The Bangladesh Bank has instructed banks to increase their credit disbursements at 4% interest under a subsidy facility for crops such as lentils, oilseeds, spices, and maize.
In a circular on Sunday, the central bank said a large amount of foreign exchange is required every year to import such products and an instruction has been issued to reduce these import costs.
The regulatory authority sent the circular to the managing directors of all scheduled banks.
According to the circular, private banks alongside state-owned banks have already been disbursing farm loans under the Agriculture and Rural Credit Target at a subsidised 4% interest rate backed by the central bank for import substitution products.
However, if banks still incur some interest losses, they will be able to show this loss in their Corporate Social Responsibility (CSR) books.
The new guidelines state that the central bank will set an annual target for the amount of subsidy on import alternative crop loans. At the same time, it will also monitor the progress of loan disbursement from branches of the respective banks.
Furthermore, banks can apply to the central bank for compensation of interest on loans disbursed for import alternative products, submitting loan disbursement details with their application. 10% of these loans from the Bangladesh Bank will be verified on the spot.
The circular said in all areas where the production of import substitution crops is high, the distribution of loans through bank branches will be increased.
"In locations where loans are disbursed at a 4% interest rate, a written banner should be put up there. If needed, assistance from the local agricultural extension office should be sought to identify real farmers," the central bank circular added.