W 2/ W 2/ PC I/ W 2/ P'P 1/ W 2/ PT lj W 2/ W 2/

Seed 100 60 98 141 43 60 60 48 92 234 255 24 24 43 43 120

Fertilizer: Urea 83 179 28 83 55 83 83 110 206 165 220 41 55 28 55 165

TSP 45 122 11 45 25 34 34 47 162 90 113 16 11 23 50 68

MP 18 32 - 18 11 18 18 23 33 26 35 9 9 9 18 53

Manure 80 76 _ 80 42 50 50 56 242 50 100 40 80 40 60 200

Pesticides 42 84 42 42 42 42 42 84 84 - 42 - 42 - 42 84

Animal Power 484 572 484 572 440 440 484 528 550 396 528 418 440 264 330 990

Labor:Family 350 570 570 720 570 540 570 600 520 350 450 550 650 300 390 1400

Hired 170 380 280 330 430 410 430 450 500 150 250 350 450 40 60 400

Subtotal 520 950 850 1050 1000 950 1000 1050 1020 500 700 900 1100 340 450 1800

Other 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

Subtotal 5/ 1122 1605 1043 1411 1188 1237 1301 1446 1969 1211 1643 998 1211 547 758 2180

Irrigation 0 & M: Shallow Tubewell - 426 - - - - 31 684 - 323 - 72 - 365 365

Deep Tubewell - - - - - - - 21 463 - 219 - - - - 247

Cost of Farm Inpute: S/ STW 1122 2031 1043 1411 1188 1237 1301 1477 2653 1211 1966 998 1283 547 1123 2545DTW 1122 - 1043 1411 1188 1237 1301 1467 2432 1211 1862 998 - 547 - 2427

Gross Value of Production (GVP) 6/ 1470 3780 2875 3665 2300 2875 3450 4025 4725 2100 2835 2560 3520 1530 2400 7200

Net Value of Production: STW 348 1749 1832 2254 1112 1638 2149 2548 2072 889 869 1562 2237 983 1277 4655

(NVP) DTW 348 - 1832 2254 1112 1638 2149 2558 2293 889 973 1562 - 983 - 4773

1/ P W = Present and future without project.2/ W = Future with project.3/P =Present4/ H = Future without project.5/ Excluding family labor.

6/ Yield (Table 2) X financial price (Table 4)

- 71 -

ANNEX 7Table 6

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Five Acres Farm Model: Projected Income and Financial Returns

FARM DATA FOR CROPPING PATTERN NO. I - SHALLOW TUBEWELL Build-up Rate for net

Command area : 5 acres owned by tubewell owner(s) incremental income:5 acres not owned by tubewell owner(s) Year 1 0%

Year 2 50%Total : 10 acres Year 3 : 75%

Cropping Intensity : 120% without project Year 4 100%190% with project

Investment Cost : Tk 24,800 Tubewell Set

Tubewell Operating Hours per Year : 635

Project Period : 7 years----------------------- (Takas 1,000) --_ ----------- …--------

WithoutProject With Project

1-7 1 2 3 4 5-6 7

CASH INFLOW

Gross Farm Income 1/ 2/ 14.8 14.8 24.8 29.7 34.7 34.7 34.7Off-farm Income (Sale of Water) - - - 3.1 4.7 6.2 6.2 6.2

Total 14.8 14.8 27.9 34.4 40.9 40.9 40.9

CASH OUTFLOW

Tubewell investment costs - 24.8 - - - - (2.5) -/Operating costs 7.0 7.0 11.0 13.0 15.0 15.0 15.0Tubewell 0 & M 3 - - 2.6 3.9 5.2 5.2 5.2Incremental Working Capital -/ - 3.3 1.7 1.7 - - (6.7)

Total 7.0 35.1 15.3 18.6 20.2 20.2 11.0

NET BENEFIT BEFORE FINANCING

Total 7.8 (20.3) 12.6 15.8 20.7 20.7 29.9Incremental C28.1) 4.8 8.0 12.9 12.9 22.1

