Role of agricultural credit in the development of agriculture

Adequate availability of credit on time is an important requirement for the rural people, particularly under conditions of scarcity of resources and uncertainty, Convenient and safes-saving facilities are perhaps even more important to smooth out the peaks and troughs in incomes and expenditures in the rural arena, Lack of savings facilities also force families to rely on inefficient, inconvenient and costly alternatives. Agricultural credit can be a solution for this perspective. In Bangladesh most of the agricultural credits are the small-scale loans for the poor entrepreneurs. It allows them to access in the leading institutions to borrow fund and start their own business for rural development. Several financial institutions developed several strategies, including provision of small loans to the rur poor without collateral. These loans are repayable in predetermined installments, Borrowers are organized into groups, which reduces the risk of being default. These credits also help disseminating valuable information about the borrowers and their living standards. In Bangladesh mainly nationalized Banks and specialized Banks are currently burdened with classified loans. But the collateral free financing offers a new opportunity to invest their funds with little risk. Previous experiences of financial institution show that small credits have proven feasible of lending to the poor for rural development. Therefore, we can say that if they can engage themselves efficiently, agricultural credit will accelerate the developmental activities in rural areas of Bangladesh.

It can be clearly seen that, a tremendous change has taken place in the rural financial market. most distinguishing characteristics of the rural financial market in Bangladesh are the growing importance of NGOs. Now one-third of the rural household receives loan from commercial banks and its contribution in total loan dispensed is 45%. Considering Banks and NGOs as the formal sources of credit, it is seen that three- fourth of total loan received by rural household comes from institutional sources. This amount was only one-third of total credit before the past two decades. On the other hand, the amount of loan taken from informal sector has reduced to less than half of the amount previously taken. The microfinance statistics for FY12 shows an impressive increase in cumulative loan disbursement to grass root borrowers which reached Taka 293.65 billion. It reflects nearly 5.39% increase in disbursement over the previous year. It is estimated that, in 2008, about 35 million members have received the advantage of NGO led micro credit (Hossain, 2012). This figure reflects the tremendous expansion of market outreach of NGOs. Whereas household sin village are rarely
found to be involved with NGOs even before past two decades, half of the total number of households are now involved with NGOs. The noticeable point is that, both the proportion of the foun recipient households and bank's share on total loan dispensed has declined in the past one decade. So NGOs has emerged, in the mean time, as a major provider of agricultural loan Proportion of household taking loan from banking institutions had remained almost stagnant over the 1988 and 2010. But, in
case of taking loan from NGOs, the proportion increased dramatically for both households with land and without land. In addition to this, the proportion of households seeking loans from informal or non-institutional market had declined from 62.15 to 18,5% over the period under comparison in case of household with land and from 71.1% to 18.9% for the corresponding period in case of household without land (Table 10.a and Table 10.5) In terms of the relative contributions of different sources to total credit disbursement, overall Institutional credit (Banks & NGOs) now increased from about 40 percent to almost 60 percent between 1988 & 2008 thanks to the increased share of micro-credit from NGOs (Table 11, column4) For the same period, share of non-institutional credit reduced from about 73 percent to only 40 per।

 Institutional sources has taken this space by contributing to 58 percent in 2008 from 27 percent in 1988 (Hossain and Bayes 2009). By and large: once again, informal sector is no more playing the dominant role in the rural credit market.

Recommendations:

• Sufficient loans in time should be supplied to farmers so that they never feel the wants of agricultural capital to invest in farmland.
• Though interest rate is comparatively lower than other sectors, it is to be minimized between 5% to 6%
• Regular visiting and planned monitoring from banks should be increased so that borrowed money is utilized accurately to have a good return. Government must have to play a vital role in uprooting communication gap among banks and peasants through infrastructural development.
• More rural branches should be launched by banks to make direct link with marginal farmers.
• Awareness programs on loans and positive approach of it among marginal peasants are required to be organized.
• Expanding time duration of loan in case of failure to repay is to be kept under consideration.
• Promotional activities at root level is a crying need to involve farmers as wells first-hand training by banks especially by agricultural bank need to be introduced.