Bangladesh Bank (BB) will make disbursement of agriculture loans among farmers mandatory for all banks, including the foreign ones, to ease farming activities in the country.
The BB would first ask the banks to disburse loans among farmers, BB Deputy Governor Nazrul Huda said yesterday, adding that if the banks do not comply with this, the central bank will force them to put a certain percentage of their annual credit aside for agriculture loan disbursements.
The BB took the decision at a meeting of its Agriculture Credit Monitoring Committee in Dhaka yesterday. The meeting also decided that the banks should introduce a Revolving Crop Credit Limit, distribute loans to farmers through identity cards and disburse collateral-free loans to fishermen and share croppers.
"More investment in agriculture sector is inevitable in the wake of high food prices on the international market. That is why we took the initiative to increase the amount of agriculture loans," Nazrul Huda told newsmen after the meeting.
He said the directed lending practice has not been in place since the inception of the Financial Sector Reform Programme in 1990. As a result, it has been up to the bank whether to provide agriculture loans.
“I think that the banks will comply with the Bangladesh Bank directives for disbursing loans in agri sector because they have realised that agriculture loan is profitable," Nazrul Huda said.
Commercial banks have set a target of Tk 9,379 crore agri loan disbursements for this fiscal year, which is 13 percent more than the Tk 8,308 crore agriculture loans disbursed last fiscal year.
The public banks increased the agriculture loan by 5 percent to Tk 7,331 crore this year, which was Tk 6,974 crore last year. The private and foreign banks have set the target at Tk 2,048 crore, 55 percent more than that of the last fiscal year.
Nazrul Huda said public banks' present volume of agriculture loan is already very robust and therefore even 5 percent increase cannot be disregarded.
Under the three-year Revolving Crop Credit Limit, a farmer will get loans for three years on one application, the BB deputy governor said, adding, "As a result, the cases of harassment will come down."
The banks will be directed to select farmers for loans primarily on the basis of their identity cards provided by the Department of Agricultural Extension, he said, the objective being elimination of middlemen in the lending system.
Identity cards are being distributed among farmers, Nazrul said, adding that information regarding status of the farmers, amount of land they cultivate and types of crops they produce will be on the cards. "If the demand for agriculture loan is assessed on the basis of this card and loans disbursed accordingly, disbursements will be more effective," he said.
To provide collateral-free loans to sharecroppers and fishermen, the BB would ask the banks to design a programme to which the central bank would extend necessary assistance, the deputy governor said.
The BB would ask the Ministry of Agriculture to increase the amount of agriculture loan as the costs of agriculture inputs have gone up.
Nazrul Huda said the foreign banks would be asked to disburse loans among farmers through NGOs as these banks do not have any rural branch.
The BB would also ask the Cabinet Division to write letters to the district and upazila agriculture committees to closely monitor the overall farming activities, including supply of inputs and agriculture loans.
Shahjahan Bhuiyan, managing director of United Commercial Bank, termed the central bank's move to make farming loans mandatory for all banks "excellent". "Increasing farm credit will help boost food production in the country," he told The Daily Star.
He also said private banks would be able to handle loan disbursements effectively which in most cases the government banks failed.