As agricultural loans are fraught with high risks, foreign banks are more suitable in that field, according to Dr. Soe Tun, the president of the Myanmar Farmers Association.
He explained that they have a higher capital base and can also perform crop insurance for losses due to shocks such as natural disasters.
Currently, there are a number of public banks opening in agriculturally strong states and divisions with the support of the government. They aim to assist the development of agriculture in such regions. On November 27th, the Ayeyarwady Farmers’ Development Bank was opened to provide loans to farmers, small rice mill owners and medium enterprises.
U Ye Min Aung, the general secretary of the Myanmar Rice Federation, has told us that the founding capital was put in by the Division government and private businesses involved in the rice trade.
He further stated that they intend to open branches nationwide to help the development of the agricultural sector. The bank is a public bank with a founding capital of 15 billion Myanmar Kyats. That figure is set to increase up to 20 billion MMK and a public share offering is also in the future plans.
The bank’s major aim is agricultural sector development and farmers can apply for loans with Form 7 (proof of land ownership) as collateral and statements of the agricultural business that they intend to pursue. The bank interest rates will be 13 percent per annum.[ The terms of repayment and duration wasn't stated ].
Currently, the government run Agricultural Development Bank is the major financial institution providing loans to farmers. Many domestic bankers has said that the high risks associated with farming has discouraged them to getting involved with the loan ventures.
Myanmar farmers are facing the burden of higher input costs and generalized inflation. At the time of writing, 100 baskets of rice fetch around 500,000 Myanmar Kyats, allowing the farmers to realize a profit but should it fall below that figure, it would be a real concern, according to a farmer from PwintPhyu township.