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Thursday September 29th, 2022

UN wants Sri Lanka banks to contribute to agriculture credit line

ECONOMYNEXT – The International Fund for Agricultural Development (IFAD) of the United Nations is looking for further funding from banks and cooperative societies to expand credit lines to poor Sri Lankan farmers.

"We are asking banks to contribute 30 percent of the funds in a line of credit," IFAD project consultant Rauno Zander, a rural finance expert, told a business forum in Colombo on January 10.

He said currently the project fund covers the entire credit line, which provides loans to farmers at a concessional 6.5 percent.

Under the Smallholder Agribusiness Partnership Programme (SAPP), IFAD has provided 11.5 million dollars as a direct line of credit, while a further 18.5 million dollars has been provided by the Sri Lankan government, loaned through a revolving fund at the central bank.

A central bank official said the interest rate would have to be higher if banks are to contribute 30 percent of funds to each loan, since they borrow from money markets at rates much higher than 6.5 percent, to which Zander agreed.

IFAD is also expecting banks to fully finance short-term working capital loans of farmers in the programme, leaving credit lines for other loans.

The programme, which is running from July 2017 until June 2023, provides long-term capital loans, short-term working capital loans, and youth loans.

"These working capital loans are safer, and these are the type of loans banks do anyway," Zander said.

"The repayment period is short, around 6 to 12 months, and so the risk profile is low," he said.

Zander also wants more flexibility in loan repayments for farmers, which the central bank said it would consider after talks with the nine banks in the programme.

Zander said cooperative societies such as Sanasa are more active in agricultural areas compared to banks, and they should be brought into the programme as lenders.

However, the central bank representative said such an option is not possible under the Monetary Law Act, since the central bank cannot deal with such societies.

Currently, only around 10 percent of the funds available under the fund have been loaned to farmers.

Zander said the need to follow regulations had slowed down the process at the start, but it is working smoothly now. (Colombo/Jan10/2019)

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