agricultural growth and agricultural credit in the context of bangladesh

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Agricultural Growth and Agricultural Creditlivestock and forestry production, provide extension service to all categories of farmersand (v) to introduce high quality and appropriate agricultural technology (MOA, 1996).A huge amount of money is allocated by the government for the development ofagricultural sector. For example, in 2009/10, GoB allocated 74047.1 million taka to theMinistry of Agriculture for the purpose of increasing agricultural production, ensuring foodsecurity and reducing poverty (Bangladesh Economic Review 2010, 2011). Hence, GoBprovided subsidized agricultural credit by specialized bank (Bangladesh Agricultural Bankand Rajshahi Agricultural Development Bank) on a ground that leading to agriculturesector expedites agricultural production (Rahman et al, 2011).Besides, some formal financial institutions offer microcredit services for poverty mitigationlike NGO-MFIs in addition to agricultural credit (Rahman et al., 2011; CDF, 2006; Bayes,2011). Likewise, Private Commercial Banks (PCBs) and Foreign Commercial Banks (FCBs)are also encouraged to extend leading facilities through partnership agreement with theNGO-MFIs as they have fewer or no rural branch offices (Rahman et al., 2011). Recently, anew system has been introduced (in 2009) to disburse agricultural credit at union levelopenly (field or union parishad office rather than to a bank) so that only true farmers canget the credits (Rahman et al., 2011; BB, 2011).Since, a significant portion of government’s fiscal budget is allocated for agricultureproduction and improvement, it is important to perceive whether this allocation has anyconstructive upshot or not. In this study we try to find out any long term effect ofagriculture credit on the agriculture production in Bangladesh. Here, mainly secondarydata has been used to come across the answer which eventually provides some helpfulthought.Objectives of the studyThe research will be accomplished in order to see the current position of the agriculturalgrowth and production and also the agriculture credit that is allocated for this sector bythe government of Bangladesh. Hence, the broad objectives of the research couldaddress as to find out the influence of agriculture credit on agriculture growth by assessinga literature survey that has been done in this field.MethodologyIn this study we have used secondary data available in various sources. Published Datahas been collected mainly from the annual budget of Bangladesh Government,Bangladesh Bureau of Statistics, Bangladesh Economic review and different publishedreports by the government. Besides, more information has been obtained fromacademic books and a variety of Journals. Financial figures have been taken fromvarious websites as well. Here, a literature survey method has been conducted to reachto a significant result by evaluating the findings critically.The Impact of Agricultural Credit in Agricultural GrowthThe effectiveness of agri-credit on agri-productivity is multi-fold. The foremost sector to bebenefited from the efficacy of finance is the group of growers themselves. It should beremembered that, in poverty stricken country like Bangladesh, the main source of earningincome in the rural front, has been entrenched on agriculture and production of agrobasedproducts, since long. Given the financial imbalance between the rich and thepoor, the option of having investment-ready cash, is thus limited only to the fortunate few.Many growers are there, who might have the know-how and interest to explore their luckinto various agro-based endeavors but lack the monetary back-up. If the credit reachesthe producers effectively, it will surely add-in new amount of agricultural production,which may not have been possible otherwise. In consequence, this shall maneuver apositive growth in the GDP of the country and have additional amount of disposableincome to lift the living-standard of the people. A research carried-out by Saboor et al.,(2009) on the circumstances of credit’s impact on agricultural growth leading to povertyalleviation on the premise of Pakistan, has rooted for similar view, as well.Additionally, as cited in (Rahman et al., 2011), all scheduled financial intermediaries,under the instruction of the Bangladesh Bank (BB), are required to offer different short andlong-term credit options to agricultural sector. According to the latest records of BB175http://www.bdresearchpublications.com/journal/
