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M. A. Habib, M. Sayeedul Haque, M. R. Uddin Mian and M.A. Bashar
Department of Agricultural Finance
Bangladesh Agricultural University

Abstract: The study was undertaken to examine the effectiveness of RDS credit provided by the
Islami Bank Bangladesh Limited through interviewing a few randomly selected programme
beneficiaries located in Sadar and Fulbaria Upazila of Mymensingh district. Most of the
beneficiaries were observed to have required loan money within reasonable time limit during the
study period. Loan was found to have been productively used irrespective of loan holder
categories. Loan repayment performance of the beneficiaries was observed to be satisfactory. Self-
consciousness and hope of receiving future loan were observed to be the major contributing
factors for good loan repayment behaviour of the beneficiaries. Small borrowers were good
repayers followed by the medium and large borrowers.
Key words: Micro credit, Adequacy, Utilization, Repayment

In rural areas of Bangladesh, the major source of credit is informal credit market (Hossain, 1996), where
professional moneylender is considered to be the principal source despite its charging exorbitant interest rate. At
present, however, with the expansion of bank branches as well as the non-government organizations (NGOs)
working in the rural areas of Bangladesh, the role of moneylenders has been gradually declining. Micro credit creates
a virtuous effort to break the vicious circle of poverty. Women in the country have been benefited to a great extent
from such micro-credit programmes, demonstrated by their increased income and assets accumulation. The major
objective of development strategy of the government of Bangladesh has been to reduce poverty through providing
institutional credit among people. This objective deserves urgent attention at the moment because, about half and
one-fourth of the population in Bangladesh is considered respectively as poor and hard core poor (Planning
Commission, 1998).
Islami Bank Bangladesh Limited (IBBL) is one of the leading commercial banks in the country having 120
branches over important areas of Bangladesh. Considering rural economic condition, the bank has recently
introduced a project in the name of Rural Development Scheme (RDS). The Objective of the scheme is to create
income generating activities (IGAs), self-employment opportunities for rural people and thereby contributing towards
poverty reducing agenda of the government of Bangladesh. The present study aims to see whether the RDS credit
could have positive impacts on income generation of the rural poor under RDS and explore its mode of operation and
improvement. The specific objectives of the present study were

to assess the socio-economic characteristics of the respondents in the study area,
to assess the loan receipt and adequacy of the RDS credit programme in the study area,
to investigate the utilization pattern of loan provided by the RDS programme in the study area and
to examine the loan repayment behaviour of the respondents in the study area.

A total of 79 borrower respondents under the RDS programme of IBBL was randomly selected from whom
desired information have been sought through administering carefully designed and prepared survey schedules. To
supplement the collected information, informal talk with group members of the RDS also provided additional data.
Respondents were both females and males. After collecting information, the filled in schedules were scrutinized and
checked to avoid inconsistency in data. The collected data were then edited, coded and finally tabulated according to
the objectives set for the study. Tabular analysis was mainly done by using techniques of the average, percentages,

Socio-economic Profile of the Respondents: Evidence shows that average family size consisted of 5.48 members
in the study villages. Average family size relates positively to credit holders (Table 1). Average earning member was
found relatively lower (1.56) although it is important to generate income in the family. The dependency ratio is
relatively higher in the study villages during the study year. Situation may attribute to dominance of female members
in the family or more dependent members therein during the study period.
It appears that irrespective of loan size categories, petty business was observed to be the main occupation
of majority of the earning members (34 per cent for small, 58 per cent for medium and 57 per cent for large ones
during the study year). Next to petty business, rickshaw pulling for small, agriculture for medium and large loan
holders were the main occupation during the same period. Insignificant proportion of earning members was found to
have service as their main occupation. Daily labour sale was the potential occupation for small loan holders in the
study villages during the same period.
Average owned land per household was estimated at 0.74 acres while average cultivated land was 0.72
acres during the study year. It is however, evident from the table that the medium and small credit holders cultivated
more land than they possessed on legal status (1.16 acre and 0.49 acre respectively) indicating their urge to cultivate
more land even than they have of their own with a view to earning sufficient income while the larger ones were
observed to cultivate less than they have of own during the same period. It also appears that the size of own land of
the large credit holders was about three times higher than the small and about two times higher than the medium
ones during the year of study. Table 1 also shows a clear-cut positive relationship between credit holders and
average value of assets they possessed during the study year.

