Agri credit

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. Recently talking to a delegation of the Pakistan Business Council (PBC), the State Bank governor disclosed that the government had set the agricultural credit target at Rs1.001 trillion for financial year 2017-18.

He said that although last year's target was largely met, the number of borrowers actually went down. This means that the money was not going to the farmers but those associated with the processing of agricultural produce. The SBP governor said the agricultural sector was now specifically focused on the availability of pesticides and fertilisers. As such, the SBP is also contacting the private sector for agricultural extension services in order to boost productivity.

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 (JulyDecember) 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. In this connection, ZTBL, earlier known as Agriculture Development Bank, which has largely relied on the rupee resources of the State Bank for its lending purpose, needs to be made much more efficient to stand on its own feet like any other financial institution. Similar is the case with co-operative banks.