March 15, 2006	Wednesday	Safar 14, 1427

KARACHI, March 14: Banks are lending more to growers but are not reaching out to new farmers; they are rather serving lesser borrowers than in the past. Also, banks’ loaning for crop production is growing faster than the lending for farm development.

Let the numbers tell the story: Banks’ agricultural lending rose to Rs62 billion in July-Dec 2005 from Rs49.5 billion a year-ago. But the number of borrowers served by them declined to 488,000 from 551,000. So, whereas the amount of agricultural loans increased by 25 per cent, banks’ outreach to the farmers declined by 13 per cent.

Out of the total agricultural lending of Rs62 billion during July-December 2005, Rs46.8 billion went to agricultural production and only Rs5.4 billion were disbursed for the farm development. (The remaining loans were directed towards livestock, poultry and dairy farming etc).

During July-Dec 2004, out of the total agricultural loans of Rs49.5 billion, Rs36.2 billion were disbursed for crop production and Rs4.8 billion for farm development. So, in July-Dec 2005, production loans increased by 29 per cent, development loans went up by a mere 12.5 per cent.

An analysis of the historical data obtained from the State Bank’s publication shows that what happened in the first half of the current fiscal year, was a continuation of the trend seen earlier. Over the years, banks have failed to expand their agricultural borrowers’ base substantially though they have managed to lend more to the farmers. And, they have also not been able to increase farm development loans as fast as they have boosted crop production loans.

In its annual report for the last fiscal year, the State Bank had highlighted this issue besides, pointing to even more disturbing findings. And one of those findings was that the number of borrowers with minimum land holdings had also fallen sharply, which effectively meant that banks were not serving the small farmers. The trend continued in the first half of the current fiscal year as well.

During July-Dec 2005, the number of small farmers, who received agricultural bank credit from banks, declined to 385,000 from 448,000 in July-Dec 2004.

About one-fourth of Pakistan’s GDP is generated through the agriculture sector. So, increasing the efficiency of this sector would have an immediate impact on the country’s economic growth. That agricultural lending is a tool, through which this purpose can be achieved, is beyond any doubt. And farm lending can play a stronger role towards this end if banks increase not only the volume of agricultural lending but also expand the borrowers’ base and lend more towards farm development.

Farm development loans include the loans to farmers for the purchase of tube wells and tractors; for enabling them transport their produce from farm to market; for constructing godowns and storage facilities; for buying agricultural machinery and for processing of high-quality seeds etc. A slower-than-desired growth in farm development loans means that farmers remain ill-equipped to meet the challenges of the agricultural growth in the years to come. This combined with the fall in the numbers of people getting agricultural loans from banks means further deterioration in the potential performance of the agriculture sector.

And shutting the doors of bank credit on small farmers is more worrisome because that may push a few hundred thousand more below the poverty line. The reason is that whereas banks charge 9-13 per cent mark-up on agricultural loans those, who cannot borrow from banks, have to pay up to 48 per cent for seeking loans from local moneylenders. Obviously, farming with such a huge financial cost, can only leave the farmer poorer.

Twenty-one banks involved in disbursement of agricultural loans are supposed to make Rs130 billion agricultural loans during the current fiscal year against last year’s Rs108 billion. In seven months (July 2005 to January 2006), they have already lent Rs71.7 billion, up from Rs57.5 billion in a year-ago period.