BB’s push for farm loan puts banking sector at odds
November 18, 2009
The World Bank and the International Monetary Fund (IMF), in a recent stocktaking on the banking sector, said the agricultural credit disbursement through legions of microfinance institutions (MFIs) entails “significant risks” as funds flowing to them go mostly unmonitored due mainly to Bangladesh Bank’s poor supervision.
“It’s worrying that the formal sector’s money is being ploughed back into the informal sector,” says the joint assessment.
The Bangladesh Bank has set an ambitious target of doling out Tk 110 billion in farm loans for the 2010 fiscal year, asking state and private banks to help meet its objective.
Ensuring small farmers’ access to credit remains a top priority for the central bank, which even forced foreign banks to increase their agricultural lending portfolio.
The joint review said the central bank’s “directed” lending could deliver the same outcome as in case of politically directed credits.
The donors’ critique came as the central bank authority stepped up efforts to ensure that millions of small and marginal farmers have access to low-cost bank credit, which are essential for agricultural growth.
A World Bank official said the Microcredit Regulatory Authority (MRA), a central bank agency, still remains dysfunctional, leaving the funds being channelled to the non-government sector unregulated.
“Directed lending involves risks as it has been proved to be so in the past,” the official said.
Mr Khaled, also former deputy governor of Bangladesh Bank, said today’s microfinance institutions have legal coverage and are supervised by the central bank.
“The characteristics of NGOs have changed. They are no longer the same. They are now covered by law framed by the government,” he told this correspondent.
Mr Khaled insisted that the central bank’s move to scale up farm loans should not be considered directed lending.
Another factor complicating the vulnerability of farm loan disbursement is the absence of deposit insurance or microfinance insurance in Bangladesh, says the lenders’ assessment.
“What will happen to bank funds if those end up in a fly-by-night NGO or say for instance Proshika?” asked a member of the review mission.
According to the latest data of the Bangladesh Bank (BB), banks disbursed Tk 92.84 billion in agriculture loan in 2008-2009 fiscal, slightly falling short of the target of Tk 93.79 billion.
Of the total, government-owned banks and institutions disbursed Tk 73.31 billion while the remaining amount was disbursed by private commercial banks.
The interest rate for farm credit has been fixed at 8.0 per cent and 12 per cent to be applicable for government-owned banks and private commercial banks respectively.
The data said the highest Tk 30.84 billion went to the crop sector, followed by Tk 19.45 billion for poverty alleviation and Tk 4.77 billion for fisheries.
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