J. Bangladesh Agril. Univ. 4(1): 165-172, 2006 ISSN 1810-3030 Effectiveness of RAKUB crop credit in selected areas of Rangpur district M.R.U. Mian and M.A. Kasem Department of Agricultural Finance, Bangladesh Agricultural University, Mymensingh-2202, Bangladesh Abstract• In examining the effectiveness of RAKUB crop credit present study found that the lending procedure of RAKUB was quite lengthy. Large farmers received more amount of loan within shortest possible period and with least cost compared to medium and smaller ones. Loan obtained for banana production was the highest and maximum of the loan was utilized purposively. Overall loan recovery rate was 66 percent during the study period and large farmers were observed to be better repayers. Major factors affecting timely loan repayment were fear of imposing additional interest and penalties and of avoiding certificate case. RAKUB crop credit became able to bring favorable change in the socioeconomic conditions of the respondents but large farmers were the major beneficiaries. Problems like tips and bribe, delay loan disbursement, etc. were identified in connection of loan receipt which surely hampered productive loan use as well as loan repayment. Repayment of old debt and credit exemption by the government were the major causes of loan defaults. Keywords: Adequacy, Utilization, Repayment, Effective cost and Impact Introduction About 60 percent people of Bangladesh live under poverty line (BBS, 2002). One of the main reasons for low productivity and widespread poverty is the lack of access to productive assets and financial resources by the poor. Now-a-days, institutional credit plays a vital role in accelerating the development of agricultural sector. To expedite the growth of agricultural sector, RAKUB is entrusted with the responsibility of supplying credit with its 349 branches to the entire northern part of the country (RAKUB, 2002). The present study is concerned with RAKUB loanees. From different studies it is revealed that our farmers do not use loan for the purposes for which it has been taken. On the other hand, the farmers allege that the cost of receiving loan is high and required time to receive loan is also long (Kasem, 2005). Repayment capacity is one of the major considerations of credit analysis .and the proper utilization of loan has a great influence upon repayment capacity of the borrowers. RAKUB .like other institutions, therefore, gives due emphasis on the repayment aspect of the borrowers in evaluating a credit program. A successful credit program is always conceived of its satisfactory loan use, level of loan repayment by the borrowers and the institutions by and large are interested in -those credits which could ensure higher repayment and reduce risks thereby. The present study is therefore, pragmatic effort to inquire into the effectiveness of credit provided by RAKUB on crop production. The study is expected to generate reliable information regarding distribution, adequacy, purpose, cost and repayment aspects of RAKUB loan. Moreover, it would benefit the planners as well as the policy maliers to formulate more viable decisions to improve the lapses and omission of agricultural credit program of RAKUB and other similar credit institutions. The specific objectives of the study are: i) to examine the adequacy and distribution of RAKUB credit, ii) to study utilization and repayment patterns of RAKUB loan, iii) to determine the effective cost of credit incurred by the borrowers and iv) to identify the socioeconomic impacts of RAKUB crop credit on the borrowers. 166 Effectiveness of RAKUB crop credit Materials and Methods Three upazilas of Rangpur district were selected purposively for the study in convenience of well communication with RAKUB branch offices. One RAKUB branch was randomly selected from each of the upazilas and thus the selected branches were Parshuram, Sukurhat and Madhabpur branch of Rangpur sadar, Mithapukur and Badarganj upazila .respectively. Total sample size stood at 60 comprising 20 loanees from each of the branches selected randomly from the given list by the branch officials. The loanees were belonged to 13 villages of the selected upazilas. Survey method was followed to collect necessary information from the respondents. The time period of data collection was March to April, 2005 and data used in this study covered the year 2004. Simple statistical technique, i.e., descriptive statistics like percentage, frequency counts, mean, etc. were applied to attain the objectives of the study. Results and Discussion Adequacy and purpose-wise distribution of RAKUB credit: Table 1 shows the adequacy of credit in the study area. The table indicates the average amount of loan received and percentage of loan received in relation