ACD Circular No. 02: Regarding Emphasizing on Disbursement of Agricultural Credit at 4% Concessional Interest Rate for Cultivating Import Substitute Crops

Bangladesh Bank Chief Controller's Office Motijheel, Dhaka-1000 Bangladesh Ref No.: ACD.Credit/Agri-Credit Division 08 Jyestha, 1429 ACD Circular No.- 02 Date: 22 May, 2022 Managing Director / Chief Executive Officer All Scheduled Banks Operating in Bangladesh Dear Sir, Regarding strengthening the program of disbursement of agricultural credit at 4% concessional interest rate under the government's interest compensation facility for cultivating import substitute crops (pulses, oilseeds, spices, and maize).

Reference is made to your attention regarding ACDSPD Circular No.-03, dated: 10/10/2006, ACDSPD Circular No.-08, dated: 03/12/2009, ACD Circular Letter No.-02, dated: 12/10/2010, and ACD Circular No.-02, dated: 30/05/2011.

2. Huge amounts of foreign currency are required annually for the import of pulses, oilseeds, spices, and maize, and in many cases, it is not possible to import the required quantity of goods on time. In this context, instructions were issued from 2006 onwards for banks to disburse short-term loans at concessional interest rates under the government's interest compensation facility for cultivating import substitute crops (pulses, oilseeds, spices, and maize) with the aim of reducing import costs and increasing the supply of necessary goods on time. Furthermore, the farmer's interest rate on agricultural credit provided for cultivating pulses, oilseeds, spices, and maize was re-determined at 4% effective from 01 July 2011-12 fiscal year. Against the disbursement of credit in this sector, banks are provided with an interest compensation facility equal to the actual interest loss (since the agricultural credit interest rate is 8%, the actual interest loss rate is currently 4%).

3. Along with state-owned banks, private banks are also disbursing loans for cultivating pulses, oilseeds, spices, and maize under the government's 4% interest compensation facility through Bangladesh Bank within the framework of their annual agricultural/horticultural credit targets. In such cases, even after deducting the 4% as interest compensation, if any bank incurs a slight interest loss, that portion will be considered under the Corporate Social Responsibility (CSR) of the respective bank.

4. Due to the impact of COVID-19 and recent instability in the global economy, prices of various products and transportation costs have increased in the international market, leading to an increase in their import prices. Recently, shortages have occurred in the supply of various consumer goods in the domestic market, especially edible oils, and product prices are rising. It is very necessary to increase production by expanding the cultivation of these edible oil-producing crops to maintain the future supply of imported edible oils in the country's market.

5. Disbursement and Recovery of Loans There are instructions to provide agricultural credit at a 4% interest rate to farmers under the government's interest compensation facility for increasing the cultivation of import substitute crops (pulses, oilseeds, spices, and maize) for the following crops: a) Pulses: Mug, Mashur, Khesari, Chola, Motar, Masakalai, Arhar, etc. b) Oilseeds: Mustard, Til, Tisi, Peanut, Sunflower, Soybean, etc. c) Spices: Ginger, Garlic, Onion, Chili, Turmeric, Cumin, etc. d) Maize.

6. The following rules must be followed in the disbursement and recovery of loans at concessional interest rates for cultivating the aforementioned crops: a) The loan regulations mentioned in the Agriculture/Horticultural Credit Policy and Guidelines issued by Bangladesh Bank at the beginning of each fiscal year for determining the maximum and minimum amount of loans based on production cost per acre, loan tenure, etc., shall apply. b) Banks shall issue appropriate instructions to relevant branches at the beginning of the year by setting annual targets for the disbursement of loans at concessional interest rates according to actual credit demand for cultivating the aforementioned crops, and shall establish monitoring and surveillance systems for the progress of loan disbursement by branches to ensure loan disbursement according to targets. c) Other policies currently implemented by Bangladesh Bank for agricultural credit, such as the maximum limit of loans per farmer, guarantee, time period for acceptance and processing of applications, determination of borrower eligibility, use of passbooks, loan disbursement, proper use of loans, monitoring, and recovery, etc., shall be followed as usual for these crops. Continued on page-02

From previous page:-02- 7. Additionally, instructions are given to comply with the following matters when claiming financial compensation against loans distributed at concessional interest rates in the import substitute crop sector: a) Banks shall submit applications for interest compensation at the actual rate (since the agricultural credit interest rate is 8%, the actual interest loss rate is currently 4%) to Bangladesh Bank within 01 (one) month of the end of the respective year against the recovered/coordinated loan accounts of loans distributed at concessional interest rates. Along with the application, they shall submit a statement containing details of the distributed loans, such as total number of borrowers, loan sanction period, loan disbursement and recovery dates, total amount of distributed loans, amount of interest collected from customers, total financial loss due to concessional interest imposition, etc. b) Bangladesh Bank will physically verify at least 10% of the loan files claimed as eligible for concessional rates on a random basis, determine the percentage of loans that did not receive payment according to regulations among the verified loans, calculate the actual compensation accordingly, and pay the interest loss of the banks from its own account based on this, and subsequently recover the amount from the Ministry of Finance. c) Loan-disbursing branches shall maintain lists of borrowers who received loans at concessional interest rates along with all related information such as total number of borrowers, address of borrowers for which crop, land area, loan sanction and distributed loan amounts, loan tenure, coordination date, etc., so that Bangladesh Bank can verify their authenticity if needed before the compensation or recovery from the Ministry. Additionally, loan-disbursing branches shall send all such information in the form of statements to the Special Credit Monitoring Cell established in the Chief Controller's Office of their respective banks. d) Participating banks shall take all steps for effective monitoring to ensure the proper use of loans provided at concessional interest rates to genuine farmers for cultivating specified crops. e) The compensation amount for loans provided shall be determined by adding a grace period of 6 (six) months to the stipulated tenure at the time of sanction. If any loan remains fully or partially unpaid after the stipulated tenure ends, no concessional interest shall apply to it. The bank's stipulated normal interest rate shall apply from the date of loan disbursement on overdue balances. f) Supervision by banks must be strengthened to ensure timely disbursement of loans to genuine farmers and regular recovery of loans with interest under the above arrangements.

8. Now, to achieve the goal of increasing production of import substitute crops, especially oilseeds, and to strengthen the program of agricultural credit disbursement under the ongoing interest compensation facility, the following steps are advised: a) Strengthening the loan disbursement program for cultivating specific crops through bank branches in areas where production of specific import substitute crops is high, i.e., Area Approach; b) Mandatory installation of banners stating 'Loans are disbursed at 4% interest rate for cultivating import substitute crops (specify crop name) at this branch' along with necessary information in easily visible places outside bank branches; c) Conducting special campaigns through relevant branches before the start of the season for cultivating specific crops to encourage farmers to take loans under the interest compensation facility; d) Taking assistance from local agriculture extension offices if necessary to identify genuine farmers; e) Informing the Agricultural Credit Division of your bank by issuing special instructions to strengthen the disbursement of agricultural credit at concessional interest rates in the aforementioned sectors.

The above instructions shall come into force immediately. Yours faithfully, (Md. Abdul Hakim) General Manager Phone: 9530138