New laws to be drafted for agricultural loans
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