Table 1. Socio-economic profile of the Respondent and Their Household Information

Items Small Medium Large All
Family Size 5.35 5.53 5.81 5.48
Average earning members 1.35 1.71 2 1.56
Dependency Ratio 3.96 3.23 2.91 3.51
Occupational Agriculture 12 27 22 17
status of the Petty business 34 58 57 44
earning members Rickshaw pulling 25 Not available 15
(%) Day labourer 24 Not available 3 15
Service 5 15 18 10
Land holding Average own land 0.45 0.85 1.46 0.74
(acres) Average cultivated land 0.49 1.16 0.92 0.72
Value of different assets (Tk) 43444 73527 135595 68581
Average annual income (Tk) 44690 62082 74464 54463
Average annual expenditure (Tk) 44232 59291 69291 52533
Average annual Average saving 459 2791 5245 1930
savings (Tk) Compulsory savings in RDS 851 1888 2444 1397
Total 1310 4679 7689 3327
Source: Field survey, 2003.

Overall income of the respondent households constitutes both farm and non-farm income earned by all the
active members of the family. It is apparent that total average income relates positively with the loan receiver
category. Average amount of annual income from all sources together was estimated at Tk 54463 for all loan
receivers taken together during the study year. Small loan receiver earned more from non-farm sources because of
their weak land resource base while the larger credit holders received relatively more from same sources during the
study period. Above all, the respondents studied, have earned their major income from non-farm sources showing
their weak agricultural production base and urged them to find out alternative sources of income for survival. The
overall average annual savings have been estimated at Tk 3327. It can therefore, be said that IBBL could reach the
target group and help to some extent the poverty alleviation program of the government of Bangladesh.

Amount of Loan Received and Adequacy of RDS Credit: Amount of credit extended by RDS during the
investigating year was categorized into the following: below Tk 8000 (A), Tk 8000 to Tk 11000 (B) and above Tk
11000 (C). From this study, it is found that 58 per cent, 22 per cent and 20 per cent of the sample respondents
borrowed within the range of below Tk 8000, Tk 8000 to Tk 11000 and above Tk 11000 respectively. Average
amount of loan obtained was estimated at Tk 8175 during the study year. Individual estimate of loan as received by
different categories on an average were Tk 5430, Tk 9294 and Tk 14875 respectively for A, B and C during the year
of study (Table 2). The table also reveals that the average amount of loan received was positively related with
categories of credit holders where the large loan category was found to have had loan almost three times more than
those of small category credit holders during the year.

Table 2. Amount of Loan Received and Adequacy of RDS Credit According to Size of Loan Holders.

Items Small Medium Large All
Average amount of loan received (Tk) 5430 9294 14875 8175

Adequacy of RDS Credit and time taken to obtain loan
Average amount of credit applied for (Tk) 5717 10706 19188 9519
Average amount of credit received (Tk) 5430 9294 14875 8175
Amount of credit received as percent of amount applied for 95 87 78 86
Average required days 7 7 7 7
Source: Field survey, 2003.

