Now BB takes pity on farmers

The central bank has taken an initiative to form a large bailout package for farmers, who have seen a complete collapse in demand for their produce for the countrywide movement control order enforced by the government with a view to flattening the curve on coronavirus.

The bailout package might amount to as much as Tk 10,000 crore, said central bank officials working on the issue. But it would be no less than Tk 5,000 crore.

"We are yet to take the final decision on this as we will need to assess the actual financial losses to farmers," said a high official of the Bangladesh Bank (BB).

At present, the plan is to provide the cultivators with farm loans at 3 per cent interest, which is a third of the existing interest rate of 9 per cent.

A fresh refinance scheme will be constituted to implement the package, from which banks will take funds without any interest. In addition, the central bank will give subsidy of 2 per cent to banks such that they can enjoy returns of 5 per cent from the lending.

The refinance scheme will be composed of BB's own funds, the BB official added.

The 2 per cent subsidy will be given to banks from the central bank's profits, as per the BB's draft guidelines. The duration of the refinance scheme will be one year, but it could be extended depending on the situation.

Banks will have to give out 50 per cent of the funds from the bailout package for harvesting.

The amount banks will disburse from the refinance scheme will not be added to their annual farm loan target, according to the draft guidelines.

The BB has set a farm loan disbursement target of Tk 24,124 crore for fiscal 2019-20. Every bank will have to disburse 2.5 per cent of their total loans per year to farmers.

Besides, the central bank has also planned to waive the interest payment of farm loans for the next six months.

Banks will have to bear the amount by adjusting their annual corporate social responsibility (CSR) fund.

The central bank will take final decision once the shutdown is lifted, the BB official said.

Experts welcomed the initiative terming it a time-befitting one as the majority of the farmers in the country do not have available capital.

"Farmers' income source has now completely stopped due to the ongoing shutdown. Most of them usually live their life by earning on a daily basis," said Atiur Rahman, a former governor of the central bank.

The BB should complete its task within the shortest possible time such that fresh loans could be disbursed to farmers soon after the movement control order is lifted, he said.

The central bank should also think of how to preserve the interest of banks in case of failure of farmers to repay the loans, said Rahman, who earlier took a number of initiatives towards financial inclusion.

Banks should be spared from keeping provisioning against the defaulted farm loans, he added.

Farmers are facing huge financial losses after the shutdown had started on March 25, said Quazi Shahabuddin, a former director general of the Bangladesh Institute of Development Studies.

Perishable products like vegetables, egg and milk are not being supplied to places where the demand for such produces is satisfactory, he said.

Besides, many farmers will be unable to produce in the days ahead if they do not get farm loans at a cheap rate, Shahabuddin added.

Private banks will have to build up their capacity to disburse farm loans using their own sources as the majority of them are lending by way of non-governmental organisation (NGO) linkage, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

The supervision cost of farm loans is higher than the other credit programmes, compelling banks to disburse the loans by using the NGO channel.