I tried several times to get loans from different banks. But after being turned down, I was forced to take out a loan from a microcredit institution to run my farm. ”
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LUTFUR RAHMAN, A FARMER IN DEBIDWAR DE CUMILLA.
While the Bangladesh Bank has set the interest rate on agricultural loans at eight percent, farmers have to pay more than three times as much, even in desperate times like the coronavirus pandemic.
Many farmers have paid as much as 25 percent interest, thanks to weak Bangladesh Bank policy and lax control that allows private banks and microfinance institutions to exploit farmers.
Lutfur Rahman, a farmer from Debidwar of Cumilla, recently took out an agricultural loan of Tk 1 lakh from a microfinance institution. The repayment term is one year and he has to repay 1.40 lakh Tk, which means that the annual interest rate is 40 percent.
“I tried several times to get loans from different banks. But after being refused, I was forced to take out the loan from a microcredit institution to run my farm,” he said. recently at the Daily Star.
Small farmers like Lutfur, who maintain the agricultural sector and feed the nation, are bearing the brunt of this high interest rate as it has shrunk to single digits for lending at all levels, to l ‘except credit cards.
Experts wonder how farmers could survive after bearing such high interest and production costs when they don’t even get a fair price for their produce. They said small farmers and marginal farmers also find it difficult to obtain loans directly from banks in the absence of collateral and influence.
Considering agriculture a priority sector, the Bangladesh Bank generally sets the interest rate on agricultural loans one percent less than that on non-agricultural loans.
As a result, an interest rate of eight percent has been set for agricultural loans, given the current nine percent interest rate cap for all loans except credit cards.
But the central bank has a provision that allows private banks to disburse 70 percent of their agricultural loans through other channels.
When private banks provide loans for agricultural purposes through microfinance institutions instead of their own channels, the interest rate rises to over 25% because these institutions charge their own rates when lending money. money to farmers.
In fiscal year 2019-2020, 40 private banks disbursed Tk 11,654 crore in the form of agricultural loans – including Tk 7,356 crore, or 63% through microfinance institutions – according to data from the Bangladesh Bank .
Agricultural loans disbursed in FY20 through private and public banks amounted to Tk 22,750 crore. Figures for FY21 are still not available.
Public banks disburse the majority of agricultural loans through their own channel, but the reverse is true for private lenders, according to a central bank report.
Many private banks have not even followed instructions to disburse a minimum of 30 percent of agricultural loans through their own channels, and the number of delinquents has increased in recent years.
Some 28 private banks did not disburse minimum agricultural loans through their own channels in FY20, according to the document. The number of such banks was 27 in the previous year, compared to 18 in FY17.
Agricultural loan disbursement through private banks’ own channels was 55 percent in FY17 and fell to 37 percent in FY20, according to the BB report.
Private banks are turning to microfinance institutions for disbursing agricultural loans to reduce their monitoring and collection costs, a central bank official said on condition of anonymity.
He added that banks’ dependence on other channels has grown due to lax oversight. “It had a negative impact on the production costs of farmers.”
The Daily Star spoke to at least 10 farmers in different parts of the country about how they obtained agricultural loans from banks and microfinance institutions. Nine of 10 farmers said they moved away from banks after facing problems.
Milton Aziz, a farmer from Dhunat in Bogura, said he recently took out a loan worth Tk 50,000 from a livestock microfinance institution after his repeated attempts to obtain a bank loan.
“The banks are looking for collateral against their funds. But I don’t have enough land to mortgage,” he said.
Aziz’s loan repayment term is almost 11 months and he will have to repay a total of Tk 81,000, including interest.
Another farmer, Md Refayet Ullah, from Pirgachha in Rangpur, said he had to pay a large commission to middlemen to authorize a loan from Bangladesh Krishi Bank.
“I lost my interest in taking loans from banks after that,” Refayet said, adding that it is easy to manage loans from microfinance institutions, however.