INTERNAL RATE OF RETURN = 29%FINANCING

Long term loan -/ - 22.3 - - - - -Short term loan 3.3 1.7 1.7 - - -

Less: Debt ServiceLong term loan - - (2.9) (6.3) (6.3) (6.3) (6.3)Short term loan - - (3.5) (1.8) (1.8) - -

Net Financing - 25.6 (4.7) (6.4) (8.1) (6.3) (6.3)

NET BENEFIT AFTER FINANCING

Total 7.8 5.3 7.9 9.4 12.6 14.4 23.6Incremental - (2.5) - 0.1 1.6 4.8 6.6 15.8Cumulative Incremental - (2.5) (2.4) (0.8) 4.0 17.2 33.0

INTERNAL RATE OF RETURN TO FARMER'S EQUITY = 85%

1/ On five acres owned by tubewell owner(s).2/ On five acres not owned by tubewell owners. Water sold at cost + 50%.3/ 50% of the increase in operating cost in the following year, assuming a double-cropping system.41 90% of tubewell investment costs at 13% p.a. interest, with 1-year grace period.5/ 10% salvage value.6/ Farmers contribution to investment.

- 72 -

ANNEX 7Table 7

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Ten Acres Farm Model: Projected Income and Financial Returns

FARM DATA FOR CROPPING PATTERN NO. I - SHALLOW TUBEWELL Build-up Rate for netincremental income:

Command Area . 10 acres owned by tubewell owner(s)Year1 : 0%

Cropping Intensity . 120% without project Year 2 : 50%190% with project Year 3 : 75%

Year 4 : 100%

Investment Cost : Tk 24,800 Tubewell Set

Tubewell Operating Hours per Year : 635

Project Period . 7 years

-------------------------(Takas 1,000)--------------------------

WithoutProject With Project

1-7 1 2 3 4 5-6 7

CASH INFLOW

Gross Farm Income 29.6 29.6 49.6 59.4 69.4 69.4 69.4Off-farm Income (Sale of Water) - - - - - - -

Total 29.6 29.6 49.6 59.4 69.4 69.4 69.4

CASH OUTFLOW

Tubewell Investment Costs - 24.8 - - - - (2.5) -/Operating Costs 14.0 14.0 22.0 26.0 30.0 30.0 30.0Tubewell 0 & M - - 2.6 3.9 5.2 5.2 5.2Incremental Working Capital -/ - 5.3 2.7 2.7 - - (10.7)

Total 14.0 44.1 27.3 32.6 35.2 35.2 22.0

NET BENEFIT BEFORE FINANCING

Total 15.6 (14.5) 22.3 26.8 34.2 34.2 47.4Incremental (30.1) 6.7 11.2 18.6 18.6 31.8

INTERNAL RATE OF RETURN = 40%

FINANCING

Long term Loan - 22.3 - - - - -Short term loan 5.3 2.7 2.7 - - -

Less: Debt ServiceLong term loan - - (2.9) (6.3) (6.3) (6.3) (6.3)Short term loan - - (5.6) (2.9) (2.9) _ _

Net Financing - 27.6 (5.8) (6.5) (9.2) (6.3) (6.3)

NET BENEFIT AFTER FINANCING

Total 15.6 13.1 4 16.5 20.3 25.0 27.9 41.1Incremental - (2.5) - 0.9 4.7 9.4 12.3 25.5Cumulative Incremental - (2.5) (1.6) 3.1 12.5 37.1 62.6

INTERNAL RATE OF RETURN TO FARMER'S EQUITY = OVER 140%

1/ 50% of the increase in operating cost in the following year, assuming a double-cropping system.21 90% of tubewell investment costs at 13% p.a. interest, with a 1-year grace period.3/ 10% salvage value.4/ Farmers contribution to investment.

