BB moves to help use undisbursed farm loans

The Bangladesh Bank has decided to form a fund using the undisbursed portion of agriculture and rural loans and utilise them to accelerate farm production.

The central bank has moved to constitute the Bangladesh Bank Agricultural Development Common Fund (BBADCF), according to a circular yesterday.

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Under the initiative, banks would deposit money equivalent to the undisbursed amount of farm and rural loans to the fund. The BB would give 2 per cent interest on the deposits.

The funds of the BBADCF would then be distributed among banks in proportion to their capacity. Banks would pay back the loans to the BB, along with 2 per cent interest, within 18 months of the fund release.

Banks can charge 8 per cent interest on the loans given to farmers using the money from the BBADCF. The loans have to be disbursed using banks' own network, not through microfinance institutions, said the notice.

Private banks are usually allowed to attain 70 per cent of their annual farm loan disbursement target through microfinance institutions.

The notice said banks would be allowed to transfer 4 percentage points of the interest to their income segment on the loans made from the fund.

The latest move from the BB came a month after it asked private banks to speed up their farm loan disbursements to enhance the country's food security.

As such, lenders have been asked to give out 30 per cent more loans instead of sticking to the annual disbursement target set by the central bank.

The BB set a loan disbursement target of Tk 30,911 crore for the current fiscal year. Of the target, banks lent 31 per cent between July and October, showed data from the central bank.