Farm loan disbursement on the rise

The agricultural sector is playing an important role in ensuring the country's food security and in poverty alleviation through employment generation, supplying raw materials for agro-based industries, and through export earnings. 

It has achieved an average growth of more than 4% over the past decade due to the timely supply of adequate agricultural credit and other inputs. It also contributes over 12% to the GDP each year.

Last year, in August, with the aim of increasing agricultural productivity through sufficient flow of loans in the agricultural sector, the Agricultural Credit Division of Bangladesh Bank once again adopted the Agricultural and Rural Credit Policy and Programme for FY24.

In the adoption of this policy, banks, various departments related to agriculture, and stakeholders were consulted with.

The policy can be considered as a significant tool in achieving the goals of the country's economic development and sustainable progress in technology, National Agricultural Policy, and the objectives of the Eighth Five-Year Plan.

With the objective of achieving GDP growth through increased agricultural production and controlling inflation due to global reasons, the Bangladesh Bank has set a target of distributing Tk35,000 crore for agricultural and rural loans in FY24, considering the significance of adequate loan flow to the agricultural sector. The target represents an increase of approximately 13.60% compared to FY23.

Notably, in FY23, banks disbursed Tk32,829.89 crore in agricultural and rural loans, exceeding the targeted amount of Tk30,811 crore. The amount represents a 13.86% increase compared to the distribution of Tk28,834 crore in the previous FY22.

Under the agricultural and rural credit policy, local private banks are required to distribute a minimum of 50% of the specified target amount for agricultural and rural loans through their own networks. Additionally, they must distribute 60% of the target amount for crop loans, 13% for fisheries, and 15% for livestock through the necessary channels.

Aiming to utilise the banks' unattained portion of the targeted amount for agricultural and rural loan distribution, a fund named "Bangladesh Bank Agricultural Development Common Fund" has been established. 

The unreached portions by banks that fail to meet their targets will be deposited into this fund, and in return, they will be provided with an interest rate of 2%. The funds deposited in the common fund, when achieved, will be distributed to the banking sector through banking procedures and policies outlined in a central bank circular dated on 19 June 2023. 

According to the directive, agricultural and rural loans will be distributed to customers with a maximum margin of 2% added to the Six-Month Moving Average Rate of Treasury bill, also known as SMART. At the end of the tenure, banks utilising the fund will repay the principal amount along with a 2% interest to the Bangladesh Bank.

The importance of agriculture has significantly increased in the global perspective of post-Covid pandemic. In order to encourage farmers in locally dependent crop production for import substitution, agricultural loans remain unaffected by a 4% interest rate hike for alternative crops. 

Additionally, to ensure a steady flow of loans at a low interest rate (4%) to the primary agricultural sectors, a scheme of Tk5,000 crore has been established. 

Furthermore, a scheme of Tk1,000 crore has been initiated for the revival of wheat and potato production. In the context of Covid-19, with the objective of poverty alleviation and creating employment opportunities, a scheme called "Return Home" with a fund of Tk500 crore is currently in operation. Under all these revival schemes, agricultural loan distribution will continue uninterrupted in the current fiscal year.

In FY24, the agricultural and rural credit policy and programme will assist local communities in the vicinity by providing loans at a low-interest rate. Alongside increasing agricultural productivity, the policy will play a leading role in creating self-employment opportunities and alleviating poverty through rural economic development in the countryside.

Kaniz Fatema, director of the Agricultural Credit Division of Bangladesh Bank, told TBS, "We hold monthly meetings with government banks to enhance agricultural loan distribution. Meetings with private banks take place every two months. As a result, there has been a more proactive approach in disbursing agricultural loans compared to previous practices."

She further explained that joint committees with district commissioner offices at the district level help monitor agricultural loan programmes and activities for farmers. The country sees an annual increase in agricultural loan distribution, benefiting farmers as well as the entire Bangladesh.

Salehuddin Ahmed, former governor of the Bangladesh Bank, said, "Most banks in our country are enthusiastic about providing loans to large customers. They are not interested in SME or agricultural loans. However, if loans are given in the agricultural sector, a significantly higher number of employment opportunities are created compared to other sectors. 

"The loans disbursed in the agricultural sector constitute less than 2% of the total loans of the banks. If importance is given to this sector, the number of defaulters in the banks will decrease, and the entire country will benefit," he added.