Farm credit

Addressing the mid-term review meeting of the Agricultural Credit Advisory Committee (ACAC), State Bank governor expressed the hope to achieve agriculture loan target of Rs1,001 billion set for 2017-18 as banks disbursed Rs432bn during the first six months of this fiscal year. In this context he urged the presidents and CEOs of all banks to set up agricultural credit committees comprising all group heads in their institutions and personally head these committees. He said that due to improvement in agricultural credit infrastructure, the disbursement trend has improved in underserved provinces like KP and Balochistan. For prioritising agriculture lending, the SBP governor advised that internal agricultural credit committees would enhance collaboration and ensure effective monitoring of the credit within institutions. He also advised banks to adopt an effective farm credit management structure, with integrated reporting lines of agri-credit teams to make agri-finance a key indicator of banks' performance. The Governor appreciated the increase in agri-credit borrowers of banks by 182,000, mainly due to inclusion of borrowers by the microfinance banks.

Pakistan is an agriculture-based economy but in terms of productivity its performance is dismal. Lately the government is trying to bring improvement through better credit disbursement. Farming is not only a profitable business with huge cash flows but it also contributes significantly to the gross domestic product. This sector is a very vital component of Pakistan's economy and provides essential raw materials to downstream industries in most of the cases. The sector also contributes about 20 percent to the country's GDP and remains by far the largest employer absorbing over 42 percent of the country's total labour force. Keeping in view the importance of this sector in Pakistan's economy, the government has lately been focusing on improving agricultural productivity by systematic application of better inputs and advance technology, etc, which is not possible without adequate provision of credit to the agriculturists who generally do not have enough resources of their own to buy seeds, agricultural implements, etc.

The SBP has now assumed the role of a facilitator and developmental partner of financial institutions to accelerate the growth of agriculture finance in the country. It has taken important initiatives for improving the access of financial services to marginalised farmers. Some of the recent initiatives of the SBP are "credit guarantee scheme for small and marginal farmers", "framework for warehouse receipt financing" and "guidelines for value chain financing". Commercial banks too need to concentrate on agriculture financing. The financial institutions must strengthen their agricultural finance policies, increase dedicated human resource, simplify lending procedures and work diligently for creating mass awareness. It is a good sign that financial institutions extended Rs301.7 billion worth of loans to farmers in the first six months (July-December) of the last fiscal year, which is 43.1 percent of the indicative target for the year. In FY16, banks disbursed agricultural credit of Rs598.3 billion, which is nearly 100 percent of the overall annual target of Rs600 billion and 16 percent higher than the disbursement of Rs515.9 billion last year.

One cannot emphasise too much the need for collaboration of banks and government departments for the promotion of agriculture credit, enhancement of agriculture credit infrastructure in underserved areas and development of Shariah-compliant products and services for meeting the financial requirements of clients. Banks should allocate both geographical as well as sector wise targets and expand farm credit infrastructure, particularly in the underserved area. There is also a need for the development of a mechanism for providing wholesale lending products to microfinance banks and institutions to strengthen the outreach of small farmers.