As stronger storms hit Bangladesh farmers, banks are climate collateral damage

Wasim Ali, 45, lived in one of the 55,000 houses destroyed by the deadly Super Cyclone Amphan in May of 2020. The tropical storm whipped up a tidal surge that swept away his house and razed his small farm, measuring just 0.4 hectares (1 acre). Thousands of people were left destitute after this massive natural disaster. But for Wasim Ali, a resident of Protapnagar in Bangladesh’s southwestern Satkhira district, the misery runs deeper.

In addition to the loss of his home and farm, the disaster also left him with no way to pay back a debt of 42,000 takas ($440), an amount he’d borrowed from a bank as an agricultural loan. He’d pledged his farmland as collateral, and says he’s now afraid to face the bank’s officials.

“I can barely support my family of five on the small piece of land I managed to squeeze out since the disaster. It is impossible to repay the loan against a piece of land that does not even exist anymore,” Wasim says.

Nearly a third of Bangladesh’s total land mass lies in its coastal zone, spanning 47,201 square kilometers (18,224 square miles), according to a study. This zone is home to about 35 million people, or 29% of the country’s population.

These communities are heavily dependent on agriculture, working on their small, fragmented lands. In a form of short-term assistance, the government makes available up to 50,000 takas (about $530) in agriculture loans to individual small farmers, disbursed through commercial banks. These loans carry interest rates ranging from 5-10% for a single crop season, depending on the bank and the type of crop, and farmers are meant to pay back the principal plus interest after harvest.

Although the loan amounts are small at the individual level, collectively, agricultural loans make up a major part of Bangladesh’s banking activity. The country’s central bank says agricultural loans for the year to May 2022 amounted to 284 billion takas ($3 billion). That constituted 20% of all loans distributed in the nation during that period. One agriculture-focused lender, state-owned Bangladesh Krishi Bank (BKB), disbursed 200 billion takas ($2.1 billion) of those farm loans.

For these banks, however, the coastal regions are a headache: farmers here are increasingly defaulting on their payments as a result of climate change-induced natural disasters.

According to BKB, the two most affected subdistricts of Satkhira — Assasuni and Shyamnagar — have outstanding loans totaling 78.1 million takas ($822,500 million), disbursed from its three branches in Assasuni, Gunakarkathi and Shyamnagar. Another state-owned lender, Agrani Bank, has 15 million takas ($158,000) currently on its books from two of its branches, in Assasuni and Shyamnagar.

In a visit to Assasuni, where Wasim Ali’s house and farm were destroyed by Super Cyclone Amphan, Mongabay met several other individuals in similarly dire situations.

Hasan Mollah has been classified a defaulter since another cyclone, Aila, hit the region more than a decade ago, in May 2009.

“After losing the land, I lost my home and source of income. To provide for my family, I was forced to move to the city. Even so, I was unable to come up with the 38,000 takas [$400] to pay back the loan,” Hasan said.

The central bank has since 1991 made concessions for farmer-borrowers like Wasim and Hasan who have been hit by natural disasters. These free them from interest payments as long as they repay the principal sum.

“Banks operate as a business by lending loans, so it cannot lose its capital,” BKB managing director Md. Ismail Hossain told Mongabay. “We have rescheduled loans and still have 21.3 million takas [$224,300] in that area that is classified,” or on the books.