The Bangladesh Bank on Thursday reduced the ceiling on agriculture loan interest rate by one percentage points to 8 per cent to support farmers to offset the Covid-induced economic shocks.
The central bank’s move came at a time when the interest rate for other banks loans fell below 8 per cent.
The BB on Thursday issued a circular in this regard, setting April 1, 2021 as the effective date for the reduced interest rate.
The Covid-19 caused harms to the agriculture sector as like the other sectors, said the BB, adding, ‘That’s why, ensuring loans at low-interest for the farmers has become vital so that they can resume normal production along with acquiring capacity to enhance production.’
Mentioning the contribution of the agricultural sector to the country’s economy significant, the BB circular said that the food security of the country’s vast population depends on the agriculture sector’s development as well as the development of the country’s economy.
The government is emphasising the agriculture sector to ensure food security, poverty reduction and employment creation, the BB circular said.
Besides supporting the farmers amid the Covid outbreak, rationalisation of the interest rate of farm loans with the consumer loans or other industrial loans was another reason for lowering the interest rate ceiling for farm or rural credits.
The interest rate situation in the country’s banking sector has rapidly changed after the outbreak of coronavirus since the demand for credit has plunged during the period.
Along with the demand side issue amid the Covid outbreak, the imposition of a 9-per cent ceiling on banks’ lending rate by the central bank starting on April 1, 2020 was a sudden and forceful change, and the change was made at a time when banks were issuing consumer credit at around 13 per cent.
In 2017, the BB lowered the ceiling of interest rate of farm or agriculture loans from 10 per cent to 9 per cent for the direct disbursement of farmer loans by the banks.
However, the applicable interest rate to the farmers stands as high as 20-24 per cent if such loans are disbursed through non-government organisations.
The banks for the first time failed to attain farm loan disbursement target in the fiscal year 2019-2020.
In the July-February of FY21, banks’ farm loan disbursement stood at Tk 16,180.22 crore. The annual disbursement target is Tk 26,292 crore.
Apart from the usual farm loan scheme of the BB, the central bank, following the outbreak of Covdi-19, launched a Tk 5,000 refinance fund for the farmers, which would be disbursed through the banking channel at 4 per cent interest.
However, the implementation of the fund is yet to be completed by banks even after one year of its launch.
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