According to a report titled “An Impact Assessment Study on Special Agricultural Credit Programme at 4 percent Concessional Interest Rate” by the Bangladesh Bank has stated that the special financing scheme has benefited the farmers substantially and brought a significant change to their lives.
It was prepared after a survey on 535 farmers of six divisions who received the loans from 2011 to 2020. Their lives have changed in the last 10 years, stated the report also.
In the FY 2005-06, the special agricultural credit scheme commenced with a 2 per cent lending rate with a view to reducing imports of 20 crops including pulses, spices oil seeds, spices and maize.
The interest rate was raised to 4 per cent in the FY 2011-12. In the FY 2019-20, Tk107 crore was distributed under the scheme.
Farmers who borrowed from banks under the loan disbursement programme made good profits even after repaying the loans as they got fair prices for their crops. With the profit, the farmers and their families are getting better food and clothes than before, said the report prepared by the Bangladesh Bank.
The report said the collateral-free loans helped ensure education for farmers’ children. From the profit, many crop growers-built houses and purchased land too.
In the 2005-06 fiscal year, the special agri-loan scheme was initiated with 2 per cent interest with a view to reducing imports of 20 crops including pulses, spices oil seeds, spices and maize. The lending rate was raised to 4 per cent in the 2011-12 fiscal year.
According to the central bank report, if the interest rate is lowered to 2-3 per cent, the government will have to subsidise only Tk1.42-Tk2.83 crore more.
Meanwhile, the ratio of default loans is at only 7 per cent of the outstanding loans. Nonetheless, farmers who defaulted on the loans have logical reasons such as natural disasters or a dull crop market. But no farmer has called the lending rate high, the report mentioned.
On top of the less default volume, the Bangladesh Bank said farmers’ tendency to use the money in other sectors is also low. Only 9 per cent of the customers used their loans in other sectors instead of farming.
The banking regulator in the report also suggested a guideline so that the farmers get fair prices for the products. Besides, the central bank recommendations include not pressurising the farmers for installments which may cause them to sell the crops at a throwaway rate before the season begins.
Most of the respondents told the central bank that the amount of the agri-loan was much less than the demand and the repayment period was also shorter.
Despite the agri-loan being dedicated for pulses and spices, production of food staples was included to the borrowing eligibility during the pandemic.
To increase the loans and repayment period, the report also recommended facilitating loans at 4 per cent interest under this scheme for other crops such as banana, litchi, orange, papaya, pineapple, guava and dragon fruit.
The report suggests to facilitate credit distribution, sub-branches or agent banking outlets should also be involved in lending besides than main bank branches.
If paddy harvesting qualifies for agri-loan with 4 per cent interest, farmers may turn their face from non-traditional items weighing on imports. The report therefore recommended lowering the interest rate for spices and pulses further from existing 4 per cent.
The report also mentioned farmers face less hassle in availing the agri-loan as the loan gets sanctioned in less than six days after the application.
On the other side, the farmers alleged that no bank is charging them more than the central bank fixed 4 per cent interest rate.
Dr Md Habibur Rahman, the head of the research team that prepared the report, said the agri-credit is playing a crucial role in reducing import dependency.
“As an example, we often face problems with onions. When imports stop, prices go up. This issue will go away if we can be self-sufficient in onion production,” he told The Business Standard.
He considers the scheme a must to increase farm-loan volume to increase agricultural production. Apart from productivity, the focus should also be on fair prices, Habibur Rahman added.