Less govt loans push farmers to high-interest pvt loans

Farmers take loans at higher interest from the private sector as they get very little loans at low interest rate from the government, according to an investigation of Prothom Alo.

The investigation reveals as the government purchases small quantities of paddy, the farmers are compelled to sell paddy at lower prices to repay the loans, incurring huge losses.

The situation of agri-loans was highlighted in an assessment by the International Food Policy Research Institute (IFPRI), an international food policy consultation organisation.

The assessment shows farmers take 81 per cent of their loans from the non-government organisation (NGO), relatives, private banks, and local moneylenders. The interest rates of these loan are between 19 per cent and 63 per cent. The government agriculture bank gives loans at 9 per cent interest. But only six per cent of total loans come from the agriculture bank.

In its assessment carried out in 2015, IFPRI submitted its recommendations to the agriculture ministry on 20 May. The organisation says the agri loan and the interest rate are almost similar. The farmers have to be given loans at low interest rates to be saved according to the recommendations.

The production cost of paddy is much higher than in neighbouring India due to high interest rates. According to the agriculture ministry of India, production costs of one kg paddy is Tk 18.75 in the current year. The government procures one kg for Tk 20.80. The production cost of one kg paddy is below Tk 20 in major paddy producing countries including Thailand, Cambodia and Vietnam. On the contrary, the production cost of one kg paddy is Tk 25 in Bangladesh and the government purchases this at Tk 26.

A record 20 million tonnes of Boro paddy were produced this year. The government will buy only 150,000 tonnes of paddy at Tk 26. The farmers are hardly getting loans from the government and they are unable to sell their paddy at the price fixed by the government.

While visiting major paddy producing districts recently, the Prothom Alo correspondent found the daily wage for a labourer was Tk 700-800. Pressure is mounting on the farmers to pay the loans which they took before cultivation. As a result, the farmers are compelled to sell paddy at Tk 12-15 per kg. Under such circumstance, the government and private organisations have not yet taken any step to relax the loan installments and interest rate. It would be difficult for small and medium level farmers to pay the installments in the current Boro season.

Former chairman of Bangladesh Agriculture Bank Khondokar Ibrahim Khaled said the interest rate of the agriculture bank is lower than all financial institutions. But most of the farmers do not get loans from this bank as there are no branches in remote villages. But there are branches of NGOs in remote areas.

More branches of agriculture bank have to be opened at remote villages to lower the production cost of crops, he suggested, adding that the capital of agriculture bank has to be increased.

Six per cent loan comes from the agriculture bank

According to IFPRI study, farmers take 36.04 per cent loan from NGOs. They take 19 per cent loan from relatives including affluent expatriates, 15 per cent loan from land owners, 11.04 per cent loan from local lenders and 3.06 per cent from associations.

Farmers get only 6 per cent loans from the government agriculture bank. Big farmers get most of these loan, about 15 per cent. Big, medium and small farmers get 36 per cent of the loan. The marginal farmers get around 5 per cent loan. Those who cultivate others’ land, do not get this loan at all. As a result, they have to depend on other sources including NGOs for loan.

“We give loans of Tk 70.70 billion to 335,000 farmers every year.

“We are giving Tk 22 billion as loan to 165,000 farmers additionally. The amount of agri loan will be increased gradually,” managing director of Agriculture Bank Ali Hossain told Prothom Alo.

Who takes interest and how much

According to the IFPRI study, local moneylenders take 63 per cent interest. Farmers mainly take loan from those lenders to meet expenses for agri inputs including fertiliser, insecticides and irrigation. The farmers still take this type of loan as they get loans based on the personal acquaintance.

NGOs disburse Tk 1250 billion loan annually. NGOs, who are members of PKSF, provide the highest amount of loan. They take highest 24 per cent interest.

Palli Karma Sahayak Foundation (PKSF) chairman Qazi Kholiquzzaman Ahmad said it is essential to reduce production costs so that the farmers do not incur losses.

He said they are gradually reducing the interest rate. He also said they are giving technical support to increase production.

Private banks disburse a portion of their loans as agri loans. Their average interest rate is 13 per cent. The different associations give loans on 19 per cent interest rate. Different cooperatives mainly provide this loan.

The International Food Policy Research Institute (IFPRI) resident director Akhtar Ahmed said the farmers generally take this loan to buy agri inputs. Their production costs would have been lower if they had received loans at reduced interest rates. And the farmers would not have to incur loss for the paddy and crops every year.

*The report, published in Prothom Alo Print edition, has been rewritten in English by Rabiul Islam