Foreign banks to use services of NGOs to disburse farm credit

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Bangladesh Bank (BB) has made agriculture credit disbursement mandatory for all commercial banks and also introduced a new credit mechanism of revolving crop credit in view of stimulating production, reports UNB.
"BB Governor Salehuddin Ahmed gave necessary approval in this regard late Thursday," BB Deputy Governor Nazrul Huda told the news agency.
He said two separate circulars would be issued within the next two working days before the Eid-ul-Fitr vacation, making them effective from this fiscal year.
The practice of directed lending had been apparently absent since the inception of Financial Sector Reform Programme (FSRP) undertaken in 1990, resulting in the freedom of the commercial banks whether they would provide agriculture credit.
But the recent experience of global food crisis had made it clear that there was no alternative to investment in agriculture to face the challenge of food security in the global price situation.
Considering the situation, the high-powered Agricultural Credit Monitoring Committee comprised of representatives from the agriculture ministry and commercial banks decided on September 16 to make the agriculture credit mandatory and introduce the revolving crop credit system considering the food situation.
Nazrul Huda, also the chairman of the committee, said Bangladesh Bank would not impose the credit target of the banks concerned, but would take measures to ensure a rational target.
He said the banks would set their credit target in keeping with their respective financial conditions and inform the central bank of their targets.
"If Bangladesh Bank considers that the target of a particular bank is not enough as compared to their financial condition, it will ask the banks concerned to raise their target further," he added.
The central bank deputy governor said the foreign commercial banks, operating here without having adequate branches, would use the NGO networks to disburse agriculture credit while the foreign banks would have to ensure whether the NGOs were using the fund only as agriculture credit.
He said the new mechanism of revolving crop credit limit would be for a three-year term to relieve farmers of fresh applications, documentation, approvals and often middlemen again for a fresh loan.
He said disbursement of loan would be effective on the basis of area approach, selecting the areas on the basis of intensity of crop production.
As per the new mechanism, the loan account of a farmer would be automatically renewed immediately after full repayment of the earlier loan of a particular product cycle and the farmers would be entitled to a fresh crop loan without any new application.
The eligible farmers for the credit would be identified from the farmers' ID cards, which the Department of Agriculture Extension (DAE) was providing through a survey.
Earlier, Bangladesh Bank set an agriculture credit target of Tk 49 billion (4,900 crore) for the current fiscal year, which was 13 per cent more than the target of the last fiscal year, considering the need for increasing domestic food production.