Agricultural Loans at 4% Concessional Interest Rate in Crop Sector to Mitigate Novel Coronavirus Crisis

Ref: ACD/DRM/2020-10 Agricultural Credit Department Bangladesh Bank Head Office Dhaka. 27 April 2020 ACD Circular No. 02 Date: ------------------- 14 Baishakh 1427 Chief Executive Officer/Managing Director All Scheduled Banks operating in Bangladesh. Dear Sir, Subject: Regarding providing agricultural loans at 4% concessional interest rate in the crop sector under incentive facility for farmers to mitigate the crisis caused by the novel coronavirus outbreak. To maintain normal food production and supply in the future due to the outbreak of the novel coronavirus, it is essential to provide agricultural loans at low interest rates to farmers for crop cultivation in the agricultural sector. It is noted that there are instructions for scheduled banks to disburse agricultural loans at a 4% concessional interest rate to farmers for cultivating import-substitute crops (pulses, oilseeds, spices, and maize). Now, in addition to import-substitute crops, instructions are hereby given to disburse agricultural loans at a 4% concessional interest rate as an incentive to farmers under the interest-loss facility for the cultivation of all cereal crops including paddy and wheat, cash crops, vegetables, and tuber crops as mentioned in the Agricultural and Rural Credit Policy and Program. Against the disbursed loans, banks will be eligible for an interest-loss reimbursement facility from Bangladesh Bank at a rate of 5% for actual interest loss. For the convenience of implementing the agricultural loan program at a 4% concessional interest rate for crop cultivation under the interest-loss reimbursement facility, the following matters are mentioned: a) Introduction: The name of this scheme will be "Providing agricultural loans at 4% concessional interest rate in the crop sector to mitigate the crisis caused by the novel coronavirus outbreak." b) Scheme Duration: The duration of this scheme will be from April 1, 2020, to June 30, 2021. c) Loan Interest Rate: Under this scheme, the interest rate at the farmer level will be a maximum of 4%. This interest rate will be applicable to both existing and new borrowers. However, after June 30, 2021, the normal interest rate will apply for the remaining tenure of ongoing loans. d) Loan Disbursement and Recovery:

1. For the cultivation of all cereal crops including paddy and wheat, cash crops, vegetables, and tuber crops as mentioned in the Agricultural and Rural Credit Policy and Program, banks will disburse loans at a 4% interest rate to farmers against their targets set by Bangladesh Bank from their own sources, as in previous years. In this case, banks will be eligible for an interest-loss reimbursement facility at a rate of 5% according to their actual interest loss.
2. For the disbursement and recovery of concessional interest rate loans for crop cultivation, the loan procedures and other policies mentioned in the Agricultural and Rural Credit Policy and Program issued by Bangladesh Bank, such as the maximum loan limit per farmer, collateral, application acceptance and processing time, borrower eligibility assessment, use of passbook, loan disbursement, proper utilization of loans, supervision, and recovery, will apply as usual. In disbursing loans under this scheme, a 4% interest rate must be ensured directly at the farmer level through the use of the bank's own network. e) Providing Financial Compensation to Banks against Concessional Interest Rate Loans Disbursed:
3. Among the loans already disbursed for the cultivation of cereal crops, cash crops, vegetables, and tuber crops as mentioned in the Agricultural and Rural Credit Policy and Program during the elapsed period of the current 2019-20 fiscal year, banks can claim financial compensation at the end of the current 2019-20 fiscal year only against the outstanding loan balance for April-June for loans recovered/adjusted during the April-June 2020 quarter. In this case, banks must re-determine the existing interest rate of the relevant loans to 4% from April 1, 2020. Additionally, for loans recovered/adjusted in the 2020-21 fiscal year, banks will claim financial compensation at the end of that fiscal year. Continued Page # 2

Page # 2 2) Banks will submit an application to Bangladesh Bank for financial compensation at a rate of 5% for actual interest loss against recovered/adjusted loan accounts of concessional interest rate loans disbursed, within one (1) month of the end of the respective fiscal year. Along with this application, banks will submit a statement including the calculation of interest compensation according to the attached form and a certificate from all relevant branches confirming that loans have been disbursed directly to farmers at a 4% rate. 3) For the calculation of financial compensation claims under this circular, recovered/adjusted loan accounts for loans disbursed for the cultivation of import-substitute crops (pulses, oilseeds, spices, and maize) cannot be included. Financial compensation claims against loans disbursed for the cultivation of import-substitute crops must be made separately according to conventional rules. 4) Bangladesh Bank will verify at least 10% of the loan files claimed as eligible for concessional rates on a random sampling basis, and will determine the percentage of loans found not payable according to rules among the verified loans. This percentage will then be applied to the entire claimed loan amount to determine the actual compensation, and based on this, Bangladesh Bank will arrange to pay the interest loss amount to banks from its own sources. 5) Loan disbursing branches will maintain all relevant information, including a list of concessional interest rate loan recipients, such as the total number of borrowers, name of crop/produce, borrower's address, land area, sanctioned and disbursed loan amount, loan tenure, loan disbursement and adjustment dates, etc., so that Bangladesh Bank can verify its authenticity before providing compensation, if necessary. Additionally, loan disbursing branches will send all such information in the form of a statement to the special loan monitoring cell established at their respective bank's head office. 6) To ensure the proper utilization of concessional interest rate loans provided to actual farmers for the crops mentioned under this scheme, participating banks will take all effective supervision measures. 7) If any loan remains fully or partially unpaid at the end of the stipulated tenure as per the loan sanction letter, the concessional interest rate will not apply to it. The bank's normal interest rate will apply to overdue arrears from the date of loan disbursement. 8) Supervision must be strengthened to recover the funds, including interest, for loans disbursed under the above scheme in due course. The above instructions will be considered effective from April 1, 2020. Yours faithfully, (Md. Habibur Rahman) General Manager Phone: 9530138

Attached Form Subject: Claim for interest loss against disbursement of agricultural loans at 4% concessional interest rate in the crop sector to mitigate the crisis caused by the novel coronavirus outbreak. Name of Bank: Fiscal Year: (In Lakh Taka)