Rural Credit

Sept 09, 2010 (LBO) – Branches of state banks in Sri Lanka’s war-torn northern and eastern areas topped the lists for giving loans under central bank supported credit schemes for rural agriculture development. Central Banks in high inflation countries including Zimbabwe have engaged in such quasi-fiscal activities starting many agriculture credit schemes. Central Bank ‘re-finance’ of such activities with printed money itself contributed to more inflation and poverty.

In the 1990s the central bank distanced itself from credit re-finance as its inflation management started to control chronic currency depreciation.

At a ceremony to give awards, central bank officials said the credit schemes especially for dairy helped conserve foreign exchange.

Chronic foreign exchange shortages also started in Sri Lanka after a money printing central bank was created with a pegged exchange rate in 1950. Import substitution activities and foreign exchange controls followed in rapid succession.

Central Bank Governor Nivard Cabraal said that the rural credit department of the Central Bank was considered a place of ‘punishment transfers’ when he came to the bank but he has revived its activities.