Bangladesh Bank Revises Tk 10,000 Crore Agriculture Refinance Scheme at 7%

The Financial Express, Dhaka — Bangladesh Bank (BB) has revised several provisions of its Tk 100 billion (Tk 10,000 crore) refinancing scheme aimed at boosting agricultural production, ensuring food security, and creating employment in rural areas — with the farmer-level interest rate now capped at 7 percent and the participating bank refinancing rate set at 3 percent.

According to a circular issued by the central bank on Sunday, participating banks will receive refinancing from Bangladesh Bank at an interest/profit rate of 3 percent under the scheme. At the farmer or customer level, the interest or profit rate has been fixed at a maximum of 7 percent at a simple interest rate. In the case of Shariah-based financing, the profit rate at the customer level will have to be determined in line with Shariah-approved investment policies, but it cannot exceed 7 percent.

💰 Interest Rate Structure

The revised scheme establishes a clear two-tier interest rate structure:

• 🏛 Bangladesh Bank to participating banks: 3 percent (refinancing rate)
• 🌾 Participating banks to farmers: maximum 7 percent (simple interest)
• 🌾 Shariah-based financing: profit rate capped at 7 percent
• 💰 Margin: 4 percent spread for participating banks

The 4 percent spread between the BB refinancing rate (3 percent) and the farmer lending rate (7 percent) provides participating commercial banks with a sustainable margin to cover operational costs, credit risk, and administrative expenses — while still delivering affordable credit to farmers.

📊 Revised Provisions

The revised rate will be applicable equally to all customers, while interest or profit will be charged on the declining balance of the loan or investment, where applicable. The declining balance method means farmers pay interest only on the outstanding principal — reducing total interest cost compared to flat-rate calculation methods.

The participating banks will have to repay the principal and interest or profit to Bangladesh Bank within a maximum of 18 months from the date of receiving refinancing. This 18-month repayment window aligns with the typical agricultural production cycle, allowing banks to recover their refinancing through farmer loan repayments.

⚠️ Penalty for Misuse

The central bank also revised the repayment provision to deter misuse. If Bangladesh Bank finds that:

• ⚠️ The funds provided under the scheme, or any part thereof, have not been properly utilised
• ⚠️ A participating bank charges interest/profit exceeding 7 percent against the loans/investments disbursed

...the bank concerned will have to pay an additional 2 percent interest on the relevant amount as a one-time charge, in addition to the prescribed rate. The penalty framework creates a strong incentive for participating banks to comply with the scheme's terms and to ensure that farmers actually receive the benefit of the capped 7 percent rate.

📜 Mandatory Promotion

The circular further instructed participating banks to promote the scheme among farmers by:

• 📜 Displaying banners inside and outside bank branches at easily visible locations
• 📜 Mentioning information on loan disbursement or investment activities under the refinancing scheme
• 📜 Displaying the 7 percent interest or profit rate at the farmer level prominently

The mandatory promotion requirement addresses a long-standing concern that agricultural refinance schemes have historically suffered from low farmer awareness — with many farmers unaware that subsidised credit is available through their local bank branches. Mandatory branch-level promotion should materially improve scheme visibility at the grassroots level.

📊 Strategic Context

The Tk 10,000 crore agricultural refinance scheme revision comes amid broader strategic context:

• 🌾 FY26 fertiliser import bill: $3.72 billion (up 42% YoY)
• 🌾 FY26 food grain imports: wheat $2.04 billion (up 26%)
• 🌾 50 lakh people need emergency agri aid: FAO assessment (separate report)
• 🌾 BB sets Tk 2,000cr fund: for frozen food exports (separate report)
• 🌾 BADC 480,000 tonnes Canadian potash: government-to-government fertiliser import

Together, these measures reflect a coordinated government response to support Bangladesh's agricultural sector through the broader macroeconomic pressures of FY26 — including elevated input costs (fertiliser, fuel), supply chain disruptions (Iran war), and food security concerns (floods, FAO assessment).

💰 Why Tk 10,000 Crore Matters

The Tk 10,000 crore refinance scheme represents a substantial agricultural credit injection:

• 💰 Scheme size: Tk 10,000 crore (~$910 million at current exchange rate)
• 💰 Coverage: agricultural production, food security, rural employment
• 💰 Rate: 7 percent cap at farmer level — well below market rates of 11-13 percent
• 💰 Subsidy element: 4-6 percent interest rate subsidy vs market rates
• 💰 Multiplier effect: refinance enables Tk 10,000 crore in new agricultural lending

The subsidy element of the scheme — the gap between the farmer-level 7 percent rate and the prevailing market lending rates of 11-13 percent for agricultural loans — represents a meaningful transfer of value to the agricultural sector, supporting rural incomes and food production capacity.

🏛 Premier Bank Joins the Scheme

In a related development, Premier Bank has joined Bangladesh Bank's Tk 10,000 crore refinance scheme, expanding the network of participating banks and increasing farmer access to subsidised agricultural credit. The growing participation of private commercial banks in the refinance scheme reflects the broader banking sector's engagement with agricultural sector financing — an area that has historically been dominated by state-owned commercial banks and specialised agricultural credit institutions.

🌏 Strategic Implications

The revised Tk 10,000 crore agricultural refinance scheme carries several strategic implications:

• ✅ Affordable agricultural credit: 7 percent cap substantially below market rates
• ✅ Food security support: addresses FAO-flagged food aid emergency
• ✅ Rural employment: agricultural production preserves rural jobs
• ✅ Misuse deterrence: 2 percent penalty for non-compliance
• ✅ Scheme visibility: mandatory branch-level promotion
• ✅ Shariah compliance: scheme accessible to Islamic banking customers
• ✅ Banking sector participation: growing private bank involvement

The Tk 10,000 crore scheme revision demonstrates Bangladesh Bank's continued commitment to using refinance windows as a strategic tool for directing credit to priority sectors — particularly agriculture, which employs nearly half of Bangladesh's workforce and underpins the country's food security. The scheme's success will depend critically on the participating banks' compliance with the 7 percent farmer-level rate cap and on the effectiveness of the mandatory promotion effort in reaching grassroots farmers — both of which the new circular's provisions are designed to enforce.