Agriculture financing hits record Rs1.78tr

Experts say lending size should be at least 30% of agronomy, which is Rs5 trillion

KARACHI:

In a notable uptick for Pakistan’s agricultural sector, domestic banks provided a staggering Rs1.78 trillion in financing for farming during the recently concluded fiscal year 2023. This marks a 25% increase from the loans extended in the previous fiscal year FY22. However, while this surge in disbursement is welcome news, farmers find the amount falling far short of their requirements, amounting to less than half of what they deem necessary.

Pakistan’s central bank, in its report on Wednesday, revealed that financial institutions disbursed agriculture loans equivalent to 97.6% of the set target of Rs1.82 trillion for the year. The outstanding portfolio of agriculture credit also witnessed a robust growth of 10%, reaching Rs760 billion at the end of June 2023, compared to Rs691 billion in June 2022. For reference, the banks had provided financing worth Rs1.42 trillion in FY22.

Speaking to The Express Tribune, Sindh Abadgar Board’s Senior Vice President, Syed Mehmood Nawaz Shah, praised the growth in loan disbursement as a positive sign for agricultural economy. However, he highlighted that the financing requirement is significantly higher, exceeding Rs5 trillion ($18 billion), considering the current size of the agriculture economy, which has surged to over $60 billion.

Shah emphasised that the lending size should ideally be at least 30% of the agriculture economy, which would amount to over $18 billion or more than Rs5 trillion.

“The gap in financing…the loans disbursed against requirement remained almost half for the past one-decade or so,” he said, underscoring the ongoing disparity.

A leading factor contributing to the relatively low level of agriculture financing is the banks’ priority lending to the government for its budgetary needs, which is seen as a risk-free financing endeavour. This leaves minimal room for banks to provide loans to the agriculture and private sectors, according to Shah.

He pointed out that banks often discourage farmers from seeking loans by demanding collateral in the form of their farming land documents. This frequently prevents small farmers from benefiting from the agriculture loan disbursement. Moreover, agriculture loans currently carry interest rates of around 26-27%.

While the prime minister announced a Kissan package in October 2022 to provide subsidised, zero-interest loans to support flood-affected farmers, Shah claimed that a vast majority of deprived farmers did not receive the loans.

“If only 5,000 farmers were given the loans, out of an estimated 9 million families associated with agriculture practices, then it (Kissan package) was nothing but a zero-sum game,” he said, adding that, in order to make the package successful, at least 10%-30% should have been provided loans.

Shah suggested that instead of providing subsidised gas to fertiliser makers, the government should give farmers the subsidy to buy fertiliser at an affordable price.

Despite the commendable increase in loan disbursement during FY23, State Bank of Pakistan (SBP) acknowledged the challenges faced by banks, including the aftermath of the 2022 floods, rising input costs, and recent monetary tightening. SBP highlighted that its initiatives such as the Champion Bank Model and Agriculture Credit Scoring Model played pivotal roles in extending agriculture financing, especially in underserved areas.

The Prime Minister’s Kissan Package, introduced to revive agriculture financing in flood-affected regions, offered various measures including waiver of markup on outstanding small loans, interest-free loans for small farmers, and risk coverage for banks. However, farmers continue to stress the need for greater funding to match the expanding requirements of the agriculture sector.

Published in The Express Tribune, August 10^th, 2023.

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