to amount applied for by the small, medium and large farms which were 86, 92 and 94 percent respectively. It also reveals that the farmers in general, received 91 percent of the loan amount applied for which was more or less satisfactory with respect to present situation of Bangladesh. On the other hand, approximately 22 days were required to get loan from the RAKUB. Actual time required by the small, medium and large farmers were 23, 21 and 20 days which indicates that the larger farmers got loan within shorter period of time compared to other two categories of farmers possibly because of their relatively easy access to the bank officials. Table 1. Adequacy and time required to receive RAKUB credit Farm size Amount applied for Amount received Amount received as ' Days required (Tk.) (Tk.) ,,, percent of applied for Small 18167 15583 • _•,. .86 •23 Medium • 28143 26000 92 — •21 Large 43750 41125 94 • 20 All 26233 23850 91 22 Table 2 reveals that small farmers received maximum of loan (29 percent) for potato production while it was banana production for the medium and large farmers (25 and 53 percent respectively). Distribution of loan for boto production stood the second highest (28 percent) for small farmers while zinger and tobacco ranked the third (each of 13 percent). For medium farmers, the second and third highest use of loaned money were found for zinger and potato production (24 and 21 percent respectively) While they were potato and zinger for large farmers (21 and 18 percent respectively). Loan taken for tobacco production was found only for small farmers and large farmers did not take any loan for brinjal and papaya production. On an average, loan taken for banana production was the highest (26 percent) and it was the lowest for tobacco production (3 percent) during the period of study. Mian and Kasem 167 Table 2. Purpose-wise distribution of loan according to farm size Farm size. Purpose , All Small Medium . Large Amount (Tk) % - Amount (Tk) % Amount (Tk) % Amount (Tk) cro Boro 4417 28 5143 20 3125 8 4584 19 Banana 625 4 6678 . 25 21875 , 53 6283 26 . Potato 4458 29 5393 21 8625 21 5450 23 Brinjal 1250 8 1286 5 .. .. 1100 5 Papaya 750 5 1286 5 - - . 900 4 • Zinger. 2000 13 6214 24 .7500 18 4700 20 Tobacco 2083 13 - - - - 833 3 Total 15583 100 26000 100 41125 100 23850 100 Utilization of credit according to farm size: Pattern of credit utilization is very much important in farming because use of credit for unproductive purposes very often results in overdue of loans and weakens the financial viability of the concerned financial institutions (Alam, 2004). Table 3 shows that the borrowers invested 9.75 percent of credit, money mainiy in three major capital items and among them purchase of land occupied the largest share (5.01 percent). It is encouraging that the farmers at present give emphasis on productive fixed assets in their farm expenditure. The table also reveals that the percentage of total loaned money utilized in meeting capital expenditure on farming increases as the size of farm increases. It is apparent from the same table that 48.85 percent of total loan was utilized in meeting current expenditure on farming. Among the items of current expenditure fertilizer/manure was the most important item. It alone comprised 16.12 percent of the total borrowed money. The table also reveals that large farmers were more dependent on fertilizer/manure than other two groups. Cost of seed/seedlings was the next important item (11.68 percent) and it was followed by hired labor (10.32 percent). The low percentage of credit used for lard preparation (5.14 percent) indicates that most of the farmer prepared their land themselves. Only a small amount of total loan (1.26 percent) was spent for insecticides. It implies that only an insignificant acreage of land was affected by insect/pest during the study period. It is clear from the table that current expenditure increased by the increase in farm size and large farmers used expectedly the highest proportion of loan for current expenditure on farming. Non-farm business expenditure (investment in trade and other subsidiary occupations) and family expenditure constituted 9.68 and 31.72 percent of total loaned money respectively (Table 3). It alone accounted for 18.17 percent of total loan and there found an inverse relationship between farm size and repayment of old debt. Social ceremony (6.13 percent) came next to repayment of old debt and it showed positive relationship with farm size. The next important item is purchase of food (1.89 percent) maintained negative relationship with farm size. The small farmers were found to spend maximum (5.88 percent) while medium Spent a little (0.69 percent) and large spent nothing for this item. The last iterri of .family expenditure