It is true that rural credit market has undergone remarkable changes. But the market is not as inclusive as it is being thought of by the concerned quarters, revealed a recent household level survey. Over time, improvement can be gleaned from the following information: (a) the informal market - moneylenders, traders and landowners, and friends and relatives - dominated the credit market in the period before 1980s; (b) only 14 per cent of rural households accessed loans from banks and cooperatives; the number was 7 per cent for the functionally landless households compared to 21 per cent for those who owned more than 5.00 acres of land and (c) two-thirds of the households borrowed from the informal market - 92 per cent from the landless group. Again, the share of informal market in total loans was 75 per cent of which 92 per cent for the landless.
However, rural households, borrowing money, increased from 38 per cent to 48 per cent over the 1988- 2014 period. The access to credit expanded more for the functionally landless households (38 per cent to 54 per cent) than the landowning households (40 per cent to 42 per cent), due to targeting of micro-credit to functionally landless households. Despite huge expansion of microfinance over the last two decades, almost half of the rural households still remain excluded from the financial market.
But noticeably, supply of institutional credit has expanded substantially over 1988-2014 period, mostly due to loans provided by non-governmental micro-finance institution (MFIs). MFIs' share of total loan increased from 8 per cent in 1988 to 49 per cent in 2000 and further to 56 per cent in 2014. The high-cost informal credit market has shrunk but, still 23 per cent of households take loans from informal sources, accounting for one-third of total loans. The growth in the average size of loan increased substantially during 2000-14 period compared to 1988-2000, presumably due to faster growth of the economy. MFIs have been conservative in increasing the size of loan compared to other sources (one-third compared to financial institutions). Banks now serve fewer members but increased the size of loan by 10 per cent per year, compared to only 2.4 per cent by MFIs. Even the informal sources give loan in larger amounts than the MFIs.
Among MFIs, as per coverage, the rank was as follows: Grameen Bank, ASA and BRAC both in 2008 and also in 2014. Small NGOs have expanded the coverage much more than the big ones, accounting for 18 per cent of all borrowers in 2014 compared to 10 per cent in 2008. BRAC increased the average size loan almost three times in 2008-2014, compared to 2.2 times for all MFIs. Small NGOs still give loans in smaller amounts.
The initial target group of the MFIs was households which own up to 0.5 acre (functionally landless group). BRAC covers almost 77 per cent of such households, compared to Grameen (80 per cent), ASA (81 per cent) and small MFIs (77 per cent). It is a general perception that extreme land-scarce households do not access loans from the MFIs because they are scared to handle money. The survey data does not support this perception. These households comprise 45 per cent of all households, and account for more than 50 per cent of the borrowers. It appears that these households are better targeted by Grameen and ASA than by BRAC and small MFIs.
Non-farm households now account for 46 per cent of total households in villages. The largest share of MFI loans goes to these households, but more or less according to their weight. It is a common perception that tenants who do not have any land of their own are not reached even by NGO MFIs. The survey data do not validate this per perception. A much larger proportion of tenant households are targeted by the MFIs than their weight. Almost 28 per cent of the loan of BRAC goes to pure tenant households, larger than other MFIs.
Households, engaged in business, have more than proportionate share of MFI loans. Similar is the case for households engaged in wage labour for livelihood. The most beneficiaries of MFI loans are, however, those who are engaged in transport operations. BRAC and small MFIs cover more farm households than Grameen and ASA. Households engaged in services are least engaged with MFIs.
In 2014, nearly two-thirds of the loan was used for agricultural and non-agricultural purposes. Borrowers now use a small fraction of loan for purchasing food which is almost half than in 2008. But the use of loan for repayment of old debt has increased. BRAC borrowers spend more on fertiliser (9 per cent) and irrigation charges (12 per cent), and choose more high-cost productive crops such as potatoes and vegetables. For them, the land productivity for the whole year is 15 per cent higher compared to all farmers, and farmers who did not take loans from MFIs.
The accumulation of capital has increased substantially for agriculture and non-agriculture over 2008-2014 period. The same is the case with the value of livestock and poultry holding for non-borrowers, but not for MFI borrowers. But there is not much difference in accumulation between MFI borrowers and non-borrowers. The coverage of membership is the highest for the Grameen Bank which covers nearly 14 per cent of all rural households; BRAC covers only eight per cent. The extent of overlapping with other organisations varies from 36 per cent to 49 per cent.
In general, households perceive that their economic condition has improved during 2000-2013 period. Among non-MFI members, 54 per cent reported that they are better off while 14 per cent reported that their condition has worsened. The net change is 40 per cent. Among MFIs, extent of progress is better for BRAC members compared to non-members, and also compared to other MFIs. For BRAC, the net change is 44 per cent, compared to 38 per cent for Grameen, and 41 per cent for ASA and small NGOs.
In 2008, households taking multiple loans reported higher rate of improvement than those taking single loans. The proportion reporting deterioration in economic conditions was also lower among those taking multiple loans than those taking only one loan. In 2013 survey also, households taking multiple loans reported improvement at a higher rate, but the difference has narrowed down. A large proportion of households taking multiple loans reported deterioration in economic conditions than those taking only one loan.
The writer is a former Professor of Economics at Jahangirngar University.
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