Bangladesh Bank has set the terms for two refinancing schemes worth a combined Tk13,000 crore, aimed at boosting agricultural production, strengthening food security, and increasing economic activity and employment in rural areas. In two separate circulars issued on August 30, the central bank confirmed that farmers and customers borrowing under these schemes will pay no more than 7% interest.
The larger of the two is a Tk10,000 crore Agricultural Refinance Scheme. The second is a Tk3,000 crore refinancing fund dedicated to establishing an agriculture-based special economic hub in northern Bangladesh.
Under both, participating banks will receive refinancing from Bangladesh Bank itself at just 3% interest, allowing them to lend to farmers at the capped rate while still covering their costs.
How the Numbers Work in Practice
For Shariah-based financing, the profit rate must be structured in line with Shariah-approved principles while still respecting the 7% ceiling at the farmer level. Loan tenures will vary by sector, ranging from a maximum of 18 months, including a three-month grace period, for some categories, up to 36 months with a grace period of three to six months for others.
Banks that draw funds from Bangladesh Bank under these schemes are required to repay the central bank, plus the 3% interest, within the agreed repayment period.
If a bank fails to use the funds properly or charges farmers more than the 7% cap, Bangladesh Bank will impose an additional 2% interest as a penalty, a built-in mechanism meant to keep banks honest about passing the lower rate down to actual borrowers.
Part of a Bigger Push on Farm Credit
This rate cap follows a broader expansion of Bangladesh Bank’s agricultural lending targets. Earlier this month, the central bank raised its agricultural and rural credit disbursement target by 53.8% to Tk60,000 crore for fiscal year 2026-27, up from Tk39,000 crore the previous year, while also widening collateral-free lending access for fisheries, livestock, and marginal or women farmers.
Bangladesh Bank Deputy Governor Habibur Rahman said at the time that agriculture’s share of total lending had been raised from 2.5% to 4%, reflecting continued reliance on the sector.
The central bank has also moved separately to prioritise Farmer Smart Card holders within its refinancing mechanisms, instructing lenders to facilitate low-cost bank accounts and give preferential treatment to these cardholders during credit allocation.
Why Marginal Farmers Have Struggled With Credit Before
Interest rate caps on paper have not always translated into fair treatment on the ground. Farmers have previously reported paying far more than official rates, particularly when banks route a share of their agricultural lending through microfinance institutions rather than direct channels, a practice that has historically pushed effective interest rates well into double digits for some borrowers.
Small and marginal farmers without collateral or connections have also frequently struggled to access bank loans directly, often being pushed toward costlier alternatives instead.
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What This Means Going Forward
By pairing a firm 7% ceiling with a financial penalty for non-compliance, Bangladesh Bank appears to be trying to close the gap between policy and practice that has undermined similar rate caps in the past.
Whether banks actually stick to the cap at the farmer level, rather than quietly routing loans through higher-cost channels, will determine whether this latest intervention meaningfully eases borrowing costs for the rural households it’s designed to help.
FAQ
What is the new interest rate cap on farm loans?
Bangladesh Bank has capped the interest rate on loans under its new agricultural refinancing schemes at 7% for farmers and customers.
How much money is involved in these schemes?
The two schemes total Tk13,000 crore: a Tk10,000 crore Agricultural Refinance Scheme and a Tk3,000 crore fund for an agriculture-based special economic hub in northern Bangladesh.
What happens if a bank charges more than 7% interest?
Bangladesh Bank will impose an additional 2% interest penalty on banks that misuse the funds or exceed the 7% cap at the farmer level.
