KARACHI, Aug 5: Agriculture sector in Pakistan needs Rs292.5 billion credit during the current fiscal year or more than double the banking system is expected to offer. The annual credit plan envisages Rs130 billion agricultural credit during this fiscal year up from the actual disbursement of Rs108.6 billion in the last fiscal.

This will meet less than half the overall credit requirement of the farmers’ community. In the last fiscal year, when agriculture sector received a record Rs108.6 billion bank credit, its actual requirement was Rs251.6 billion.

For this fiscal year, provincial governments and the government of Azad Jammu and Kashmir have estimated total credit requirement of the farmers across Pakistan at Rs292.5 billion, according to annual credit plan documents.

This means if the banking system lends the targeted amount of Rs130 billion to the farming community it would meet only 44.4 per cent of their demand. As the banking system fails to meet the bulk of credit demand of farmers, they turn to traditional informal money lenders who charge very high markup.

“At present, we have to pay up to six per cent markup on informal borrowing on monthly basis,” revealed a Sindh-based rice grower and exporter Dr Raham Ali Shah. Six per cent monthly or 72 per cent annual interest rate is unsustainably high for any grower. And “those who borrow from informal lenders keep paying the interest on loans for generations.” This also limits farmers’ ability to increase their production.

Banks making loans to agriculturists currently charge 9-13 annual mark-up which is far lower than what the traditional money lenders charge. Representatives of farmers say the interest rate on informal lending varies from area to area but generally ranges between 48 and 72 per cent per year.

The province-wise break-up of the credit requirement of farmers show that the need for bank credit in the Punjab is the highest at Rs200.75 billion for this fiscal year; followed by Sindh (Rs54.25bn); NWFP (Rs27.6bn); Balochistan (Rs9bn) and Azad Jammu and Kashmir (Rs900 million).

Senior bankers say the banking system cannot obviously meet the entire credit demand of the farming community during this fiscal year or for a few more years. But they are optimistic that after a couple of years, banks would be satisfying farmers’ demand. They say that improving rate of recovery of agricultural loans and banks’ increasing focus on farm sector as a viable avenue of lending would help them do this.

“Our rate of recovery is improving. So we will naturally lend more to this sector in the times to come,” said an official of National Bank. His bank made Rs35 billion recovery in the last fiscal year against fresh disbursement of Rs15 billion farm loans, thus recording a 234pc rate of recovery. Other four major local banks also reported impressive rates of recovery ranging between 88.6pc and 93.4 per cent.

Five major banks namely National Bank, Habib Bank, United Bank, Muslim Commercial Bank and Allied Bank are among the 21 banks that disburse agricultural credit under the State Bank’s scheme. Other banks include Zarai Taraqiati (Agricultural Development) Bank, Punjab Provincial Co-operative Bank and 14 local private banks.

Fourteen local private banks as a group demonstrated a recovery rate of 118 per cent during the last fiscal year but ZTBL and PPCB showed lower rates —

53.8 per cent and 57.2 per respectively.