- 73 -ANNEX 7Table 8

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Five Acres Farm Model: Projected Income and Financial Returns

FARM DATA FOR CROPPING PATTERN NO. II - SHALLOW TUBEWELL Build-up Rate for netincremental income:

Command Area : 5 acres owned by tubewell owner(s)5 acres not owned by tubewell owner(s) Year 1 : 0%

Year 2 : 50%Total : 10 acres Year 3 : 75%

Year 4 : 100%Cropping Intensity : 165% without project

210% with project

Investment Cost : Tk 24,800 Tubewell Set

Tubewell Operating Hours per Year : 468

Project Period : 7 years

--------------------------(Takas 1,000)-----------------------

WithoutProject With Project

1-7 1 2 3 4 5-6 7

CASH INFLOW

Gross Farm Income 1/ 2/ 19.6 19.6 27.9 32.1 36.2 36.2 36.2Off-farm Income (Sale of Water) - - - 2.7 4.0 5.3 5.3 5.3

TOTAL 19.6 19.6 30.6 36.1 41.5 41.5 41.5CASH OUTFLOW

Tubewell Investment Costs - 24.8 - - - - (2.5) 5/

Operating Costs 9.4 9.4 12.3 13.8 15.2 15.2 15.2Tubewell 0 & M 3 - - 1.9 2.9 3.8 3.8 3.8Incremental Working Capital - - 2.4 1.3 1.2 - - (4.9)

TOTAL 9.4 36.6 15.5 17.9 19.0 19.0 11.6NET BENEFIT BEFORE FINANCING

Total 10.2 (17.0) 15.1 18.2 22.5 22.5 29.9Incremental (27.2) 4.9 8.0 12.3 12.3 19.7

INTERNAL RATE OF RETURN = 28%

FINANCING

Long term loan 4/ - 22.3 - - - - -

Short term loan - 2.4 1.3 1.2 - - -

Less: Debt ServiceLong term loan - - (2.9) (6.3) (6.3) (6.3) (6.3)Short Term loan - - (2.6) (1.4) (1.3) _ _

Net Financing - 24.7 (4.2) (6.5) (7.6) (6.3) (6.3)

NET BENEFIT AFTER FINANCING

Total 10.2 7.7 6/ 10.9 11.7 14.9 16.2 23.6Incremental - (2.5) - 0.7 1.5 4.7 6.0 13.4Cumulative Incremental - (2.5) (1.8) (0.3) 4.4 16.4 29.8

INTERNAL RATE OF RETURN TO FARMER'S EQUITY = 89%

I/ On five acres owned by tubewell owner(s).2/ On five acres not owned by tubewell owners. Water sold at cost + 50%.3/ 50% of the increase in operating cost in the following year, assuming a double-cropping system.4/ 90% of tubewell investment costs at 13% p.a. interest, with 1-year grace period.5/ 10% salvage value.6/ Farmers contribution to investment.

- 74 -

ANNEX 7Table 9

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Ten Acres Farm Model: Projected Income and Financial Returns

FARM DATA FOR CROPPING PATTERN NO. II - SHALLOW TUBEWELLS Build-up Rate for net

incremental income:Command Area : 10 acres owned by tubewell owner(s)

Yearl1 : 0%Cropping Intensity 165% without project Year 2 : 50%

210% with project Year 3 : 75%

Investment Cost : Tk 24,800 Tubewell Set Year 4 100%

Tubewell Operating Hours per Year : 468

Project Period . 7 years

-------------------------(Takas 1,000)--------------------------

WithoutProject With Project

1-7 1 2 3 4 5-6 7

CASH INFLOW

Gross Farm Income 39.2 39.2 55.8 64.2 72.4 72.4 72.4Off-farm Income (Sale of Water) - - - - - - -

Total 39.2 39.2 55.8 64.2 72.4 72.4 72.4

CASH OUTFLOW

Tubewell Investment Costs - 24.8 - - - - (2.5) 31Operating Costs 18.8 18.8 24.6 27.6 30.4 30.4 30.4Tubewell 0 & M l/ - - 1.9 2.9 3.8 3.8 3.8Incremental Working Capital - - 3.9 2.0 1.9 - - (7.8)

