IN the last fiscal year, Punjab claimed the lion’s share — about 88 per cent — of agricultural loans while the three smaller provinces and two federating units got just 12pc in aggregate.

In the current fiscal year, Sindh’s share in these loans is set to increase substantially, but Balochistan, Khyber Pakhtunkhwa, Azad Jammu and Kashmir, and Gilgit-Baltistan may not be as lucky.

Banks made more loans to the agriculture sector during the first half of this fiscal year, but it is difficult to say whether they can meet the ambitious full-year lending target of Rs1 trillion.

State Bank of Pakistan (SBP) Governor Tariq Bajwa, however, thinks meeting this target is possible. He shared his optimism at a recent meeting of the Agricultural Credit Advisory Committee (ACAC) on the basis of the half-yearly performance of banks, which lent Rs432 billion to the agriculture sector during the period compared to Rs302bn a year earlier.

Since agricultural credit remains higher in the second half of a fiscal year, the SBP chief’s optimism makes sense. But regardless of whether banks can meet the first-ever Rs1tr lending target, geographical discrepancies in the disbursement of agricultural loans remain.

Provincial breakdown of half-yearly lending data is not yet out, but bankers boast that they have accelerated agricultural lending in Sindh and other smaller provinces during this fiscal year.

Bankers say the province’s ability to help farmers become more creditworthy has led to an unusually high concentration of agricultural lending there

Figures for the first quarter (July to September) show that fresh flows of of such loans in Sindh swelled to Rs19.4bn from Rs10.9bn in the same quarter of last year. However, as a percentage of total quarterly agricultural lending, the province’s share has improved only modestly to 12.4pc from 10.5pc.

According to Sindh-based growers, larger loans to ginneries on the back of a bumper cotton crop expanded agricultural lending to the province in the quarter. Since ginning loans are expected to remain high during the second quarter as well and general demand for farm loans is growing, agricultural credit flows in the province should remain thicker in the current fiscal year than in the previous year, they add.

But growers’ lobby groups say, and bankers involved in farm lending agree, that the province’s share in the country’s total agricultural credit would not see any dramatic increase over the last year’s share of 10.1pc.

During the ACAC meeting, the SBP chief noted an increase in agricultural lending in Sindh, but kept emphasising the need for replicating it in other smaller provinces as well, sources privy to the meeting say.

“In case of Sindh, improvement in lending should remain strong throughout this fiscal year,” says the head of agricultural credit of a large local bank. “But no big change is in sight in case of Balochistan, KP, AJK or Gilgit-Baltistan, not at least during the current year.”

Banks can raise lending volumes this year, he says, but adds that such an increase would look greater only in terms of percentage due to low-base effect.

A participant of the ACAC meeting laments that agriculturists in Sindh have long been getting a smaller share (ranging between 9pc and 12pc) in agricultural loans, far less than the province’s contribution (of no less than 20pc) in Pakistan’s overall agriculture.

He speculates that Sindh’s share in total agricultural lending might increase to 13-15pc in this fiscal year, but even than it would fall short of farmers’ requirements and the province’s expectation on the basis of its contribution to national agriculture.

Bankers cite a few reasons that have led to an unusually high concentration of agricultural lending in Punjab. These include the province’s ability to help farmers become more creditworthy.

“No financial institution lends on the basis of prejudices. It’s all about credit history (of borrowers) and their creditworthiness,” says the head of a local bank, dismissing the notion that banks deliberately ignore smaller provinces and federating units.

He and some other bankers say that land-title issues are more complex and agriculture-based businesses are less developed in Sindh and Balochistan than in Punjab. Besides, in Sindh and KP traditional money lenders and big landlords have an old relationship history with poor farmers who cannot break away from this relationship for fear of societal and cultural repercussions.

Executive of commercial banks say these factors make it difficult for them to offer farm loans freely and generously in Sindh and KP. Microfinance banks, however, have no such qualms, and their agricultural lending is growing fast not only in Punjab but also in Sindh, KP and elsewhere, their officials claim.

In the case of KP and Balochistan, the past years of militancy and terrorism also continue to take a heavy toll on all economic activities including banking, bankers say. But growers insist this is only partially true as banks have been ignoring these provinces even before the rise of militancy and terrorism. Historical data also substantiate their complaint.

In Balochistan, the small banking footprint is also because of the sparse population of the province which makes it unfeasible for banks to set up branches. The rise of digital banking is addressing this issue and bankers hope that branchless banking will make up for the low number of bank branches in a particular district or province.

As for Punjab, officials of the agriculture department say that farmer-friendly policies introduced in the recent past keep agricultural lending high in the province.

They say the recent surge in the number of agricultural loan takers in Punjab shows that small growers and small-scale dairy farmers of the province have become more proactive.

In July-September, the number of agricultural loan takers in Punjab shot up to about 579,000 from 316,000 in the year-ago period.

Published in Dawn, The Business and Finance Weekly, February 12th, 2018