As a developing country, Bangladesh strives to improve the socioeconomic conditions of its vast majority of poor people. It is trying to free them from hunger, poverty, illiteracy, unemployment, and also help them cope with the adverse effect of climate change to meet the challenges of the 21st century.
It has been recognised that rural finance is essential for poverty reduction and development in rural areas. It acts as a catalyst and links the various elements of production to improve rural people's wealth and quality of life. Rural development is possible through financial services in rural areas by disseminating information about multiple aspects of economic activities and proper use of funds.
Rural finance is essential for the overall economic development of the country. It can be used more to lift rural people out of poverty and to implement sustainable development strategies in the country.
It gives rural people access to banking and economic activities such as loan receiving, cash transactions, payments, and savings. Access to such services helps rural people to enhance their economic activities and to improve their quality of life.
In Bangladesh, rural areas contain a large majority of the poor population. Rural finance refers to the collection of funds and cash payments to rural people, especially poor women, men, farmers, and small entrepreneurs in rural areas, to carry on their income-generating activities along with other commercial activities.
Rural finance includes all sectoral and informal financial institutions providing multiple economic benefits to the rural poor and more substantial financial services to other small and medium rural enterprises and agro-processing enterprises.
Microfinance institutions provide microfinance to poor people to start their income-generating activities. Rural finance is essential for poverty reduction, economic growth, quality of life, and overall development in rural areas. It is significant to increase productivity and combine production variability to improve the income and living standards of the beneficiaries in rural areas.
Agricultural finance, microfinance, and SME finance work as part of rural finance. Agricultural finance refers to various financial services for agricultural production, processing, and commercialisation, including short-term, medium-term, and long-term credit and agricultural crop and livestock insurance.
Agriculture is essential for people's livelihood, employment, and contribution to GDP in Bangladesh. Increasing agricultural production is an effective tool for sustainable economic growth, increasing food sufficiency, and reducing poverty.
In this context, a study has shown that bank and NGO loans in the agricultural sector significantly and positively impact the country's agricultural production. More financing in the agricultural sector will increase the country's aggregate agricultural production.
It has also been found that rural finance significantly affects people's income growth, entrepreneurship, agricultural land growth, and people's satisfaction with their current situation. Factors such as agricultural credit, investment in agriculture, and starting new businesses should be identified and given more importance in determining the impact of rural finance on the rural socioeconomic development of Bangladesh.
The phenomenal development and positive changes in the way of life in the country's rural areas have been largely due to the extensive development of rural finance. Also, modernisation of agriculture, improvement of communication and transport systems, expansion of other agricultural sectors, expansion of information and technology, and increased expatriate income have played a significant role in this regard.
Rural development has been made possible through the formal financial inclusion of the rural finance system under the central bank's guidance. Therefore, the government should pay more attention to the rural financing system, which will play an influential role in the overall development of the country.
The primary purpose of rural finance is to alleviate poverty by providing financial services to underprivileged women, men, farmers, small and medium entrepreneurs, and small-scale business people to engage in income-generating activities. Rural finance is a development strategy for poverty alleviation in Bangladesh, particularly by encouraging women to work in rural areas and reducing poverty by providing quick and tangible results.
Rural finance often builds on this foundation to help rural people break out of the cycle of poverty by giving them access to financial services. Most financial service providers have simplified the concept of rural finance and integrated rural finance into digital platforms. NGO-MFIs have made a breakthrough by providing customer-centric financial services like microcredit, microfinance, insurance, savings, and other financial services.
As a result of these rural-oriented activities, many local products are being produced at the village level. Moreover, employment opportunities and individual and household income of rural poor people have increased.
Thus, rural finance has multiple impacts on rural people, ranging from their children's education to food and nutrition security, good health, income generation, poverty reduction, and so on. As rural finance creates greater employment opportunities for poor people, it is hoped that they will not move to the city if they get work in the rural areas.
Considering the above situation, formal and informal institutions like banks and NGO-MFIs could extend more of their services to the people in rural areas. It means improving the ability of banks and other financial institutions to provide loans and other financial services to rural people to contribute more to alleviating poverty in rural areas.
Matiur Rahman is a researcher and development worker.
