New policy to shield farmers
The central bank has taken an initiative to draw up a policy to shield farmers from high-cost farm loans disbursed by microfinance institutions (MFIs).
As part of the move, the Bangladesh Bank plans to make it mandatory for banks to disburse at least 50 percent of their annual farm loans through branches, up from 30 percent now.
If lenders disburse the loans by using their agent banking window, the central bank will allow them to set an interest rate of 9.50 percent for the loans, a BB official said.
The agents of lenders will play an alternative role in disbursing farm loans rather than the MFI linkage, he said.
Farmers are supposed to get farm loans at 9 percent interest rate if the banks disburse them through branches.
But MFIs charge 20 percent to 25 percent for farm loans as they have to add the operational cost on the loans. MFIs borrow from banks at 9 percent.
A majority of banks continue to show unwillingness to disburse the loans through branches in order to cut their supervisory- and recovery-related costs.
At least 26 banks disbursed more than 70 percent of their farm loans last year through MFIs, but the central bank has not taken any punitive measures against them. In fiscal year 2016-17, the number was 22.
“Banks' dependency on the NGO channel is on the rise, so the central bank will take the initiative to protect farmers from the high interest rates,” said the BB official.
The central bank in its policy will keep a provision to take punitive measure against the banks if they fail to reach at least half of their annual loan disbursement target through branches.
The CAMELS rating—an internationally recognised rating system that indicates the actual financial health of banks—of non-compliant banks will be downgraded if lenders do not follow the new rules.
Besides, the central bank will not give appreciation letter to the failed banks even if they attain the disbursement target.
The BB will send out an instruction in the shortest possible time, instructing banks to use branches on a priority basis while disbursing farm loans. The initiative will also help the agent banking to flourish in rural areas thanks to the farmers' attachment to the window.
According to data from the central bank, farm loan disbursement through the NGO channel rose 6.23 percent year-on-year to Tk 7,956 crore last fiscal year.
Each lender has to disburse at least 2.50 percent of their total loans of a year to farms as per the central bank's agriculture credit policy.
In recent years, banks have attained the disbursement target by outsourcing the lending activities to NGOs. In 2017-18, farm loan disbursement stood at Tk 21,394 crore, with 37.19 percent of which was given out through the NGO channel.
