Bangladesh Bank yesterday cut the interest rate on farm loans as part of its efforts to boost the agriculture sector amidst the ongoing economic slowdown caused by the coronavirus pandemic.
Banks will have to give out farm loans at an 8 per cent interest rate instead of the previous 9 per cent, according to a central bank notice.
Atiur Rahman, a former governor of the central bank, welcomed the move, saying that the farm sector played a significant role in enabling the rebound of the overall economy from the adverse impacts stemming from the pandemic's first wave.
The farm sector has faced difficulties due to the pandemic along with the other sectors of the economy, said the central bank. Banks should reduce the interest rate on farm loans such that the sector can secure funds at a lower cost. This will also help farmers increase their production as well, it said.
In April last year, the central bank imposed an interest rate cap of 9 per cent on all loan products, except for credit cards, offered by banks.
The central bank has been fixing an interest rate cap on farm loans for years so that farmers can avail funds at a lower cost compared to that of other loan products.
The Agriculture Credit Department of the central bank has recently recommended its high-ups bring down the interest rate on farm loans based on the circumstances.
In June 2017, the central bank lowered the interest rate to 9 per cent from the previous 10 per cent.
Rahman said three sectors -- agriculture, remittance and exports -- had played a key role in the economy's turnaround from the precarious situation created by Covid-19.
The agro-processing industrial sector has expanded to a large extent in recent years based on the good performance of the farm sector. The rural economy has also diversified in recent years riding on the farm sector, he said.
"So, the latest rate cut by the Bangladesh Bank will also help the industrial sector as well," Rahman said.
Between July and February of the current fiscal year, banks disbursed farm loans amounting to Tk 16,181 crore, up 7.21 per cent year-on-year, showed data from the central bank.
Loan repayments increased 13 per cent year-on-year to Tk 17,492 crore in the first seven months of the fiscal year.
This means farmers have been paying the instalments of their credit consistently despite the pandemic.
The rural economy has bounced back strongly based on the excellent performance of the farm sector, said a survey report of the Power and Participation Research Centre (PPRC) and the Brac Institute of Governance and Development.
The fallout of the pandemic has hurt the poor in urban areas as their per capita daily income declined to Tk 107 from Tk 124, the survey said.
But the income of rural people increased to Tk 108 from Tk 106.
The survey also found that 27.3 per cent of urban slum-dwellers migrated from the major cities to villages after the pandemic hit the country in March last year. Of them, 9.8 per cent are yet to return, it said.
While unveiling the survey result on April 20, Hossain Zillur Rahman, executive chairman of the PPRC, said agriculture had played a great role in tackling the first wave.
A shift in policy mindset towards strengthening rural regeneration and a holistic approach to supporting agriculture is a key lesson from the Covid crisis, he said.
The rural economy has shown resilience significantly, meaning that the country's rural economy is much stronger than that of the urban areas, he said.