Authors: Syeda Naima Zannat, Fariha Nur Shoumee
Abstract: Agricultural credit plays a crucial role in supporting Bangladesh’s rural economy by enabling farmers to access the necessary financial resources for production and growth. In Bangladesh, the provision of agricultural credit is categorized into three sectors: formal, semi-formal, and informal. The formal sector is dominated by government banks, such as Bangladesh Krishi Bank (BKB) and Rajshahi Krishi Unnayan Bank (RAKUB), along with private commercial banks. These institutions are central to agricultural financing, although many smallholder farmers face significant barriers in accessing these funds. The credit disbursement process is often complex and time-consuming, with strict eligibility criteria and collateral requirements that are difficult for poorer farmers to meet. The semi-formal sector, including non-governmental organizations (NGOs) and rural development organizations, provides a more accessible alternative for farmers who struggle with formal credit channels. These institutions offer microfinance loans with fewer requirements, which are critical for small farmers. However, their reach remains limited and the sustainability of these institutions can sometimes be uncertain due to financial constraints. The informal sector, consisting of moneylenders and community-based lending, is also a vital source of credit for many farmers. The Johansen cointegration test and VECM model indicate a long-term positive relationship between agricultural credit and GDP growth. Furthermore, the impact of agricultural credit on household-level economic conditions, focusing on factors like housing, income, and investment. Findings suggested that credit programs have positively impacted household income, agricultural investment, and overall economic well-being. Despite these various credit sources, significant challenges persist in improving access to financial resources for farmers. Long approval processes, bureaucratic inefficiencies, and the lack of adequate rural banking services create obstacles. Moreover, small farmers, who are the backbone of the agricultural sector, often struggle to secure financing due to the high collateral demands and lack of financial literacy. Addressing these challenges is crucial for further improving the effectiveness of agricultural credit programs in Bangladesh.
