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Relief package for farmers
EDITORIAL (April 12 2003) : Prime Minister Zafarullah Khan Jamali, while unveiling the plaque of Zarai Taraqqiati Bank as a newly constituted public limited company, announced a new package of incentives for the borrowers of the bank in the agriculture sector.
The incentives include loan repayments at reduced rate of mark-up while the timeframe for the repayment of stuck-up loans up to Rs 0.5 million has also been also relaxed from the present due date of April 14 to 31st July 2003.
Additionally, down payment for the settlement of stuck-up loans has also been given a quantum reduction from present condition of 10 percent of the overdue loan to 5 percent.The proposed reduction in mark-up rate from the present 14 percent to 11 percent will be subject to the condition that the borrowers pay two consecutive installments falling due within the extended period.
The reduced mark-up rate would also be applicable to productive loans sanctioned to the farmers beginning January this year for financing the purchase of seeds, fertilizer and tractors, as also to development loans covering tube wells.
It has not been clearly stated as to whether a blanket concession of 3 percent reduction in mark-up rates on all loans by ZTB has been made effective from January this year or the concession is available only for the recovery of stuck-up loans.
If the concession is restricted to overdue loans only, this would implicitly encourage the habit of defaulting on repayments on due dates.In this context, there is reason to emphasise that the mark-up rate charged by the ZTB should be revised downwards by 3 percent for all types of loans from January 2003 onwards.
In fact, the ZTB is lagging behind in reducing the mark-up rates as compared to the fast lowering of mark-up rates in the country's banking system, including the SBP's Repo rate, over the last one year.Moreover the proposed reduction of 3 percent in ZTB's mark-up rate from 14 percent to 11 percent is also not in keeping with the much lower rates of mark-up in commercial loans available to the rural sector from institutional sources other than the ZTB.
For instance, the Chief Minister of Punjab, Pervaiz Elahi already announced a few months ago a reduction in mark-up rate for farmers from 11 to 9 percent on loans available from the Bank of Punjab and provincial co-operative bank.
It is well known that due to the low per acre yield of both cash and food crops in the country, the cost of production per unit of produce is considerably higher than in other agrarian economies in the region. As a result, the Pakistani farmer is left with low profitability on his produce and therefore he is usually burdened with overdue loans.
The recent reduction in mark-up rates in Pakistan which has brought down the rate of export finance to a record low of 4 percent, will be seen as a blessing in disguise for all the productive sectors of the economy, including agriculture.
This development would definitely lead to substantial reduction in cost of production and as a result not only inflationary tendency in Pakistan will remain under check but also Pakistani exports would emerge highly competitive in the world export market.The farming class would benefit from a better rate of return and thus a positive impact is to be expected on poverty reduction in the country.
The Prime Minister's decision to allow a substantial reduction in mark-up rate on ZTB's stuck-up loans in particular, is undoubtedly a bold and timely step which would prove to be a much needed relief for the farmers at large.
Moreover, the lowering of the mark-up rate would also contribute to improvement in loan recoveries for the ZTB that has always been facing difficulties on this count.Higher loan recoveries would also make it possible for the ZTB to extend increased and diversified financing for increasing per acre yield and development of seeds with resistance to disease and pest
attacks.
Source: Business Recorder
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Pakissan.com;
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