Banks averse to providing credit for agribusiness
Banks averse to providing credit for agribusiness
Banks in Laos are reluctant to give loans to farmers to establish or expand their business, even though the government is encouraging them to do so.
The government supports investment in agriculture as Laos has large areas of fertile land whose full potential has yet to be tapped.
Another reason to push for investment in agriculture is that most Lao people make their living from farming. The government believes that improvements in the sector would help to eliminate poverty among the majority of the population.
However, the number of loans provided by commercial banks to the agriculture sector is minimal compared to other sectors. This reflects the fact that banks do not see any potential in agribusiness.
According to a report from the Bank of the Lao PDR, in 2014 commercial banks gave only 10 percent of their loans to the agriculture sector. Twenty percent went to industry and handicrafts, while the commerce and construction sectors each received 20 percent of total loans offered. The remainder went to services and other sectors.
Agriculture officials say that while the government has urged banks, especially state-owned ones, to issue more loans to agribusiness, farmers still struggle to obtain credit.
Economists say they are not surprised that banks have little interest in agribusiness, explaining that there is a high investment risk in agribusiness because of the frequent outbreaks of livestock diseases and weather extremes.
“There is no insurance for agribusiness so banks view investment in this sector as high risk,” economist Mr Mana Southichak said.
Banks officials say they are more confident about providing loans for other sectors such as construction and industry, which normally have sufficient assets to be able to guarantee a loan.
Investment in construction has seen rapid growth over the past few years. Land owners see strong potential in real estate due to the increasing demand for residential property, which is associated with the inflow of foreign investors and business operators.
Bank officials say farmers should try to reduce their investment risk so they can convince financial institutions to give them short and long term loans.
Analysis shows that one of the major challenges for agribusiness is not just disease outbreaks but the fluctuation in produce prices and market availability. Many farmers, especially sweetcorn growers, suffer from swings in the market price and cannot be certain of secure markets.
“We can grow as much as possible if there is a market available,” said Mr Bountham Phimphong, a grower of organic vegetables.
