agricultural growth and agricultural credit in the context of bangladesh

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Agricultural Growth and Agricultural Creditcostly financing option that is available only in the major cities, with a pre-requisite offinancial-collateral. In order to address the issue the GoB can make the financing choiceseasier in terms of introducing favorable agricultural-credit guarantee and reducingadditional overhead interest in cases of NGO-MFIs. The same was also suggested in caseof a research held by Gloy et al. (2005).In addition to the above, any loop-holes discovered in the research, in the way of deliveryof credit to the respective recipient of the same, will educate them about alternativefeasible credit-options. In another research by Mehmood et al., (2012) on Kasur District ofPakistan, showed that in some cases it can be common for many villagers, to take-uploan showing that as an investment into agriculture and agro-based activities, but inreality putting that into social expenses like carrying out marriage occasions, dowry,dissolving legal cases etc. Practices like this raise questions on to the issues of theeffectiveness of the disbursed credit, if getting into the paradigm of agriculturalproduction, in the first place, let alone its role in increasing it.It has been noted in some previous research (Badiru, 2010; Rahman et al., 2011; CDF, 2006;Rahman, 2004; Gloy et al., 2005) that the cost of availing the credit also hinders thefarmers’ capacity to get the finance. As cited in a working paper by Nagarjan and Meyer(2005), the different costs that add up to the available finance schemes, range fromservice charge for high volume of multiple transactions of lesser amounts of the users, tothe cost for providing them with information about their savings or credit accounts severaltimes, in contrast to any urban account holder. This is due to the fact that, in contrast tothe account-holders of metropolitan areas, the rural account holders live more scatteredand based on their earning, both their savings and requirement for finance is alsocomparatively low (Nagarjan and Meyer, 2005). Thus a proper balance of cost betweenthe lender and borrower of finance must be established (Mehmood et al., 2012).Otherwise, the agri-credit payout may not again, be an input in increasing the agriculturalproduction.In many other preceding researches, proof of a positive association between agriculturalcreditand higher productivity has been established. Numerous former studies havestressed on the improvement of the financial segment, as ensuring a better accessibleand approachable rural fund-source can positively reinforce productivity (Levine et al.,2000, McMillan and Woodruff, 2002; Cull and Xu, 2005). Butler and Cornaggia (2009) alsohave explored positive connection between countries with easier fund access and raisedproductivity. If people have easier access to getting funds, more of that money can beput into setting up a business, developing new skills and expertise, exploring productinnovation, assuring proper allocation of resources, all of which can lead to expansionand growth. In other words, the size of the existing business can be enlarged with thesupport of trouble-free money access (Beck et al, 2005).Since the liberation of Bangladesh in 1971, the economy first and foremost depended onthe agricultural sector. Agriculture remains very important, as it is the prerequisite to ensurefood security and is the major source of employment and livelihood, to the greatestnumber of people in Bangladesh, as well as its contribution through forward andbackward linkage with the rest of the economy (Asaduzzaman, 2009). Without doingproper utilization of this sector, the overall economic improvement will not emerge.Keeping in line, with the importance of this sector, the Bangladesh Government hasallocated a considerable portion of agricultural credit and also encourages otherorganizations (NGO-MFIs, PCBs, FCBs etc.) to extend their lending facilities to this field.Apart, from reducing customer duty on commodities in the budget of financial year 2010-11, an allocation of Tk. 4,000 corer has been proposed as subsidy to the agricultural sector(State of the Bangladesh Economy in FY2010-11: First reading). With the reference of thispaper, State of the Bangladesh Economy in FY2010-11, which is prepared under theprogram called Independent Review of Bangladesh’s Development (IRBD) state thatBangladesh is currently negotiating with IMF for a credit deal amount US$ 1(one) Billion forthree years (2011-14) under its Extended Credit Facility (ECF) arrangement. According tothe center for Policy Dialogue (CPD) Bangladesh, a clearance for loan package isexpected to get from IMF Board in February next year. This would be the first time in threeyears that Bangladesh is opting for an IMF program. In FY2009-10, the GoB allocated Tk.5,965 corer for agriculture sector, of which Tk. 5,076 cores were assigned for the non-177http://www.bdresearchpublications.com/journal/
