The special agri-credit scheme with 4% interest has benefited the farmers substantially and brought a significant change to their lives, says a report.

Farmers who borrowed from banks under the scheme made good profits even after repaying the loans as they got fair prices for their crops. With the profit, the farmers and their families are getting better food and clothes than before, said the report prepared by the Bangladesh Bank.

The report said the collateral-free loans helped ensure education for farmers' children. From the profit, many crop growers built houses and purchased land too.

Their lives have changed in the last 10 years, stated the report titled "An Impact Assessment Study on Special Agricultural Credit Programme at 4 percent Concessional Interest Rate". It was prepared after a survey on 535 farmers of six divisions who availed the loans from 2011 to 2020.

In the 2005-06 fiscal year, the special agri-loan scheme was initiated with 2% interest in a bid to reduce imports of 20 crops including pulses, spices oil seeds, spices and maize. The lending rate was raised to 4% in the 2011-12 fiscal year.

In the last fiscal year, Tk107 crore was disbursed under the farm loan scheme.

The ratio of default loans is at only 7% of the outstanding loans. However, farmers who defaulted on the loans have logical reasons such as natural disasters or a dull crop market. But, no farmer has called the lending rate high, the report mentioned.

The banking watchdog in the report also recommended a guideline so that the farmers get fair prices for the products. Besides, the central bank recommendations include not pressurising the farmers for installments which may cause them to sell the crops at a throwaway rate before the season begins.

On top of the less default volume, the Bangladesh Bank said farmers' tendency to use the money in other sectors is also low. Only 9% of the customers used their loans in other sectors instead of farming.

Most of the respondents told the central bank that the amount of the agri-loan was much less than the demand and the repayment period was also shorter.

In addition to increasing the loans and repayment period, the report recommended providing loans at 4% interest under this scheme for other crops such as banana, litchi, orange, papaya, pineapple, guava and dragon fruit.

To facilitate loan disbursement, the report suggests lending not only through bank branches but also through sub-branches or agent banking outlets.

Though the agri-loan is dedicated for pulses and spices, production of food staples were included to the borrowing eligibility during the pandemic.

If paddy harvesting qualifies for agri-loan with 4% interest, farmers may turn their face from non-traditional items weighing on imports. The report therefore recommended lowering the interest rate for spices and pulses further from existing 4%.

According to the central bank report, if the interest rate is lowered to 2-3%, the government will have to subsidise only Tk1.42-Tk2.83 crore more.

The report also mentioned farmers face less hassle in availing the agri-loan as the loan gets approved in less than six days after the application. According to the farmers, no bank is charging them more than the central bank fixed 4% interest rate.

While contacted, Dr Md Habibur Rahman, the head of the research team that prepared the report, said the agri-credit is playing a crucial role in reducing import dependency.

"As an example, we often face problems with onions. When imports stop, prices go up. This issue will go away if we can be self-sufficient in onion production," he told The Business Standard.

He thinks it is a must to increase farm-loan volume to increase the agricultural production.

Apart from productivity, the focus should also be on fair prices, Habibur Rahman added.