KARACHI, Feb 18: The Sindh government has turned down a suggestion of the Advisory Committee on Agricultural Credit (ACAC) of the State Bank of Pakistan to convert the Sindh Provincial Cooperative Bank into a micro-finance bank.

Instead, the Sindh government has decided to set up a government-private sector partnership commercial bank on lines of Bank of Punjab, Bolan Bank and Bank of Khyber now operating in Punjab, Balochistan and NWFP.

The Sindh Provincial Cooperative Bank has been closed down for last more than 15 years after it failed to recover about Rs1 billion from the farmers and the Federal Cooperative Bank stopped offering a fresh line of credit. The farmers' contention was that they had paid back much more than the principal amount as interest on the loan and hence refused to service the credit any more.

Revival of the closed cooperative bank in Sindh was raised in almost all the annual and mid-term review meetings of the ACAC. Last time the issue was raised in the annual meeting of the ACAC in July 2004.

Then in 2004, the Sindh government had agreed to set up the micro-finance bank as representative of the Sindh government informed ACAC that the provincial law department was examining the issue. He had said that the Sindh cabinet had agreed in principle to set up the micro-finance bank.

In fact, the ACAC has asked Punjab government to convert its Provincial Bank into a micro finance bank. Performance of Punjab Provincial Cooperative Bank is also far from satisfactory.

It was given a recovery target of Rs 6.14 billion in the current fiscal year out of which it could recover only Rs2.20 billion or about 36 per cent. Its disbursement target has also fallen short of the target.

But in Sindh a Cabinet sub committee that included finance minister Syed Sardar Ahmad, the dismissed Revenue Minister Imtiaz Sheikh, three bankers and a few bureaucrats decided to shelve the proposal of setting up a micro-finance bank.

"The idea of micro-finance bank was put off after bankers advised that recovery is slow and the private sector would prefer to stay away from such a project," Imtiaz Sheikh had informed Dawn by telephone on Thursday before the Sindh Chief Minister came out with his dismissal notice.

According to Imtiaz Sheikh the proposed commercial bank will have 60 per cent private sector share and 40 per cent government shares. The government will have directors on the board but the bank will be managed and run by the private sector.

About 40 per cent transactions of this bank will be at micro level to support farmers and rural population. He said that a Committee of bankers and civil servants has been formed to prepare a blue print of the proposed project.

The project will be processed at different levels of the government and vetted by the law department before approval of the cabinet. Once the cabinet approves the project, the Sindh government will approach State Bank to obtain a licence.

The Sindh government is venturing into commercial bank business with a drag of scandalous Mehran Bank in not too distant past. Like Standard Bank, the Lahore Commercial Bank and a few others Mehran Bank was also a hunting ground for Pakistan's premier intelligence agencies, top politicians and businessmen. More than Rs5 billion loans were never recovered and was given as a liability to the NBP.