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Uncertainty over fair prices stymies agri-financing

Bankers, insurers tell roundtable at The Daily Star
Star Business Report
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Uncertainty over fair prices of agricultural produce is a major challenge in ensuring increased financing from banks and insurance for the farming sector, said bankers and insurers yesterday.
Farmers’ capacity to repay loans depends largely on prices of their produce and growers fall in trouble to pay back loans when they do not get fair prices of their crop.
Similarly, uncertainty over prices also discourages farmers from insuring crops and livestock, increasing risks of losses of their investments in the event of weather shocks.
The views were shared at a roundtable on “Making finance resilient to smallholder farmers” organised jointly by CARE Bangladesh and The Daily Star at The Daily Star Centre.
The discussion comes at a time when farmers, particularly those running operations on a small scale, are facing various obstacles including weather calamities, shortages of capital and limited access to credit from the formal financial sector.
As a result, they often have to depend on informal lenders.
Formal financial institutions show little interest in financing small farmers because of higher operational costs in rural areas compared to urban areas and the risks regarding timely repayment of loans by producers.
Md Ahsan Ul Alam, senior vice president and head of agent banking division of Bank Asia, shared his experience of meeting an elderly farmer in Jessore several years ago.
The man wanted just Tk 50 for a sack full of okra, a price at which residents in Dhaka get roughly one kilogramme of the same vegetable.
Alam said farmers do not get good prices for a lack in their capacity to retain or store the produce, pressure of informal lenders to repay loans and presence of middlemen in the supply chain.
The risk of banks reduces when farmers get fair prices, he said.
“When farmers do not get fair prices, they suffer from losses and cannot repay loans. It creates uncertainty for us,” said Shahnaz Akter Shahin, assistant vice president of Bank Asia.
Banks will lend when they find financing profitable, she said, while stressing the need for adopting digitalisation for granting loans to farmers at a faster pace.
Maruf Azam, general manager of CARE Bangladesh, said 1.7 crore farmers in Bangladesh were small growers.
Their production and income are low and they do not have capital while funds do not come in the right manner and whatever comes bears a hefty price tag, he said.
Azam said weather shocks, limited access to financial services and a lack of information regarding available financial services were major problems for them.
To ensure that farmers get access to financial services, CARE piloted a project called Krishi Utsho in 2019 by incorporating loans and insurance facilities against weather shocks on crops.
Under the scheme, piloted in the northwest district of Bogura and southwest district of Jashore, 206 farmers were provided financing of a maximum of Tk 20,000, to be repaid after six months.
Of them, 50 farmers availed insurance, said Azam, also project coordinator of Krishi Utsho. “It would be good for growers if insurance and loan can be bundled,” he said.
Prabodh Devkota, assistant country director of CARE Bangladesh, said agriculture finance and agricultural insurance were strategically important in addressing extreme poverty.
“Majority of smallholder farmers face challenges in accessing financial services. There are various systematic and practice level challenges. For formal financial institutions, there are high transaction costs. There are issues of collateral, paper works and payment schemes,” he said.
Financing for small farmers did not receive due impetus in spite of various initiatives at the policymaking level, said Shah Md Ahsan Habib, a professor of the Bangladesh Institute of Bank Management.
Small farmers need specially designed products but there has been little effort in this regard.
Farmers are provided crop production credit and they have to sell their produce after harvest to repay loans, he said.
“Commodity exchange is vital for Bangladesh to ensure just prices for growers,” Habib said, adding that farmers’ cooperatives should be promoted so those could act as guarantors of loans and work for ensuring fair prices for growers.
Ali Tareque Parvez, senior vice president of Green Delta Insurance Company, said farmers cannot repay loans in many cases in absence of fair prices.
“Agriculture insurance is an input for farmers. As they do not know whether they would get good prices after harvest, they do not want to spend on crop insurance,” he said.
He urged the government to take measures to ensure just prices for growers. This is a major problem in the country, he said.
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