Agri & rural credit: Targets raised, but disbursements lag

Bangladesh Bank has increased the target for agricultural and rural credit disbursement by nearly 54%. However, the pace of credit disbursement has not kept up with the expanded target.

In the first two months (July–August) of the current FY27, banks disbursed only 11.43% of the total target.

During the same period last fiscal year, the disbursement rate stood at 12.37%. This data was highlighted in the latest report from Bangladesh Bank.

According to Bangladesh Bank data, the agricultural and rural credit disbursement target for the current fiscal year has been set at Tk60,000 crore.

In the previous fiscal year, this target was Tk39,000 crore. In the first two months of the current fiscal year, Tk6,858 crore was disbursed, compared to Tk4,826 crore during the same period last fiscal year.

This represents an increase in disbursement of Tk2,032 crore or 42.11% year-on-year.

However, because the overall target was significantly raised, the disbursement rate relative to the total target has declined.

At the end of FY26, agricultural and rural credit disbursements reached Tk42,834 crore, which was 9.83% higher than the set target.

Although the target has been further raised this time, the picture from the first two months shows progress is not aligning accordingly.

For the current fiscal year, the disbursement target for state-owned commercial and specialized banks has been fixed at Tk20,495 crore.

In the first two months, these banks disbursed Tk2,375 crore, which is 11.59% of their target.

On the other hand, against a target of Tk39,505 crore for private and foreign banks, Tk4,483 crore or 11.35% has been disbursed.

Thus, both categories of banks are falling short of their proportional targets.

Stakeholders noted that despite various initiatives to boost agricultural lending, banks show relatively low enthusiasm.

This is because non-agricultural sectors, such as manufacturing, offer opportunities to generate higher profits at lower operational costs compared to agriculture.

Currently, only 2.95% of total bank outstanding loans are in the agricultural sector.

Under these circumstances, starting this fiscal year, banks are mandated to allocate at least 4% of their total loans to the agricultural sector, up from the previous requirement of 2.5%.

The government and Bangladesh Bank plan to gradually make it mandatory for credit allocation in this sector to match agriculture's contribution to GDP, which is over 10%.

To ensure the proper utilization of agricultural loans, Bangladesh Bank is enhancing its supervision.

To this end, a web-based software named 'Agri-Credit MIS' has been launched.

Through this platform, sector-wise loan data is being collected from the head offices of banks, with plans to gather data from the district level in the future.

A senior central bank official mentioned that immediate action will be taken if any discrepancies are detected.

Meanwhile, alongside credit disbursement, non-performing loans (NPLs) have also surged.

At the end of August, the outstanding loan balance in the agricultural sector stood at Tk70,432 crore.

Out of this, default loans amounted to Tk29,849 crore, accounting for 42.38% of total outstanding loans.

At the end of June, default loans stood at Tk18,578 crore or 29.22%.

In just two months, default loans spiked by Tk11,271 crore.

The Bangladesh Bank report attributed this rise primarily to the impact of the new loan classification and provisioning guidelines issued in November 2024.

In the first two months of the current fiscal year, agricultural and rural loan recovery reached Tk7,419 crore, compared to Tk6,073 crore during the same period last fiscal year.

Accordingly, loan recovery increased by Tk1,346 crore or 22.21%.