Bangladesh Bank has cut the interest rate on loans from the Tk 3,000 crore refinance fund set up to build an agro-based special economic hub in North Bengal.

Under the revised instructions, participating banks will get refinancing from the central bank at 3 per cent interest, and the maximum interest or profit rate for customers has been set at 7 per cent. In Shariah-based financing too, the profit rate charged to customers may not exceed 7 per cent.

The circular was issued by Bangladesh Bank's Agricultural Credit Department-1 on Sunday, 30 August. It revises several conditions of the fund, including loan tenure, interest rate, repayment method and publicity.

According to Bangladesh Bank sources, the Tk 3,000 crore refinance fund was created to establish an agro-based special economic hub in North Bengal and strengthen agricultural production, storage, marketing, processing and exports. The fund's original policy was issued on 6 July.

The revised instructions say participating banks will get refinancing from Bangladesh Bank at 3 per cent, and the maximum interest or profit rate charged to customers is 7 per cent, applying equally to all customers.

In Shariah-based financing, the profit rate must be set under Shariah-approved investment policies but may not exceed 7 per cent in any case. Interest or profit on loan or investment instalments must be charged on the declining balance.

Loan and investment tenures have also changed. For agricultural production, depending on the sector or project, the maximum tenure will be 18 months including a three-month grace period.

For storage, transport and marketing of farm produce, infrastructure development, production and processing of agricultural and agro-based goods, and other related sectors, the maximum tenure will be 36 months, or three years, including a grace period of three to six months.

Participating banks must repay the principal and Bangladesh Bank's 3 per cent interest within a maximum of 18 or 36 months from the date of refinancing.

Bangladesh Bank has set strict conditions to prevent misuse. If it finds that the fund's money or any part of it has been misused, or that more than 7 per cent interest or profit has been charged on loans disbursed, it will recover interest or profit at 2 per cent above the set rate on the amount concerned in one go. In other words, banks that charge customers more than the limit or use the money for other purposes will face financial penalties.

To make sure the fund's benefits reach genuine entrepreneurs and customers, Bangladesh Bank has also stressed publicity. The revised instructions say banners announcing loans or investment at 7 per cent under the fund must be placed where they are easily visible inside and outside bank branches, and the concessional credit must be promoted through special campaigns.

Under Bangladesh Bank's original policy, the refinance fund is centred on the districts of Rajshahi and Rangpur divisions.

The northern region is one of the country's main producers of farm goods, but constraints in post-harvest storage, marketing, processing and supply mean agriculture's full economic potential is not being tapped. Against this background, a key aim of the fund is to provide easy-term finance for value addition to farm produce and the expansion of agro-based industry.

The fund can finance agricultural production, storage and transport of farm produce, marketing, infrastructure development, production and processing of agricultural and agro-based goods, and exports of farm and agro-based products.

Lowering the interest rate to 7 per cent gives farmers, entrepreneurs and agribusinesses in North Bengal access to bank loans at relatively low cost. Greater investment in storage, processing and marketing in particular would reduce waste and increase the scope for adding value to farmers' produce.

Expanding agro-based small and medium enterprises would also create local jobs and strengthen the links between agriculture, industry and trade.

Bangladesh Bank said the other provisions of the instructions remain unchanged and the circular takes effect immediately.

Source: Jagonews24. First published in Bengali on The Agro News.