Again, 86 per cent of loan applied for was satisfied by the RDS programme in the study villages. Loan
holder category shows that small category have got 95 per cent of their required amount while the medium and large
categories received 87 and 78 per cent respectively, of their requirement. It can therefore, be inferred that the RDS of
IBBL generally give importance to the poor class living in the study villages. On an average, 7 days were expectedly
required to get loan from the RDS during the study year. Least time required to have loan from the RDS reflects their
urge and sincerity to help the disadvantaged group of the society.
Table 3. Purpose-wise Credit Distribution under RDS
Loan distribution by loan size
Head of A B C All
purposes Average Average Average Average
Number Number Number Number
amount (Tk) amount (Tk) amount (Tk) amount (Tk)
Petty business 29 5227 6 9667 11 15636 46 8295
Agriculture 4 6250 5 8800 3 12000 12 8750
Livestock 8 5277 2 9000 1 18000 11 7111
Rickshaw pulling 4 6250 Not available 4 6250
Land purchasing 1 6000 2 9000 1 12000 4 9000
Driving Not available 1 10000 Not available 1 10000
Tailoring Not available 1 10000 Not available 1 10000
Total 46 5430 17 9294 16 14875 79 8175
Source: Field survey, 2003.
Purpose-wise distribution of the RDS loan among the selected borrowers is shown in table 3. The borrowers were
found to have received loan for petty business (vegetables, wooden proudcts, selling rice, grocessary, cloth
business, etc) agriculture, livestock, rickshaw pulling, purchasing land, driving, tailoring, etc. The average amount of
credit obtained by the rural people for petty business was Tk 8295. Near about 36 per cent of all respondents were
found to have got credit for this purpose followed by agriculture (Tk 8750) and livestock (Tk 7111) during the year.
Loan was also distributed for rickshaw pulling, land purchase, driving and tailoring although the number of
respondents was less. Among small category, majority of the respondents received loan for petty business while
large and medium categories were found to have loan for petty business followed by agriculture and livestock
respectively during the study period.

Cost of Getting Credit from the RDS: Receiving credit from any source, particularly the institutional ones, involves
some cost for negotiating the credit case. So attempt was taken to see the items of cost by the respondents incurred
in processing RDS credit and analyzed accordingly during the study.
Table 4 shows that the respondents had to spend some amount of money in obtaining credit. Five major
items of cost were identified during the present investigation. These were i) cost for application form, ii) revenue
stamp, iii) photograph, iv) transportation cost and v) wage for days forgone to travel to and from RDS branch. The
study reveals that overall cost incurred for having RDS credit was estimated at Tk 205 and cost per Tk 100 was Tk
2.51 during the study period. Transportation cost was the highest for the large category of credit holders. People of
better earning normally use machanical transport facilities costing more while the small credit holders spent minimum
for transportation because they often travlled even on foot. Average total cost incurred by the small, medium and
large ones were Tk 189, Tk 204 and Tk 254 respectively during the year. Cost per Tk 100 was estimated at Tk 3.47,
Tk 2.20 and Tk 1.71 respectively for small, medium and large loan holders. It is quite clear that the respondents
having large loan money have incurred the lowest cost followed by the medium and small loan holders.
Table 4: Average Amount of Cost Incurred by the Borrower to Receive RDS Loan

Items of cost Loan category (in Tk)
A B C All
Fee for application form Not available
Revenue stamp 20 20 20 20
Photograph 20 20 20 20
Transportation cost 45 50 60 49
Wages for man days required to take loan 104 114 154 116
Total cost 189 204 254 205
Cost per Tk 100 3.47 2.2 1.71 2.51
Source: Field survey, 2003.

Utilization of Loan According to Loan size Category: Almost equal proportion of loan (44 per cent) has been
spent on non-agricultural and agricultural (43 per cent) purposes followed by family expenditure (about 14 per cent).
It is evident that family expenditure shared least because of proper supervision by the RDS staff on the one hand and
borrowers’ self-consciousness towards proper loan use on the other. Among three categories, small ones were
observed to have spent expectedly more than 23 per cent on family expenditure while the larger categories did least
on the same during the period (Table 5).
Table 5. Utilization of Credit according to Loan Size Category
Head of expenditure Loan size (In per cent)
A B C All
Expenditure on agricultural sector 41.12 69.23 26.46 42.52
Expenditure on non agricultural sector 35.69 20.5 65.97 43.7
Family expenditure 23.19 10.27 7.56 13.78
Total 100 100 100 100
Source: Field survey, 2003
Attempt was also made to examine the detailed itemwise utilization of credit by the respondents and shown
in table 6. In broad sense, the respondents utilized credit money on current expenditure and capital expenditure on

