Implementation of revised farm loan policy

In a strategic move to meet the rising demand for farm credit and enhance food security and rural livelihoods, the Bangladesh Bank (BB) has raised its agricultural loan disbursement target for the 2025-26 fiscal year to Tk 390 billion. This marks a 2.63 per cent increase from the previous fiscal year's allocation, signalling the central bank's commitment to support the nation's fast-expanding agricultural activities, which often face funding challenges.

Announcing the revised Agricultural and Rural Credit Policy and Programme for FY 2025-26, BB Governor Dr. Ahsan H. Mansur emphasised the critical role of agricultural finance in fostering rural economic resilience, improving food production and keeping inflation in check. At a press conference he urged commercial banks to ramp up efforts to ensure a consistent flow of credit to farmers, especially smallholders who form the backbone of the rural economy.

Under the new policy, the farm loan disbursement target stands at Tk 390 billion. Of this, Tk 139 billion will be provided through state-owned commercial and specialised banks, while private and foreign banks are expected to disburse Tk 251 billion. This underscores the growing responsibility of private financial institutions in supporting agriculture, a sector that still represents only 2.40 per cent of total bank lending-a figure the governor described as "very low" given its importance.

To address this imbalance, the policy sets out stricter guidelines and accountability measures for all scheduled banks. They are required to design their own agricultural credit programmes aligned with the central bank's policy. If a bank fails to meet its disbursement target, it must deposit the shortfall-without earning any interest-into a BB-managed fund, which will be used to refinance other banks more willing or able to support the sector.

A key feature of the new farm credit policy is its focus on climate-smart agriculture and the promotion of sustainable farming practices. Recognising the challenges posed by climate change-such as droughts, floods, and soil salinity-the policy encourages financing for irrigation equipment, solar-powered systems, renewable energy applications in farming, and mechanised agriculture. Technological adoption is seen as vital not only for boosting productivity but also for mitigating environmental risks.

Moreover, the policy places significant emphasis on women's empowerment and financial inclusion. Women farmers and rural entrepreneurs will receive special attention in the disbursement process, aligning with broader development goals related to gender equity.

The credit policy also introduces specific sectoral allocations to better reflect current needs and priorities within agriculture. Of the total disbursed funds, 55 per cent will go to crop cultivation, 13 per cent to fisheries, and 2.0 per cent to irrigation and mechanisation. Notably, the share allocated to the livestock sector has been increased from 15 per cent to 20 per cent, indicating a growing recognition of its economic potential.

Expanding the list of eligible crops for financing is another significant shift. New items such as cucumber, taro stems, beetroot, black cumin, ginger, garlic, turmeric and date molasses have been added. This move aims to diversify agricultural production and encourage farmers to explore high-value and niche crops, which could open up new market opportunities and improve income stability.

To encourage credit access among small-scale farmers, the policy also eliminates Credit Information Bureau (CIB) service charges for loans up to Tk 0.25 million. This waiver could help reduce entry barriers for those who need financing the most but are often discouraged by bureaucratic or financial constraints.

Despite the policy's ambitious scope, its success hinges on effective implementation and active participation from commercial banks, particularly private ones. Historically, disbursement has fallen slightly short of targets. For example, in FY 2025, agricultural and rural loan disbursement reached Tk 373 billion-just below the target of Tk 380 billion and only marginally higher than the Tk 371.5 billion disbursed in FY 2024.

There are broader concerns about prioritisation and execution. Credit disbursement strategies need to be region-specific, taking into account variations in climate conditions, crop patterns, and local economic activities. For instance, areas frequently affected by drought or salinity may require different financial tools and timelines from those in more fertile zones.

Moreover, while expanding the range of eligible farm activities is positive, it can also lead to selective bias. Banks may gravitate towards sectors that appear safer or more profitable, potentially neglecting critical but higher-risk sub-sectors like fisheries and poultry. These sectors, despite being vulnerable, have seen remarkable growth over the past two decades and play an increasingly vital role in rural economies. Ignoring them due to perceived credit risk would be a missed opportunity.

To bridge the gap between disbursement and actual credit needs, redefining credit-worthiness is necessary. Agricultural lending cannot be viewed through the same lens as conventional commercial lending. Innovative financing models-such as group lending, crop insurance integration, or mobile banking-based monitoring-could improve both disbursement and recovery rates.

Without matching innovation, there is a risk that credit access may remain skewed towards more "bankable" areas, sidelining essential but underserved sectors. Hence, the central bank must work closely with financial institutions and agricultural stakeholders to refine and adapt credit criteria in a way that reflects the realities of rural farming.

The increased farm loan target and policy revisions by the Bangladesh Bank represent a commendable and timely effort to strengthen agricultural resilience, rural livelihoods, and food security. However, the real impact of these changes will depend on how well the policy is executed on the ground. Prioritising transparency, inclusivity and adaptability will be a prerequisite.

wasiahmed.bd@gmail.com