December 10, 2007	Monday	Ziqa'ad 28, 1428

GONE are the days when investors could set up industrial projects involving an investment more than ten times the money they had with them at that time.

Amjad Rashid, Chairman of the Banking and Finance Credit Committee of the Federation of Pakistan Chambers of Commerce and Industry, recalled in the meeting of the Private Sector Credit Advisory Council (PSCAC) of the State Bank of Pakistan on December 3, how in 1983 small and new investors like him were helped by more than half a dozen development financial institutions and other agencies by way of bridge financing, fixed investment loan, working capital etc.

“Not so now’, he lamented and complained that banks at present were focusing more on speculative business of stocks, real estate and commodities rather than on real sectors—industry and agriculture.

“Many of the big industrial groups owe their present status to the liberal credit policies in the eighties which allowed new and small entrepreneurs to enter the industry and flourish’’, said Amjad Rashid, who now presides over an industrial and business group after having worked in a bank and then as a consultant for some time.

“The banks have closed their doors on new and small business groups,” he observed while asking “tell me how many new industrialists have come in the field in last 15 years?’’

A presentation on banking credit to trade and industry, agriculture, housing, consumer finance and small and medium enterprises at the Credit Council meeting by the Governor of State Bank of Pakistan, Dr Shamshad Akhtar, with the help of her directors failed to convince the representatives of business and agriculture on the central bank’s credit policies.

“Credit utilisation by the private sector has been reduced to Rs365.7 billion in 2007 from Rs401.8 billion in 2006’’, Mirza Ikhtiar Baig of FPCCI Credit Council, who participated in the meeting, said.

This reduction in credit utilisation is because of fall in industrial investment and slowing down of working capital loans, he added.

He pointed out that the growth in loans for large-scale manufacturing came down to eight per cent in 2007 from 18 per cent in 2004. There has been a drop of 37 per cent in import of textile machinery.

The business leaders blame the tight monetary policy for retarding industrial growth. The monetary policy has also failed to control inflation which now appears to be gathering more strength at the end of the current calendar year.

The State Bank shares the perception of a decline in credit utilisation but attributes it to lower demand by the corporate sector and a cautious lending policy by the banks.

Yet, it reveals a pick up in private sector’s demand for credit since September 22 that obviously corresponds to increasing demand from textile mills for cotton.

The private sector credit since last week of September stands at Rs123.5 billion - Rs20 billion more than that in the corresponding period last year.

A startling disclosure by the State Bank is a sharp fall in share of the state-run banks in private sector credit up to mid-November.

It has come down to 3.5 per cent from last year’s corresponding figure of 24 per cent. Private banks and the privatised banks continue to be major lenders and have provided 71 per cent of total loans in fiscal 2007 that has now gone up to 93 per cent in more than five months of the current fiscal year.

Foreign banks offered five per cent of the industrial credit during the last fiscal year. Up to mid-November this year, their share was only 1.1 per cent.

Till mid of November 2007, the private sector credit has expanded by Rs86.9 billion compared to Rs111.7 billion in the same period of last fiscal year.

The State Bank’s view is that the expansion in credit is in line with last three years’ comparable average growth.

The textile sector continues to get the lion’s share in the bank credit and received a total of Rs16.8 billion during July and mid - November as against Rs3 billion in the same period last year.

An analysis showed that textile sector got Rs28.2 billion working capital against the last year’s retirement of Rs1.6 billion(till mid-Nov). But Rs11.4 billion fixed investment loans were retired as against credit of Rs4.6 billion during the same period last fiscal year.

Construction is one area where bank credit is in much in demand. A total of Rs5.1 billion has been advanced so far as against Rs500 million in the corresponding period of last fiscal year.

Electrical machinery and electricity, gas and water are the other areas which received a little more credit so far this year.

But growth in credit expansion so far in agriculture is substantially lower at Rs7.3 billion as against the comparative figure of Rs12.2 billion of last year.

The State Bank findings show uneven geographical distribution of agriculture credit as bulk of it is going towards Punjab and the share of Sindh and Balochistan is constantly falling for the last five years.

For this, the responsibility, according to Syed Qamaruzzaman Shah, the President of Sindh Chamber of Agriculture, lies on the Sindh government.

The Punjab government has taken adequate measures to ensure that their farmers avail the maximum credit facility. The Punjab Provincial Co-operative Bank is functioning and helping farmers.

The Punjab Bank too contributes a lot to supplement credit of specialised and commercial banks.

The Punjab Board of Revenue did not waste a minute in circulating former Prime Minister Shaukat Aziz’s decision to increase the value of Production Index Unit (PIU) to Rs1,200 from Rs400 for collateral for bank loans.

In Sindh, the provincial co-operative bank was closed down 18 years ago on account of more than Rs1 billion loan default by big landlords.

More than 250,000 small farmers have not been issued passbooks. And the Board of Revenue is still to circulate the decision on increase value of PIU.

In the Credit Council meeting last Monday, a lady officer from the Sindh government had to cut a sorry figure when she remarked that her province was being given unfair treatment as regards agriculture credit.

“I am also from Sindh and want farmers to get their due share in the credit”, she said. The State Bank Governor promptly asked her to advise her government to take necessary steps to facilitate farmers to avail agriculture credit.

Mr Shah wants compulsory insurance cover for all bank loans to the farmers in Sindh as was being done in some parts of Punjab. He said that a premium rate of 1.5 to 2 per cent being offered by the government-owned National Insurance Company was acceptable to the farmers.

“In Sindh the banks are auctioning small farmers’ lands because of default,’’ he disclosed. He wants that farm insurance premium be shared by three stakeholders—farmer, government and the bank.

A State Bank report on agriculture credit found market distortions with lending at lower than market rate by the banks.

One of the participants of the Credit Council meeting said that bulk of the farm loans were being obtained by the influential landlords, commodity brokers and the middlemen.

Small farmers get credit from one of these three powerful segments of rural elite in the shape of inputs at almost double the cost of market rate and on more than 100 per cent interest by offering their crop as collateral. And hence the unending vicious cycle of borrowing and paying back that makes small farmers virtually bonded labour of the rural elite.