The Bangladesh economy has been shifting to urban concentrating economic activities, while the rural economy is still playing a significant role for poverty reduction and economic development through employment generation and continuous contribution to the economy. Agriculture is a dominant sector of Bangladesh economy, which covers almost all of the rural economic activities and contributing around 17 percent of our Gross Domestic Product (GDP). Around 45% of the labor force of the country are engaged in the agricultural sector (BBS, 2011). Development of agriculture and the people in this sector are intensely interwoven with the food security and employment of the vast population of Bangladesh (Bangladesh Bank, 2014). In this view, the government has set priorities for the agricultural sector to ensure food and nutritional security, poverty alleviation and enhanced employment opportunities. It is noteworthy to mention that the country is enjoying the food sufficiency due to the appropriate policy measures. The government and the people of Bangladesh are striving for sustainable agricultural development with continued efforts. Over 70% of the total population lives in rural areas, most of them are engaged in agriculture and rural economic activities including cottage industries, poultry rearing, animal farming, fishery, milk production, different service activities etc. for their livelihood. The base of the national economy can be safeguarded by ensuring stronger and sustainable rural development.
Moreover, in order to achieve the Millennium Development Goal (MDG)-1, it is important to stress upon the rural development of the country. Rural credit is considered as an important scheme to develop the agriculture and other rural economic sectors in Bangladesh. Increasing and persistent demand of rural credit is creating a scope as well as gap to expand the rural economy. To fill up the gap and scope created through increasing demand of loan, all commercial banks and NGOs along with public and specialized banks have been playing an important role in the disbursement of rural credit during the recent years under various schemes. Different government agencies are also contributing a significant proportion to the disbursement of rural credit.
The first Rural Credit Survey was conducted by Bangladesh Bureau of Statistics (BBS) in 1987. According to the result of Rural Credit Survey 1987, the rural credit market of Bangladesh had been dominated mainly (71.6%) by professional moneylenders (mahajans), landowners, friends, relatives and others (BBS, 1989). Some selected key findings have been shown in Annex-VII. From the results of above mentioned survey, it is observed that small-scale farmers are facing difficulties in gaining access to institutional loans which are directing them to seek non-institutional loans.
The policies of the governments in many developing countries are to develop an intentional approach to remove credit constraints in rural areas. Institutional channels were supposed to save the farmers from the exploitation of the ‘usurious monopolist’ cum moneylenders. This has provided some kind of awakening, especially in the context of Bangladesh, the government established the first-ever institution- Agricultural Development Bank (Krishi Bank) in the 1960s- to provide rural credit. Later, the government also encouraged the establishment of rural branches of the nationalized commercial banks in the early 1970s and set up a special agricultural credit programme called Matir Dak in 1977.
Subsequently, in 1986, Rajshahi Krishi Unnayan Bank (RAKUB) was established by a Presidential Ordinance to provide intensive care to the agriculture of Rajshahi and Rangpur Divisions through financial support to the farmers as the region is full of agricultural potentials and characterized by their surplus food grain production, popularly known as the ‘granary of the country’ (RUKAB, 2012).
All of these developments contributed to an increase in the branches of banks as well as in institutional credit inflow to rural areas. However, it has been alleged that from the very beginning these institutions primarily favored the large and medium farmers at the cost of small and marginal ones. This could possibly be due to the weak position of the latter groups in the socioeconomic power structure prevailing in the rural areas. Further, large-scale defaults on agricultural loans provided limit to the loan-recycling capacity of the rural financial institutions in the late 1980s. Quite obviously, and since then, stagnation in credit supply developed in rural areas. Another important aspect of rural financial market developed over the years - and not so much viewed academically - is the growing interactions between formal and informal credit markets. More than two-thirds of the credit of the formal channel very quickly finds its way to the informal channel. In the context of Bangladesh, another source of rural credit is the NGOs. Following the success of the Grameen Bank, a large number of NGOs stepped in to supplying rural credit in remote areas as part of their social development programmes. These programmes targeted mostly women from landless and poor households. The total number of borrowers in the microfinance sector as on December 2013 was found 26.73 million, which was 26.90 million in 2012. The total share of borrower of MF-NGOs was found to be the highest (70.8%) in 2013 serving over 18.93 million borrowers (CDF, 2014).
The sources of rural credit can be classified into two groups. One is a formal or institutional source largely comprised of banks and NGOs. The other source is generally called informal or noninstitutional- mostly moneylenders, friends/relatives, traders, landowners etc.
Rural credit in the country is characterized by a small-organized sector. Unorganized credit transactions carried out by professional moneylenders and by friends and relatives have been quite large in terms of both quantum of loan provided and number of client households served. Banks and co-operative societies in the past few years have promoted efforts towards strengthening the organized credit market. Government and semi-government agencies and non-government organizations have been providing credit for various kinds of rural economic activities. Even in such context and development, organized rural credit sector could not substantially reduce the role still being played by the unorganized sector. The structure of the rural capital market is changing during the recent years. Bangladesh Bank through its agriculture and rural credit policy started to guide the private and foreign commercial banks to disburse agriculture and rural credits from FY 2008-09 as optional. Later from FY 2011-12, disbursement of rural credit at a certain percent of their total credit has been made mandatory for the private and commercial banks along with public and specialized banks, which stimulates largely in expand of rural credit structure in Bangladesh (Bangladesh Bank, 2013). Banks are spreading out credit operations to institutionalize the market. More and more rural households are having access to organized credit agencies for not merely agricultural production support, but also support for nonagricultural income earning ventures. Many rural households, however, are still outside the credit market, especially outside the organized credit market.
Current data on structure and state of rural credit are not available for formulating realistic policies and rationalizing the rural credit system. Due to inadequate information on demand for, and supply of, rural credit, it becomes difficult to formulate appropriate policy and planning. Considering the huge demand for data related to rural credit as well as micro-credit, BBS undertook the Rural Credit Survey 2014. The first Rural Credit Survey was conducted by Bangladesh Bureau of Statistics (BBS) in 1987. After a long gap, to meet the rising demand, this is the second comprehensive survey of its kind, conducted by BBS in January 2014. This survey provides updated data for planners, policy makers, researchers, development partners and other agencies for the management of effective and efficient use of rural credits.
The survey was designed to provide current data on the following aspects of the country’s rural credit system:
# to identify the agricultural and non-agricultural borrowing households;
# to identify the sources of credit facilities and their roles in the rural economy;
# to identify amounts of loan advanced to rural households and their classification by purposes of utilization in agricultural and non-agricultural activities;
# to identify the actual utilization of loans by borrowing households;
# to identify the characteristics of outstanding debts of borrowing households and reasons for non-repayment of loans in time;
# to identify economic characteristics of borrowing households and distinction between borrower and non-borrowing household groups by household characteristics.