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Tailor-made: farmer-friendly financial services transform lives in northern Bangladesh

Northern Bangladesh is home to some of the world’s poorest and most vulnerable rural people. The area, like the rest of the country, is frequently hit by floods and cyclones. Its smallholder farmers are trapped in poverty, largely excluded from borrowing and knowledge of farming practices that could help improve their lives and protect them from potential risks. An IFAD-supported project in the north-west and north-central regions of the country has introduced financial services customized to the specific needs of poor farming communities. As a result, incomes are improving and rural people are beginning to lift themselves out of poverty.

	New betel vine cultivation financed through farmer-friendly loans

Fatima Begum and her husband Razzak are illiterate farmers living in Bachhati village in the Gaibandha district of north-western Bangladesh. Fatima used to work in the village as a day labourer, while Razzak cultivated vegetables on their 1.65-acre (0.67-hectare (ha)) farm and travelled to other districts as a migrant worker to supplement their limited income. Even though they worked hard, they were still very poor – so poor that they were unable to keep their two sons in school.

Then, in December 2005, Fatima joined a group linked to the IFAD-supported Microfinance for Marginal and Small Farmers Project and took out her first loan of 6,000 Bangladeshi takas (BDT – about US$85). She invested in vegetable and banana cultivation and bought a calf. After successfully repaying the loan, Fatima applied for a second loan of BDT 10,000, which she used to plant more crops and buy an ox. The family was on its way to establishing a productive enterprise.

“Small and marginal farming households benefit most from a customized, flexible microcredit system,” says Nigel Brett, IFAD’s country programme manager for Bangladesh. “An initial grace period for repayment of microcredit loans, or the possibility of repaying on a monthly or even seasonal basis can make all the difference to a small farmer as he or she juggles outgoing and incoming funds based on harvests and the ideal time to sell produce.”

An innovative approach

	Ichathon Begum in a field of her prize-winning maize

In recent years, non-governmental organizations (NGOs) specializing in microfinance have been extremely successful in reaching poor rural people in Bangladesh. But most have directed lending towards landless households or those with less than 0.2 ha of land, and they have largely excluded smallholder farmers. IFAD and the Government of Bangladesh joined forces with the Palli Karma-Sahayak Foundation (PKSF), one of the world’s leading independent microfinance institutions. Together, they pioneered a new approach to delivering financial services to small and marginal farmers in the country. The results have been excellent.

By providing credit to farming communities through local NGOs, the project has introduced flexible financial services that meet the needs of smallholder farmers while solving problems encountered by microfinance projects in the past. Innovations include:

• extending the grace period before repayment starts
• extending the period between payments from weekly to fortnightly, monthly or even quarterly
• requiring regular payments only of service charges during the first part of the loan period
• offering seasonal loans with lump-sum repayment after harvest

In a country where flooding and other extreme weather events are frequent – and can devastate a farmer’s livelihood – the provision of a disaster reserve fund is an important addition to the project’s microfinance package. In 2007 two floods and a storm damaged Fatima’s banana and vegetable fields. Fortunately, she had completed almost 90 per cent of the banana harvest before the storm hit. But she also received free seed from her project group to replant her fields.

Fatima’s small farm has grown each year. Now she has five oxen to fatten for sale, and she has bought an additional 21 decimals (0.085 ha) of land. In 2007 she earned a total of BDT 82,000 (US$1,200) through the sale of bananas and vegetables. The family has been able to buy a diesel pump for water and a rickshaw for transporting produce to the local market. They have even employed farm labourers.

Microcredit and training

	Farmers are now able to introduce basic mechanization

Alongside the microfinance services, the project provides training in improved farming techniques, crop diversification and animal husbandry. When Fatima joined her group, she received training in raising livestock and crop cultivation, including vegetable production, paddy seed preservation and beef fattening. This training gave her a solid foundation on which to set up her small farm.

Training was also fundamental to Ichathon Begum, a microcredit client who has become a prize-winning maize grower. Ichathon and her husband Kabez live with their son and two grandsons in Chargabinda village in the district of Gaibandha. Kabez used to cultivate rice, millet and sweet potatoes, using local varieties and techniques, but struggled to grow enough to maintain his family. When they had to sell 40 decimals of land for a daughter’s marriage, the family became poorer still.

In October 2006, Ichathon joined a microcredit group. The training she received gave her the idea of using part of her first loan to experiment with maize cultivation. At first it seemed risky to abandon traditional crop growing. She planted some cultivated hybrid maize on the family’s 60-decimal plot, and leased a further 20 decimals of land to grow cabbage and cauliflower. She earned BDT 19,500 (US$285) from her first harvest of maize.

While local millet grows sparsely, Ichathon’s maize plants sprang up tall, leafy and healthy. In fact the harvest was so successful that she decided to invest her second loan of BDT 12,000 (US$176) in buying a further 80 decimals of land to plant with maize. Her maize has made her famous locally, and villagers come to learn cultivation techniques from her. She won first prize at a local agricultural fair, and in 2007 her story was broadcast on national television.

Dreams come true

	Mustard planted between banana plants: farmers have learned the benefits of intercropping

Both Ichathon and Fatima have seen their lives change dramatically. Since Ichathon received her first loan, she has gone on to receive training in livestock rearing. Over the last two years she has bought two milch cows and an ox, and leased a further 40 decimals of land. She is now an active decision-maker in her family. “I’m planning to build a pucca (brick) house, buy the leased land and invest in the education of my grandsons,” she says, “which is something I was unable to do for my own children.”

Fatima built a four-room house and is planning the new one, as well as investing in the education of her grandchildren. Like Ichathon, she has become an active decision-maker in the family, and even owns 16 decimals of land in her own name. “I’m making my dreams come true,” she says.

The project, which started in 2005, will run for six years. Nearly 5,500 groups have formed already, with a total of 97,500 borrowers. Small farmers have been able to pay off moneylenders and rid themselves of the burden of debt that many carried with them perpetually. Better still, they have been able to buy land, make home improvements, vaccinate their poultry, and in some cases, create employment opportunities for others within their villages.