Agricultural Credit: Financing Farmers, Not Just Crops

Agricultural and rural credit in Bangladesh is growing in an appreciable manner. Agricultural and rural credit disbursed by scheduled banks has reached almost Tk43,000 crore (above the FY2025-26 target of Tk39,000 crore) and is expected to increase further in subsequent years. For FY2026-27, the target amount has been raised to Tk60,000 crore, implying greater attention to agricultural production for increased rural employment and income. Therefore, while a substantial amount of agricultural credit is currently available to farmers, it is important to monitor whether they are using credit in their best interests to enhance their overall financial status.

For a farm-to-market approach to agricultural credit, funding must reach farmers within the timeframe of their agricultural production. They are expected to utilise input credit within the timeframe from sowing to harvesting main crops. Repayment can then be scheduled within the timeframe of their income from the produce. Machinery credit for harvesting cannot be of any help if it is disbursed after harvesting a crop. The repayment terms must also align with the cash flow of a farmer. A rice farmer receives most of his seasonal income after harvest, while a dairy farmer gets money on a daily or weekly basis. Thus, repayment terms cannot remain the same for both types of farmers. We must base agricultural lending on farmers’ cash flow—the expected income a farmer can generate at different points in time to repay loan obligations. We need to ask two questions: how much a farmer can borrow and when a farmer can repay.

Agricultural credit is required for purchasing inputs like seeds, fertilisers, irrigation facilities, livestock, and fish seed, as well as for running medium- and long-term financing programmes to purchase farming implements, set up animal husbandry, pisciculture, and horticulture projects, and finance storage structures and post-harvest management facilities. However, a major risk in lending agricultural credit is crop failure, where the resulting financial loss leads to default. Even in the absence of crop failure, when production costs keep rising, a farmer may face the daunting task of taking another loan just to repay existing bank debt.

Therefore, success in agricultural lending through formal financial systems cannot be measured solely by the volume of disbursements and the rate of recovery. Instead, it is important to find out whether disbursed credit increases agricultural production and farm income, helps farmers create productive assets, makes them more resilient, and enables them to repay loans without taking on additional debt.

Identifying real farmers producing agricultural products on farms is equally important. Many so-called farmers own agricultural land but are not involved in production on a regular basis, while many actual producers do not own land and farm as sharecroppers or lease land from others. Women farmers generally work in small production units like poultry, livestock rearing, homestead agriculture, nursery production, and food processing. If lending to farmers is mostly based on land or conventional collateral, many true producers will be excluded from access to formal finance. Assessing the creditworthiness of producers without land in their names can increasingly be done based on production plans, expected cash flow, past repayment behaviour, farmer registration, leased land agreements, sales receipts, and digital transactions. Agricultural finance must recognise the producer rather than just the landowner.

Farmers often take recourse to traders and other informal sector operators who can provide money and necessary inputs at short notice. This does not necessarily mean the farmer will lose out; for instance, an input dealer may provide fertiliser on credit to enable a farmer to sow his crop on time. However, there are instances where farmers must pay exorbitant interest rates and suffer harassment. Unclear conditions, excessive charges and forced sales of agricultural produce below market price can magnify the harmful impact of informal credit manifold. While formal banks normally compete for customers on interest rates, these days they must also compete on speed of service, ease of access, and counter facilities.

Microfinance can be provided on a weekly basis to enterprises that need prompt payments, such as transportation operators, but most crop farmers will not earn sufficient income in the off-season to repay weekly instalments. Their repayments need to be rescheduled in line with their production cycles. Special credit arrangements are also necessary to support farmers dealing with natural calamities, for example, through stress-tolerant crops, improved drainage, water-saving irrigation systems, animal housing, and storage systems. After a disaster strikes, credit is required to pay off outstanding loans and fund new production. Farmers may also require insurance alongside loan restructuring programmes designed to help them recover.

Thus, financing agricultural production in Bangladesh will have to move to a higher plane of development beyond mere disbursement and recovery of agricultural loans. A farmer needs more than money: Credit + Knowledge + Technology + Market + Savings + Risk Protection. Helping farmers produce profitably is the main goal. Farmers need to withstand shocks, repay loans from their farm income, and retain enough savings or working capital to produce in the next cycle. Rather than just more agricultural debt, Bangladesh needs agricultural finance.
___________________________________________________
The writer Fellow, Bangladesh Academy of Agriculture, and former Director General, Bangladesh Rice Research Institute