Loan repayments are eating deeper into the incomes of rural Bangladesh’s poorest families, squeezing household finances, a Bangladesh Institute of Development Studies (BIDS) study has found.
The study found that NGOs and microfinance institutions account for three out of every four rural loans. The share of rural households taking loans rose from 36 percent to 42 percent.
The proportion of borrowers spending more than 40 percent of monthly income on instalments increased from 22 percent to 41 percent. Among the poorest 20 percent of households, the figure rose from 49 percent to 79 percent.
The findings were presented on Monday at a workshop in Dhaka. BIDS researcher Kazi Iqbal conducted the study, drawing mainly on data from 2012 to 2022.
Iqbal said the effective interest rate on NGO loans advertised at a flat rate of 15 percent was about 27 percent.
Banks charged around 10 percent, while moneylenders charged between 50 percent and 60 percent.
The share of borrowers taking loans from both NGOs and moneylenders rose from 27 percent to 49 percent over the past decade, as families sought money for emergencies and to cover instalment shortfalls, he said.
The study called for agricultural loan repayments to be better aligned with farming seasons and income cycles. It found that farming loans were mainly used to buy fertiliser, seeds and livestock, as well as to rent land.
Microcredit Regulatory Authority Executive Vice-Chairman Md Helal Uddin said household debt burdens needed closer monitoring. Excessive borrowing could make repayments difficult and threaten the financial stability of microcredit institutions, he warned.
He said the maximum microcredit service charge was set at 24 percent, but limited competition had prevented charges from falling.
Agriculture Secretary Md Selim Khan said the government had introduced a “Farmer Card” offering 10 basic services, including subsidised agricultural inputs, fertiliser and seeds, weather updates and expert advice.
He also highlighted the challenge of ensuring fair prices for farmers, noting that consumers can face high prices during shortages while farmers suffer when prices collapse during harvests. The government aims to achieve self-sufficiency in onions, tomatoes and green chillies within two years, he said.