Small farmers are not benefiting from agricultural loans

Saddam Ali, a small farmer in Nilphamari’s Sadar Upazila, is not interested in taking a loan from the bank. He needs a loan of Tk 20,000, but the bank does not want to give a loan for such a small amount of money. Moreover, the process requires a lot of paperwork.

If he wanted to persist in obtaining the loan, he would have to hire a broker and spend another Tk 2,000 – 3,000.

Millions of small farmers, like Saddam, are feeding the people of Bangladesh by keeping agriculture alive. But they have been unable to make use of the government initiative to borrow from banks at lower interest rate. The benefits of these accommodations is, instead, going to large farmers and traders.

Fakir Mahitul Islam, president of the Bagerhat Shrimp Farmers' Association, told bdnews24.com that those who need a loan of TK 50,000 or TK 100,000 do not get it. But in Bagerhat, most farmers are small sharecroppers who need small loans.

Farmers work in the field in Gaibandha’s Sadar Upazila during the foggy winter morning on Sunday, Jan 31, 2021.

Mithu Chakraborty, a farmer from Kachua in Bagerhat, alleged that bribery and red tape were rampant in the agricultural loan sector.

"After receiving training from Youth Development, they offered me a loan of TK 50,000,” he said. “For this they demanded a bribe of TK 5,000. I didn't take that loan."

Bangladesh Bank has ordered that the interest rate on agricultural loans remain 1 percent lower than other loans, giving priority to the agricultural sector. As a result, the maximum interest rate on any loan other than credit cards is 9 percent, so the interest rate on agricultural loan has been fixed at 8 percent.

However, private banks can disburse 70 per cent of the total agricultural credit through other channels if they wish. Banks are taking this opportunity to disburse agricultural loans through microfinance institutions.

And the small farmers pay the price as microfinance institutions are charging interest up to three times the interest rate fixed by the government. But small farmers, who are unable to get financing from banks, have no choice but to turn to them.

Montu Chandra, a farmer from Kanura village in Netrokona’s Kalmakanda said: “Banks do not lend small amounts of money, so we don't go to the bank. If we need money, we take loans from NGOs.”

Farmers work at bean fields at Kalatia in Dhaka’s Keraniganj. Photo: Kazi Salahuddin Razu

Dulu Mia, a farmer from Itakhola in Nilphamari Sadar, said, “Big farmers get loans from banks, we don't. If we need money we take loans from NGOs like ASA, BRAC.”

But due to weak policies of the central bank and careless audits, small farmers have to pay interest at a maximum rate of 25 per cent, while the maximum interest rate on bank loans is 9 per cent.

According to data from Bangladesh Bank, in the first quarter of the fiscal year 2021-22 (July-September) a total of TK 52.12 billion in agriculture and rural loans were disbursed in Bangladesh, which is 11.23% more than the same period in the past last fiscal year.

And in the fiscal year 2020-2021, banks have disbursed a total of Tk 255.11 billion in agriculture and rural loans in the country, which is 97.03% of the total target.

The disbursement of this loan is Tk 27.62 billion or 12.4% higher than the previous fiscal year 2019-20.

Regarding the increase in disbursement of agricultural loans, Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said that some banks failed to meet the target last year. They have tried their best to increase the distribution of agricultural loans to avoid punishment.

Moreover, micro-credit institutions were especially reliant upon an increase in the agricultural credit this time, the banker said.

Bean flowers blossom in the fields of Kalatia in Dhaka’s Keraniganj, raising farmers’ hope for a profit in the advent of winter. Photo: Kazi Salahuddin Razu

It is clear from the words of the former leader of the Association of Bankers Bangladesh (ABB), an organisation of bank chief executives, that small farmers do not get the benefit of taking loans directly from the bank at low interest rates, even if the distribution of agricultural loans increases.

According to the central bank, in the fiscal year 2019-20, 40 private banks disbursed Tk 116.54 billion in agricultural loans, of which 63 per cent were disbursed through micro-credit institutions.

Although government banks disburse most of their agricultural loans through their own channels, private banks do not. There are allegations that some private banks do not even follow the instructions to disburse at least 30% of agricultural loans through their own channels.

However, Ali Reza Iftekhar, president of ABB and managing director of Eastern Bank, is reluctant to accept allegations that marginal farmers have not received agricultural loans from banks.

“Marginal farmers get loans from banks,” he said. “However, banks that do not have branches in remote areas disburse loans through microfinance institutions.”

Sirajul Islam, Bangladesh Bank spokesperson and executive director, had much the same opinion.

“Marginal farmers get money from banks,” he said. “However, where there is no bank branch, money is disbursed through microcredit.

“The interest rate on microcredit is a little higher. We aim to ensure that farmers get money at low interest rates,” he added.