In a six-step action plan, the State Bank of Pakistan last week listed measures that it has decided to take for improving agricultural credit. These steps include: creation of Financial Innovation Challenge Fund in Rural and Agriculture Finance, Internship Programme for 100 top agri-graduates and upward revision of credit disbursement target from Rs360bn to Rs380bn.

Other decisions were: banks to be assigned targets for outstanding agri-portfolio and a number of borrowers to have high impact of agri-financing at grass roots level from the current year; make agricultural finance a key indicator of performance of banks; setting up of a working group to review the state of affairs of small farmers financing and make recommendations for increasing financing and bring in additional small farmers into this formal financing system.

The decision came after the release of the bank report earlier this month on agriculture loans disbursement during the first half of the current fiscal, which indicated that the financial institutions have achieved 44pc of the indicative lending target of Rs360bn. The Zarai Tarqiati Bank Limited, however, reeled behind at only 34pc of its target – disbursing only Rs23.7bn against its annual target of Rs70bn. Commercial banks, though, did better than the ZTBL, but were still lagging 6pc behind the target.

In order to improve loaning, the SBP had earlier enhanced per acre loan limits for major and minor crops, orchards and forestry, which it now plans to cover with additional Rs20bn by which it is increasing loan target. The revision provided a yardstick for banks to assess the credit needs of different crops.

These measures, revision of loan ceiling and regular release of data – can only be welcomed as they constitute steps in the right direction. However, all of them miss the most essential point that all banks advance loans according to their administrative convenience, instead of these sectoral requirements. That is precisely the point where the State Bank of Pakistan needs to put its weight and lead a paradigm shift. One finds many urban areas of the country grossly over-banked while the rural areas are seriously neglected in this regard. There is a dire need to correct this imbalance.

One should also not forget that all these banks advance agriculture loans on commercial, not subsidised rates. They avoid agriculture loaning only because borrowers are farmers of smaller means, as compared to that of industry, and the banks have to deal with a long list of clientele. This is hardly a sound reason for the State Bank of Pakistan to let commercial banks ignore its agenda for agricultural growth.

The financial institutions provide only 30pc of national agriculture loan requirements. The remaining 70pc comes from highly exploitative source: the middleman. The middlemen hurt farmers and farming on two accounts: high rate of interest and keeping the crop as collateral. If banks are pushed into rural areas, they will leave little room for the exploitative elements like middlemen and, in fact, will help agriculture grow by supporting production line.

A new issue that farmers have consistently been complaining about is that of collateral. The land prices in Punjab have skyrocketed over the last decade. A farm acre in the province now costs between Rs4.5-5m.

The banks, however, keep the entire acre as collateral even for less than 1pc of loaning against the value of land. This fact is even indicated in revised the schedule of the State Bank of Pakistan. Even that range varies between Rs29,000 to Rs53,000 per acre. Does holding Rs5m collateral make sense for that? The State Bank also needs to look into this area and rationalise the loan and collateral ratio.

Without being critical of what the State Bank has done in the last month or so, one can suggest that this process needs to be taken further to include other areas of farmers’ concern as well. The farmers’ worries are already documented. There is hardly any need to form new committees for them. It is time to address the imbalance, which right now is grossly tilted in favour of banks.