KARACHI, July 17: The State Bank of Pakistan has announced launching of a crop loan insurance scheme for farmers throughout the country from Rabi season.

The decision in this respect was taken at a meeting of the SBP Task Force on Crop Loan Insurance Framework, chaired by SBP governor Dr Shamshad Akhtar, here on Thursday.

The meeting was informed that insurance companies and banks had agreed to start the scheme.

The task force, constituted by the SBP governor last year under the chairmanship of Habib Bank Ltd president, was assigned to develop a commercially viable and sustainable crop loan insurance scheme with the help of all stakeholders to mitigate the risks of losses occurring to agricultural borrowers due to natural calamities and risks of defaults to banks by such borrowers.

Dr Akhtar said that major commercial banks and insurance companies had developed their crop insurance programmes/products based on the framework developed by the task force and some of these had already come to the market.

“Therefore, the objective of the task force to develop a commercially viable and sustainable crop loan insurance scheme (CLIS) that can be adopted by the market players has been accomplished,” she declared.

“It is hoped that the scheme will not only facilitate banks in expanding their outreach of agricultural credit but will also reduce burden on national exchequer,” the SBP governor added.

The chairman of the task force and HBL president Zakir Mahmood explained that development of a market-based system was a challenge, particularly in the backdrop of many unsuccessful moves, made in the past two decades.

The task force adopted a strategy to review lessons of international best practices, he said and added many data series were compiled by the SBP on calamities announcements, crop-wise, and district-wise loan disbursements, size of production loans, data on write-offs and non-performing loans and other seasonal analysis.

The insurance companies also shared the database with reinsurers abroad and after detailed deliberations a workable, viable and market-based framework has been formulated, he said.

He pointed out that the proposed framework is based on common denominators acceptable to leading insurance companies and banks.

The scheme would provide cover to borrowers against their losses due to natural calamities up to the amount of outstanding loan and mark-up.

The insurance companies will charge a maximum of two per cent premium for all major field crops and the risk is covered against excessive rains, hail, frost, floods, drought, and crop-related diseases like viral and bacterial attacks or damage by locusts.

The scheme will be mandatory for borrowers of banks.

The representatives of the insurance companies said that after successful implementation, the insurance cover would also be extended to non-borrowing farmers.

Dr Akhtar emphasized on development of a comprehensive database of the experience of insurance companies and banks for reviewing issues and remodelling of the framework periodically.

The task force would be called upon to review the developments after some experience is gained on implementation of the crop loan insurance scheme.