KARACHI (February 22 2004): The State Bank is considering to prepare a new set of regulations for agriculture sector while banks are preparing to issue 'Agriculture Credit Cards' enabling the farmers to buy their required inputs, said SBP Governor Dr Ishrat Husain on Saturday.

He was addressing the 53rd Annual General Meeting and Prize Award Ceremony of the Institute of Bankers Pakistan.

He said despite increase in agriculture growth in the past four years, the access to credit for rural communities is not satisfactory.

"Due to the peculiar nature of agriculture production cycle, a new set of regulations is under consideration for agriculture," he said.

The SBP is considering other measures to accelerate credit to small and subsistence farmers. Post Office can be used as an outpost for both mobilisation of savings and disbursement of credit in rural areas, he added.

"Some private banks are examining the possibility of issuing 'agriculture credit cards' whereby the borrowers can purchase their inputs up to their credit requirement," said Dr Husain.

While discussing the outcome of reforms, the Governor referred to the change in the disbursement of credit to agriculture sector, especially by the commercial banks. He said that in the year 2000 ZTBL (Zarai Taraqiati Bank Ltd) disbursed Rs 24.4 billion to agri sector while commercial banks' disbursement was only Rs 9.3 billion. In the six months of current fiscal year 2003-04, the disbursement of ZTBL shrank to Rs 13.4 billion while commercial banks' disbursement for agri sector increased to Rs 15.1 billion.

He said that more farmers have borrowed from banks in the past four years and data shows an increase of 22.5 percent.

The new private commercial banks have also entered this field by starting lending to agriculture sector in 2001-02.

The number of farmers in Pakistan is 6.62 million, while banks cover only 15-16 percent. The challenge for banks is to increase it up to 50 percent, or more than 3 million, in the next five years, said Dr Husain.

He said data shows that two-third of the agriculture credit is actually delivered to subsistence and small farmers.

The Governor said that agriculture and SMEs account for 85-90 percent of employment in this country.

The competition has forced banks to shift their attention towards SMEs while the SBP has already formulated separate set of Prudential Regulations for it.

Licensing and prudential norms for micro finance institutions have been designed with particular emphasis on facilitating growth of those institutions and expanding their outreach to the poor and vulnerable segments of the population, he said.

SMEs contribute 40 percent to the GDP and 25 to 30 percent of employment, he said, adding that present methods and documentation are onerous for small entrepreneurs and relatively costly for the banks. SME Bank has to experiment and come up with the standardised set of easy-to-fill but fully informational documentation, specification of risk parameters, credit appraisal and delivery techniques and new innovative products.

He said that Leasing and Modaraba are the right vehicles for delivery of credits to this sector. But they have limited their activities so far to large urban areas and have not opened up their doors for business in those cities and towns where the clusters of SMEs do exist.

He appealed to these sectors to diversify both in product lines as well as in geographical coverage.

The Governor also discussed the performance of micro finance, saying that the SBP under its Microfinance Sector Development Programme recognised the need to enhance social capital and risk mitigation as a necessary safety net for the poor.

"A risk mitigation and Deposit Protection Fund has been created to provide protection to the MFIs (Micro Finance Institutions) borrowers and depositors. They can seek recourse to this fund under adverse circumstances beyond their control," said SBP Governor.

He said that widespread use of electronic and mobile banking channels will reduce the transaction costs while extending the outreach to a lager segment of population.

"The impact of financial sector reforms implemented in Pakistan during the past five years has just begun to show some positive results for pro-poor growth," concluded the Governor SBP.

Earlier, gold medals, awards, diplomas and certificates were distributed among those who passed banking examinations. Well-known economist Dr Aftab Ahmed was awarded special medal for his contribution.

Courtesy Business Recorder