agricultural growth and agricultural credit in the context of bangladesh
agricultural growth and agricultural credit in the context of bangladesh
agricultural growth and agricultural credit in the context of bangladesh
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Sharmeen <strong>and</strong> Chowdhuryaround 63% & 37% <strong>of</strong> <strong>the</strong> enlisted banks’ <strong>credit</strong> lend<strong>in</strong>g (Rahman et al., 2011) has beendirected towards help<strong>in</strong>g <strong>the</strong> agro-based community develop through short-term & longtermloans, respectively. It can be mentioned here, that current-<strong>credit</strong> schemes are mostlyfound to help farmers & growers with certa<strong>in</strong> season-based <strong>agricultural</strong> production;whereas, non-current <strong>credit</strong> options aid <strong>the</strong> producers with deploy<strong>in</strong>g hi-tech mach<strong>in</strong>eries,sett<strong>in</strong>g-up <strong>agricultural</strong> <strong>in</strong>dustries or factories, <strong>in</strong>stall<strong>in</strong>g varied irrigation tools etc., that canboost-up <strong>the</strong> production <strong>of</strong> <strong>the</strong> crops & help <strong>in</strong> shift<strong>in</strong>g <strong>the</strong> production scale positively. In atraditional circumference, <strong>the</strong> farmers were familiarized with cultivat<strong>in</strong>g crops on l<strong>and</strong>taken-<strong>in</strong> from <strong>the</strong> affluent l<strong>and</strong>-lords <strong>of</strong> <strong>the</strong> village. Months <strong>of</strong> rigorous effort, went-<strong>in</strong> firstly,by plough<strong>in</strong>g <strong>and</strong> mak<strong>in</strong>g <strong>the</strong> l<strong>and</strong> suitable for cultivation manually, sow<strong>in</strong>g seeds <strong>and</strong>f<strong>in</strong>ally with <strong>the</strong> appearance <strong>of</strong> bounty crops, shar<strong>in</strong>g significant portion <strong>of</strong> it, with <strong>the</strong> l<strong>and</strong>lordas payment <strong>of</strong> lease, or ‘khajnaa’. Though, this approach did survive for an epic-time,<strong>and</strong> is still prevail<strong>in</strong>g, <strong>in</strong> <strong>the</strong> <strong>context</strong> <strong>of</strong> Bangladesh <strong>and</strong> <strong>the</strong> Indian Sub-cont<strong>in</strong>ent, so tospeak, <strong>the</strong> opportunity cost <strong>of</strong> it, deprived <strong>the</strong> potentially <strong>in</strong>dependent growers <strong>of</strong>economic-freedom. This f<strong>in</strong>ancial- autonomy comes <strong>in</strong> stages start<strong>in</strong>g from <strong>the</strong> ability tobuy electronic gadgets, tools <strong>and</strong> mach<strong>in</strong>eries to speed up grow<strong>in</strong>g process <strong>of</strong> crops <strong>and</strong>probable option <strong>of</strong> not hav<strong>in</strong>g paid <strong>the</strong> khajnaa anymore. Therefore, <strong>the</strong> result <strong>of</strong> <strong>the</strong><strong>in</strong>fluence <strong>and</strong> effectiveness <strong>of</strong> <strong>credit</strong>-options <strong>in</strong> <strong>agricultural</strong> <strong>growth</strong> is irrefutable.The small-scale farmers <strong>and</strong> <strong>the</strong> countryside poor are <strong>of</strong>ten to decide between tak<strong>in</strong>gmonetary assistance from ei<strong>the</strong>r social or <strong>in</strong>stitutional sources. The social source may<strong>in</strong>clude friends, family members, shop owners, agents etc, whereas, <strong>the</strong> <strong>in</strong>stitutional sourcehas banks, micro f<strong>in</strong>ance <strong>in</strong>stitutions <strong>and</strong> o<strong>the</strong>r f<strong>in</strong>anc<strong>in</strong>g organizations (Bashir et al., 2010;Okojie et al., 2010). Faruqee (2010), <strong>in</strong> his work<strong>in</strong>g paper, has identified three majorsources <strong>of</strong> <strong>of</strong>ficial loan providers <strong>in</strong> <strong>the</strong> rural <strong>context</strong> <strong>of</strong> Bangladesh. They are <strong>the</strong> “formal,<strong>in</strong>formal <strong>and</strong> <strong>the</strong> quasi-formal” sources <strong>of</strong> fund providers. As cited <strong>in</strong> <strong>the</strong> paper, <strong>the</strong> friends,relatives <strong>and</strong> family fall <strong>in</strong> <strong>the</strong> category <strong>of</strong> <strong>in</strong>formal loan providers, <strong>and</strong> result to asignificant 8% - 21% <strong>of</strong> rural people