Total 18.8 47.5 28.5 32.4 34.2 34.2 23.9

NET BENEFIT BEFORE FINANCING

Total 20.4 (8.3) 27.3 31.8 38.2 38.2 48.5Incremental (28.7) 6.9 11.4 17.8 17.8 28.1

FINANCING INTERNAL RATE OF RETURN - 40%

Long term loan - 22.3 - - - - -Short term loan - 3.9 2.0 1.9 - - -

Less: Debt ServiceLong term loan - - (2.9) (6.3) (6.3) (6.3) (6.3)Short term loan - - (4.2) (2.1) (2.0) - -

Net Financing - 26.2 (5.1) (6.5) (8.3) (6.3) (6.3)

NET BENEFIT AFTER FINANCING

Total 20.4 17.9 4/ 22.2 25.3 29.9 31.9 42.2Incremental - (2.5) - 1.8 4.9 9.5 11.5 21.8Cumulative Incremental - (2.5) (0.7) 4.2 13.7 36.7 58.5

INTERNAL RATE OF RETURN TO FARMER'S EQUITY = OVER 150%

1/ 50% of the increase in operating cost in the following year, assuming a double-cropping system.2/ 90% of tubewell investment costs at 13% p.a. interest, with a 1-year grace period.3/ 10% salvage value.4/ Farmers contribution to investment.

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Financial Rates of Return and Switching Values

OperatingCosts

Excluding Output Value -Output Investment Tubewells Tubewells 10% All Costs

Financial Rates of Return Value Cost 0 & M Costs 0 & M Costs All Costs +10%Estimate -10% -15% +10% +15% +10% +15% +10% 15% +10%

5 Acres Shallow Tubewells Farm 28 21 17 25 24 26 24 27 26 21 1410 Acres Shallow Tubewells Farm 40 30 25 36 35 35 32 38 38 31 21

Operating OperatingCosts Costs

Excluding IncludingOutput Investment Tubewells Tubewells Tubewells

Switching Value at 12% Value Cost 0 & M Costs 0 & M Costs 0 & M Costs

5 Acres Shallow Tubewells Farm -20% +78% +60% +102% +38% & X10 Acres Shallow Tubewells Farm -27% +155% +61% +202% +47% m s10 Acres Shallow Tubewells Farm -27% +155% +61% +202% +47

- 76 -

BANGLADESH ANNEX 8Table 1

AGRICULTURAL CREDIT PROJECT

Prices for Economic Analysis - InternationallyTraded Commodities, 1982-1990 Average

Item Paddy Wheat Jute Urea TSP MP

1. Projected Avg. 1982-90 WorldMarket Rice Price (US$/ton) 1/ 2/ 555 241 495 257 217 109

2. Adjustments for Quality Differentials 65-70 3/ 90 100 100 100 100(%)

3. Projected Price Adjusted for Quality(US$/ton) 361-389 217 495 257 217 109

4. Shipping Costs to/from Chittagong(US$/ton) +37 +59 - +15 4/ +59 +59

5. FOB/CIF Chittagong Price (US$/ton) 398-426 276 495 272 276 168

6. Handling and Transport Costs 5/ +50 +44 -63 -25 +25 +25between the Port and the WholesaleMarket/Main Godowns (US$/ton)

7. Market/Ex-Godown Price (US$/ton) 448-476 320 432 247 301 193

8. Processing, Handling, and Transport -76 -51 -51 +30 +30 +30Costs 5/ Between the WholesaleMarket/Godown and the Farm Gate(US$/ton)

9. Farm Gate Price (US$/ton) 372-400 269 381 277 331 223

10. Processing Ratio (%) 65 100 85 100 100 100

11. Farm Gate Price Adjusted for Process- 242-260 269 324 277 331 223ing Losses (US$/ton)

12. (Tk/md) 6/ 142-153 158 190 163 195 131

1/ Source: IBRD Price forecasts dated November 1980. The forecasts are in 1980 constant dollars.2/ Pricing Basis: Rice: Thai, milled 5% broken, FOB Bangladesh.

