Rural finance and its sustainability

Today I am starting my write-up with a simple story that I have come across in a local newspaper.

In 2018, Shahinoor founded the ‘Ultra Poor Graduation’ program under the small loan scheme of the private organization BRAC. From there, she took a loan of 18,000 taka on the advice of a BRAC worker.

This small loan has changed her life in a big way. Her financial situation has changed a lot. She opened a vegetable shop with this loan. Later her business expanded further. Now she has bought land in Ashulia. The child is educated in a school with a salary of 8000 taka per month. That means small loans have a positive impact on people’s lives.

A loan and a person’s hard work can change the course of their life. If people look for a way, they will get rid of their predicament. Therefore, a comprehensive program should encourage people to take small loans. The government can inform people about such incidents in rural areas through various institutions, which can motivate people. In this way, rural finance can play a significant role in society.

The new financial paradigms system like agricultural lending and rural Finance emerged in 1980. But at the beginning of 1950, foreign agencies and government attempts to boost agricultural financing were very influential. In 1970, the idea of microfinance in Bangladesh had emerged and made the necessity of microfinance indispensable for the country. Microfinance, Agricultural finance, Microcredit all are part of rural finance. The Banking and Financial crisis have occurred in the world in the past time. But recently, there has been a global financial crisis due to Covid-19 and Russia-Ukraine War. This has negative impact on our daily lives. General people are highly suffered from these issues. However, research in rural finance and insurance practices in developing countries like Bangladesh is more essential to sustain rural finance. Because rural finance is more available in Bangladesh, but this is not sustainable for different reasons. There are significant steps should be taken for making rural finance more sustainable.

After getting microcredit from the microfinance institutions (MFIs), farmers started their investments like fisheries, poultry firms, or producing agricultural products. But accidentally, farmers’ investment faced different challenges like a natural disaster, theft, or an accident from fire. In that case, farmers are suffered enormous losses for that reason. In that case, rural finance could not be sustainable more. So, rural finance can make more sustainable through insurance facilities and more awareness creation among the farmers and the rural people also. It means how that insurance can highly accommodate rural financial activities. For that cause, initiatives should take to aware the people of rural areas about the advantages of purchasing of insurance policy. In addition, the research can conduct further on how the research finance can make more sustainable in Bangladesh and other countries.

Research on the effectiveness of rural finance regulation and the impact on corporate performance can effectively develop rural financing facilities in rural areas. Research on how effective implementation of rural finance affects investors’ confidence in the developing economy would be suitable for future studies. Leadership, governance, training facilities, and their effectiveness in reducing corruption in developing countries such as Bangladesh can further contribute to rural finance research.

Because of the high production and price risk, the prevalence of asymmetric knowledge between subjects, and the high transaction costs, rural financial markets only sometimes operate efficiently. The above problems can be minimized to make rural finance sustainable in Bangladesh. If rural finance is more sustainable in the rural community, it automatically contributes to our GDP and increases the living standards of the rural people. It has great importance in our growing economy. So, Government should focus in this issue and take some initiatives to develop the rural finance effectively

and efficiently.

Rural finance can become more sustainable through the establishment of training facilities, monitoring and supervision of rural finance systems, the decentralization of highly market-oriented rural financing policy, and the provision of subsidies by the government in certain circumstances. The government’s subsidies should be put to good use and distributed fairly among the eligible people to receive rural financing in the countryside.

The high compound interest rate, primarily criticized by those knowledgeable in the field, is the primary constraint of the rural financing system. The lengthy institutional process is the primary obstacle that farmers must overcome to get agricultural loans from the banks that are part of the formal sector. Financial institutions should minimize these types of problems for the benefit of the farmers.

In our nation, the banking deposits mobilized from the country’s more rural parts are directed into the institutional credit operations conducted in the country’s most populous cities. The ratio of deposits to credit is higher in urban areas than in rural Bangladesh. Access to credit is difficult for small and marginal farmers because of the strict credit restrictions of financial institutions. Another drawback of rural finance is that the people who receive it often do not get enough training. This is since only a small proportion of rural people had participated in training after receiving a loan from an NGO or commercial bank in the country. Government can take effective steps to train up the rural people like farmers for proper use of microcredit and microfinance. The prospects of rural finance include:

The encouragement and growth of leasing services ; the improvement of financing and insurance companies in rural areas; the earnings capacity of the rural people will be increased; the social awareness among the rural people will be improved; the improvement of electronic customer services in rural regions; and the development of renewable energy sources.

Obtaining and sustaining optimal levels of resources and carrying cost efficiency is possible through sustainable rural finance. The establishment of an appropriate logistics system for the management of supplies and transport linkages, the existence of market demand that rural finance can sustain.

The government should be concerned about maintaining sensible fiscal, monetary, and trade policies since doing so lower macroeconomic and sectoral risk for financial intermediaries and their customers. This will allow for the sustained development of rural finance. In addition, decision-makers need to emphasize increasing the profitability of rural operations by implementing suitable sectoral policies, encouraging investment in rural infrastructure, and enhancing social services. Moreover, the prospect of rural finance is indispensable for the development of the rural economy. This has great influence to minimize the poverty of Bangladesh and income increasing of the people of the rural areas.

The writer is Associate Professor, Dept. of Accounting and Information Systems, Jatiya Kabi Kazi Nazrul Islam University, Mymensingh. He can be contacted at shafiq@jkkniu.edu.bd