Department of Agricultural, Food, and Resource Economics Feed the Future Innovation Lab for Food Security Policy

Khun Moe Htun and Myat Su Tin. 2017. Agricultural Credit Access and Utilization in Myanmar’s Dry Zone. Food Security Policy Myanmar Project Research Highlight 9. East Lansing: Michigan State University

CONCLUSION
The following points stand out:
1. Credit is the second most important source of finance for agricultural investment, after income from previous crops. The combined value of income invested in agriculture from agricultural labor and nonfarm earnings is similar in magnitude to the value of credit. Farm and rural non-farm growth thus have an important role to play in supporting farm household agricultural investments.

2. Government is the major player in the rural credit sector. In the townships surveyed, MADB is by far the largest source of loans for agriculture, followed by the Department of Cooperatives, which comes in second in terms of numbers of loans, and third in terms of loan volumes. Together, government sources amount to 73% of the total value of credit disbursed, while traditional informal lenders account for about 10%. This is a remarkable achievement, particularly given that both institutions until recently had only a limited funds and rural credit markets were considered to be dominated by informal lenders charging high rates of interest.

3. Access to MADB loans is highly unequal. Among the third of farm households with the smallest landholdings (tercile 1), only 50% obtained an MADB loan in during the past year, as compared to more than 80% of households in landholding tercile 3. This makes smaller farms relatively more dependent on informal providers, thereby raising their borrowing costs. Measures need to be taken to ensure that MADB credit reaches the smallest strata of farmers.

4. The average value of MADB loans received by paddy farmers was almost three times higher than that received by non-paddy farmers, despite the former having considerably smaller average landholdings. Rates of access to MADB loans are also lower among farmers of non-paddy crops, placing them at a disadvantage. Increasing the value of loans issued to non-paddy farmers, and the range of crops eligible to receive seasonal credit from MADB, would help to address this shortfall.

5. In the townships surveyed, almost no MADB loans were available outside of monsoon season. Given the high potential yields that can be achieved from irrigated post-monsoon crop production, lack of access to and/or uptake of credit may result in foregone income opportunities for farmers. It is therefore important to evaluate carefully whether this is due to lack of credit availability or constraints to uptake linked to the timing of the loan cycle. The timing of monsoon loan repayment could make it difficult, or disadvantageous, for farmers to repay their monsoon loans by the time the second annual round of loans is disbursed, thus preventing them from taking a second loan.

6. Loans provided by microfinance institutions account for only a small share of credit invested in crop farming, in terms of both number and value of loans. Further research is required to evaluate whether microfinance products can be tailored to match the needs of this set of users more closely.

7. Agricultural labor and agricultural machinery rental costs make up a significant portion of production costs for most major crops. But loans used to pay agricultural laborers account for a large share of both MADB and non-MADB agricultural credit, whereas loans are rarely used to pay for agricultural machinery rentals. This is likely because workers are paid immediately, whereas machine operators are often willing to accept delayed payment, and represents an important but little recognized advantage to farmers of adopting agricultural machinery.