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Impact of Microcredit on Agricultural Farm Performance and Food Security in Bangladesh

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  • Abdul Wadud

Abstract

Microcredit is assumed to be likely to contribute both directly and indirectly to agricultural farm performance, farm output, poverty reduction and food security in Bangladesh. In this research, we study the impact of microcredit on farm performance, output and food security using farm level survey data from Rangpur, Dinajpur, Bogra and Rajsahahi districts of northern Bangladesh. The survey is conducted on 682 farms of which 450 are microcredit receivers and the rest 232 are microcredit non-receivers. We apply the Cobb-Douglas stochastic frontier and data envelopment analysis (DEA) along with inefficiency effects model and propensity score matching (PSM) techniques to assess the effects of microcredit on farm performance, output and food security. Results from the stochastic frontier model indicate that farms are operating at decreasing returns to scale and inefficiency effects are significant in explaining total variability in output. Inefficiency effects model reveals that microcredit, as well as experience and education of farmers help them utilise inputs more efficiently. Level of efficiency of microcredit receiving farms is, on an average, one per cent higher than the microcredit non-receiving farms. Farms could, on an average, reduce their production cost around 19 per cent if they could operate at full efficiency levels and hence increase farm output. This contributes to the increase in farm output which increases food supply on the one hand and increases purchasing power on the other hand and thus, strengthens food security. We compare the average income of farms that received microcredit to that of control group to find the impact of microcredit using propensity score matching (PSM) technique. Results show a positive impact of microcredit on farm income which subsequently could contribute to strengthening food security. The average income of microcredit receiving farms is 9.46 per cent higher than that of microcredit non-receiving farms. Policy suggestions that follow include expansion, timely and fair distribution of microcredit to marginal and small farmers could lead to improvement of farm performance and farm output. This would in turn contribute to the reduction of poverty and to the betterment of food security.

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  • Abdul Wadud, 2013. "Impact of Microcredit on Agricultural Farm Performance and Food Security in Bangladesh," Working Papers 14, Institute of Microfinance (InM).
  • Handle: RePEc:imb:wpaper:14
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    2. Bairagi, Subir, 2014. "Productivity and Efficiency Analysis of Microfinance Institutions (MFIS) in Bangladesh," MPRA Paper 67917, University Library of Munich, Germany.
    3. Mashura Shammi & Nazmul Hasan & Md. Mostafizur Rahman & Kohinoor Begum & Md. Tajuddin Sikder & Mohammad Hossain Bhuiyan & Md. Khabir Uddin, 2017. "Sustainable pesticide governance in Bangladesh: socio-economic and legal status interlinking environment, occupational health and food safety," Environment Systems and Decisions, Springer, vol. 37(3), pages 243-260, September.
    4. Bidisha, Sayema Haque & Khan, Akib & Imran, Khalid & Khondker, Bazlul H. & Suhrawardy, Gazi Mohammad, 2017. "Role of credit in food security and dietary diversity in Bangladesh," Economic Analysis and Policy, Elsevier, vol. 53(C), pages 33-45.

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    More about this item

    Keywords

    Microcredit; Farm Performance; Stochastic Frontier; Propensity Score Matching; and Food Security JEL Classification Number: Q12; Q19;
    All these keywords.

    JEL classification:

    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q19 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Other

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