BB's useful directive on agricultural loans
Tuesday, 30 September 2008
Enayet Rasul
The Bangladesh Bank (BB) has directed all commercial banks in the country to distribute agricultural loans. This has been made a mandatory requirement. Each such bank under the new regulation would have its own targeted sum to be distributed as agricultural loans. The other feature of the new directive is that farmers who would service their loans properly would be rewarded with revolving credit. This means that fresh credit for them will be automatically available without their applying afresh for the loans.
The commercial banks have their own ways of doing business and for the banking sector to develop as a whole, these discretionary powers of the banks need to be protected and promoted. But this is also very true that the scheduled banks also need a minimum of regulating and guiding for the banks to discharge their minimum social and economic obligations for the greatest benefit or interest of the economy. Thus, any new guideline or instruction from the central bank ought not to be received with bitterness by the banks' management. The BB will have to be careful not to push the banks too hard that would undermine seriously their business motive. The desideratum is reaching a middle point or compromise so that the banks can fulfill their additional mandated obligations without feeling that their backs have reached the wall. Supervision will be there to ensure that each bank sets up a reasonable target of agricultural loan disbursement. But it was observed in the past in other areas that some BB officials for their own incompetence or lack of integrity, could not make the commercial banks accountable for flouting directives. Thus, every care must be taken to ensure that each bank sets up its target of agricultural loan disbursement scrupulously and realistically. Bangladesh Bank in consultation with the banks should seek compliance with its directive that the latter would set targets for agricultural loans that would be fully consistent with their financial and other strengths and nothing short.
The foreign banks have been also brought under the new directive. It is noted that the foreign banks have no schemes at the moment to disburse agricultural loans. The banks of foreign origin are seen restricting their services entirely to city based customers and the bulk of their credits go to import and export businesses specially to the former. Thus, these banks are tied up largely with trade financing which is not helpful for the productive domestic sectors. The new regulation of BB would now require it from the foreign banks to disburse agricultural loans. But none of these banks have a service extending base in the rural areas. They will have to operate through non governmental organizations (NGOs) for the time being. But Bangladesh Bank will also need to ensure that financing from these banks that reach the NGO would be actually routed to the farmers for maintaining and enhancing production activities and do not get misspent on other areas while on paper these would be shown as spent on agriculture.
Agricultural productivity must increase in the backdrop of rising demand from the population as well as for the reasons of the escalating import costs of foodgrains and other edibles. But domestic agricultural production will not rise to the desired degree if the production activities are not helped by adequate investments or financing. Thus, BB's new directive could not have come sooner. Its success will depend on proper supervision and enforcement.
The Bangladesh Bank (BB) has directed all commercial banks in the country to distribute agricultural loans. This has been made a mandatory requirement. Each such bank under the new regulation would have its own targeted sum to be distributed as agricultural loans. The other feature of the new directive is that farmers who would service their loans properly would be rewarded with revolving credit. This means that fresh credit for them will be automatically available without their applying afresh for the loans.
The commercial banks have their own ways of doing business and for the banking sector to develop as a whole, these discretionary powers of the banks need to be protected and promoted. But this is also very true that the scheduled banks also need a minimum of regulating and guiding for the banks to discharge their minimum social and economic obligations for the greatest benefit or interest of the economy. Thus, any new guideline or instruction from the central bank ought not to be received with bitterness by the banks' management. The BB will have to be careful not to push the banks too hard that would undermine seriously their business motive. The desideratum is reaching a middle point or compromise so that the banks can fulfill their additional mandated obligations without feeling that their backs have reached the wall. Supervision will be there to ensure that each bank sets up a reasonable target of agricultural loan disbursement. But it was observed in the past in other areas that some BB officials for their own incompetence or lack of integrity, could not make the commercial banks accountable for flouting directives. Thus, every care must be taken to ensure that each bank sets up its target of agricultural loan disbursement scrupulously and realistically. Bangladesh Bank in consultation with the banks should seek compliance with its directive that the latter would set targets for agricultural loans that would be fully consistent with their financial and other strengths and nothing short.
The foreign banks have been also brought under the new directive. It is noted that the foreign banks have no schemes at the moment to disburse agricultural loans. The banks of foreign origin are seen restricting their services entirely to city based customers and the bulk of their credits go to import and export businesses specially to the former. Thus, these banks are tied up largely with trade financing which is not helpful for the productive domestic sectors. The new regulation of BB would now require it from the foreign banks to disburse agricultural loans. But none of these banks have a service extending base in the rural areas. They will have to operate through non governmental organizations (NGOs) for the time being. But Bangladesh Bank will also need to ensure that financing from these banks that reach the NGO would be actually routed to the farmers for maintaining and enhancing production activities and do not get misspent on other areas while on paper these would be shown as spent on agriculture.
Agricultural productivity must increase in the backdrop of rising demand from the population as well as for the reasons of the escalating import costs of foodgrains and other edibles. But domestic agricultural production will not rise to the desired degree if the production activities are not helped by adequate investments or financing. Thus, BB's new directive could not have come sooner. Its success will depend on proper supervision and enforcement.