GEOGRAPHICAL and sub-sectoral disparities in agriculture credit distribution may soon be addressed with farmers of smaller provinces and less-banked agri-businesses getting better access to finances.

On the advice of the Agricultural Credit Advisory Committee (ACAC), the State Bank of Pakistan is considering setting sub-sector and district-wise targets for banks, sources in ACAC say.

While banks continue to follow an old pattern of agricultural lending, dictated more by their own preferences, this is now going to change.

State Bank officials say the geographic and segment based allocations of agricultural lending could be done after seeking banks’ input

The SBP gives banks monetary targets for agricultural lending, which they try to meet by lending more to old borrowers, or, by making fresh loans to new and influential borrowers. They seldom care about credit concentration in a particular region or in specific areas of farming, growers complain.

“Banks don’t bother to find out who needs more bank credit, where and for what,” an ACAC member told this writer, adding, that this issue was highlighted at a recent meeting of the committee in Multan.

State Bank Governor Ashraf Mahmood Wathra acknowledged this shortcoming at a briefing in this ACAC meeting. Sources privy to the meeting say the SBP officials reassured ACAC that geographic and sub-sectoral allocations of agricultural lending could be done after seeking banks’ input.

“Banks do not discourage new borrowers or neglect farmers living in a certain region,” head of one of the top five banks told this writer. But he admitted that ‘due to several issues, not each segment of the sector gets its due share, and geographical unevenness in credit distribution also persists’.

Farmers’ lobby groups keep pressing banks to end unjustifiable unevenness in credit delivery, whether geographical or sub-sectoral. But it is not quite easy to establish that banks’ lending patterns point to ‘unjustifiable’ geographic or sub-sector based imbalance, says a senior central banker.

“We have to look at the historical data of each individual bank, seek clarifications if we find anything wrong and then set region-specific and segment-specific lending targets for them after due consultation.”

That is a huge, time-consuming task. It means that regional and segment specific lending targets cannot be assigned to banks anytime soon, some central bankers say. But it is easier to make improvements in a broader context.

For example, initially, a provincial breakdown of lending targets can be set. Or banks can be pushed for higher lending in some broad categories of agri-businesses that have been neglected thus far like minor crops and animal husbandry services, they opine.

Gross agricultural lending has been growing with an uptick in agricultural growth. In FY16, banks lent Rs598bn to the sector, up about 16pc from Rs516bn in FY15.

And in the first half of this fiscal, about Rs302bn have been disbursed against the year’s target of Rs700bn, official stats reveal.

“However, agricultural lending remains heavily skewed in favour of Punjab and even within the provincial credit disbursement there, lending activity takes place more briskly in some areas than in others”, complains an official of Agri Forum Pakistan.

“But whether such imbalances are resulting from higher demand, quality of bank loans or banks wilfully neglecting some regions, has to be investigated,” says a former SBP executive director.

Another common complaint of borrowers is that big banks neglect small growers and small dairy farmers. Bankers defend by saying that with very active involvement of microfinance banks, this issue has been addressed to some extent.

Besides, the SBP stats also reveal a gradual rise in lending to small and medium-sized growers over the past few years. “Two key issues, however, are worth examining. First, whether banks are offering adequate finance to agricultural SMEs and second, whether they are open to meeting credit demand originating from hitherto neglected areas,” according to a former secretary of Sindh Agriculture Department.

Bankers say, of late they have started focusing on lending to SMEs in agriculture and boast of a 16pc growth in it in the last quarter of FY16. They claim that the trend is in progress. (More recent data is not available).

But the very fact that the total number of such SMEs by end-June remaining below 9,000 suggests that banks are not entertaining credit demand originating from smaller SMEs in agriculture, the number of which runs into tens of thousands.

Complaints of imbalances in agricultural lending are bound to rise as high-tech start-ups in the agriculture sector keep coming up and, in an environment of traditional lending practices of banks, they feel left out.

So, there is a need to revamp the whole system of agricultural lending to align it more with the needs of the emerging market, ACAC sources say, adding that the committee has already been working on it.

Published in Dawn, Business & Finance weekly, February 20th, 2017