NGOs charge 25pc interest for farm loans | The Daily Star
12:00 AM, July 24, 2019 / LAST MODIFIED: 12:27 AM, July 24, 2019

NGOs charge 25pc interest for farm loans

The interest rate on more than one-third of farm loans banks disbursed through non-governmental organisations in fiscal 2018-19 was as high as 25 percent -- much higher than any loan product in Bangladesh.

Considering agriculture a priority sector, the central bank usually sets the interest rate on farm loans at 2-3 percentage points less than the major credit products of lenders. If the loans are disbursed through bank branches, farmers can get them at 9 percent interest rate.

But when disbursed through NGOs and microfinance institutions, the rate goes up to 19-25 percent as they take the funds from banks first at 9 percent interest and then give them out to farmers -- defeating the purpose of the scheme. In fiscal 2018-19, banks disbursed Tk 8,298 crore in farm loans through NGOs, which is 35 percent of their total disbursed loans in the agriculture sector.

The amount is also 4.28 percent higher than the farm loan disbursement through NGOs and microfinance institutions in fiscal 2017-18. 

“The central bank has taken different initiatives to decrease the banks’ dependency on NGOs,” said SM Moniruzzaman, deputy governor of Bangladesh Bank, while unveiling the farm loan policy for fiscal 2019-20 yesterday.

For instance, it has repeatedly instructed banks to distribute farm loans through their own channels. “But it seems they do not pay much heed as farm loan disbursement through NGOs is on the rise,” said another BB official requesting anonymity.

Banks turn to NGOs and microfinance institutions for farm loan disbursement to lessen their supervisory- and recovery-related costs. The central bank earlier instructed lenders to distribute at least 30 percent of their annual farm loan disbursement target through their respective branches, but a number of banks frequently disregarded the rule, the official said.

“There is no credit product in the banking sector for which one has to pay an interest rate as high as 25 percent,” he added.

But the high interest rates will compound the woes of farmers, who have already been hit by a large-scale flood.

The Department of Agricultural Extension (DAE) estimated that floods affected farmlands in 26 districts until Friday, including 39,000 hectares of aus fields, 11,000 hectares of aman seedbeds and 10,000 hectares of vegetable farms.

“The high interest rate on farm loan is completely absurd,” said M Asaduzzaman, a former research director of the Bangladesh Institute of Development Studies.

Banks hand over their responsibility to the NGOs because of their unwillingness to disburse farm loans to the underprivileged farmers, he said.

“But this is having a negative impact on the agriculture sector.”

He also raised a question about the calculation method of the NGOs as there is little scope to charge such high interest rates.

“NGOs usually claim that they are not profit-oriented organisations, but imposing such high rates on farm loans conflicts with their stance,” he added.

Moniruzzaman, however, said the central bank would encourage banks to disburse loans in the rural areas through their agent banking window.

Some banks have already started disbursing farm loans through their agents at 9 percent interest rate, he said.

“If required the central bank will provide policy support to them in the interest of the farmers.”

Stay updated on the go with The Daily Star Android & iOS News App. Click here to download it for your device.

Grameenphone:
Type START <space> BR and send SMS it to 22222

Robi:
Type START <space> BR and send SMS it to 2222


Banglalink:
Type START <space> BR and send SMS it to 2225

Leave your comments

Top News

Top News

Top