Bangladesh Bank has decided to provide subsidies to banks giving farm loans at 4 percent interest, aiming at helping farmers to grow foods and supply their produces to markets amid the outbreak of coronavirus, said a Bangladesh Bank circular issued on Monday (April 27).
The circular said, the interest for agricultural loan is generally 9 percent but the farmers of the country will avail the credit at only 4 percent interest until June 30, 2021.
The banks will get five percent interest from the National Commercial Banks (NCB) for giving the agricultural loans to farmers who hard-hit by countrywide lockdown.
The food growers will be able to take this loan to grow all the food grains, including, paddy and wheat, cash crops, vegetables and root crops.
The circular also said to keep production of foods and their supplies normal in the future, amid the crisis caused by coronavirus outbreak, it is extremely necessary to issue loans at low interest to the farmers. These loans are meant for all crops including food grains.
Farm loan is currently being disbursed to grow import substituting crops, such as, pulses, oil seeds, spices and corn at concessional 4 percent interest rate. Now, together with these import substituting crops under the Agricultural and Rural Credit Policy and Programmes, Bangladesh Bank is directing the commercial banks to issue loans to the farmers with concessional 4 percent interest---as an incentive--- to grow all food grains including paddy, wheat, cash crops, vegetables and root crops.
According to the circular,the NCBs will be entitled to claim reimbursements at 5 percent interest and loss repayment from the central bank---based on their actual interest and losses against the disbursed credits. This means, the NCBs will receive 9 percent interest but claim 4 percent from the loan recipients — farmers. The rest 5 percent will be paid by Bangladesh Bank. Under the interest and loss reimbursement scheme, the money will be repaid from the own fund of the central bank.
The circular said the concessional interest rate would be effective from April 1 of this year. Any new loan should be approved on 4 percent interest. Besides, the interest against the outstanding loan should be fixed at 4 percent from April 1. Under this circumstance, the interest will be subsidised against installments that are supposed to be realized or adjusted during April-June period. This rule will remain effective until June, 2021. After this period, the unpaid loans will be entitled to regular interest rate which is 9 percent per year.
Bangladesh Bank will pay the subsidy at the end of Financial Year 2020-21. Applications incorporating statistics regarding disbursed loans, loan recovery, and adjustments should be forwarded to central bank in a year after the end of a fiscal year. The central bank will review the applications and then pay interest subsidies to the respective banks.
The NCBs have set a target of Tk 24,124 crore for distribution as agricultural loans in the current fiscal year. Out of this amount, at least 60 percent should go to crop sector, as per the BB directives.
Other farm subsectors, such as, seasonal flowers and fruits, fishery, poultry, dairy and livestock will not be entitled to get subsidies against their credits. However, farmers could apply for loans from two funds formed earlier. Prior to this, Bangladesh Bank formed Tk 5,000 crore worth of refinancing fund. Farmers will be able to avail loans from that fund at 4 percent interest rate, the BB circular added.
Another fund worth Tk 3,000 crore has been formed for low-income professionals, farm and small entrepreneurs.
