The Research and Evaluation Division (RED) of the BRAC has recently produced a working paper on rural credit market, authored by Mahabub Hossain, Mohammad Abdul Malek and Narayan Chandra Das. The working paper is apparently a thoughtful presentation of the rural credit market scenario in Bangladesh over decades. As we all know, transformation of rural areas over decades has many facets. One of them is rapid expansion of the tenancy market. It has largely been due to exit of the large and medium farmers who have transferred their surplus land to more rewarding non-farm activities. They have done so not by selling their land but by renting out parcels to the neighbours or to people who worked on their land once.
Arguably, the tenancy market has moderated distribution of land holding in a regime of highly-skewed land ownership. Ipso facto, the agrarian structure is getting growingly dominated by marginal and small farmers - mostly dependent on the tenancy market for eking out a living - who, more often than not, are deprived of an access to institutional credit and extension services.
From a census of 62 villages in 2013, the size of tenant farmers stands at about 60 per cent who rent about 42 per cent of the cultivated land. A Longitudinal Survey between 2000 and 2012 shows that among the tenant farmers again, the share of pure tenant is about 30 per cent, tenant owner 14 per cent, and owner tenant 14 per cent. Noticeably, the share of pure tenants has remarkably grown over time while that of others has fallen. Most importantly perhaps, pure tenants and tenant owners claim four-fifths of the share of tenancy market.
It is only a part of the story. The forms of tenancy have also undergone a radical change from crop sharing to more market-oriented and credit-hungry system of fixed seasonal rent, lease arrangement, mortgage and 'khai khalashi'. Crop-sharing system has witnessed a drastic fall from 70 per cent of cultivated land in 1983-84 to 41 per cent in 2008 while that of fixed seasonal system soaring from 10 to 25 per cent during the same period of time. In addition to the role of financial assistance to access land in this changing context, the growing mechanisation in cultivation and threshing have added a further fillip to the importance of credit for these groups of farmers.
Unfortunately, the institutional sources of credit in rural areas, as led by the Krishi Bank, cater only to the needs of the land-rich farmers. NGOs (non-governmental organisations) also turn their backs on them as they fund mostly non-farm activities. This leaves the tenants at the mercy of the village money-lenders, non-institutional sources to say.
Recent literature provides convincing evidence that a strong positive correlation exists between agricultural credit at reasonable cost and farm production. Farm credit affects agricultural performance by relaxing working capital constraints, inducing farmers to adopt new technologies and intensive use of fixed resources.
Again, credit availability enables farmers to manage their land and other fixed assets and facilitate consumption during the crop production cycle. This raises farm productivity and reduce dependency on high-cost informal market.
To respond to the burgeoning growth of the tenancy market and sharecroppers ('borga chashi'), and keep a sharp eye on the existing constraints of conventional micro-credit and formal banking systems in reaching out to tenants, the BRAC has introduced the 'Tenant Farmers Development Project (Borga Chashi Unnayan Prokolpo, BCUP) under the umbrella of a revolving fund received from the Bangladesh Bank under its financial inclusion strategy. Introduced in the Boro season of 2010, the fund was given initially for 3 years with a target of providing credit to 300,000 tenant farmers - both pure and partial - with a land size up to two acres.
The BCUP provides customised services. The farmers are provided loans at subsidised interest of 10 per cent per year at a flat rate. The effective rate of interest comes to 18 per cent on declining balance. The beauty of the 'borga chashi' loan is that it also provides extension services- not stipulated in contract- feeling that farmers need not only credit but also the ways of utilising them properly. This could help them raise productivity and as a consequence, repay the loans in due time with less hardship. Thus a large number of sharecroppers were drawn to the formal credit market thus releasing them from the clutches of village money-lenders who charge exorbitant rate of interest (10-12 per cent per month) on loaned money.
The other two dimensions of the project are worth noting. The farmers are organised into informal village-level associations. They meet once a month to ventilate their problems with the BRAC staff as well as sharing knowledge and experiences with each other. They talk about crop diseases, input availability, repayment schedule etc. Since they are generally bypassed by agricultural extension workers, the missing link has been installed. Second, in a subsequent thought, women were brought to the picture and the reasons are not far to seek: (a) males working in the fields have high opportunity cost of attending meetings; (b) in many tenant households, women are the main farm managers while men look after non-farm activities. Many women are engaged in vegetable production and in poultry and livestock activities around homesteads. These activities tend to generate a regular stream of income that would facilitate repayment of instalments and interest rate. Thus men and women work hand in hand in village organisations to further their gains from the access to agricultural credit.
By 2013, there were about 17,000 associations with about 4,00,000 members of whom about 3,00,000 are active borrowers. The loan disbursement amounts to about Tk 7,000 million; half of that has been accessed by women. The recovery rate is comfortably at about 94 per cent. The good news of all is that women now constitute about three-fourths of the members. About 2,00,000 farmers have received training on improved technology and cultivation practices.
By and large, the BCUP seemingly aims to kill two birds with the same stone: addressing the credit problems of sharecroppers hitherto unsung and unheard of and encouraging women to actively engage in agricultural activities and thus boost women empowerment. Thickly overcast with clouds, the sharecroppers now have a shower of credit to keep them on an even keel.
The writer is a Professor of Economics at Jahangirnagar University.
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