Skewed agricultural loans
By AHMAD FRAZ KHAN
a six-step action plan, the State Bank of Pakistan last week
listed measures that it has decided to take for improving
These steps include:
creation of Financial Innovation Challenge Fund in Rural and
Agriculture Finance, Internship Programme for 100 top agri-graduates
and upward revision of credit disbursement target from
Rs360bn to Rs380bn.
Other decisions were:
banks to be assigned targets for outstanding agri-portfolio
and a number of borrowers to have high impact of agri-financing
at grass roots level from the current year;
Make agricultural finance
a key indicator of performance of banks; setting up of a
working group to review the state of affairs of small
farmers financing and make recommendations for increasing
financing and bring in additional small farmers into this
formal financing system.
The decision came after the
release of the bank report earlier this month on agriculture
loans disbursement during the first half of the current
fiscal, which indicated that the financial institutions have
achieved 44pc of the indicative lending target of Rs360bn.
The Zarai Tarqiati Bank
Limited, however, reeled behind at only 34pc of its target –
disbursing only Rs23.7bn against its annual target of
Rs70bn. Commercial banks, though, did better than the ZTBL,
but were still lagging 6pc behind the target.
In order to improve loaning,
the SBP had earlier enhanced per acre loan limits for major
and minor crops, orchards and forestry, which it now plans
to cover with additional Rs20bn by which it is increasing
The revision provided a
yardstick for banks to assess the credit needs of different
These measures, revision of loan ceiling and regular release
of data – can only be welcomed as they constitute steps in
the right direction.
However, all of them miss the
most essential point that all banks advance loans according
to their administrative convenience, instead of these
That is precisely the point
where the State Bank of Pakistan needs to put its weight and
lead a paradigm shift. One finds many urban areas of the
country grossly over-banked while the rural areas are
seriously neglected in this regard. There is a dire need to
correct this imbalance.
One should also not
forget that all these banks advance agriculture loans on
commercial, not subsidised rates. They avoid agriculture
loaning only because borrowers are farmers of smaller means,
as compared to that of industry, and the banks have to deal
with a long list of clientele.
This is hardly a sound reason
for the State Bank of Pakistan to let commercial banks
ignore its agenda for agricultural growth.
The financial institutions provide only 30pc of national
agriculture loan requirements. The remaining 70pc comes from
highly exploitative source: the middleman.
The middlemen hurt farmers
and farming on two accounts: high rate of interest and
keeping the crop as collateral. If banks are pushed into
rural areas, they will leave little room for the
exploitative elements like middlemen and, in fact, will help
agriculture grow by supporting production line.
A new issue that farmers have consistently been complaining
about is that of collateral. The land prices in Punjab have
skyrocketed over the last decade. A farm acre in the
province now costs between Rs4.5-5m.
The banks, however, keep the entire acre as collateral even
for less than 1pc of loaning against the value of land. This
fact is even indicated in revised the schedule of the State
Bank of Pakistan.
Even that range varies
between Rs29,000 to Rs53,000 per acre. Does holding Rs5m
collateral make sense for that? The State Bank also needs to
look into this area and rationalise the loan and collateral
Without being critical of what the State Bank has done in
the last month or so, one can suggest that this process
needs to be taken further to include other areas of farmers’
concern as well.
The farmers’ worries are
already documented. There is hardly any need to form new
committees for them. It is time to address the imbalance,
which right now is grossly tilted in favour of banks.