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The debt cycle must end

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23rd-Apr-2019       
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IN disaster prone Bangladesh floods, erosions and landslides are considered much more devastating as they make more people shelter-less each year. Losing everything, the affected people borrow from money lending Mahajans, micro credit institutions as well as select NGOs in money lending business at high rates of interest to rebuild their life just like drowning men catching at a straw.
They get loans from this group only after mortgaging their crop land or other properties or the lion's share in their next crop to be trapped in debt and poverty Cycle permanently. The constant pressure to repay forces these people to borrow again and again from similar other sources pushing them deeper into the debt trap.
Even in normal years, the landless and farmers having small holdings need to borrow from Mahajans and micro credit lenders for buying seeds, tilling the cropland or irrigating their crops. The government's banking policy never lent service to the needy and vulnerable people.
A study report released in March reveals that the affected families spent $three billion in fiscal 2015-16 for post natural disaster reconstruction and the average disaster related expenditure per family stood at Tk 6,609, equivalent to $78. The government spent only $1.4 billion, or $37 equivalent to Tk 3,092 per household on an average. Donors spent $83 million, or less than $two or Tk 168 per household on an average.
The government can easily introduce crop insurance and natural disaster insurance to mitigate the effects of disasters. This will enable the poor to rebuild their homes and get the money back from crops which they have lost very quickly. Since they end up taking loans at very high rates of interest--anywhere from 15-24 percent per annum they are the hardest hit due to any natural disaster.
If the poor had such insurance they would not be compelled to either sell or mortgage their assets or reduce their food consumption. Some even took their children out of schools or put them on foster care or sent them to work as domestic help far from their homes. A national disaster and crop insurance is essential for the ultra poor.


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