farming. Among current expenditure, land preparation, purchase of seed/seedlings, purchase of manure and
fartilizer, charge for irrigation water, hire charge for labour and purchase of insecticidies, etc. were important while
purchasing land, mortgage in land and purchase of livestock were worthmentioning in capital expenditure on
farming during the study.
The respondents belonging to small (A) and medium (B) category were observed to have spent more or less
equal proportion of loan money on current expenditure while the large ones behaved other way sharing less during
the year.
Non-farm business expenditure included investment in petty business, grocery, rickshaw pulling, driving,
sewing. etc. Both capital and current expenditure on non-farm business was recognised as business investment.
Near about 44 per cent of total loan has been invested in business activities.
Table 6: Utilization of Credit According to Loan Categories under the RDS.
Head of purpose Percentages amount of loan utilized according to loan categories.
A B C All
Purchase of land 12.1 21.15 6.71 11.84
Mortgage in land 7.24 28.21 Not available 9.66
Purchase of livestock 7.06 5.13 14.29 9.73
Total capital expenditure on farming 26.4 54.49 21.00 31.23
Cost incurred for land preparation 3.03 1.92 1.68 1.95
Purchase of seed & seedling 1.41 0.28 0.42 0.7
Purchase of manure & fertilizer 2.42 3.56 1.26 2.64
Charge for irrigation water 2.72 3.21 1.26 2.3
Hire charge for labour 2.72 5.13 0.84 2.61
Purchase of insecticides 2.42 0.64 Not available 1.09
Total current expenditure on farming 14.72 14.74 5.46 11.29
Total business expenditure 35.69 20.50 65.97 43.70
Purchase of food 1.21 Not available 0.47
Purchase of clothes 2.82 1.28 Not available 1.40
Educational expenses 0.81 1.94 1.68 0.93
Medical treatment 12.1 0.64 0.84 5.14
Repayment of old debt 1.21 Not available 3.78 1.87
Repairing or constructing of house 5.04 6.41 1.26 3.97
Total family expenditure 23.19 10.27 7.56 13.78
Grand total 100 100 100 100
Source: Field survey, 2003.
Family expenditure has covered major sub-heads of food and clothing, educational expenses, house
repairing, medical treatment and repayment of old debt in the present study. It is clear that the small credit holders
expectedly have spent more of loan money (23.19 per cent) than other two categories (medium 10.27 per cent and
large one 7.56 per cent) for family expenditure.

Repayment of Loan by the Respondents: Repayment capacity is one of the crucial aspects of credit analysis and
proper utilization of credit is supposed to have a great influence upon the repayment capicity of the respondents.
Taking all the respondents together average amount of loan due for recovery was found to be Tk 4380 and average

amount repaid was Tk 4764 ( 53 per cent). Average amount due was found to be Tk 2453, Tk 5105 and Tk 9152
respectively, for the small, medium and large credit holders while actual average amount repaid respectively were
found to be Tk 3610, Tk 5304 and Tk 7508 respectively constituting 60, 51 and 45 per cent showing an inverse
relationship between loan holders and the amount of loan repaid. Large credit holders were found to be relatively
worse repayers of loan money. The percentage of total repayment seems to be low because there was a tendency
among the respondents that they wanted to repay the loan money at the last moment of schedule time. They wanted
to utilize their loan money to a greater extent, that is why they repaid a few instalments of loan money in aggregate at
the last moment. In some cases loan repayment period was not matured while data collection was in progress So,
percentage of loan money seems to be lower (Table 7).
Table 7. Loan Repayment by the Respondents according to Loan Size Category
Loan Average amount due (Tk) Average amount repaid (Tk) Percentage of
size Principal Profit Total Principal Profit Total total repayment
A 2159 294 2453 3177 433 3610 60
B 4492 613 5105 4668 637 5304 51
C 8054 1098 9152 6607 901 7508 45
All 3855 526 4380 4192 572 4764 53
Repayment of Installments
Repaid Due
Average amount per Average amount per
Size Number of installments Number of installments
installment (Tk) installment (Tk)
A 26 137 19 189
B 21 249 24 218
C 20 373 26 359
All 24 198 21 238
Source: Field survey, 2003.

