AsianScientist (Dec. 10, 2018) – An international research group has found that microfinance schemes could increase rice yields in Bangladesh. They published their findings in the American Journal of Agricultural Economics.
In the developing world, access to credit can lead to higher productivity and an increase in living standards. However, formal financial institutions are reluctant to finance households with low incomes or which lack collateral. This is where microfinance institutions, or MFIs, play a role.
MFIs extend small loans, called microcredit, to individual households. While standard microloans tend to be geared toward business and entrepreneurial endeavors, in recent years, Bangladesh has made a name for itself internationally by providing microcredit to tenant farmers.
In the present study, researchers from Bangladesh, Japan and the US have examined the impact of agricultural microcredit on the livelihood of farmers. Led by Dr. Mohammad Abdul Malek of Kyoto University’s Graduate School of Agriculture, the researchers analyzed various outcomes of microcredit loans, such as the adoption of high-yield or hybrid rice, the overall rice yield, as well as farmers’ household incomes.
“The agricultural microcredit program Borgachashi Unnayan Prakalpa—BCUP—began in 2009 with a primary objective of increasing the credit access of tenant farmers to formal financial institutions,” explains Malek. “So we conducted two surveys in 2012 and 2014 to see how households receiving this financing changed over time.”
The Bangladesh Bank started BCUP with a low-interest revolving fund, as part of its financial inclusion strategy. The average loan amount was equal to the production cost of rice for one hectare of land.
The team’s results showed that BCUP helped increase rice yield as well as overall crop farm income. The researchers also reported that the BCUP helps increase the probability of adopting hybrid and higher yield rice. Furthermore, they noted a positive effect on the cultivation of owned land and livestock ownership.
“BCUP has had a number of positive effects,” said Malek. “While we did not find a change in household income, we noticed that the farmers were able to allocate more time to self-employment activities.”
While several studies have examined the role of agricultural credit on the livelihood of farm households, this is the first to examine the impact of a program designed specifically to increase the financial inclusion of tenant farmers, said the researchers.
The team hopes to continue their inquiry into the effects of microcredit, seeking to better inform future policy decisions in Bangladesh or elsewhere in Asia.
The article can be found at: Hossain et al. (2018) Agricultural Microcredit for Tenant Farmers: Evidence from a Field Experiment in Bangladesh.
Source: Kyoto University. Photo: Shutterstock.
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