seek<strong>in</strong>g fund from this. Interest<strong>in</strong>gly, <strong>the</strong> loanrepayment record also happens to be satisfactory from this source (Faruqee, 2010). Thismay be due to <strong>the</strong> terms <strong>of</strong> <strong>the</strong> f<strong>in</strong>ance be<strong>in</strong>g straight-forward <strong>and</strong> underst<strong>and</strong>able, <strong>in</strong>comparison to <strong>the</strong> twisted conditions l<strong>in</strong>ked by a formal f<strong>in</strong>anc<strong>in</strong>g organization. Researchwhereas, also discovered a moderate 16% <strong>of</strong> <strong>the</strong> cultivators gett<strong>in</strong>g <strong>credit</strong> from formalsources like banks (Faruqee, 2010). Thus, <strong>the</strong> terms <strong>and</strong> conditions <strong>and</strong> <strong>in</strong>stitutionalprocedures need to be simplified (Saboor et al., 2009). As most <strong>of</strong> <strong>the</strong> growers have lessereducation rate or may be uneducated, <strong>the</strong>ir ability to underst<strong>and</strong> <strong>the</strong> twists <strong>and</strong> turns <strong>of</strong>loan-schemes may always not be possible. This might result <strong>in</strong>to a cyclic action <strong>of</strong> <strong>credit</strong>default; failure to atta<strong>in</strong> monetary assistance from various <strong>in</strong>stitutions at a later period <strong>and</strong>loos<strong>in</strong>g <strong>the</strong> on-go<strong>in</strong>g production facility.When it comes to f<strong>in</strong>anc<strong>in</strong>g tools, <strong>the</strong>re is also a variety <strong>in</strong> options that are available to <strong>the</strong>growers. Several former researches have suggested a various mix <strong>of</strong> easy <strong>credit</strong> plans thatcan aid <strong>the</strong> new farmers, beg<strong>in</strong>ners or small-scale <strong>agricultural</strong> entrepreneurs to start-upproduction on <strong>the</strong>ir own (Saboor et al., 2009). If it is availed to <strong>the</strong> small-scale farmers,with lesser overhead costs, it can motivate many unemployed farmers or growers to geton board as well. Never<strong>the</strong>less, several studies (Badiru, 2010; CDF, 2006 as cited <strong>in</strong>Rahman et al., 2011; Rahman, 2004; Gloy et al., 2005) have shown a common practicethat, both <strong>the</strong> availability <strong>and</strong> accessibility <strong>of</strong> f<strong>in</strong>ance is more <strong>in</strong> NongovernmentalOrganizations-Micr<strong>of</strong><strong>in</strong>ance Institutions (NGO-MFIs) due to higher presence <strong>of</strong> branches <strong>of</strong><strong>the</strong> same <strong>in</strong> village-levels, <strong>in</strong> contrast to ma<strong>in</strong>stream Commercial Banks, which onlyoperate <strong>in</strong> Metropolitan locations. General loans, program loans, hous<strong>in</strong>g loans etc. arefew <strong>of</strong> <strong>the</strong> popular loan products issued by f<strong>in</strong>ancial <strong>in</strong>stitutions like <strong>the</strong> MFI’s <strong>in</strong>Bangladesh’s rural sector (Faruqee, 2010). In his work<strong>in</strong>g paper, Faruqee (2010) hasidentified, <strong>agricultural</strong> activities, operat<strong>in</strong>g poultry, livestock, sericulture, fisheries <strong>and</strong>forestry are <strong>the</strong> major deeds that are covered <strong>in</strong> <strong>the</strong> program loans issued by <strong>the</strong> NGOs-MFIs. However, <strong>the</strong> down-fold <strong>of</strong> this system, is <strong>the</strong> sheer amount <strong>of</strong> added <strong>in</strong>terest that isbe<strong>in</strong>g charged to <strong>the</strong> farmers, <strong>in</strong> oppose to <strong>the</strong> Commercial <strong>and</strong> Private Banks.On <strong>the</strong> contrary, <strong>the</strong> NGO-MFIs make <strong>the</strong> option <strong>of</strong> f<strong>in</strong>anc<strong>in</strong>g easier to <strong>the</strong> small-scalefarmers, by eradicat<strong>in</strong>g pre-condition <strong>of</strong> f<strong>in</strong>ancial security or guarantee, for f<strong>in</strong>ance. As aconsequence, <strong>the</strong> repayment <strong>of</strong> <strong>the</strong> loan <strong>in</strong>volves higher <strong>in</strong>terest rates (Badiru, 2010;Rahman et al., 2011; Okojie et al., 2010; Gloy et al., 2005). Therefore, <strong>the</strong> farmers face achoice for opt<strong>in</strong>g between an accessible f<strong>in</strong>anc<strong>in</strong>g option that is costly; or, avail<strong>in</strong>g a lesshttp://www.bdresearchpublications.com/journal/176