With the aim of shielding the country's farmers from high-cost agricultural loans disbursed by microfinance institutions (MFIs), the Bangladesh central bank has taken an initiative to chalk out a policy. The Bangladesh Bank (BB), as part of the move, plans to make some mandatory rules for agricultural loan disbursements. These include disbursement of at least 50 per cent of annual agricultural loans by banks through branches up from 30 per cent now. If the banks disburse loans to farmers through bank branches, farmers are supposed to get loan at 9.0 per cent interest rate. But the MFIs mint money as they borrow at 9.0 per cent interest but charge 20 to 25 per cent interest on agricultural loans. The operational cost should not push the rate so high. Farmers, because of such practices, become more indigent after repayment of loan at such an exorbitant rate of interest. This is certainly an economic exploitation of poor farmers.
To avoid the trouble of supervisory and recovery cost of loans disbursed to farmers, a majority of banks continue to show reluctance to disburse loans through branches. At least 26 banks disbursed more than 70 per cent of their agricultural loans in 2017 through MFIs. But the central bank has not taken any punitive measures or actions against them. The central bank is now going to take the initiative to protect farmers from such high-cost of agricultural loans. If the policy is properly implemented, it is hoped that the new initiative will shield farmers against exploitation they suffer on account of taking agricultural loans. Perhaps it will be a real good job done to protect the interests of farmers and save them from being pauper after repayment of loans they take.
The fact that farmers are the real power behind the rural economy in the countryside and they contribute a lot to the country's economic growth is very often ignored. Another issue need to be taken care of here. Farmers find it very difficult to realise the cost of production, let alone any profit from the current bumper Aman harvest because of the low prices of paddy. In the north-west region of the country coarse paddy is now trading at Taka 650-690 per maund, though the production cost was Taka 800-820. For irrigation and pesticides most farmers had to spend extra money in 2018. As a result there will not be any profit margin for growers if the paddy prices do not increase.
If such a situation persists, growers will definitely lose interest in Aman production. And that may stand as a major stumbling block on the future of the country's food security. In fact a lot of marginal farmers have to repay loans they receive at high interest rates. This will weaken their economic base and some will be left pauper and destitute. Therefore, the authorities concerned should work on two fronts. First, farmers must be provided with easy loans and second, intervene in the market to expel middlemen from the chain in order to ensure reasonable price for agricultural produces. Otherwise farm economy and by extension rural economy will meet with a reversal.
Prof. Sarwar Md. Saifullah Khaled is a retired Professor of Economics, BCS General Education Cadre.