Factors influencing demand for, and supply of, agricultural credit: A study from Bangladesh

Abstract

The provision of a wide range of financing choices enhances farmers' ability to respond to changing circumstances in their agricultural activities and maintain optimal levels of production. However, several household- and farm-level determinants impact the availability of, and demand for, agricultural credit in rural households. Therefore, the current study explores the determinants of demand for, and supply of, agricultural credit. To do so, data at the farm level were gathered using interviews with a randomly selected sample of 360 respondents in the Mymensingh region of Bangladesh. Additionally, 30 years' worth of secondary data were obtained from various sources to investigate the determinants of agricultural credit supply. Data were analyzed using binary logistics and multiple linear regression. Findings reveal that farmers’ demand for agricultural credit is positively influenced by farming experience and farm size. Factors that significanly discourage farmers from taking credit include (a) an increase in income-generating family members, (b) perceived high interest rates of credit, and (c) negative perceptions regarding the application procedure. Factors that increase agricultural credit supply are (a) an increase in credit supply targets and (b) increased severity of natural disasters. In addition, an increase in non-performing loans does not hinder agricultural credit supply as the Bangladeshi government has placed special emphasis on protecting farmers from crop failures and other adverse situations in order to achieve food self-sufficiency in the country.