BB raises farm credit target for banks by 7pc

Bangladesh Bank has raised the current fiscal year's farm credit target for banks by 7 percent to Tk 17,550 crore from the last fiscal year.

However, the target is lower by nearly Tk 100 crore than the actual disbursement made by banks in the previous fiscal year that ended on June 30.

The target for the last fiscal year was Tk 16,400 crore, but banks loaned out Tk 17,646 crore. The interest rate on the loan is fixed at 11 percent.

Bangladesh Bank Governor Fazle Kabir unveiled the agricultural credit disbursement target, at a meeting at the central bank headquarters in Dhaka yesterday.

Managing directors of all 56 scheduled banks and senior BB officials were present at the meeting.

“Banks must achieve the target to avoid penalty,” Kabir said.

The governor also said the BB would deepen its supervision further to monitor farm loan disbursement by banks.

This time private banks will have to disburse at least 30 percent of their total targeted loans through their own branches.

The BB said the private banks can disburse the loans through agent banking. As the private banks have fewer branches in rural areas, they now disburse loans through third party, such as nongovernmental organisations.

Though the contribution of the agriculture sector to the economy has been declining, the sector accounted for nearly one-fifth of the country's gross domestic product and 7.51 percent of the export earnings in the last fiscal year.  Also, agriculture employs 45 percent of the country's workforce. Overall farm production increased to 4.5 crore tonnes now from 1.1 crore tonnes 40 years ago.

Yet, access to finance was a major barrier to this sector. As the private banks have hardly any presence in rural areas, it did not disburse farm loans.

The situation started changing after Atiur Rahman became the governor of the banking regulator in 2009. He began rolling out a farm loan target for banks.

Of the total target for 2016-17, Tk 2,890 crore will be disbursed by six state-owned commercial banks, while two specialised state banks will provide Tk 6,400 crore to the interested farmers. Besides, 39 private commercial banks will lend Tk 7,827 crore, while nine foreign commercial banks will disburse Tk 433 crore, according to the new policy.

According to the BB, a bank has to deposit 3 percent of its undisbursed farm loans to the central bank as a penalty. The central bank does not give any interest on this deposit as it is a penalty. The BB would repay this 3 percent fund to the respective banks if they distribute the undisbursed amount with the fresh targets for the following financial year.

A total of 34.26 lakh farmers received agricultural and rural credit in the immediate past fiscal year. Of them, 15.2 lakh borrowers were women. A total of 31.94 lakh farmers got loans under the scheme in 2014-15.