Farm credit up 28% in August, overdue loans nearly double

Agricultural credit disbursement rose in August, but mounting loan defaults have raised concern about the long-term health of the country's rural finance system.

Scheduled banks disbursed Tk 2,672 crore in agricultural loans during August, an increase of more than 28 percent compared with the same month last year, according to the latest "Monthly Report on Agriculture and Rural Finance" by the Bangladesh Bank.

The lending is part of a broader drive under the Tk 39,000 crore disbursement target for the fiscal year 2025-26, which represents a 2.63 percent year-on-year rise.

At the same time, overdue farm loans climbed to more than Tk 22,968 crore by the end of August, nearly double the Tk 11,844 crore recorded a year earlier, marking a 94 percent jump.

According to the central bank data, total outstanding agricultural credit, including interest, stood at over Tk 59,541 crore in August, up 6.66 percent from Tk 55,822 crore last year.

Policymakers and economists have raised concerns over the sharp jump in defaults.

The increase was driven mainly by unpaid loans in state-owned specialised banks, private commercial banks, and state-owned commercial banks.

The central bank has linked the surge to revised loan classification rules introduced in April, though banking insiders argue that deeper structural flaws, such as weak credit assessment, political influence, and ineffective recovery systems, are to blame.

The data also point to a shift in how agricultural credit is being distributed. Lending for crop production and poverty alleviation has declined in proportion, while financing for livestock, poultry, and fisheries has grown.

Analysts say the diversification is encouraging, but it can heighten risk, as recovery systems in these emerging sectors are underdeveloped. Although official data show improved recovery rates, they provide limited comfort.

Scheduled banks recovered nearly Tk 3,120 crore in August, around 8 percent more than a year earlier. Yet, repayments are lagging behind new lending, widening the gap between disbursement and recovery.

Microfinance institutions are facing similar challenges.

Grameen Bank and ten leading NGOs disbursed Tk 16,568 crore in August, a 46 percent increase from the same month last year, but their overdue loans rose to Tk 8,212 crore, up nearly 24 percent.

In contrast, Palli Karma-Sahayak Foundation (PKSF) showed stronger credit management, posting a 35 percent fall in overdue loans despite higher lending and recovery volumes.

In its report, the central bank said that "enhanced monitoring, prudent lending practices, and strengthened recovery mechanisms" are urgently required to contain the growing risk.