• Friday, May 07, 2021
  • Last Update : 12:29 pm

Farm loans failing to pique banks’ interest

  • Published at 01:24 am December 24th, 2020
Bangladesh's farm loan disbursement

Nine banks disburse less than 10% of target in Jul-Nov

Disbursement of farm loans by banks in the first five months of the fiscal year slightly fell while nine banks disbursed a meagre amount. 

Between July and November, banks disbursed 33.99 per cent of their total farm loan target, down from 34.43 per cent a year earlier, according to the central bank’s latest data. 

Earlier on July 22, the Bangladesh Bank had raised the farm loan disbursement target to Tk 26,292 crore for this fiscal year from Tk 24,124 crore in fiscal 2019-20.

The effects of the pandemic and the floods were the reasons for the slow loan disbursement to the agriculture sector, said BB Spokesperson Md. Serajul Islam. 

The central bank always puts pressure on banks to fulfil the disbursement target to the farm sector. 

Of the nine banks, private lender Community Bank and foreign Woori Bank are yet to disburse a single paisa in the five months, while Modhumoti and Shimanto managed to disburse just 0.19 per cent and 0.43 per cent of their target respectively.

During the period, AB Bank disbursed just 6.99 per cent of its target, Bangladesh Commerce 8 per cent, City 7.76 per cent, Union 2.57 per cent and United Commercial 4.77 per cent.

Disbursing loans for the farm and small- and medium-sized enterprises sectors are more time-consuming than for large industries, said Shafiul Azam, managing director of Modhumoti Bank. 

He hopes that the bank would be able to fulfil its target this fiscal year. 

Generally, most of the private banks are not disbursing agriculture loans through their own channels. 

The lenders are mostly dependent on microfinance institutions (MFIs) for the purpose. 

To get banks to use their own channels for disbursing farm loans, the central bank asked banks in its agriculture credit disbursement policy for this fiscal year to reduce dependence on MFIs when it came to lending to the farm sector. 

Considering that agriculture is a priority sector, the central bank usually sets the interest rate on farm loans at 2-3 per cent less than the major credit products of banks. 

But if banks disburse through NGOs or MFIs the rate goes up to 19-25 per cent said a high official of the central bank.

If the loans are disbursed through bank branches, farmers could get them at 9 per cent interest rate, he added.

Of the total loans disbursed in the farm sector, 30 to 35 per cent are typically disbursed through NGOs and MFIs, as per the central bank’s data.

However, Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said that most of the lenders have no branches in the remote areas.

As a result, it takes quite some time to disburse the farm credit through the banks’ own channels, he added.

MTB though has disbursed 50.46 per cent of its farm loan target for this fiscal year already.

According to the central bank data, 

Of the total disbursement of Tk 8,935.89 crore in the five months, Tk 4771.57 crore went to the crops sector, Tk 88.49 crore to the irrigation equipment, Tk 1,347.39 crore to the livestock and poultry farm sector, and Tk 978.63 crore to the fisheries sector. 

The poor experience of private banks in disbursing farm loans and the various bureaucratic complications including collateral issues for taking agricultural credit are the main barriers to quick loan disbursement, said Zahid Hussain, a former lead economist of the World Bank’s Dhaka office. 

“The marginal farmers do not want to go to bank branches for the bureaucratic complications,” he added. 

Meanwhile, to tackle the economic losses created by the deadly virus, the BB on April 14 launched a Tk 5,000 crore special refinance scheme for the country’s agricultural sector at 4 per cent interest rate. 

But banks have been very slow in disbursing from the stimulus funds, too, shows BB data.

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