“But they charge excessive interest, which is not sustainable for me given my production costs.”
Ali Hossain Prodhania, the newly retired general manager of Bangladesh Krishi Bank, said farmers were not required to mortgage land to receive agricultural loans up to Tk 3 lakh.
“But banks ask for land documents from farmers to grant loans calculating the amount of farmland.”
He said, however, that the practice of intermediaries controlling agricultural loan disbursements had almost ceased in recent years.
Experts said the entire agricultural loan disbursement system is anything but favorable to farmers. They also said that the interest rates charged by microfinance institutions were also illogical.
Relevant authorities should formulate a farmer-friendly loan system and take immediate steps to reduce interest rates for microfinance institutions, they said.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank and outgoing chairman of the Bangladesh Bankers Association, said private banks have not strengthened their networks to be able to provide agricultural loans, especially in rural areas.
In some cases, banks are reluctant to disburse agricultural loans through their own network due to the low interest rate and opt for the channels of microfinance institutions to reduce their operational costs, as the majority of agricultural loans range from 1 Tk at 5 lakh, Mahbubur observed.
Despite repeated attempts, Ali Reza Iftekhar, current chairman of the Bangladesh Bankers Association, an organization of chief executives of the country’s banks, could not be reached by phone.
Former BB governor Atiur Rahman said the central bank did not place enough emphasis on disbursing agricultural loans by lenders as it did in the past.
“For example, the central bank set a ratio of 1: 1 in establishing branches between rural and urban areas,” said Atiur, who took various steps to popularize agricultural lending during his tenure as governor of 2009 to 2016.
“We have even recognized the most successful lenders in the area of agricultural loan disbursement through their own channels. But such initiatives are now lacking,” he said, adding that BB should take proactive steps in the interests of farmers.
Mr. Asaduzzaman, former research director of the Bangladesh Institute for Development Studies, said interest rates should be equal across the board.
“How much will be left if a farmer pays 25% interest?” He asked himself.
However, small microfinance institutions in particular are also beholden to banks, said the head of a national microfinance network of about 760 members.
Mr Abdul Awal, Executive Director of the Credit Development Forum, said that while large microfinance institutions can usually easily manage agricultural loans from banks, small ones face various obstacles in obtaining the funds.
Awal alleged that some small microfinance institutions were even forced to pay 12 to 13 percent interest instead of eight percent to banks in order to obtain the funds under BB’s agricultural loan program.
In other cases, small microfinance institutions must keep a deposit of 20% of disbursed funds in the same bank in the form of term deposit receipts (FDRs), called “guarantee money,” he said. also stated.
These conditions force many microfinance institutions to charge higher interest rates on agricultural loans that they then disburse, he added.
A central bank official, who works in the agricultural credit department of the central bank, said no bank was allowed to provide agricultural loans to microfinance institutions at a rate above eight percent.
“We have so far not received any allegations to this end,” he said.
Md Serajul Islam, spokesperson and executive director of Bangladesh Bank, admitted that the rate charged by microfinance institutions was excessively high as banking sector clients are now allowed to take any loan up to a maximum of nine. percent.
“The central bank will take measures to reduce the interest rate on agricultural loans granted by microfinance institutions,” he said, adding that it would write a letter to the Microcredit Regulatory Authority (ARM ) so that farmers can get burden relief. high interest rates.
Md Fashiullah, executive vice president of MRA, said farmers have taken out agricultural loans from microfinance institutions paying a maximum of 24% interest.
However, the central bank document states that microfinance institutions typically charge at least 25 percent interest on agricultural loans.
“If a microfinance institution charges a higher interest rate on agricultural loans than stipulated, the MRA will take action against it,” Fashiullah said.
He also admitted that the current interest rate is high considering the rate charged by banks.
“We have taken initiatives to reduce the rate and have already organized two meetings with stakeholders including the central bank and various microfinance institutions,” he said.