Farmer Kado of Tshachhuphu,  upper Punakha,  wanted to renovate his ancestral house. Separating the kitchen with a bathroom built with reinforced cement concrete, improved electric wiring and a drainage around his house, according to the estimate would cost tenfold his yearly income, about Nu 500,000.

Kado has to rely on borrowing. His two and half-acre land including the paddy fields is not worth the loan amount. His ancestral land has no value when calculated for collateral. If his land was somewhere in the periphery of the capital city or the dzongkhag administration in Punakha, his land would get more than what he needs. Unfortunately, access to loans are restricted to farmers like Kado. Even if he wants to transform agriculture, from subsistence to commercial, access to finance is restricted.

High interest rates on loans, value of property and land used as mortgages, many feel are the biggest barrier for farmers to develop or innovate. The National Council (NC) is calling for reduction in interest rates to boost agriculture productivity, as its economic affairs committee found a meagre share (2.5 percent) of loan dished to the agriculture sector,  limiting growth and development in rural areas.

The upper house is calling for policy changes to improve credit access, besides  targeted financial literacy programs, and better stakeholder coordination. A lot depends on the commercial banks where profit drives performances. Borrowing is not cheap with interest rates between 9 and 15 percent. It is also detrimental on bad loans or non-performing loans (NPL) with the NPL rate in the agriculture and livestock (farming sector) at 8.75 percent, way higher than the  overall non-NPL rate of 3.40 percent.

If we are to develop agriculture, help farmers grow foods and stop rural-to urban migration, access to credit should be made easier and affordable.  Agriculture was recognized, decades ago, as an important sector. The basic issues the sector is facing today indicates we had not gone beyond providing lip services.

The success of our financial institutions are measured by the income they make and the dividend they contribute. There is not a single institution that considers access to credit more important than profit. The only development bank, according to NC, has the highest interest rates.

The priority and the directive from experts is to improve profit and reduce NPL. Lending at lower rates or with minimum returns is not important even if it could help develop or transform agriculture.

If the NC can influence policy decisions, it would help the sector grow. The records are there to convince policy makers. For instance, a performance audit of microfinancing in the country between 2014 and 2018 revealed that only about five percent of total loans were devoted to agricultural development.

Disbursement is also flawed with poorer dzongkhags like Dagana and Zhemgang with higher poverty rates availing a relatively lower proportion of loans from MFIs. On the other hand, Paro, Punakha, Thimphu, and Wangdue have a lower incidence of poverty but availed a higher proportion of loans.

Lending from commercial banks would indicate the same, if audited. The more valuable the collateral, the easier it is to access loans. This means, a farmer owning five acres of land in Lhuentse would not have the equal access to his counterpart in Thimphu or Paro.