When it comes to funding through official channels, agriculture is one of the industries that receive the least attention.
In the wake of this year’s terrible floods, the governor of the State Bank of Pakistan (SBP) has stated that banks must assist the agricultural sector.
The biggest long-term threat to the nation, according to Governor Jameel Ahmad, who was presiding over the meeting of the Agricultural Credit Advisory Committee (ACAC), is climate change because of its unpredictable effects.
While the government, businesses, and society are aware of these risks, he continued, we must move quickly and set aside the necessary funds for the development of pertinent goods and services, as well as for increasing the capacity of stakeholders to address them preemptively.
Agriculture financing in Pakistan
A central bank report from the previous year states that just 6–10% of farm loans are provided for agricultural development and that 90–94% of loans are provided for production. In 2018–19, 6 percent of all agricultural financing was allocated to development loans. In 2019–20, this percentage increased to 6.7 percent, and in the first seven months of this fiscal year, it reached 10 percent.
Additionally, small farmers make up nearly 84% of the nation’s farmers, who depend on exorbitantly expensive credit from the informal sector to cover their Agri credit needs. These small farmers’ inability to offer collateral to banks has been one of the key causes of their financial isolation. The majority of agricultural loans offered in the nation are hard loans, meaning that banks demand collateral in exchange for securing the loan. Since farmers rarely own the land they work on, this is an uphill climb for them.
Governor’s remarks
Speaking during the ACAC meeting in Hyderabad, Governor Ahmed appreciated the country’s banks for achieving unprecedented agriculture credit disbursement of Rs1,419 billion in FY22. He noted that for FY23, a target of Rs1,819 billion has been set in line with the Government’s priority and added that during the first five months of FY23, Rs 664 billion has already been disbursed.
“The prime minister has announced the Kissan Package, comprising of restructuring and rescheduling of agriculture loans, mark-up waiver for outstanding small loans in flood affected areas, interest-free loans for subsistence & landless farmers and subsidized loans and risk sharing scheme for farm mechanization, besides other support measures”, he said.
The governor elaborated that the package will facilitate the recovery of farmers from the impact of recent floods and urged banks to implement the package in letter and spirit. He also assured SBP’s full support to the banks wherever needed.
The Governor also underlined that banks have a huge opportunity to exploit the untapped potential of Islamic agriculture financing concerning SBP’s recent commitment to the transformation of conventional banking to Islamic banking in the next five years. He noted that the share of Islamic financing in agriculture financing is still quite low and urged the industry to work on developing demand-driven Islamic financing products, specifically tailored to the requirements of the farming community.
The governor’s inaugural address was followed by a presentation on the performance of banks in agricultural financing. The ACAC deliberated on the new directions in agricultural financing particularly regarding climate-smart agriculture practices and the role that financial institutions can play. Moreover, the champion banks, nominated by the ACAC to spearhead the efforts in underserved areas, presented the progress in their respective assigned underserved provinces or regions.
