Uneven agriculture credit distribution 
By Mohiuddin Aazim

BANK loans to the agriculture sector have been on a rise for some years, but farmers of smaller provinces complain of uneven credit distribution.

In FY13 and FY14, banks exceeded their indicative agricultural lending target in Punjab, but they failed to meet the targets set for the three other provinces and two separate administrative divisions.

Banks’ lending to Punjab’s agriculture sector totalled Rs293.3bn and Rs339.1bn in FY13 and FY14, against the target of Rs246bn and Rs294.7bn respectively. This resulted in overall higher-than-targeted agricultural lending of Rs336.2bn in FY13 and Rs391.4bn in FY14 for the whole country.

And the government and the State Bank of Pakistan have highlighted this several times. But the fact remains that farmers of Sindh, KP, Balochistan, Azad Jammu and Kashmir (AJK) and Gilgit-Baltistan (GB) received lesser-than-targeted agricultural loans.

This was not mentioned as often, except for in SBP reports.

‘Provincial representatives in the agriculture credit advisory body need to analyse what prevents banks from distributing enough credit to smaller provinces, and suggest corrective steps’.

In the two fiscal years, the three smaller provinces and two administrative divisions received Rs45.9bn and Rs52.2bn in agricultural loans, against the indicative targets of Rs69bn and Rs85.3bn respectively.

Bankers say agricultural lending in Sindh would pick up soon as commercial banks as well as microfinance banks are reaching out to underserved farmers. Besides, the Sindh Bank is a catalyst for boosting all sorts of lending in the province.

But banks in KP and Balochistan are not functioning properly due to serious threats of militancy, and, thus, cannot improve their farm lending there anytime soon.

In AJK, low agricultural lending is attributed to banks’ lethargy, but in GB, the problem of militancy and sectarian killings keep banks from carrying out their routine operations.

Some bankers say a big reason for low bank lending to farmers of smaller provinces is the higher loan infection ratio. Compared to other provinces, Punjab’s land records are better organised and have lesser titling issues, which makes agricultural lending a bit easier there, they say.

But it is difficult to verify their claim in the absence of published records of province-wise breakup of non-performing farm loans.

Farmers of smaller provinces, particularly of Sindh, say the Zarai Taraqiati (agricultural development) Bank sets the pace of farm lending for other commercial banks, adding that low lending by ZTBL leads to below-target lending by commercial banks as well.

Microfinance banks, however, don’t follow their lead and have been lending more evenly across the country. As a group, their agricultural loaning exceeds the indicative target set for them.

One way to judge if banks are making agricultural loans judiciously could be the relationship between the volume of agricultural loans and the provinces’ share in the country’s agricultural economy.

In FY13 and FY14, Punjab got 87.2pc and 86.6pc of total agricultural financing, leaving just 12.8pc and 13.4pc for the rest of the country respectively. Meanwhile, Punjab’s share in the agricultural economy is no more than 60pc.

Besides, according to an Institute of Public Policy research report authored by Mr Sartaj Aziz, Dr Hafiz Pasha and veteran economists, agricultural growth in Punjab averaged 2.5pc between 2000 and 2010, against 2.7pc in the rest of Pakistan.

In addition to geographical unevenness, agricultural loaning also suffers from undue tilting in favour of farm production, which effectively reduces lending for development.

In the outgoing fiscal year, total agri credit distribution stood at Rs391bn, of which Rs197bn (or over 50pc) was offered for crop production and only Rs16bn (4.1pc) was lent for agricultural development, SBP stats show.

The remaining amount was channelled to other areas like corporate farms, livestock and dairy sector, and fisheries and forestry.

Before FY14, the disbursement of agricultural development loans was even worse. That is why the average annual development lending between FY11 and FY14 comes to just Rs10.7bn, or 3.33pc of the annual average agricultural credit of Rs321bn during this period.

Since development loans for the farm sector are often used to purchase tractors, tubewells, trolleys, power generators, wheat thrashers, grain separators and other equipment and machinery, low lending for development effectively impedes farm mechanisation.

And that, in turn, makes it difficult to enhance per-acre yields of crops.

Central bankers say the SBP has taken several measures in the recent past to ensure faster disbursement of agricultural development loans, including the introduction of comprehensive and improved prudential regulations.

But they agree that something needs to be done to push banks for more even agricultural lending across all parts of the country.

Farmers say provincial representatives in the agriculture credit advisory committee, which sets indicative agricultural lending targets, need to analyse what prevents banks from distributing enough farm credit to smaller provinces, and suggest corrective measures.

January 2015
Courtesy: Dawn News