Govt. opts for ‘directed lending’ to boost agriculture

Rs. 5 billion to be lent via 12-14% interest bearing Agro Livestock Development Loan Scheme

With a view to enhancing local liquid milk production, milk and milk based products and promoting agricultural crop processing industries in the country, the Central Bank of Sri Lanka (CBSL), in association with the Government of Sri Lanka (GOSL), has launched a special credit programme with effect from, April 2008.

A total of Rs.5000 million at a concessionary rate of interest, is expected to be disbursed under the scheme, to small scale dairy farmers, liquid milk processing industries and agricultural crop processors. The credit scheme has been introduced, as announced in the Budget 2008.

With the sharp increase in the prices of milk powder and food crops in the global market, a favourable environment has been created for development of local dairy industry and the food crop sector.

Non-availability of a credit scheme for dairy products, at present, has been identified as, one of the constraints for development of liquid milk production, in the country. Further, strengthening of agro-processing industry, by providing financial facilities for agro-based industries, storage and processing of crops, would help to develop the cultivation of food crops, on a sustainable basis. Accordingly, this credit programme will increase, the investments in the local liquid milk and food crop sectors, in the country.

It is expected to assist the farmers, to deviate from traditional farm practices and to adopt modern scientific animal husbandry practices, by providing financial assistance, under the credit programme. Accordingly, it is compulsory to construct modern cattle sheds, to keep the animals inside, instead of allowing them, to roam in the field. Further, a part of the loan funds could be utilized, to feed the cows, with concentrated feed, grass and fodder, with adequate water and required veterinary care too. Farmers are allowed to keep local breeds, or cross breed and if available, they could purchase hi-breed animals too, with the loan funds. However, the loan limit will be determined, on the basis of the veterinary surgeon’s recommendations, on the capacity of each farmer.

The veterinary surgeons will examine the experience of the farmer, availability of water and fodder and other necessities, when they issue such recommendations. Further, the CBSL in association with lending banks, will make arrangements for Forward Sales Contracts (FSCs), between the dairy farmers and milk collecting companies, to ensure a stable market, with a remunerative price for liquid milk.

Loans could be obtained for the following purposes:

1. Construction of cattle sheds

2. Purchase of cows

3. Purchase of concentration feed, veterinary services and drugs etc.

4. Construction of bio-gas tanks

5. Any other requirements recommended by veterinary surgeons.

The loan limits extend from Rs.50,000 to Rs.400,000 per borrower, at an interest rate of 12 percent per annum. The maximum repayment period is five years.

In addition, liquid milk processing industries are also eligible to receive bank loans, under the credit program up to a maximum of Rs.300 million, per industry. Interest for such loans will be 14 percent per annum, and a maximum of five years is available, for repayment. Such an industry is required, to make an arrangement with 2,000 to 10,000 dairy farmers, to purchase liquid milk under FSCs.

Further, agro-based industries are also eligible, to receive loans at 14 percent per annum, under the credit program, up to a maximum limit of Rs.300 million per borrower. Such industries are required to enter into FSCs, with 1,000 to 10,000 farmers to purchase their produce. The CBSL and lending banks will assist the industries, to enter into FSCs with farmers.

The loans are available for the following purposes:

1. Construction of industrial buildings/modernization

2. Purchase of modern machinery and equipment

3. Storage, cold rooms and transportation services

4. Other required services, equipment for maintenance of standards.

The loans would be available from the following Participating Financial Institutions (PFIs) under the Loan Scheme:

Bank of Ceylon Ruhuna Development Bank

People’s Bank Wayamba Development Bank

Hatton National Bank Kandurata Development Bank

Commercial Bank Rajarata Development Bank

Sampath Bank Sabaragamuwa Development Bank

Seylan Bank Uva Development Bank

Lankaputhra Development Bank SANASA Development Bank

The Government provides an interest subsidy at 5 percent per annum, to PFIs enabling them to keep the on-lending rates lower, as given above.