Person using mobile device

Farmers go digital to shed debt

In Bangladesh, the economy is driven by agriculture: Approximately 70 percent of people live in rural areas and draw their income and employment from agriculture and related activities. Yet, farming requires many upfront costs, including seeds, irrigation systems, equipment and fertilizer, and smallholder farmers must cover these costs before earning income from their crops.

While loans for these expenses are common, they have traditionally been issued by microfinance institutions or informal lenders, often at interest rates as high as 30 percent. Moreover, they can require weekly repayments, which leads farmers to take out additional loans and sell their crops quickly, often at low prices.

FHI 360 partnered with two banks, Bank Asia and IFIC Bank, to launch first-of-their-kind microcredit products that enable farmers to obtain digital loans with better terms. Farmers now receive their loans through either a debit card or a mobile wallet (an application that bundles credit and debit accounts on a mobile device), so they no longer need to travel to the lenders. The loans have a low, more affordable interest rate and a flexible repayment schedule, so farmers can pay them back in a single payment after six months, once their crops have been harvested. Because farmers are no longer in a rush to pay the loan, they can wait to sell their produce at a greater profit. Both products are helping to break the cycle of debt for smallholder farmers in Bangladesh, allowing them to save more money and broaden their opportunities.

The importance of financial inclusion

Why are so many people unbanked or underserved by traditional financial institutions? What can be done to help them? FHI 360’s Caroline Averch outlines some of the root causes of financial exclusion and explains what financial inclusion means and how it can be expanded.

Photo credit: M. Ataur Rahman/FHI 360