ISLAMABAD, Dec 20: The Asian Development Bank has approved $250 million loan for Pakistan to develop Rural Finance Sector Programme.

According to an announcement made by the local ADB office here on Friday, the programme has been designed to assist the government in accelerating rural economic growth by addressing key constraints in rural finance to attain self-reliance in agricultural commodities, ensure food security and generate more employment opportunities.

Despite comprehensive structural reforms and a more stable macroeconomic situation, the high incidence of rural poverty remains a major concern in Pakistan.

The lack of affordable, widespread, rural financial services constrains economic growth in rural areas, and results in low employment generation. The potential client base for rural finance is estimated at nine million rural households, consisting of both poor and non-poor households.

Formal financial institutions provide only one fourth of the estimated credit demand from the rural sector with and its reach is confined to 800,000 rural households.

Affordable financial services are not available to most of the rural enterprises, small and subsistence farmers and the landless. The gap is filled by the informal sources such as landlords and input suppliers who provide intermittent short duration loans at very high interest rates that reflect the weak bargaining power of the borrowers.

The objective of the programme is to ensure permanent access to institutional financial services for a majority of rural households at minimal transaction cost.

This will be achieved by establishing a sustainable rural finance system, which will provide affordable financial services to rural markets, with emphasis on middle and lower segments of the market.