Banks in developing countries charge small farmers way more interest than big companies, even though the big guys are more likely to stiff them.
April 2, 2026
Original Paper
The Risk-Return Paradox in Commercial Banking: A Comparative Analysis of Systemic Risk and Interest Rate Disparities between Agricultural and Corporate Lending
SSRN · 6293321
The Takeaway
Traditional finance says higher risk should equal higher interest, but this study found a 'Risk-Return Paradox.' Banks are essentially subsidizing systemic economic risk by overcharging the most productive small-scale borrowers, like farmers buying tractors.
From the abstract
In classical finance, the risk-return trade-off indicates that more risk should be compensated with higher rewards. However, in Bangladesh's banking sector, an inverse link is observed-the "Risk-Return Paradox." This work expands upon prior research (Shaham, 2026) which revealed that farmers pay greater interest for productive assets (tractors) than urban borrowers for consumption (cars). By evaluating data from 2025-2026 across major commercial banks, this analysis indicates that granular agric