Distributing farm credit efficiently

Though the agriculture sector contributes around 12 per cent of the country's gross domestic product (GDP), it is a misleading indicator to assess the importance of the sector. For instance, around 45 per cent of the nation's workforce is directly involved in the sector, which underscores the impact of agriculture on the job market and the economy. Again, ensuring food security remains highly dependent on substantial farm output. Against the backdrop, the latest push by the central bank to enhance disbursement of farm credit from commercial banks is a move in the right direction.

On Tuesday, Bangladesh Bank formally unveiled the Agricultural and Rural Credit Policies and Programmes for the current fiscal year (FY26), setting a target of Tk 390 billion for agricultural and rural credit distribution. The new target is 2.63 per cent more than last fiscal year's (FY25) target of Tk 380 billion, when the actual amount of disbursed loans stood at 373.26 billion. Central bank statistics also showed that the farm loan disbursement fell below the target after three years of overshooting the annual targets. So, it is a matter of concern, especially when the agro-based rural economy needs sufficient support to help boost economic activities. The latest farm credit policy emphasised easing the loan application procedures, disbursing credit through agent banking activities, and using the MFI/NGO linkage by banks that do not have adequate number of branches or sub-branches in rural areas. 

The central bank governor has rightly pointed out that farm and rural credit is still a low priority area for the commercial banks in the country, as less than 3 per cent of total bank financing goes to agriculture.   In this connection, two specialised banks (BKB and RAKUB) and six state-owned commercial banks (SCBs) play a critical role in disbursing farm credit. These eight banks disburse around 36 per cent of the total credit, whereas the share of 42 private commercial banks (PCBs) is 62 per cent. So, there is a scope to increase the share of PCBs to boost farm credit. 

At present, 60 per cent of the total farm credit goes to the crop sub-sector, followed by 15 per cent to livestock and 13 per cent to fisheries. To meet the growing demand for staple food, such as rice, along with vegetables and fruits for nutrition, and cattle and fish for animal proteins, efficient farm production is necessary. Without having climate-resilient seeds and advanced technologies, it is challenging to enhance the farm output, especially when farm land is slowly vanishing in the country and putting food security under threat. Though import from the international market is a key source to meet the country's food demand, there is no alternative to enhance the local output. Moreover, the agriculture sector is now more diversified than before, and many young entrepreneurs in agriculture sector are emerging with small-scale operations. They need bank financing to move ahead with their farm projects. Farm-centric cottage, small and medium enterprises (CSMEs) are also growing in different parts of the country, reflecting the diversification. All these require easy and efficient financing, and PCBs can also tap into these opportunities.  

Finally, as also mentioned by the governor, refinancing for farm credit is not the responsibility of the central bank alone, and the government should also to come up with the budget support. This will help increase the volume of farm credit.