Farm Loan Target Raised 54 Percent but Banks Lag on Disbursement: Only 11.43 Percent in Two Months

Bangladesh Bank has raised the agriculture and rural credit disbursement target by nearly 54 percent, but disbursement has not kept pace with the higher goal. In the first two months of the current 2026-27 fiscal year — July and August — banks disbursed only 11.43 percent of the total target, according to the central bank's updated report.

In the same period of the previous fiscal year, the disbursement rate was 12.37 percent. In other words, as the target rose, the disbursement rate actually slipped slightly in proportional terms — the most significant aspect of the report.

According to Bangladesh Bank data, the agriculture and rural credit target for the current fiscal year has been set at 60,000 crore taka, up from 39,000 crore taka last fiscal year — a jump of 21,000 crore taka in a single step.

In the first two months, 6,858 crore taka was disbursed, compared with 4,826 crore taka in the same period last fiscal year. Disbursement therefore rose by 2,032 crore taka, or 42.11 percent, year on year. But because the target was raised even more, the disbursement rate relative to the total target has fallen.

The previous year's picture was different. By the end of fiscal 2025-26, agriculture and rural credit disbursement stood at 42,834 crore taka — 9.83 percent above the set target. This year, despite the larger target, the first two months do not show matching progress.

The picture is much the same across bank types. State-owned commercial and specialised banks have a target of 20,495 crore taka for the current fiscal year, and in the first two months they disbursed 2,375 crore taka — 11.59 percent of their target.

Private and foreign banks, against a target of 39,505 crore taka, disbursed 4,483 crore taka, or 11.35 percent. Both groups of banks are therefore lagging relative to their targets.

People familiar with the matter say that despite various initiatives to increase farm lending, banks' interest remains comparatively low, because sectors such as industry offer opportunities for higher profits at lower operating costs than agriculture. They see this lack of interest as a major reason disbursement is falling behind.

At present, only 2.95 percent of banks' total outstanding loans are in the agriculture sector. Against this backdrop, from the current fiscal year it has been made mandatory to disburse at least 4 percent of a bank's total loans to agriculture; previously the mandatory rate was 2.5 percent.

The government and Bangladesh Bank plan gradually to make it mandatory to disburse more than 10 percent of loans to this sector — equal to agriculture's contribution to GDP. The distance between that ambition and the first two months' disbursement picture is plain.

To ensure proper use of farm credit, Bangladesh Bank is increasing supervision. A web-based 'Agri-Credit MIS' software has been launched, through which sector-wise loan information is being collected from banks' head offices; information will later be taken from the district level as well. A senior central bank official said immediate action would be taken if any inconsistency is found.

Meanwhile, defaulted loans in the sector have also risen alongside disbursement. At the end of August, outstanding farm loans stood at 70,432 crore taka, of which defaulted loans were 29,849 crore taka — 42.38 percent of the total. At the end of June, defaulted loans were 18,578 crore taka, or 29.22 percent. In just two months, defaults rose by 11,271 crore taka. The central bank's report says the effect of the new loan classification and provisioning policy issued in November 2024 is one reason for this increase.

On the recovery side, however, the picture is somewhat positive. In the first two months of the current fiscal year, 7,419 crore taka was recovered in agriculture and rural credit, compared with 6,073 crore taka in the same period last fiscal year — an increase of 1,346 crore taka, or 22.21 percent.

The big question for the rest of the year is whether the pressure of the mandatory 4 percent requirement and the central bank's closer supervision can pull banks closer to the target — on that will depend the fate of this ambitious 60,000 crore taka goal.