Egypt's Principal Bank for Development and Agricultural Credit (PBDAC) has failed to meet ousted former president Mohamed Morsi's promise to drop the debts of small-scale farmers due to lack of finance, it emerged recently. PBDAC Chairman Atia Salem said last week that the bank planned to restructure the debts of insolvent farmers but that it would not drop them. This would undermine the bank's need to make profits and could adversely affect deposits, he said. According to Salem, the debts will be rescheduled over a three-to-five year period. The restructuring might involve dropping administrative expenses and interest but not the principle of the debt, he said. In September 2012 during the national Farmer's Day celebration, Morsi announced that debts less than LE10,000 owed by farmers to the PBDAC would be cancelled. Action against insolvent farmers was suspended for a year, and the Ministry of Finance was supposed to take on the debts and repay them to the PBDAC on behalf of the insolvent debtors. Morsi's decision was supposed to apply to small agricultural loans bearing an interest rate of six per cent and representing 10 per cent of the bank's total capital and not investment loans at interest rates of 12 per cent, according to the manager of a PBDAC branch in the Dakahlia governorate who preferred to remain anonymous. “The bank's decision to suspend the cancelation was taken because the ministry of finance has no funds to repay the farmers' debts, which are currently estimated at LE2.7 billion,” the source explained. “The bank cannot pay the debts by taking on more customers' deposits,” he added. The current problems are a repetition of what happened in 2007, he said, when former president Hosni Mubarak had taken a similar decision and the PBDAC had dropped farmers' debts. On this occasion, the Ministry of Finance did not repay the debts either, then estimated at LE93 million, with the result that the debts had to be paid for out of the bank's profits. PBDAC debts and losses currently amount to LE4 billion, adding to the pressure on the bank. “It would be unfair to write off the debts of farmers who have not paid. It seems as if we are punishing those who have committed to repaying their dues on time,” the source added. The farmers complain that the administrative expenses of acquiring the loans have been very high. According to Sayed Metwalli, a farmer in the Sharkiya governorate, while he had applied for a LE5,000 loan he had only received LE4,400 with the rest being deducted as administrative expenses. By the time he had repaid the loan, the overall value was LE7,000 due to the high interest rates. “Although I have taken out several loans from the PBDAC, I decided to stop dealing with the bank because the total figure I pay is too much because of the administrative expenses and high interest rates,” Metwalli said. However, some farmers said that things were fine with the PBDAC. “I took out a LE 4,000 loan, and I am paying LE400 in annual interest and the loan procedures are easily done,” said Mohamed Abdel-Kader, a farmer in the Dakahlia governorate. The PBDAC manager admitted that administrative expenses were high, but said that the bank's chairman had decided to reduce these within the framework of the bank's soon-to-be-applied restructuring plan. Ashraf Kamal, a professor of agricultural economics at the Agricultural Research Centre, told Al-Ahram Weekly that the decision taken by Morsi was media propaganda and served only a small number of farmers. “If the government really cared for small-scale farmers, it would be better to help them to avoid taking out loans from the banks by providing them with raw materials at reasonable prices and guaranteeing the sale of their products at good prices,” Kamal said. Although the final prices of all products are increasing, farmers often do not benefit as traders and wholesalers are the main gainers from such price hikes. To overcome the problem, comprehensive change in the state's agricultural policy should be envisaged so that farmers can live at a good standard of living, according to Kamal. The PBDAC was established in 1930 with a capital of LE1 million to counter the effects of the economic depression and to protect Egyptian farmers against loan sharks. The PBDAC's capital is now equivalent to LE1.5 billion.
