BB forms Tk5,000cr refinance scheme for farmers to boost food production

The Bangladesh Bank has created a Tk5,000 crore refinance scheme for farmers, aiming to ensure food security by boosting domestic production amid the worsening global food crisis.

Under this scheme, farmers will get loans for cultivating paddy, fish and vegetables at an interest rate of 4% only, which they can repay in 18 months including three months of grace period, according to a central bank notice issued Thursday.

Besides, banks will be able to borrow from the central bank at an interest of only 0.5% to provide farmers with loans under this scheme.

Farmers can avail of the loans till 30 June 2024, which can be extended if necessary, said the central bank.

The notice further stated that a global food crisis has occurred due to disruptions in the international supply chain.

Given the situation, the central bank has come up with the decision to finance farmers in order to ensure food security.

Economists see this decision in a positive light as they say that the only way to deal with the global food crisis and to control import costs amid the country's forex reserve crisis is to increase food and agricultural production locally. In particular, increased production in the rice, pulses, potatoes, fisheries and poultry sectors can keep the country safe from the threat of famine, they add.

In view of that, they consider the government's pro-active initiative to create a refinancing scheme to provide low-interest loans to farmers very positive.

The government is taking various steps to increase food production out of the fear that the ongoing global food crisis will become more pronounced around the world in 2023.

Prime Minister Sheikh Hasina has decided not to reduce agricultural subsidies, and ensure uninterrupted fertiliser and irrigation facilities.

In this context, the Bangladesh Bank has formed this fund before Boro season that caters to rice demand for eight months in a year in the country.

Economists, however, said to ensure food security by increasing domestic production, timely availability of other agricultural inputs must be ensured before disbursement of low-interest loans.

For example, they argued, adequate supply of fertilisers, diesel and electricity for irrigation and pesticides and other inputs should be available at the farmer level, otherwise, it will not be possible to increase production by providing low-interest loans only.

Former lead economist of the World Bank's Dhaka office Zahid Hussain told The Business Standard, "If the supply of fertilisers, diesel and electricity for irrigation is not increased at the farmer level, what will the farmer do with just money? If these inputs cannot be ensured, these loans will not play a role in increasing agricultural production."

During the Aman season, there is a shortage of irrigation, and there is also a shortage of fertilisers in many areas, he mentioned, adding that steps must be taken to ensure that this does not happen during the upcoming Boro season. For this, a coordinated policy should be taken, he continued.

Professor Mohammad Jahangir Alam of the Bangladesh Agricultural University gave the same advice.

He also pointed out that real farmers did not get loans under the refinancing schemes that were created for farmers during Covid.

Moreover, commercial banks are reluctant to lend to farmers, he continued, to increase food production, genuine farmers should be assured of getting credit.

Jahangir Alam suggested that the local administration should play a proactive role to bring uncultivated land under cultivation and encourage vegetable cultivation in peoples' homesteads.

"We don't have to focus on production of all types of crops. Importance should be given primarily to the production of the main staples including rice, pulses, and potatoes," he said.

The Bangladesh Bank has said that banks will determine the maximum limit for lending to farmers as per the agricultural and rural credit policy. However, for the cultivation of crops and vegetables, small, marginal, and tenant farmers can be given a maximum loan of Tk2 lakh without collateral.

Loans can be given without collateral for cultivation of various crops and grains including paddy on a maximum of five acres of land.

But, the banks themselves will decide to take collateral for disbursement of loans to other sectors.

To stop the misuse of these low-interest loans, the central bank said if the loan money or any part of it is misused or if more interest is taken, the Bangladesh Bank will charge a one-time interest of 2% against that amount.

To encourage farmers to take out loans under this scheme, the Bangladesh Bank has advised banks to conduct special campaigns before the start of the farming season and to take the help of local agricultural extension offices if necessary to identify genuine farmers.

The central bank announced several similar schemes for farmers even during the Covid situation when food imports from the global market were disrupted.

In the first phase, Tk4,295 crore in loans was disbursed from a refinancing scheme of Tk5000 crore, while in the second phase, Tk3050 crore were disbursed as of September this year under a refinancing scheme of Tk3,000 crore.
 
Loan disbursement in the agriculture sector

In the first four months (July-October) of the current financial year, Tk9,469 crore was disbursed as loans in the agricultural sector, which is 19.78% more than the same period of the previous fiscal.

During the same period in 2021-22FY, Tk7,905 crore was disbursed in the sector.

There is a target to disburse Tk30,911 crore as agri loans in the current fiscal and 30.63% of the amount was disbursed in the first four months.

So far, the government banks have disbursed Tk3,382 crore, which is 28.77% of their fiscal target. Besides, private and foreign banks have disbursed Tk6,086 crore, 31.78% of their target.

In the last financial year, the target for agricultural loan was Tk28,000.