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Sustainable rural financial structure being created: 
finance adviser


ISLAMABAD (December 20 2002) : Adviser to Prime Minister on Finance Shaukat Aziz has said the government is revitalising Zarai Taraqiati Bank Limited (formerly ADBP) by laying emphasis on poverty eradication and creating a sustainable rural financial structure.

When fully in place, the bank would adopt measures for local saving mobilisation, demand-led agricultural and expansion of rural lending in a more effective manner, he said.

The government endeavours to maintain the pace of reforms in the best long-term interest of the country. He was speaking at a seminar on "Micro-credit for Sustainable Rural Development", here on Thursday.

He further said that this neglected sector would be made more productive. Moreover, sustainable growth would increase rural income through higher productivity. Shaukat said the restructured entity would focus on small and marginal farmers; most of who are poor and withdraw from market segments for which either it has no skills.

A business plan supported by pricing strategy will be developed. Deposit mobilisation will be the key to financial prudence and viability. At the end of the restructuring plan, part of the government equity will be divested.

The adviser said Zarai Taraqiati bank is being transformed into a sustainable rural finance institution for providing efficient rural financial services through fundamental changes in mission, statue, governance, organisation, human resources, business process, and products and services.

It has been re-incorporated as a new entity with equity of Rs 10 billion. The Memorandum of Association emphasise on sustainability and commercial orientation and Articles of Association on autonomy, insulation from politicisation, and enhanced private sector representation on board; Forensic Accounting Capability will be installed to ensure rigorous financial discipline.

To support efficient financial intermediation and optimal resource allocation, the mandatory credit quotas for commercial banks will be gradually phased out, he said.

This will done as Agricultural Bank is restructured and other new banks in rural areas emerge. Since commercial banks have nearly 3000 branches, they will be encouraged to adopt international best practices in rural finance and provide rural financial services on a sustainable basis, he added.

Shaukat said rural finance must be seen as an integral part of equitable development within a framework of macroeconomic stability.

Consistent with the policy thrust toward financial liberalisation, the Government will facilitate the development of the rural financial markets that provide the economic actors with sustainable financial services with significant outreach in terms of clients served and services offered.

The ultimate aim will be to bring private sector investments and build public private synergies. In order to avoid the mistakes of the past, the Government will not intervene directly in granting loans, setting interest rates, pardoning outstanding loan repayments, and discouraging debt recovery.

The State Bank of Pakistan is actively pursuing new initiatives to expand quality and availability of rural finance.

He said promising as the recent economic developments have been, vigorous and sustained growth in rural, including agricultural sector is vital for Pakistan. Agriculture employs, about half the labour force, provides over 60 percent of our export earning, and a quarter of our GDP.

Accordingly, the objectives for agricultural growth for the next decade is to achieve self-reliance in agricultural commodities, ensure food security; provide export orientation, and improved productivity.

The availability of adequate and affordable rural credit is central to the implementation of this strategy. Therefore, measures outlined in the Interim Poverty Reduction Strategy Paper, includes restructuring of the Agricultural Bank along with delivery of micro-finance services.

The PM's adviser said rural communities often do not have access to saving services, credit products tailored to purpose, insurance or transaction services. There is also very limited access to long-term financing needed for agriculture, land and other rural enterprises.

Less than 10 percent of the rural households have access to affordable and adequate financial services. This is unacceptable for Pakistan, where two-third of the population lives in rural areas. The shallowness of rural financial markets in part reflects weak integration of rural markets into the broader financial markets.

Shaukat said in order to address pro-actively this situation, we established a comprehensive micro-finance development framework in the year 2000.

As part of the micro-finance framework, initial measures for restructuring the Agricultural Bank and the co-operative credit system were also initiated to address the decreasing availability of institutional finance for both agricultural and non-agricultural activities.

With the completion of these initial measures, the second stage of reforms has arrived & the government has formulated the Rural Finance Programme through intensive dialogue and active participation of all stakeholders.

The Rural Finance Reform measures to address the key issues in rural finance are summarised below, he added.


Courtesy Business Recorder

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