Micro-Lending for Small Farmers in Bangladesh: Does it Affect Farm Households' Land Allocation Decision?

This paper argues that despite high profitability of High Yielding Varieties (HYVs), farm households in the developing countries continue to allocate a portion of their land to traditional crop varieties, in the context of a specially designed micro-lending program for small farmers in Bangladesh. Some of the important elements of the study are:

• Credit limit is used as an indicator of access to credit;
• Credit limit and amount-borrowed from informal sources are significant determinant of HYV cultivation under all model specifications;
• Results indicate that the impacts of credit on farm households, land allocation decisions significantly depend on how access to credit is defined.

The paper states that the findings of this study hold clear policy implications for Bangladesh:

• The focus of micro-lending programs has exclusively been on income generation through non-farm activities;
• The majority of small farm households continue to rely on the informal sector for their credit needs;
• They neither have access to formal financial sector nor to the micro-lending programs administered by the NGOs.

This study concludes with certain recommendations and their benefits:

• There is room to increase agricultural productivity by providing the small farmers with financial services through micro-lending institutions;
• Access to micro-lending can also increase the use of other inputs such as fertilizer and pesticides;
• Small farmers can be brought closer to formal banking by establishing successful partnerships between NGOs and commercial banks;
• Such initiative will not only increase productivity but also improve the performance of the formal banking system.