New laws to be drafted for agri­cul­tural loans

The Myanmar Times - - Business - CHAN MYA HTWE chan­myahtwe@mm­

RE­STRIC­TIVE laws gov­ern­ing agri­cul­tural loans will be re­formed to help strug­gling farm­ers break free of debt, a parliamentary group has an­nounced.

The Pyithu Hlut­taw Com­mit­tee for Banks and Mone­tary Af­fairs De­vel­op­ment will change laws on state-owned en­ter­prises in three pri­or­ity ar­eas, ac­cord­ing to com­mit­tee mem­ber Daw Thet Thet Khaing (NLD; Dagon).

The changes will im­pact Myanma Agri­cul­tural De­vel­op­ment Bank (MADB), Myanma In­sur­ance and Myanma Small Loans En­ter­prise, she said. “We will re­vise state-owned en­ter­prises. Some make a profit, some a loss. The Na­tional League for Democ­racy promised to re­form state-owned en­ter­prises dur­ing the elec­tion cam­paign.”

The World Bank, GIZ and the In­ter­na­tional Mone­tary Fund are pro­vid­ing tech­ni­cal as­sis­tance to the com­mit­tee.

In the World Bank’s de­vel­op­ment strat­egy for Myan­mar’s fi­nan­cial sec­tor, MADB, one of the four sta­te­owned banks, has been sin­gled out for re­form.

The loss-mak­ing bank is un­der the su­per­vi­sion of Min­istry of Agri­cul­ture, Live­stock and Ir­ri­ga­tion, and not the Cen­tral Bank, Daw Thet Thet Khaing said.

“Usu­ally a bank ac­cepts de­posits and of­fers loans. But the Myan­mar Agri­cul­tural De­vel­op­ment Bank doesn’t ac­cept de­posits. It is funded by [state-owned] Myanma Eco­nomic Bank or the Cen­tral Bank of Myan­mar,” she said.

MADB funds 2 mil­lion farmer house­holds at sub­sidised in­ter­est rates of 8 per­cent per year. How­ever, it can only is­sue year-long loans of K150,000 per acre, for up to 10 acres.

Farm­ers have re­peat­edly called for longer-term loans with no lim­i­ta­tion on acreage. Myan­mar mi­cro­fi­nance in­sti­tu­tions of­fer farm­ers small loans at in­ter­est rates as low as 2.5pc, but many farm­ers also ob­tain fi­nanc­ing through in­for­mal lenders, whose rates are of­ten higher, and can be ex­or­bi­tant, to cover their costs.

As 70pc of the coun­try’s econ­omy de­pends on the agri­cul­tural sec­tor, im­prov­ing ac­cess to credit for farm­ers will boost eco­nomic growth. But cur­rent lend­ing prac­tices are un­ac­cept­able, said Daw Thet Thet Khaing.

As a gov­ern­ment depart­ment, MADB lends to farm­ers with­out tak­ing full re­spon­si­bil­ity for the risk of de­fault, be­cause it is able to rely on Myanma Eco­nomic Bank and the Cen­tral Bank for fund­ing. This ar­range­ment is not in the coun­try’s best longterm in­ter­ests, she said.

The bank was par­tic­u­larly hard hit last year when floods de­stroyed paddy fields across the coun­try and thou­sands of farm­ers de­faulted on their debt.

“In the event of de­faults, the gov­ern­ment will have to print more money, rais­ing the rate of in­fla­tion. A fail­ure to con­trol the mone­tary sys­tem will hurt all our ci­ti­zens,” Daw Thet Thet Khaing said.

The com­mit­tee will re­form the bank­ing law through dis­cus­sions with min­istries and bank of­fi­cials in­volved, she added. As a sec­ond pri­or­ity, the com­mit­tee will re­view in­sur­ance laws, to breathe life into the de­vel­op­ing in­dus­try.

The Small Loans En­ter­prise Law will also be re­viewed she said, “While small loans en­ter­prises lend at a rea­son­able in­ter­est rate, pri­vate money lenders lend at a higher rate. If this is al­lowed to con­tinue, the poor will never be free from debt.”

– Trans­la­tion by Zar Zar Soe

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