The State Bank of Pakistan is making a strenuous effort to encourage banks to increase and diversify their loan portfolios to cater to the multiple needs of agriculture and livestock sector. But it has yet to come to grips with the social reality in the rural areas.

This comes out from a few interesting facts about changing pattern of agricultural credit from a speech made at the recent Dawn Sarsabz AgriExpo by Syed Samar Hasnain, SBP Executive Director.

He informed the audience that overall share of the agriculture in total loan portfolio is only 6.5pc, and the central bank is working hard to progressively increase it. The agri- credit target was increased to Rs500bn, which, he said, would cover 50pc of total credit requirement of the sector.

Out of 6.6 million farming families, formal credit has reached less than two million borrowers

And, the banks had disbursed Rs289bn by February — 32pc more than the figure for the same period last year. The non-farm credit to segments like livestock is picking up and its share has surpassed farm-sector credit. The ratio of non-performing loans is down to 1pc from 18pc in the last few years.

Throwing light on agri-credit strategy, the State Bank official said like more than 100 central banks across the world, the SBP accords priority to development finance and financial inclusion.

The central bank has created enabling regulatory and prudential environment to promote flow of financial services to this sector With a view to ensure easy flow of affordable financial services to small farmers, the SBP in consultation with the federal government, has developed a Credit Guarantee Scheme for small farmers.

Yet another major move it has taken is the market development strategy. It is actively working to promote Warehouse Receipt (WHR) financing, which will not only improve storage standards but will also provide a new financial instrument to farmers, particularly small ones, to obtain credit.

Other measures include an enabling environment for the banks to use innovative and technology-based mechanisms. The central bank is supporting leading banks to undertake pilot of value chain financing in various areas.

The bank has placed special focus on cluster development through introduction of pilots that extend credit to other under-served sectors such as horticulture and fishery.

The bank has introduced a Livestock Insurance Scheme for borrowers. The government provides premium subsidy for small farmers as is being done in case of crop loan insurance.

To address capacity constraints of banks, the SBP is managing various training programmes for agri-credit officers of commercial/microfinance banks. It has also launched farmer’s financial literacy programme.

But what the State Bank, along with other financial institutions, needs to do is study more deeply the nature of the agriculture sector, its loaning requirement, and no less important the social realities of the rural Pakistan and try to tailor loaning policies accordingly.

Unless that is done, the present picture, wrapped in banking parlance, however rosy, would sound out of context.

Despite the best efforts, the formal sector has never been able to meet even 50pc of the loaning requirement of the sector. Farmers claim that over 70pc of their crops are still pledged to middlemen.

There is another way to look at the same reality; out of 6.6m farming families, formal credit has reached less than 2m borrowers.

The State Bank of Pakistan needs to conduct some studies on loan processing and clientele profile; how scheduling, re-scheduling and transfer of loans is in the works.

This shifting of loans on the papers limits the impact on ground but still help meet banks their stipulated targets. Barring tractors, where both federal and provincial governments are pumping subsidy every year, the presence of every other implements on the farms is not picking up fast, be it harvesters or chisels. Same has been the case of farm inputs.

The mix of crop and development loans also need to be looked into. The development part hardly forms 10pc.

Published in Dawn, Economic & Business, April 6th, 2015

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