Institutional credit for agriculture in Bangladesh

Abstract

The study relates to an analysis of the short- term production loans obtained by the borrowers of the Janata Bank (a Nationalised Commercial Bank), Co-operative (financed by Central Co-operative Bank), Integrated Rural Development Program, IRDP (financed by Sonali Bank, a Nationalised Commercial Bank) and the Bangladesh Krishi Bank, BKB (Agriculture Bank) under the normal credit program in Bangladesh. The study aimed at evaluating lending policies, examining borrower characteristics, finding out the factors influencing the supply of credit and measuring the magnitude of non-interest costs in loan transactions from the formal sources. The characteristics of the borrowers were well reflected by the lending policies of the respective credit institutions. Borrower characteristics between the Integrated Rural Development Program and the Co-operative were found to be similar in 75 per cent of the attributes tested. This was significantly different to the borrowers of the Bangladesh Krishi Bank. The Integrated Rural Development Program and the Co-operative were found to be the institutions oriented towards smaller farmers while the Bangladesh Krishi Bank was for larger farmers. The Janata Bank accommodated most of the borrowers of medium farm Sizes. The study identified four factors namely, stated demand (self assessed requirement) for credit, the land, financial endowment and education influencing the supply of formal credit. Stated demand for credit and the land appeared as the most important significant factors determining supply of credit. Education, on the pooled observation, was found to have significant positive effect on credit supply. The negative sign in the variable Financial Endowment for the Integrated Rural Development Program and the Co- operative reflects the fact that borrowers with a higher financial endowment were disbursed a lower amount of credit. This is in line with their lending policies. This model of regression explained 58 per cent of the variation In the institutional credit supply. A substantial portion of the credit needs of the borrowers remains unsatisfied. Non- interest costs, it appeared from the study, are not only substantial but have all the characteristics of fixed costs. They decreased rapidly as loan sizes went up. Non-interest transaction costs were found to be 5.04 per cent, 8.05 per cent, 6.54 per cent and 10.59 per cent respectively for the borrowers of the Janata Bank, the Co-operative, the Integrated Rural Development Program and the Bangladesh Krishi Bank. The effective rate of interest on formal loans thus becomes much higher than the mere formal official rate of interest. The overwhelming majority (i.e., smaller) of the borrowers had to face the higher regions of the average cost curves. Show more