Banks urged to disburse more agricultural loans than target

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Bangladesh Bank yesterday asked private banks to speed up their agricultural loan disbursements to improve the country’s food security.

Thus, lenders were asked to grant 30% more loans instead of sticking to the annual disbursement target set by the central bank.

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A Bangladesh Bank official said the central bank was instructed to increase food production to deal with any unexpected food crisis in the country as the whole world faces escalating food prices.

Bangladesh Bank has set a loan disbursement target of Tk 30,911 crore for this financial year. On target, banks shelled out 31% between July and October, according to central bank data.

Selim RF Hussain, chairman of the Bangladesh Bankers Association, said the country’s agricultural sector accounts for about 12 percent of its gross domestic product (GDP).

However, the trend of agricultural loan disbursements has not yet reached a satisfactory level given the contribution of the agricultural sector to GDP.

“Thus, banks should speed up the disbursement of agricultural loans to strengthen the economy,” said Hussain, also the managing director of Brac Bank.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said the world could face food shortages in the near future, according to projections given by several global organizations.

“Although there are no such projections for Bangladesh, we need to strengthen our food security to avoid any unexpected situation,” he said.

Bangladesh Bank rolled out a Tk 5,000 crore refinancing scheme last week to ensure food security in the country as the banking regulator believes the world could face a food crisis in the coming days.

The prices of several food products have increased in the world market, therefore the central bank has established the fund so that farmers can obtain loans at low cost.

Under this program, farmers will be able to take out loans at 4% interest.

The central bank at the meeting also urged banks to increase agricultural loan disbursements through their own channel.

In line with central bank policy, private banks are allowed to meet 70% of their annual agricultural loan disbursement target through microfinance institutions (MFIs).

Farmers can benefit from agricultural loans at 9% interest from banks, but the rate increases to 25% if they take it out from MFIs.

Many private banks typically disburse the majority of their agricultural loans through MFIs because they do not have branches available in rural areas.

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