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Sunday, 11 January 2009

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CBís rural credit programs a success

The interest subsidy mechanism introduced by the Central Bank (CB) for rural credit programs, mainly focusing on the agricultural sector has been highly successful, the Director, Regional Development Department of the CB W.M. Karunaratne told the Sunday Observer.

With the success of the mechanism tested under earlier credit programs the CB has launched a credit scheme to promote the dairy industry in the country. The Agro Livelihood Development Loan Scheme (ALDLS) is targeted at commercial production and marketing of liquid milk.

The loan scheme was launched in April last year and it is expected to disburse Rs.500 million. The loans are issued at a concessionary interest rate of 12% while the government provides 8% interest subsidy to the banks.

If the banks achieve the targets set by the Central Bank it would provide an additional incentive interest of 3%. The banking sector is the main partner of this scheme and there are 13 state and private commercial and rural development banks engaged in the program and they use their own funds in this program, Karunaratne said.

Under the program the banks will help small and large scale dairy farmers to upgrade and modernise their farms and increase production or start new ventures. Karunaratne said that the loans are targeted at only commercial ventures and not livelihood or nutritional objectives.

The farmer should be able to show earnings of Rs. 10,000 net profit per month from the project to get the loan. To address the marketing issues in the industry the CB will extend the same credit facilities to the corporate private sector or small industries to collect milk and start value added production.

In 2008, 3,462 farmers and 60 industries registered to obtain loans and Karunaratne said that all of them will receive loans.

The loans total Rs. 853 million while the government will spend only Rs.42 million as an interest subsidy. The CB expects to provide loans for 15,000 farmers this year.

In addition to financial support, the Central Bank has designed an extensive system to provide technology, knowledge, veterinary care service, provide high yield milch cows, nutrition aspects and cultivation of high quality grass.

The CB provides incentives for the governmentís Veterinary Surgeons and Livelihood Development Instructors in the area, based on the achievement of the targets.

The new Comprehensive Rural Credit Scheme (NRCS), a similar loan scheme now implemented by the CB and the banking sector has released over Rs. 9 billion to farmers, traders and the processing and value added industries targeting the whole value chain of agricultural production.

The Treasury has spent around Rs.100 million as the interest subsidy under this scheme.

The NRCS has shown impressive results and today we are able to break the monopolies in the agro product markets including paddy, maize and several other cereal crops.

The market trend has changed. Earlier, after the harvesting started paddy prices started to decline. But today this trend has reversed because thousands of traders have entered into markets with the low interest credit.

 

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