Loans rise bypasses small farmers

Agricultural credit disbursement rose 21.4% year-on-year to Rs2.79 trillion during July-May FY2025-26, indicating stronger formal-sector financing of agriculture, but the composition and distribution of lending continue to raise questions about its impact on long-term farm productivity and financial inclusion.

While new agricultural loans given during July-May FY26 have increased strongly, the pattern of lending remains a key concern. Most lending continues to be directed towards production needs, whereas development financing – required for mechanisation, irrigation, storage, livestock and farm infrastructure – still accounts for a relatively small share. Without greater emphasis on long-term investment, higher credit disbursement may have only a limited impact on farm productivity.

According to the State Bank of Pakistan's (SBP) Performance Overview – Agricultural Credit Expansion Plans, released on Thursday, commercial banks remained the dominant providers, disbursing Rs2.41 trillion during the 11-month period, up 22.3% from Rs1.97 trillion in the corresponding period of FY2025.

The strongest growth came from mid-sized commercial banks, whose disbursements surged 64.8% to Rs809.4 billion. Bank Al-Habib led the expansion with lending of Rs233 billion, up 126%, followed by Bank of Punjab at Rs189.3 billion, up 76.6%, and JS Bank at Rs34.4 billion, up 69.6%.

The data also points to a gradual diversification in agricultural financing. Mid-sized banks recorded much faster growth than major commercial banks, while Islamic banks also expanded their presence in the sector. This suggests that agricultural lending is no longer confined to a handful of large institutions, potentially increasing competition and improving access to finance.

Islamic banks also increased agricultural lending, but at a more moderate pace, with total disbursements rising 12.4% to Rs216.4 billion. Meezan Bank accounted for the largest share at Rs125.1 billion, up 25.9%, while Faysal Bank increased lending 11.3% to Rs37.5 billion.

The expansion, however, remains heavily tilted towards production financing. Development lending is still a relatively small component of total agricultural credit, raising concerns over whether the increase is supporting structural improvements in the farm sector or mainly meeting recurring seasonal financing needs.

This distinction is important as sustainable agricultural growth requires greater investment in mechanisation, irrigation, storage, livestock, farm infrastructure, technology and value addition. Without a stronger flow of development credit, rising disbursements may have a limited effect on productivity and farmer incomes.

Outstanding and borrowers

The rise in the stock of agricultural credit still outstanding with borrowers at end-May 2026 was significant, with the portfolio increasing 27.1% to Rs1.182 trillion from Rs930.1 billion a year earlier. Commercial banks accounted for Rs708.3 billion of the outstanding portfolio, up 41.8% YoY.

The borrower figures, meanwhile, present a mixed picture. Total outstanding agricultural borrowers increased 14.7% to nearly 2.98 million by end-May 2026. Commercial banks recorded a particularly sharp increase, with their borrower base reaching 1.21 million, up 96.3%.

In contrast, microfinance banks saw their outstanding agricultural borrowers fall 17.7% to around 976,800, despite their agricultural disbursements rising 13.4% to Rs258.2 billion. Rural Support Programmes (RSP) also recorded a decline in outstanding borrowers. Microfinance institutions and RSPs disbursed Rs27.4 billion during July-May FY26, up 4.9% year-on-year, but their outstanding borrowers fell 13% to 353,674 by end-May 2026 from 406,650 a year earlier.

The decline in borrowers served by microfinance institutions and RSPs, despite higher disbursements, raises questions about the breadth of financial inclusion. Smaller farmers often rely on these institutions for access to formal credit, and a shrinking borrower base may indicate that lending growth is becoming concentrated among relatively larger borrowers.

This divergence deserves attention because microfinance institutions and rural support programmes are important channels for reaching smaller and underserved farmers. Higher lending alongside a shrinking borrower base could indicate that credit growth is not being distributed evenly across the agricultural economy.

The latest figures therefore present a mixed picture: agricultural financing is expanding strongly and more commercial banks are entering or deepening their presence in the sector, but the emphasis remains on production credit and the outreach to smaller borrowers remains uneven.

For policymakers, the challenge now is to move beyond higher disbursement volumes and ensure that agricultural finance reaches a broader base of farmers while supporting investment that can raise productivity, resilience and farm incomes over the longer term.