Un­even agri­cul­ture credit dis­tri­bu­tion

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BANK loans to the agri­cul­ture sec­tor in Pak­istan have been on a rise for some years, but farm­ers of smaller prov­inces com­plain of un­even credit dis­tri­bu­tion.

In FY13 and FY14, banks ex­ceeded their in­dica­tive agri­cul­tural lend­ing tar­get in Pun­jab, but they failed to meet the tar­gets set for the three other prov­inces and two sep­a­rate ad­min­is­tra­tive di­vi­sions.

Banks’ lend­ing to Pun­jab’s agri­cul­ture sec­tor to­talled Rs293.3bn and Rs339.1bn in FY13 and FY14, against the tar­get of Rs246bn and Rs294.7bn re­spec­tively. This re­sulted in over­all higher-than-tar­geted agri­cul­tural lend­ing of Rs336.2bn in FY13 and Rs391.4bn in FY14 for the whole coun­try — and the gov­ern­ment and the State Bank of Pak­istan have high­lighted this sev­eral times.

But the fact re­mains that farm­ers of Sindh, KP, Balochis­tan, Azad Jammu and Kash­mir (AJK) and Gil­git-Baltistan (GB) re­ceived lesser-than-tar­geted agri­cul­tural loans. This was not men­tioned as of­ten, ex­cept for in SBP re­ports.

‘Pro­vin­cial rep­re­sen­ta­tives in the agri­cul­ture credit ad­vi­sory body need to an­a­lyse what pre­vents banks from dis­tribut­ing enough credit to smaller prov­inces, and sug­gest cor­rec­tive steps.’

In the two fis­cal years, the three smaller prov­inces and two ad­min­is­tra­tive di­vi­sions re­ceived Rs45.9bn and Rs52.2bn in agri­cul­tural loans, against the in­dica­tive tar­gets of Rs69bn and Rs85.3bn re­spec­tively.

Bankers say agri­cul­tural lend­ing in Sindh would pick up soon as com­mer­cial banks as well as mi­cro­fi­nance banks are reach­ing out to un­der­served farm­ers. Be­sides, the Sindh Bank is a cat­a­lyst for boost­ing all sorts of lend­ing in the prov­ince.

But banks in KP and Balochis­tan are not func­tion­ing prop­erly due to se­ri­ous threats of mil­i­tancy, and, thus, can­not im­prove their farm lend­ing there any­time soon. In AJK, low agri­cul­tural lend­ing is at­trib­uted to banks’ lethargy, but in GB, the prob­lem of mil­i­tancy and sec­tar­ian killings keep banks from car­ry­ing out their rou­tine op­er­a­tions.

Some bankers say a big rea­son for low bank lend­ing to farm­ers of smaller prov­inces is the higher loan in­fec­tion ra­tio. Com­pared to other prov­inces, Pun­jab’s land records are bet­ter or­gan­ised and have lesser ti­tling is­sues, which makes agri­cul­tural lend­ing a bit eas­ier there, they say.

But it is dif­fi­cult to ver­ify their claim

in the ab­sence of pub­lished records of prov­ince-wise breakup of non­per­form­ing farm loans.

Farm­ers of smaller prov­inces, par­tic­u­larly of Sindh, say the Zarai Taraqiati (agri­cul­tural de­vel­op­ment) Bank sets the pace of farm lend­ing for other com­mer­cial banks, adding that low lend­ing by ZTBL leads to be­low­tar­get lend­ing by com­mer­cial banks as well. Mi­cro­fi­nance banks, how­ever, don’t fol­low their lead and have been lend­ing more evenly across the coun­try. As a group, their agri­cul­tural loan­ing ex­ceeds the in­dica­tive tar­get set for them.

One way to judge if banks are mak­ing agri­cul­tural loans ju­di­ciously could be the re­la­tion­ship be­tween the vol­ume of agri­cul­tural loans and the prov­inces’ share in the coun­try’s agri­cul­tural econ­omy.

In FY13 and FY14, Pun­jab got 87.2pc and 86.6pc of to­tal agri­cul­tural fi­nanc­ing, leav­ing just 12.8pc and 13.4pc for the rest of the coun­try re­spec­tively. Mean­while, Pun­jab’s share in the agri­cul­tural econ­omy is no more than 60pc.

Be­sides, ac­cord­ing to an In­sti­tute of Pub­lic Pol­icy re­search re­port au­thored by Mr Sar­taj Aziz, Dr Hafiz Pasha and vet­eran econ­o­mists, agri­cul­tural growth in Pun­jab av­er­aged 2.5pc be­tween 2000 and 2010, against 2.7pc in the rest of Pak­istan.

In ad­di­tion to ge­o­graph­i­cal un­even­ness, agri­cul­tural loan­ing also suf­fers from un­due tilt­ing in favour of farm pro­duc­tion, which ef­fec­tively re­duces lend­ing for de­vel­op­ment.

In the out­go­ing fis­cal year, to­tal agri credit dis­tri­bu­tion stood at Rs391bn, of which Rs197bn (or over 50pc) was of­fered for crop pro­duc­tion and only Rs16bn (4.1pc) was lent for agri­cul­tural de­vel­op­ment, SBP stats show. The re­main­ing amount was chan­nelled to other ar­eas like cor­po­rate farms, live­stock and dairy sec­tor, and fish­eries and forestry.

Be­fore FY14, the dis­burse­ment of agri­cul­tural de­vel­op­ment loans was even worse. That is why the av­er­age an­nual de­vel­op­ment lend­ing be­tween FY11 and FY14 comes to just Rs10.7bn, or 3.33pc of the an­nual av­er­age agri­cul­tural credit of Rs321bn dur­ing this pe­riod.

Since de­vel­op­ment loans for the farm sec­tor are of­ten used to pur­chase trac­tors, tube­wells, trol­leys, power gen­er­a­tors, wheat thrash­ers, grain sep­a­ra­tors and other equip­ment and ma­chin­ery, low lend­ing for de­vel­op­ment ef­fec­tively im­pedes farm mech­a­ni­sa­tion. And that, in turn, makes it dif­fi­cult to en­hance per-acre yields of crops.

Cen­tral bankers say the SBP has taken sev­eral mea­sures in the re­cent past to en­sure faster dis­burse­ment of agri­cul­tural de­vel­op­ment loans, in­clud­ing the in­tro­duc­tion of com­pre­hen­sive and im­proved pru­den­tial reg­u­la­tions. But they agree that some­thing needs to be done to push banks for more even agri­cul­tural lend­ing across all parts of the coun­try.

Farm­ers say pro­vin­cial rep­re­sen­ta­tives in the agri­cul­ture credit ad­vi­sory com­mit­tee, which sets in­dica­tive agri­cul­tural lend­ing tar­gets, need to an­a­lyse what pre­vents banks from dis­tribut­ing enough farm credit to smaller prov­inces, and sug­gest cor­rec­tive mea­sures.

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