The government has approved a new concessional loan scheme titled the Sustainable Agriculture Program, positioning it as a cornerstone policy to revive rural livelihoods and expand agriculture’s role in national economic growth. Set to begin next year, the program will channel Rs. 800 million into the sector through a revolving credit fund. Yet its launch comes as farming communities struggle to recover from recent cyclone-related devastation, raising questions about risk, readiness, and resilience.
Cabinet approval was granted this week for the program to operate annually, using Participatory Finance Institutions as its primary delivery mechanism. The initiative is anchored to the existing Smallholder Agribusiness Partnerships Program, funded jointly by the Government and the International Fund for Agricultural Development, with all loan recoveries redirected into a newly created Sustainable Agricultural Fund. Officials argue this revolving structure will ensure continuity of low-cost credit for future borrowers.
According to Cabinet Spokesman and Minister Dr. Nalinda Jayatissa, Rs. 800 million is expected to be allocated in 2026. Loans will be offered under two categories. Individual borrowers and institutions can access up to Rs. 5 million through agricultural and Samurdhi banks at a highly concessional 2% annual interest rate, with repayment periods extending to five years and grace periods of up to one year. Bulk loans, capped at Rs. 500,000 per beneficiary, will carry similar interest rates with shorter three-year repayment terms.
The scope of eligible activities is broad, covering cultivation, processing, value addition, input supply, crop procurement, exports, and other agri-related ventures. Policymakers see this as a pathway to boost productivity, strengthen value chains, and increase rural incomes while recycling public funds through loan recoveries.
However, analysts warn that the program’s timing presents significant risks. Cyclone-related flooding and infrastructure damage have disrupted planting cycles, destroyed stored harvests, and weakened farmers’ repayment capacity. In such a context, even low-interest loans may increase indebtedness if climate shocks continue and insurance or disaster-relief mechanisms remain limited.
There are also operational concerns. Participatory Finance Institutions vary widely in capacity and oversight standards. Without strong monitoring, concessional funds could be diverted to low-impact projects or politically connected borrowers, undermining both equity and repayment rates. Economists further note that a revolving fund depends on consistent recoveries something that extreme weather events and volatile commodity prices could easily derail.
From a macroeconomic perspective, the program could stimulate rural demand, generate employment, and support export earnings if implemented effectively. But failure to integrate climate-risk screening, crop insurance, and technical extension services could expose the Rs. 800 million investment to high default risk, ultimately burdening public finances.
As Cabinet approval clears the way for implementation, the Sustainable Agriculture Program stands at a crossroads. Its success will hinge not only on cheap credit, but on whether policymakers can align financial support with climate resilience, accountability, and post-disaster recovery in a sector increasingly shaped by extreme weather.
