Pakistan Economy

Assignment
 Agricultural Credit in Pakistan

The agriculture sector of Pakistan is facing many challenges

including water and energy shortages along with the rising prices
of many important inputs such as seeds, fertilizer, pesticides and
obtaining easy loan. For the most part small farmers are
confronting strict conditions and they appear to be unable to live
with agriculture sector. They obtain credit depending on their
socio-economic conditions and they need credit to buy seeds,
fertilizers, pesticides, machines and other necessary input.
Agricultural credit means credit disbursed to farmers to meet their
financial needs. Agricultural credit has the ability to provide
financial resources to farmers especially for the purchase of
above mentioned things. There are two main sources from which
this agricultural credit comes either from farmer's saving or
borrowing from some institutions. But as we know formers from
less developed countries like Pakistan do not have excess money
to save and as they depend on formal and informal lenders
including specialized bank such as Zarai Taraqiati Bank Limited
(ZTBL) commercial banks, cooperative or some commission
agents.
 Sector wise and Holding/Size wise
Credit Distribution

In line with government's priority for agriculture sector development,

Agricultural Credit Advisory Committee (ACAC) has set the indicative
agricultural credit disbursement targets to Rs 1,250 billion for FY
2018-19 to 50 agriculture lending institutions including 19 commercial
banks, 2 specialized banks, 5 Islamic banks, 11 microfinance banks and
13 microfinance institutions/rural support Programs

Province-wise agriculture credit disbursement showed a double-digit

growth across all provinces and regions but banks struggled to achieve
the targets in underserved regions. He urged the banks and institutions
to step up efforts and commitment to ensure the achievement of
agriculture credit targets in the underserved provinces and regions. The
central bank governor pointed out that the SBP was considering three
policy actions to further promote financial inclusion in the agriculture
sector.

SBP's Initiatives for the Promotion of Agriculture Financing

For promotion of agricultural financing, some of the major initiatives

taken by SBP in collaboration with federal & provincial governments are
as under:

1. Crop Loan Insurance Scheme

2. Livestock Loan Insurance Scheme

3. Government of Punjab E-Credit Scheme

1. Crop Loan Insurance Schem

All commercial banks and microfinance banks (MFBs) involved in

agricultural lending and all insurance companies dealing in general
insurance interested to participate in this scheme Clients Eligibility All
borrowers availing Agri Production Loans from Banks/MFBs.
Applicability All agriculture production loans disbursed by banks/MFBs.
Declaration/ Qualification The name of the farmer and his/ her crop
must be entered in the Land Revenue record. The scheme will also be
applicable to tenants, lessees, etc. MFBs may ensure due diligence and
field verification of the total land holdings /cultivation of the borrower
to meet the requirements for submitting premium claims. Crops
Covered Major field crops i.e. Wheat, Rice, Sugarcane, Maizeand
Cotton.

Risks/Perils Covered Indemnity would be payable on the occurrence of

production loss due to:

Natural calamities like excessive rain, hail-storm, frost, cyclone, flood,

and drought, Crop diseases like viral and bacterial attacks, or any other
damage caused to the produce by infestation like locust attack, etc.
Coverage Period The insurance cover would be for the period from
sowing/transplanting of the crop to its harvesting except in the case of
sugarcane & fruits where, in addition to above, an explicit time period
(or fruiting season) should also be specified for the purpose of
insurance cover. Sum Insured Sum insured will be based on the per acre
borrowing limits prescribed by the State Bank subject to a maximum
amount agreed between the banks/MFBs and insurance company.
Government of Pakistan will bear the cost of insurance premium on
account of small & medium farmers (with land holding of upto 25 acres)
to a maximum of 2% per crop per season

Policy drawbacks

Highlighting the inefficiencies in the formal insurance policy, they point

to the late declaration of calamity by the government as a major issue.
After that, the bank or insurance company concerned sends their
representative or an independent consultant to assess the loss. This
causes a delay of around six months.Owing to the delay, the assessment
of field losses is not accurate. The assessors, most of the time, rely on
prediction rather than actual data. After the assessment, slow
disbursement of insurance claims takes at least another month. These
drawbacks force the farmers to borrow from informal sources for
planting their next crop. The money paid in insurance claims is also
meagre that neither covers the loss nor the input cost. Moreover,
political influence is another hidden factor found during consultation
with the farmers as such influences play a role in whether or not a
village should be declared calamity-stricken. Apart from these, absence
of political support leads to negligence of villages that are severely
affected by disasters but are never declared calamity-hit

How to improve things

Though the benefits of CLIS cannot be denied, there is always room for
improvement. Suggestions given by the farmers can provide useful
input for the policymakers and economists and help the growers to
cope with multiple challenges. In order to bring improvement, the
farmers recommend effective assessment of individual loss, quick
settlement of insurance claims, increase in the amount of claims and
giving cover to horticulture as well, especially oranges orchards and
vegetable crops. One of the key suggestions is to provide crop insurance
without linking it with formal credit at least in major growing areas. The
current CLIS mechanism depends on damage-based insurance, but it
can be improved by developing a weather or yield-based index. Such
agriculture credit policies are successfully functioning in neighbouring
countries such as India. They will help speed up the process of effective
and individual loss assessment to clear the way for releasing claims
before the start of plantations in the next season.