Wheat: Canadian No. 1 Western Red Spring, ex-store Thunder Bay.Jute Bangladesh white D, FOB Chittagong/Chalna.Urea : Bagged, FOB Europe.TSP : FOB US Gulf.MP : FOB Vancouver.

3/ For 25-35% broken. Larger discount for Boro and Aus crops which are of poorer quality thanthat Aman crop.

4/ Assuming Bangladesh would be an exporter and because of proximity to markets in South Asiawould command a price advantage over European suppliers.

5/ Costs established by a GOB study of these costs. Adjusted by a SCF of 0.75 for the elementshaving non-traded goods and services.

6/ Official exchange rate of Tk 16 = US$ 1. One ton equals 27.22 mds.

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Crop Production Coats per Acre at Economic Prices(Takas)

Aus /AmanB. Aus T. Aus B. Amm xed .Amn T. Aman Boro Wheat Pulses &(local) V (local) (local) (local) (HYV) (jvj Jute Oilseeds PotatoesPH 1/ W 2/ PW 1/ PH 1/ PW 1/ P 3/ W 4/ W 2/ W 2/ PW 1/ W 2/ PW 1/ W 2/ PW I/ W 2/ h 2

Seed 135 g0 130 189 57 so 80 64 122 325 354 29 29 32 32 90Fertilizer: Urea 122 265 41 122 82 122 122 163 306 245 326 61 82 41 82 245

TSP 98 263 24 98 54 73 73 102 351 195 244 34 24 49 98 146MP 33 59 - 33 20 33 33 43 62 49 66 16 16 16 33 98Manure 60 57 - 60 32 38 38 42 212 38 75 30 60 30 45 150

Pesticidis 126 252 126 126 126 126 126 252 252 - 126 - 126 - 126 252Animal Power 363 429 363 429 330 330 363 396 413 297 396 314 330 198 248 743Family Labor 179 291 241 367 291 275 291 306 265 179 230 381 332 153 199 714Hired Labor 75 75 7 75 7 75 7 7 7 7Others 87 194 143 166 219 209 219 229 255 76 128 178 229 20 - 31 204

SubLotal 1,278 1,965 1,193 1,667 1,286 1,361 1,420 1,672 2,313 1,479 2,016 1,018 1,323 614 969 2,717

Irrigation 0 & M: Shallow Tubewells - 369 - - _ - - 27 592 - 280 - 62 - 316 316Deep Tubewells - - - - - - 18 401 - 190 - - - - 214

Cost of Farm Inputs: STW 1,278 2,334 1,193 1,667 1,286 1,361 1,420 1,699 2,965 1,479 2,206 1,018 1,365 614 1,285 3,033DTW 1,278 - 1,193 1,667 1,286 1,361 1,420 1,690 2,714 1,479 2,206 1,018 - 614 - 2,931

Gross Value of Production (GVP) 5/ 1,988 5,112 3,825 4,906 3,060 3,825 4,590 5,355 6,390 3,160 4,266 3,040 4,180 1,152 1,536 5,400

Net Value of Production: STW 710 2,788 2,632 3,239 1,774 2,464 3,170 3,656 3,485 1,681 1,976 2,022 3,815 538 351 2,367(NVP) DTW 710 - 2,632 3,239 1,774 2,464 3,170 3,665 3,676 1,681 2,000 2,022 - 538 251 2,469

1/ P W = Present and future without project.2/ W = Future with project.3/ P = Present.4/ H = Future without project.5/ Yield (Annex 6 Table 2) X economic price (Annex 6 Table 4)

- 78 -

ANNEX 8Table 3

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Economic Analysis-Cost and Benefit Streams(Takas Millions)

Year 1 2 3 4 5-6 7

- Cropping Pattern No. IShallow Tubewells (80,000 acres)Gross Benefit 310 515 617 719 719 719Operating Cost 172 244 292 319 319 230Investment Cost/(Salvage) 164 - - - - (16)

Net Benefit Without Project 188 188 188 188 188 188Net Incremental Benefit (214) 83 137 212 212 317