Sharmeen and Chowdhuryaround 63% & 37% of the enlisted banks’ credit lending (Rahman et al., 2011) has beendirected towards helping the agro-based community develop through short-term & longtermloans, respectively. It can be mentioned here, that current-credit schemes are mostlyfound to help farmers & growers with certain season-based agricultural production;whereas, non-current credit options aid the producers with deploying hi-tech machineries,setting-up agricultural industries or factories, installing varied irrigation tools etc., that canboost-up the production of the crops & help in shifting the production scale positively. In atraditional circumference, the farmers were familiarized with cultivating crops on landtaken-in from the affluent land-lords of the village. Months of rigorous effort, went-in firstly,by ploughing and making the land suitable for cultivation manually, sowing seeds andfinally with the appearance of bounty crops, sharing significant portion of it, with the landlordas payment of lease, or ‘khajnaa’. Though, this approach did survive for an epic-time,and is still prevailing, in the context of Bangladesh and the Indian Sub-continent, so tospeak, the opportunity cost of it, deprived the potentially independent growers ofeconomic-freedom. This financial- autonomy comes in stages starting from the ability tobuy electronic gadgets, tools and machineries to speed up growing process of crops andprobable option of not having paid the khajnaa anymore. Therefore, the result of theinfluence and effectiveness of credit-options in agricultural growth is irrefutable.The small-scale farmers and the countryside poor are often to decide between takingmonetary assistance from either social or institutional sources. The social source mayinclude friends, family members, shop owners, agents etc, whereas, the institutional sourcehas banks, micro finance institutions and other financing organizations (Bashir et al., 2010;Okojie et al., 2010). Faruqee (2010), in his working paper, has identified three majorsources of official loan providers in the rural context of Bangladesh. They are the “formal,informal and the quasi-formal” sources of fund providers. As cited in the paper, the friends,relatives and family fall in the category of informal loan providers, and result to asignificant 8% - 21% of rural people seeking fund from this. Interestingly, the loanrepayment record also happens to be satisfactory from this source (Faruqee, 2010). Thismay be due to the terms of the finance being straight-forward and understandable, incomparison to the twisted conditions linked by a formal financing organization. Researchwhereas, also discovered a moderate 16% of the cultivators getting credit from formalsources like banks (Faruqee, 2010). Thus, the terms and conditions and institutionalprocedures need to be simplified (Saboor et al., 2009). As most of the growers have lessereducation rate or may be uneducated, their ability to understand the twists and turns ofloan-schemes may always not be possible. This might result into a cyclic action of creditdefault; failure to attain monetary assistance from various institutions at a later period andloosing the on-going production facility.When it comes to financing tools, there is also a variety in options that are available to thegrowers. Several former researches have suggested a various mix of easy credit plans thatcan aid the new farmers, beginners or small-scale agricultural entrepreneurs to start-upproduction on their own (Saboor et al., 2009). If it is availed to the small-scale farmers,with lesser overhead costs, it can motivate many unemployed farmers or growers to geton board as well. Nevertheless, several studies (Badiru, 2010; CDF, 2006 as cited inRahman et al., 2011; Rahman, 2004; Gloy et al., 2005) have shown a common practicethat, both the availability and accessibility of finance is more in NongovernmentalOrganizations-Microfinance Institutions (NGO-MFIs) due to higher presence of branches ofthe same in village-levels, in contrast to mainstream Commercial Banks, which onlyoperate in Metropolitan locations. General loans, program loans, housing loans etc. arefew of the popular loan products issued by financial institutions like the MFI’s inBangladesh’s rural sector (Faruqee, 2010). In his working paper, Faruqee (2010) hasidentified, agricultural activities, operating poultry, livestock, sericulture, fisheries andforestry are the major deeds that are covered in the program loans issued by the NGOs-MFIs. However, the down-fold of this system, is the sheer amount of added interest that isbeing charged to the farmers, in oppose to the Commercial and Private Banks.On the contrary, the NGO-MFIs make the option of financing easier to the small-scalefarmers, by eradicating pre-condition of financial security or guarantee, for finance. As aconsequence, the repayment of the loan involves higher interest rates (Badiru, 2010;Rahman et al., 2011; Okojie et al., 2010; Gloy et al., 2005). Therefore, the farmers face achoice for opting between an accessible financing option that is costly; or, availing a lesshttp://www.bdresearchpublications.com/journal/176
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