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Bangladesh Bank Endorses the Contract Farming Financing Model

On 25 February 2010, Mr. Abul Quasem, Executive Director, Bangladesh Bank called upon the representatives of different banks to come forward to provide loans to the maize farmers engaged in contract farming. The meeting in Rangpur was organized to share the Katalyst’s model on contract farming financing. Mr. Emdadul Haque, Director, External Relations and Mr. Ehasanul Huq, Senior Business Consultant from Katalyst were present at the meeting.

The contract farming system provides farmers access to inputs, technical know-how and market.

These farmers are usually grouped by contractors who are mainly involved in inputs businesses and maize trading. The system is beneficial to farmers as the contractors provide either cash or inputs on credit for the maize cultivation. However, contractors face challenge to acquire required working capital for expanding their contract farming operations. Presently, few banks are providing loans in this regard but the mechanism is varied across the banks and not always accessible for potential contractors.

The proposed financing model presented at the meeting ensures a feasible mechanism for access to finance for the contractors as well as farmers. On the other hand, the banks can disburse loans to farmers through a much safer and relatively inexpensive manner as the contractor is playing the role of a guarantor for the banks.
Mr. Abul Quasem urged all banks to extend their loan facilities to farmers under the contract farming system. The meeting generated substantive interest among the representatives of 15 banks present. However, the bank representatives requested Bangladesh Bank to convince the policy makers of the respective banks so that a circular from the head office may be issued to allow them to disburse loans using this model. Mr. Abul Quasem assured that this will be discussed in a similar workshop that will be held in Dhaka with the high officials of the national and commercial banks. Based on the meeting, Katalyst will work with Bangladesh Bank to carry this forward.

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