Estimated Economic Rate of Return 63%

- Cropping Pattern No. IIShallow Tubewells (190,000 acres)Gross Benefit .972 1,361 1,563 1,762 1,762 1,762Operating Cost - 485 619 706 752 752 596Investment Cost/(Salvage) 390 - - - - (39)Net Benefit Without Project 578 578 578 578 578 578Net Incremental Benefit (481) . 164 279 432 432 627

Estimated Economic Rate of Return = 57%

Total Area 270,000 AcresNet Incremental Benefit (695) 247 416 644 644 944

Estimated Economic Rate of Return = 60%

_/ Includes working capital and administrative costs calculated as 4%of investment costs.

- 79 - ANNEX 8Table 4

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Economic Rates of Return and Switching Values

Economic Rates of Return Base Output Value Investment Operating Benefits I/-10% Costs Costs Delayed

+10% +15% +10% +15% By One Year

Shallow Tubewells I 63 51 59 57 55 52 31Shallow Tubewells II 57 96 53 51 50 48 29

Switching Values at 12%

Shallow Tubewells I -38 +340 +73Shallow Tubewells II -38 +277 +77

1/ Net incremental operating costs reduced by 33% during the additional yearwithout benefits.

-80 - ANNEX 9

BANGLADESH

AGRICULTURAL CREDIT PROJECT

Related Documents and Data Available in the Project File

A. Reports Relating to the Project

1. "Bangladesh Bank Agricultural Credit Study Project,"Robert R. Nathan and Sons, August 1979.

2. "Review of Financing Arrangements for the IRDP-TCCA-KSS System,"UNDP Technical Assistance Mission, November 1979.

3. "Performance of Institutional Agencies Providing AgriculturalCredit in Bangladesh," UNDP Technical Assistance Mission, January 1980.

4. "Report of the Bangladesh Agricultural Credit Project IdentificationMission," FAO/World Bank Cooperative Programme, April 1980.

5. "Report of the Bangladesh Agricultural Credit Project PreparationMission," FAO/World Bank Cooperative Programme, August 1980, (TwoVolumes).

B. Selected Working Papers

1. "Credit and Banking in Bangladesh".

2. "Groundwater Resources and Development in Bangladesh".

- 81 -

BANG LADESHAGRICULTURAL CREDIT PROJECT

CHART SHOWING PROPOSED PROJECT ORGANIZATIONAND CREDIT FLOW

GOB…- - ---

SONALI BANK

JANATA BANK BKB | SONALI

AGRANI BANK HEAD OFFICE HEAD OFFICE BANK BADCHEAD OFFICES B BSBL

I il I I1' I I 1 DISTRICT REGIONAL BANK ODP | DSTRT DISTRICT |

{ OFFICES OFFICES REGIONAL DISTRICT OFFICE OFFICES CCB OFFICES

OFFICES

l l ~~~~~~DISTRICT IiL............ ~COORDINATION ~...

COMMITTEES|

BRANCHES BRANCHES OR THANA THANATCCA BANKS OFFICES

l l L ~~~~~~~~ ~~~ ~~~ 1 ~~~ KSS /

BORROWERS BORROWERS RS

LINE OF CONTROLCREDIT FLOW

- - - LIAISON OR COODINATION- - - - - SERVICES

BADC - BANGLADESH AGRICULTURAL DEVELOPMENT CORPORATION

BKB - BANGLADESH KRISHI BANKBSBL - BANGLADESH SAMABAYA BANK LTD.

