Prime minister concerned about shrinking bank credit to agriculture
KATHMANDU, DEC 25 -
Prime Minister Baburam Bhattarai has said the government will not ‘remain silent’ over the non-expansion of bank credit to rural areas where agriculture is a key economic activity.
“The government will not adopt harsh measures without holding consultations with stakeholders concerned, but will not remain silent if they fail to find ways to expand credit to these areas,” he said at a workshop organised by Nepal Rastra Bank (NRB) here on Saturday.
At the two-day workshop that began Friday, stakeholders, including the central bank, bankers, agriculture experts and others, discussed the status, potential and challenges of financial services in the development of Nepal’s agriculture sector.
Prime Minister Bhattarai asked stakeholders to ascertain whether necessary policies are required to be put in place to force banks and financial institutions to expand credit to rural areas. “It is necessary to find out why commercial banks hesitate to go to rural areas where agriculture activities take place mostly,” said the prime minister.
According to him, 74 percent of the country’s population relies on agriculture, but their contribution to the gross domestic product (GDP) has remained just 35 percent. “This suggests low productivity in the agriculture sector. And, one of the main reasons behind this is low financial services in the sector,” said Bhattarai. Nepal Rastra Bank’s data also suggest that banks’ lending to the agriculture sector has been shrinking since the country adopted liberal economic policy after 1990.
Over the last three decades, it was fiscal year 1992-93 when the sector received the highest percentage of lending from banks (24.8 percent). Since then bank credit to the sector continued to decline and the figure in 2010-11 stands at just 2.7 percent. In 1987-89, banks’ lending to the sector stood at 22.5 percent, according to NRB.
Bhattarai said despite increased road access to rural areas in recent years, farmers are finding it hard to increase production in the absence of financial services. Saying that millions of rupees goes out of the country every year for importing apples, he urged for the promotion of apple farming in the Karnali region, which could bring a big change to the region’s as well as the country’s economy.
The prime minister said lack of the financial services in the agriculture sector has deprived a majority of farmers from getting right price of their products, while middlemen benefiting immensely. “If farmers get storage facility, they can get better price,” he said, adding that the government would soon introduce the Pubic Warehouse Act which will enable farmers to store their products until they get the right price.
Although farmers’ access to financial institutions is growing, non availability of credit has always remained a matter of concern. According to the latest living standard survey, 39.9 percent of the country’s population has access to commercial banks and 53.9 percent has access to cooperatives within 35 minutes walking distance.
Bhattarai also pointed out structural problems that are hindering the expansion of credit to the agriculture sector. As Nepal’s agriculture is largely dependent on rain and diffusion of advanced technology is limited, there are low production risks, which subsequently put agriculture lending at risk, according to Bhattarai. “Insurance facility is required in the agriculture sector,” said Bhattarai. “The government is committed to take ahead the agriculture insurance system in a new ground,” he said.
Finance Minister Barsaman Pun termed the decreased share of bank credit in the agriculture sector ‘disappointing’ and said better lending in agriculture-based industries could benefit the sector. He also complained about higher interest rates on agriculture loans compared to others.
Source: Kantipur
