KARACHI: The State Bank on Friday launched a Livestock Insurance Scheme to protect the interests of livestock farmers, who borrow from banks, in case of loss of animals due to disease, accident, flood, heavy rains or storm.

The decision was long due as the livestock sector makes 55 per cent of the agriculture and contributes 11.4pc to the overall GDP and has been growing much faster than other segments of agriculture.

However, most agri loans are still availed by the farming sector.

The SBP has launched this scheme in collaboration with Securities and Exchange Commission of Pakistan (SECP), banks, insurance companies and provincial livestock and dairy departments.

They have developed a framework for livestock insurance for bank borrowers. It is aimed at better financing of the livestock and dairy sector by mitigating the risk of livestock losses because of disease, natural calamities and accidents.

However, banks’ financing to livestock, dairy and meat sector is only Rs56 billion which constituted 17pc of total agriculture lending of Rs336bn in 2012-13.

“One of the major reasons for modest off-take of credit to this sector is the limited availability of appropriate insurance products or other risk mitigation tools,” said the State Bank of Pakistan.

The scheme will provide an essential risk mitigating tool to encourage banks to enhance flow of credit to the sector.

Under the scheme, banks will obtain insurance of all livestock loans of up to Rs5 million for purchasing animals.

The SBP has advised banks to implement the scheme as per given parameters and enter into agreements with reputable insurance companies for underwriting livestock insurance.

Banks may also negotiate with insurance companies for best terms in relation to insurance coverage for disability and theft of animals, premium rate, etc. as per mutual arrangement.

The State Bank of Pakistan will request the federal government to bear the cost of insurance premium of small farmers through budgetary support as is being done under Crop Loan Insurance Scheme.