Bangladesh Bank (BB) is planning to introduce a credit guarantee scheme (CGS) for small and medium enterprises (SMEs) and agriculture sectors to boost agriculture production through facilitating farmers with modern farming practices.
Sources at the central bank said the farmers, in most cases, get short-term bank loans of scanty amount and hardly receive large amounts needed for modern farming.
The farmers do not get access to large amounts of loan for lack of having enough collateral that incapacitate them to scale up farming, they said.
"The CGS would be an option to make more funds available for the farmers who would like to go for complete mechanisation," said a senior official at the BB.
The central bank is working with the plan at a time when local and international think-tanks are forecasting a looming food crisis globally, mainly because of the ongoing volatility in the supply chain due to the Russia-Ukraine war, followed by the Covid-19 pandemic.
Under the plan, the official said the farmers having inadequate collateral will obtain a guarantee from the scheme so that the banks do not hesitate to lend them.
The central bank official said the farmers from various corners of the country are getting smaller funds in a scattered manner and spending the fund for producing crops and others.
"If they (farmers) need more funds to increase production, they will get guarantee up to 80 per cent of their loans under the plan."
It will not only help strengthen import-substitution areas in the agriculture sector but also give enough impetus to ensure the country's food security, the BB official said.
He said the officials concerned are now holding meetings at grass roots level to raise awareness and train the farmers, bankers and other stakeholders concerned about the scheme for the last couple of months.
The CGS is expected to play a vital role in enhancing farm and non-farm output compared to Bangladesh's regional peers like India, Philippines and Indonesia.
According to the latest BB statistics, farm credits during the July-December period of the current fiscal year (FY) grew by nearly 21 per cent year-on-year.
During the period, the scheduled banks disbursed a total of Tk 166.70 billion - Tk 137.56 billion for the farm sector and Tk 29.13 billion for non-farm rural credit.
However, the disbursement of non-farm rural credits dropped by 6.61 per cent during the period under review from the same period of last FY, according to the central bank statistics.
The disbursement figures for agriculture and non-farm rural credits during the same period in the previous fiscal (FY '22) were Tk 113.76 billion and Tk 25.88 billion respectively.
Strong recovery of agriculture credit continued during July-December of FY23 with 27.55 per cent (y-o-y) growth while non-farm rural credit declined by 5.59 per cent, according to the data.
Recently, the BB also formed a refinancing scheme worth Tk 50 billion as part of the efforts to enhance the liquidity support to the country's 60 commercial banks.
Talking to the FE, former BIDS research director Dr M Asaduzzaman appreciated the move and said it would help the farmers overcome the problem in getting formal credit.
About the farm credit growth, he said the cost of production by the farmers, specially the Aman growers, has gone up in recent times because of the price hike of fuel oils.
He also pointed out that the farmers required irrigation for jute cultivation that involves costs.
"The farmers manage to take the load of additional costs thanks to the credit availability. But we'll have to ensure a fair price for the produce so that the growers can repay the credits."
He suggested the policymakers take measures to simplify the loan repayment procedure by extending the repayment tenure so that the farmers do not face any problem in this regard.