NGOs now dominate rural lending; agriculture's share of loans shrinks

Bangladesh's rural borrowing rate has risen from 36% to 42% of households over two decades, while agriculture's share of rural loans has fallen from 25% a decade ago to 16%.

The findings were presented at a workshop on food-system financing organised today (12 October) by the Bangladesh Institute of Development Studies (BIDS) and the International Food Policy Research Institute (IFPRI) in Agargaon, Dhaka, with support from the Consultative Group on International Agricultural Research's (CGIAR) Better Diets and Nutrition Science programme.

NGO microfinance institutions account for three out of every four rural loans. Although the median size of NGO microloans has nearly doubled in real terms, borrowers face mounting repayment pressure. NGO loans carry a flat 15% rate, equivalent to an effective rate of about 27%, compared with bank lending rates averaging around 10%. Informal moneylenders charge 50%-60% annually.

The share of borrowers spending over 40% of their income on instalments has risen from 22% to 41%, reaching 79% among the poorest 20% of households. The share of NGO borrowers also taking moneylender loans has increased from 27% to 49%.

Small farmers face credit constraints

Research presented at the workshop found that borrowing per acre for farms smaller than half an acre doubled from Tk6,000 in 2010 to Tk13,500 in 2022. Banks' emphasis on land ownership excludes many farmers who lease land with cash.

Agricultural loans largely finance fertiliser, seeds, livestock and land leases, with little investment in mechanisation. Fewer than 2% of farm households own tractors or power tillers, while banks finance only 2%-7% of agricultural machinery costs.

Loan repayment schedules also fail to match farm income cycles. While 60–80% of agricultural bank and moneylender loans allow lump-sum or annual repayment after harvest, only 4–6% of NGO loans offer similar flexibility.

Livestock, which contributes 7.6% of agricultural GDP and is owned by small farmers in 90% of cases, receives less than 5% of agricultural loans. Research suggests cattle fattening can yield 20%-30% profit over six months.

Experts seek broader financing reforms

PKSF Managing Director Md Fazlul Kader said financing must cover the entire food system, including collection, storage, processing and marketing, while supporting environment-friendly farming.

BIDS Director General Prof AK Enamul Haque called for risk-sharing arrangements and greater use of technology to raise productivity, warning that rising debt could push farmers out of agriculture.

Microcredit Regulatory Authority Executive Vice-Chairman Prof Mohammad Helal Uddin said the sector's accumulated surplus grew from Tk3,000 crore in 2006 to Tk69,000 crore. He called for reviewing financing costs and service charges, which can reach 24%, noting that greater reliance on savings could reduce borrowing costs.

Agriculture Secretary Md Selim Khan stressed accessible machinery finance and repayment schedules aligned with harvest seasons.

Participants said expanding credit alone would not improve farmers' financial security without lower financing costs, flexible repayment terms and effective risk-sharing mechanisms.