Bangladesh Bank has set up a refinancing scheme to help farmers
The COVID-19 pandemic has been a terrible eye opener and quite a reality check for economies around the globe. Not a single government has not floundered, not a single country has not faced its fair share of economic plight. However, the single most threatening issue that has the world constantly on its toes, even without the pandemic, is food security and Bangladesh, being an agriculture-based economy, was one of the hardest hit in the sector. A rapid assessment conducted by BRAC showed that farmers and agricultural producers were some of the worst impacted in the COVID-19 crisis. This group was already vulnerable ever since the 1990s when the agro-sector began losing its foothold and smallholder farmers, who own 0.5 or less acres of land and make up the majority of all farmers, have been in a vicious cycle of loss and debt ever since. The pandemic pushed in what little of them was above the survival line. Due to lockdowns and broken linkages with their supply chains, unfair prices, limited operation of markets and higher prices of inputs, this lot had no end to their sufferings through these one and a half years. Almost half of all farmers mentioned that they had no way to cover their losses, 60% of crop and vegetable farmers reported that they had to absorb their losses in their entirety, and there were many who looked to take on additional debt or sell off their assets to stay afloat. Some reduced their production and some even had to close down shop. Just as the future was looking dark with many looking at heavier debt burdens and/or having to change paths altogether, the government announced a Tk 3000 crore refinancing scheme for farmers through the Bangladesh Bank.
The welcome decision came on the 23rd of August, 2021 where the board of the Central Bank took the decision to relieve the farmers from the ongoing economic downturn during the pandemic. Under the Agriculture Sector Stimulus Refinancing Scheme (2nd phase), farmers will be able to take soft loans from banks at 4% interest rate. These loans will be provided on simpler terms and without collateral security for farmers of grains and crops. However, the borrowers of this subsector have to pay their loans back within 12 months. For farmers outside this subsector, the bank may ask for a minimum/auxiliary collateral depending on their relationship with the farmers and they will get at least 3 months and then a grace period of 18 months to repay back their loans. Loans taken for the rearing of female cows and the fattening of cows will also be prioritized against personal guarantees provided. Lenders will receive funds at 1% interest rate, providing them with a buffer of 3%. Banks need to repay the Central Bank with interest within 18 months which includes 12 months of full payback timeline and a grace period of 6 months in case of contingencies.
In order to be part of the lending scheme and to dole out loans to farmers under the agricultural and rural credit policy, banks will have to sign an agreement with the Central Bank too and then disburse loans to farmers at their responsibility. Banks are allowed to pay out maximum 2 lac taka each to overlooked sharecropper farmers without collateral and banks will be allowed to pay out the highest up to 10 crores to farmers under this policy. This amount may be subject to change by the Central Bank if it feels that lender banks are capable of lending out more. Important to consider for the farmers is that they can now avail loans up to 20% above the existing sanction limit but terms will unfortunately not be adjusted for existing loans. Also worth noting is that those farmers who have had a history of defaulting on previous loans will not be considered for this new scheme.
The Central Bank has decided to disburse at least 30% of the stipulated amount to crop growers. This scheme is much like its first phase that was rolled out in 2020, and was worth Tk 5000 crore. As the tenure for that scheme ended in June 2021 with about 92% of the funds, roughly Tk 43000 crores, already paid out to the farmers, this new scheme was rolled out to further fortify the position of farmers and others in the agriculture industry. This new scheme will remain in effect until June of 2022.
Of course, this scheme comes as a blessing for all the struggling farmers who would otherwise have to face dire consequences of the pandemic with hardly anything to fall back on, but what is worth a mention is that a lot of these farmers are either unaware of the schemes in place to help them or do not know how to go about the process of availing the help being offered. A survey by BRAC shows that while 64% of farmers had some sort of awareness about the Agriculture Sector Stimulus Refinancing Scheme (1st phase), most had no idea on how to avail it or had misconceptions surrounding availing it. Only about 20% of the people who had prior experience with monetary transactions with the bank had a clear idea about how this scheme could support them.
As the stimulus scheme has only just been announced, it would be prudent to reach out to the more marginalized farmers who have indeed fared worse than the others during the pandemic so that the lion’s share of the stimulus being offered can go to those it is intended for. This may very well mean reduced paperwork, clearer advertising from the banks offering the loans, especially in village branches, and busting myths surrounding the loans. What may prove worth for the banks’ is to engage local farmer associations in villages who may be able to play mediator between the banks and the farmers and build trust between the two parties in order for a lending contract to form.
Farmers are the backbone of this agriculture led country and this scheme, if carried out properly and rightly, it will really help the existing food producers and new farmers wishing to enter the market to enter the sector with confidence and thrive in it.
By Munira Fidai
