Credit access drives rural transformation in Bangladesh: Study

A new study published in Nature Portfolio, a collection of academic journals under Springer Nature, has found that expanded access to credit is driving significant rural transformation in Bangladesh by enhancing agricultural productivity and creating non-farm employment opportunities.

The research, conducted by Subrata Saha, Mohammad Jahangir Alam, Al Amin Al Abbasi, Ismat Ara Begum, Maria Fay Rola Rubzen, Panam Parikh, and Andrew M McKenzie, analysed data from three waves of the Bangladesh Household Income and Expenditure Survey (HIES) in 2005, 2010, and 2016. 

The data, provided by the Bangladesh Bureau of Statistics (BBS), covers 192 district-level observations across all 64 districts of the country. The findings highlight the pivotal role credit plays in transitioning rural economies from traditional farming to high-value agricultural sectors like vegetables, fruits, and livestock. 

The study suggests that access to credit – whether from formal financial institutions or microfinance organisations – can spur economic diversification by increasing both agricultural output and non-agricultural employment.

The researchers found that mean credit disbursements per household increased significantly between 2005 and 2016, rising from Tk12,116 to Tk27,616. This suggests more households were able to access greater financial resources for various purposes, such as investing in agriculture, non-agricultural enterprises, or education. 

The proportion of households with access to credit also grew from 26.2% in 2005 to 35.8% in 2016, which may signal greater financial inclusion and improved opportunities for rural households to meet diverse financial needs.

The share of high-value agricultural products such as fish, livestock, vegetables, and fruits increased from 9.9% in 2005 to 16.6% in 2016. This trend mirrors similar shifts observed in China, where the share of high-value agriculture grew from 16.6% in 1978 to 36.8% in 2019.

The study also reveals significant improvements in electricity access, education, and per capita land availability in rural areas. Regions with higher electricity access tend to attract more investment, promote the growth of small and microenterprises, and contribute to higher quality of life. 

In addition, better access to education has led to a more skilled workforce, facilitating improved livelihoods and greater entrepreneurship.

However, despite the positive trends, the study also identifies ongoing barriers that many rural households face in accessing financial resources, which continue to hinder their economic progress.

The authors recommend that policymakers focus on expanding credit access, improving financial literacy, and strengthening institutional capacities to accelerate rural transformation. This comprehensive study is expected to inform future policies aimed at fostering sustainable, inclusive economic growth in Bangladesh's rural areas.