A recent state bank decision to increase loans to rice farmers by 50 percent in the coming monsoon season has not been well-received, with some paddy farmers calling for the troubled development bank to be privatized.
Myanma Agricultural Development Bank (MADB) will increase the size of loans available to rice farmers from K100,000 to K150,000 per acre, after receiving permission from parliament. The state lender will issue K1.7 trillion of the larger one-year loans over the coming months.
The development bank will contribute K1.2 billion of the funds and the Central Bank will provide K500 million, managing director U Kyaw Shwe told The Myanmar Times.
These loans will be limited to 10 acres, in line with previous MADB loan policy, said U Soe Tun, vice president of the Myanmar Rice Federation. But farmers are calling for longer-term loans with no limitation on acreage.
U Thein Aung, chair of the Free Farmers Association, said that the amounts being made available were not enough to cover cultivation costs. He owns more than 40 acres, and said that the increase in the maximum loan available – K1 million to K1.5 million – would not make much of a difference.
Farming industry figures said a lack of infrastructure, banking and financing are causing problems for rice farmers trying to cultivate high-quality paddy fields. Farming machinery is expensive to hire, exchange rate volatility can push up fertiliser prices and paddy farmers are also exposed to sharp drops in rice prices.
Summer rice was priced at up to K600,000 per 100 tins (each tin is equivalent to 9 gallons) until mid-March but was worth just K450,000 in early April. Prices began to fall when Indonesian buyers discovered pests in a shipment of rice from Myanmar, and refused to pay traders.
The existing system of MADB loans only allows farmers to cultivate and produce, but does nothing to improve their lives, said U Thein Aung. His organisation wants a shift in policy toward larger and longer-term loans, he said.
But MADB, which is funded by state-backed giant Myanma Economic Bank, is barely profitable as it is. The agricultural development bank offers loans at much lower interest rates than the private sector – just 5 percent a year, compared to 13pc at commercial banks, and makes just 1pc profit.
Some agricultural industry figures are calling for MADB to be privatised in order to better support Myanmar’s agricultural households.
U Soe Tun said that his organisation had submitted a proposal to the Ministry of Agriculture, Livestock and Irrigation in early April, and was still awaiting a decision. “We think it [MADB] should be privatised as it is apparently suffering losses, while farmers need more financing support.”
MADB’s Tanintharyi regional mananger U Win Naing recently told The Myanmar Times that the bank faces losses in less-cultivated regions and states while in Yangon, Bago and Ayeyarwady it is able to break even.
“Interest rates will inevitably rise if it becomes privatised,” said U Soe Tun. But MADB would also become a stronger institution, which would prevent farmers from seeking loans with even higher interest rates from non-banks, he added.
Managing director U Kyaw Shwe said that the bank may have to merge with other institutions or change its policy, but was not aware of any decision from the agriculture ministry on the issue of privatisation.
“We haven’t heard anything about privatising or restructuring so far,” he said, adding that MADB will have operate under whatever new policy the government puts in place.
MADB is facing a loss for the 2015-16 fiscal year, and has yet to receive K350 billion in outstanding monsoon loans from farmers in Sagaing, Monywa, Tanintharyi, Ayeyarwady and Bago, which it extended last year, U Kyaw Shwe said. “My staff and I will go to the areas where farmers could make the whole payment and collect loans with the help of regional authorities,” he said, adding that farmers could not borrow new loans before paying back existing debt.
“We have to find out why farmers have not paid back loans even though the interest rates have been reduced as much as possible.”
From: Myanmar Times