CCB - CENTRAL COOPERATIVE BANK

GOB - GOVERNMENT OF BANGLADESH

IRDP - INTEGRATED RURAL DEVELOPMENT PROGRAM

KSS - KRISHI SAMABAYA SAMITI (VILLAGE COOPERATIVE)

TCCA - THANA CENTRAL COOPERATIVE ASSOCIATiONWorld Bank - 22503

- 82 -

BANGLADESHAGRICULTURAL CREDIT PROJECT

BANGLADESH BANK PROJECT DEPARTMENTPROPOSED ORGANIZATION CHART

I OFFICER ONSPECIAL DUTY

PROJECTDIRECTOR

I OFFICER OFFICER OFFCERERIN IN IN il IN

CHARGE CHARGE CHARGE CHARGE. , '~~~~~~~~~~~~~~~ -- T EL

S . ~~~~~~~~~~~~~~~~~~~~~I

MONITORING r 1

PLANNING OPERATIONS AND I SPECIAL I

WING WING EVALUATION I SCHEMESWING L WING

POLICY CELL SUPERVISIONCELL FINANCE AND

ACCOU NTS

TECHNICALCELL SCPPLIES CELL

TRAINING CELL

REGIONAL OFFICESPROJECT DIVISION

SUB UNITS

World Bank - 22504

- 83 -

BANGLADESHAGRICULTURAL CREDIT PROJECT

IMPLEMENTATION SCHEDULE

| 981 1982 1983 1984 1985

1 ?13' 1 2 3 1 23 4 _ 2! 3 4 1 1 2 3 4

A EARLY PROJECTACTIVITIES 3

Staff Appoientmnts by 8angladesh Bank

Project Director

Supples Off icr_

Traninig Offic-r

Early Eqi,pnent Suppes-

Isnue Import Permits

Organize Initial Imports/,Delierirs _-

Del very to Proirot Area

Project Banking Pan Preparation

Early Consultants Re-riutment A

Credit Specialist for Bangladesh Bank _

Training Specialist A

Early Study Tours

Local Traieieg Plan Formuluti-n

Banglsdenh Back P-jtocr Division R-orgunniat-an

Staff Appointre-nts

Reorganizat-on

B PROJECT IMPLEMENTATION CREDIT COMPONENTS

Shallow Tubewellsi

Issue Import Licen-s See Sectioe A

Equipment Delicary to Project Aa Sea Section A

Loan Prqcessing P i

Consenaction [ Workshops Equipment

Loans Processing

Equipment Purcnase and Installation

Mechneice Toolsk-

Storage

Loan Processang - - - I - - I -Costrutln I I L.- P,.--g~ ~ ~ ~~~~-i1 --

Other Diversitifd Lending I I f

C PROJECT IMPLEM9ENTATION TECHNICALASSISTANCE AND TRAINING

Remaining Coesultants Recruirmant | L A B CManagEment Specialist far BSBL I I |

A B I CCooper-ti-es Specialist far BSB L

A B I CEconomist for Bangladesh Bank j A B C I

Cooperative Ag,cc-lt,ral Credit Specialist- A B B B B

Remaining Study Tours A B 3 8 m

Local Training Prngrams

P-emises Ideerifi-ntion and Renting BKB

Pntmises Id-ntificti-n and Renting Other |

Staff Appoinemeets BKB

Staff App-niments Other

Equipment, Fur-itirn, Vehicles BKBPu.rchan-

Equipment, Futin.ure, Vehicles OtherPurchases

Curriculum Preparation BKB

Curriculum Preparation Other

Traiing Co. sen BKB | -=

Training Courees Other -.

KEYA = Cons_ruc.io./Eq.ipment Tender Procedura,

Consultants S-let-on, Training Arrangements= Constrsction Period, Equipment Delivery Period,

Consultants Mohilizat on Period, Training Course PerindC C onsultants' Service Period WorId Bank -22505

IBRD 15591Ra°0 89° 90 MARCH 1981

a8 890 BANGLADESH

-270 AGRICULTURAL CREDIT PROJECT 270

TUBEWELL SUITABILITY AND BANKING SYSTEM- AREA SUITABLE FOR SHALLOW TUBEWELLS

I N D IA AREA UNSUITABLE FOR SHALLOW TUBEWELLSAREA WITH LIMITED POTENTIAL FOR SHALLOW TUBEWELLS

BANKING SYSTEM(Number of Bank Branches by District)

ft. BANGLADESH KRISHI BANK BKB AGA AGRANI BANK/. \>,.SONALI BANK SON THANA CENTRAL COOPERATIVEASSOCIATION

JANATA BANK JN KSS KRISHI SAMABAYA SAMITY

(ts \ ~ =. =DISTRICT BOUNDARIES

INTERNATIONAL BOUNDARIES

KILOMETERS 1 2 3F ~~~~~~~ ~~~ ~~~ ~~~~~~~~~~~MILES 10--20 -3D

NOTE: Boundaries between areas with varing suitability), "~~~~~ for shallow tubewells are indicative only.026° << ' 0 f 8t> *--; Sc_;v<,l;i (~~~~~~~~~~~~~~~~~~~~~~~263560