Table 7 shows the instalments repaid, the instalments due and average amount of every instalment. Rural
Development Scheme collects loan on instalment basis. One credit holder has to repay his/her loan in 45
instalments. In every instalment, one has to repay Tk 25 for one thousand. Generally, during the week, a field
supervisor visits the area to realise the due loan money. It is clear from the table that 24 instalments were repaid and
average amount of repaid instalment was Tk 198 and average amount due was Tk 238. It is also found that small
credit holders repaid more instalments (repaid 26 instalments and 19 instalments due) possibly because of their fear
of harassment by officials or having more loan in future.

Factors Affecting Loan Repayment: Respondents repaid regular installments timely were asked to express their
opinions regarding repayment of loan instalments on time and the results have been presented in table 8. Fifty three
per cent of the borrowers were observed to have repaid instalments timely to avoid additional penalties while 85 per
cent of the borrowers timely repaid loan for getting more credit in future. Self-consciousness (90 per cent) and
financial help by the other members (37 per cent) were also found to have encouraged the borrowers to repay loan. It
is therefore, evedient from the table that hope to have credit in future, self con-sciousness towards loan repayment

and proper supervision by the RDS staff were found to be the major factors affecting timely credit repayment by the
credit holders in the study villages.
Table 8: Factors Affecting Timely Loan Repayment Provided by the RDS
Factors Per cent respondents according to loan category
A B C All
To avoid additional interest and penalties 47.83 64.71 56.25 53.16
Pressure by the official staff 19.57 47.06 56.25 32.91
For getting more credit in future 95.65 70.59 68.75 84.81
Reminder by the bank Not available
Proper supervision by the bank stuff 71.74 64.71 87.5 73.42
Self consciousness 82.61 100 100 89.87
Financial help by the members 13.04 52.94 87.5 36.71
Pressure by the group member 34.78 29.41 37.5 34.18
Pressure by the relatives 23.91 17.65 12.5 20.25
Source: Field survey, 2003.
Note: Summation of percentage figures would not be equal to 100 because of multiple answers given by the same

On the basis of the findings, the following conclusions may be drawn:
1. The RDS loan programme of the IBBL could reach the target groups in the study villages.
2. The beneficiaries could receive RDS loan for quite diverse income generating activities even beyond agricultural
3. Petty business was expectedly dominant in receiving major share of RDS loan in the study area.
4. Credit received was found more or less adequate (86 per cent) and respondents got it within time (only 7 days)
during this study.
5. Most of the loan received has been productively used by the beneficiaries in the study villages.
6. Loan repayment performance was fairly satisfactory.
7. Self-consciousness and hope of receiving future loan from RDS contributed most to the timely loan repayment.

Hossain, M. 1996. “ Agricultural Policies in Bangladesh: Evaluation and Impact on Crop Production,” in State-Market
and Development: Essay in Honour of Rehman Sobhan, Edited by Abu Abdullah and A.R. Khan, UPL,
Planning Commission. 1998. The Draft on Participatory Perspective Plan, Ministry of Planning, Government of the
Peoples Republic of Bangladesh, Dhaka

Quasem, M. A. 2002. “ Credit Market in Rural Bangladesh: Issues and Evidence,” paper Presented at the Asia
Regional Conference on Public-Private Sector Partnership for Promoting Rural Development, held in Dhaka
on 2-4 October 2002.


M. A. Habib
M. Sayeedul Haque
M. R. Uddin Mian and
M.A. Bashar

Department of Agricultural Finance
Bangladesh Agricultural University