Sharmeen and Chowdhurydevelopment sector which is 85% of the total budget the Ministry (Titumir et al., 2010).Similarly, 69% was allocated for non-development sector for the Ministry of Forest and 56%for the Ministry Fisheries and Livestock (Titumir et al., 2010). According to allocation for thenon-development sector is Tk. 5,684 cores, it is 84.35% for Agriculture Ministry and 56% forMinistry of Fishery and Animal Resources.More specifically, about 111,168.80 million Taka was distributed to the farmers asagricultural loan in 2009/10(Bangladesh Economic Review 2010; 2011). In addition, GoBtakes the effort to provide necessary input supports (such as seed, irrigation, fertilizer etc tothe farmers. For instance, in 2009/10, about 49,220 million Taka was released as subsidy onfertilizer and for other agricultural inputs (Bangladesh Economic Review 2010; 2011). Forirrigation expansion, the allocation of budget was Tk. 427 crore in this FY2010-11 (Titumir etal., 2010).All these effort is taken to escalate the agricultural growth, because this disbursement ofagricultural credit is a key factor in the development of the agricultural sector, whichachieved a growth rate near 4% in FY2008-09 and 4.39% growth rate has been projectedby Medium Term Monitory Framework (MTMF) of the government, in FY2009-10 while, GDPis growing at a constant pace of close to 6% in all these fiscal years (Titumir et al., 2010).Now, the question is whether this credit facility actually drives the agricultural growth ornot. If this credit really did not contribute into the agricultural growth, then is it wise toallocate such a big portion from budget for a developing country like Bangladesh?One of the major factors that need to be assured is if the huge amount of agri-credit thatis being arranged to be paid-out to the growers, are put into the model of agriculturalproduction or agricultural activities, in the first place. Or, are they just discharged fromvarious formal/non-formal lending institutes and used/misused in other activities, otherthan agriculture. As, if this cannot be certained, the greater amount of lending that GoB,arranges for the growth of the crop-sector cannot be attained. Also, holding equalimportance is the issue of making the funds easily accessible, as well as, the terms of thecredit, understandable. This in return, will encourage our growers to take financial aid fromvarious lenders and use it for their production activity.There were not so many researches done on the relation of credit and productivity, strictlyon the perspective of Bangladesh. However, namely researches like that of Rahman et al,(2011) have shown evidence of a highly optimistic co-relation (0.938; with statisticalsignificance at 1% level) between available agri-credit and greater production. The studyhad also come up with highly positive results based on data collected and carrying outstatistical tests. It was revealed, that farmers who have access to agri-credit, have 1.21times higher production of crops, in contrast, to the farmers and growers who don’t havecredit support for their cultivation of crops. Specifically, food grain production, fisheriesproduction have higher correlation (0.948); whereas, livestock products like milk, meatand eggs have been found to have moderate correlation (0.772, 0.938 and 0.688respectively) all statistically significant at 1% level.Based on the secondary statistical research work, on the context of Bangladesh, that hasbeen conducted so far, it can thus be said that, there is a positive correlation betweenraised credit accessibility in agriculture and higher production yield. Options like makingthe farmers/growers buy/rent farming machineries, help them get seeds, fertilizers,cultivation-equipment etc. aide them in working towards a very optimistic yield of crops.ConclusionIn recapitulation, it can be mentioned that agriculture is the only viably-substantiallivelihood earner in rural Bangladesh. It not only provides the poorer with economicfreedom,but it also has the capacity to alleviate poverty. The agricultural growers arefaced with a range of credit-options to get themselves into the efficiency-cycle,including, short-term, long-term financing instruments; as well as, with various sources offinance like formal, informal and quasi-formal. The availability of various purpose-basedand program-based loan options has in one way made life more simple, as fund whichwas earlier unthinkable, is now approachable for the agro-growers; on the other hand,multiplied impediment arises out of complex loan-term interest calculation, which is attimes, far beyond the comprehension of the mostly illiterate rural population. Onus is uponthe farmer to weigh down the cost and benefit of funding methods that are availablehttp://www.bdresearchpublications.com/journal/178
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