V

. ., ,@ ,: ,,. ,- ... ............. r' ' '"' " ""'."' ° 8F ,PUFWi.< .......................................I-.S.......

A"A

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I N D I A / N> -. - ..- w

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0 ,j.0 0 7so og~~~~~3GRA I ~~~ MYMENSINGH

World~~~~~~~~~~~~ ~ Ban sEB staff 2xlseyfrt, -) , j,-> .rs S ,INDIA

24° do nor mply on th part of te w ,- .', ...- : .:

4~ 2f~ / $TANGAIL

This map has been prepared by the DuCCa

World Bank' sn tsaffiiiatses.ay for, \..?

the convenience of the readers ofthe report to erhich it is attached.?The denominations used and the , KUSHTI A ID

theboundaries shown on this map ' . AN '. INDIAdo not m-ply, on thepartf the World Bank and its affiliates, anyjugeton the legal status of o any territory or any endorsement KUSHTIAor acceptance sf such boundaries.

KUSHTIABEn

50 , ____

IBRD 1559CR88° 890 90° MARCH 19811

BANGLADESH 27°

AGRICULTURAL CREDIT PROJECTLAND USE

CROPPING PATTERN I (Mainly Broadcast A,nan, Fallow)

CROPPING PATTERN 11 I Mainly Transplant Aman, Fallow)I N D IA . CROPPING PATTERN III (Mainly Transplant Aman, Aus)

OTHERS

Al j MAJOR ROADS/ ---- s--RAILWAYS

THANA BOUNDARIES

r\ > , t _ _ - DISTRICT BOUNDARIES, -, s, _._ INTERNATIONAL BOUNDARIES

nchagar

f - KILOMETERS 10 20 30 40 50Th ~ ~ ~ ~~~~~~~~KLMILERSMILES 0 10 20 30

.f .. /' d \ t Jt o J nsgamari

260 260

Pirgan U Nilphamari . -Pirgani - ~~~~ ~~~~~~~~~~~~~~~~~~~Sta Sidpur1

RANGPURAL UR

f~~~~~~~hlai I N D I. A '-.Xi

I N D I A I - > GaibanykA i

(-r-i~~~~~~~~~~~~~~~~JMLU -<? 250S -,

250 ,S) -,,,,, , .> ! l'~~~~~~~~~~aypqrfiat AM PUR' 2

Y SN A U

-250~~~~~~~~~~~~~~~~~~~~~~~~(ag4 90 0

ITI

XS . X Ck. W<''\t,S H

…G;;5 PROJ \A>>ay= ,,2 > 4 - S a

AREA r-

SANGAIL < Oo1sA

Thi, -p has been prepared bythe ,t\, .AB&A:\.-SAe\E NIWorld Bank s stff eclus;vely for H \-.-6K#T_ AC

th eport ntiho Whihit s attached.Rit sul iNDIA|'\2 <J5ow4cMr+ &

boundafie, Shown on th,s maP f- P.A I \A INDIAg

24 Wonrld BannkYand its affiliates, anY ), l2 K6tAA<9t judgment on the legal Status of 3 ta \ _ KUSHTIA k I N l KJ § 12 ) t D- Cany territoroy orny endorsement KU_J8^1 :''f2;g( pSH

o,Roccrsa cof sLchboundanes ft T l>\.Wi/ttmKA; tr BB° 4 8~~~~~~~~~~~~~~~~~~~~192 N( - U ~>XByo rna

T I~~~~~~~~~~-

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