2. Livestock Loan Insurance Schem

According to the SBP, the livestock insurance scheme will provide an

essential risk mitigating tool to encourage banks to enhance flow of
credit to this highly potential and underserved sector. The scheme will
safeguard the interest of farmers, who borrow from banks, in case of
death due to disease, accident, flood, heavy rains and storm of their
buffaloes, cows and bulls. Under the scheme, banks will obtain
insurance of all livestock loans up to Rs5 million for the purchase of
animals. The SBP has asked banks to implement the scheme according
to given parameters and enter into agreements with reputable
insurance companies for underwriting livestock insurance for their
borrowers. Banks may also negotiate with insurance companies for best
terms relating to insurance coverage for disability and theft of animal,
premium rate, etc. The SBP said it would ask the government to bear
the cost of insurance premium for small farmers through budgetary
support as was done under the government's mandatory crop loan
insurance scheme for five major crops. The central bank classifies
farmers having up to 20 cows or buffaloes and 50 fattening cattle as
small farmers.
 3. Government of Punjab E-Credit Scheme

The first phase of the scheme, interest-free loans have been disbursed
to more than 300,000 growers. Previously, he stated, Rs25000 per acre
was being offered to the farmers sowing crops in the Rabi season as
interest-free agricultural loans. Now, the provincial government has
decided to revise the amount upwards to Rs30000 per acre, the
spokesperson said. Growers can avail of the loan from National Bank of
Pakistan, Akhuwat (interest-free microfinance programme), National
Rural Support Programme, etc. He emphasised that the programme had
played an effective role in ensuring prosperity of the growers and loans
were being provided in a transparent manner. The Punjab government
has decided to include farmers having land up to 50 acres in its E-Credit
scheme. It may be worth mentioning that the provincial government is
providing interest free loans to small farmers and till now had disbursed
loans to 314,000 small farmers under this scheme. Government of
Punjab will provide interest free loans to farmers having up to 25 acre
agricultural land where as farmers having up to 50 acre land will get
loan on subsidized rates.

For this scheme, farmers will have to visit offices of Land Record
Management and produce their original CNIC, mobile numbers and
other details of their land. Staff will issue token to the farmers and if
farmers fulfill the conditions then bank will call him for loan. Spokesman
further said that Government of Punjab has also provided smart phones
to registered farmers under Khadim-E-Punjab Kissan Package and they
will get informed about loan status through an application.
 Agricultural Credit Targets and
Disbursement

It is good to see that private sector credit is picking up handsomely with

the revival in economic growth and priority sectors of the economy are
benefiting a lot from the rising disbursement of bank credit.

Banks made disbursements of Rs1,174 billion or 94% against the

ambitious target of Rs1,250 billion set by Agricultural Credit Advisory
Committee for 2018-19. The achievement of agri. Credit disbursement
is a sizable performance in agri. lending despite number of demand and
supply side challenges. The current year's disbursement is 21% higher
than the last year's disbursements of Rs972.6 billion. Further, the agri.
outstanding portfolio increased to Rs562.4 billion on end June, 2019
registering a growth of 20% compared with the last year's position of
Rs469.4 billion. Similarly, the agricultural credit outreach has increased
to 4.01 million farmers or 91% against target of 4.42 million farmers at
end June 2019, recording growth of 8% from 3.72 million farmers at end
June 2018.

To achieve these numbers, SBP adopted a multifaceted strategy and

made concerted efforts for pursuing a massive agricultural credit target
which included; sensitizing banks to adopt agri. Financing as a viable
business line, exploring new avenues of financing, value chain financing,
mobilizing e-credit, warehousing receipt financing, implementation of
crop/livestock insurance and credit guarantee schemes for the farmers
etc.
The achievement could be made due to the integrated efforts of
federal/provincial governments, SBP, financial institutions and other
stakeholders. Further, the efforts included rigorous follow up with the
top management of banks and agri. credit heads and conducting regular
follow-up meetings with regional management were instrumental for
target monitoring. Conducting regular farmers awareness & financial
literacy programs across the country, initiation of one window
operation in KPK and holding job fairs for agri. graduates in underserved
provinces were also helpful. Moreover, the support of SBP BSC field
offices in monitoring the district/regional targets was also supportive.

The detailed credit performance reveals that during FY 2018-19, five

major commercial banks collectively disbursed agri. loans of Rs653.5
billion or 100.4% of their annual target of Rs651 billion, specialized
banks disbursed Rs81.2 billion or 71.8% of their annual target of Rs113
billion and fifteen domestic private banks as a group achieved 86.5% by
disbursing Rs211.9 billion against their target of Rs245 during
FY-2018-19.

Moreover, Microfinance Banks (MFBs) as a group have achieved 98.7%

by disbursing agri. loans of Rs.154.0 billion to small farmers which is
23% higher than the disbursement of Rs124.8 billion during same
period last year. Similarly, the Microfinance Institutions/Rural Support
Programs collectively achieved 97.1% of their targets by disbursing
Rs34.0 billion to small and marginalized farmers during FY 2018-19.

Five Islamic Banks as a group achieved 78.8% of their annual target of

Rs50.0 billion by disbursing Rs39.4 billion which is Rs23 billion higher
than the disbursement made during the corresponding period last year.
Further, in order to mobilize the Islamic Windows of commercial banks
for agricultural financing, the disbursement targets of Rs50.0 billion
were assigned for 2018-19. Accordingly, the windows of commercial
banks as a group disbursed Rs32.7 billion or 65.4% of the annual targets
to faith sensitive clients during FY 2018-19.