Financing bankable projects for small farmers : the Bangladesh perspective

Abstract

Since national independence in 1947, when the colonial areas now forming the present Bangladesh were freed to become East Pakistan, a number of approaches for augmenting agricultural otuput and income have been attempted. The present study examines such an approach, styled "The Bankable Area Development Project", which is currently being advocated for the development of selected areas with agricultural potential. Cross-section data for one year of a proposed pilot bankable project have been analysed to measure benefits, costs, and net benefits without project for each group of small farmers. Based on farm level information, one average annual farm plan with power irrigation and the other without it have been projected for each farm group to measure incremental benefits, incremental costs, and incremental net benefits with project. These data have been considered with other relevant information in the financial analysis of the Project. The study shows that all the farm groups would be financially viable with power irrigation accompanied with credit and inputs, as the IRR to each of them would be impressive, i.e. more than 50 per cent, and the BCR would range from 1.09:1 to 1.29:1. Without power irrigation, on the other hand, financial viability for all the farm groups would be on a much lower key. Their IRRs would range between 16 per cent and more than 50 per cent, but their BCRs would be between 1.01:1 and 1.15:1 only. It is also revealed from the study that the BCR and the IRR for the Project with power irrigation is very impressive, i.e. 1.58:1, and more than 50 per cent respectively. Even with a 10 per cent cost escalation and a simultaneous 10 per cent reduction in benefits the IRR would remain a significant 44 per cent. The financing bank's BCR is 1.04:1 and IRR 18 per cent, both of which are financially encouraging However, with the 10 per cent overrun in costs and decrease in benefits the IRR would fall sharply to an alarming 4 per cent only. Hence, the broad conclusion from this study is that bankable area development projects for small farmers in Bangladesh would demonstrate high financial viability, if the various enterprise and activity programmes are carried out as per appropriate and viable farm plans. To ensure viability of the financing bank, the credit programme should be invariably tied with the supervised utilization of inputs and extension, and the rigorous enforcement of credit discipline. Show more