Agriculture credit share a mere five per cent

SBP forms committee to devise strategy for credit growth.

KARACHI: State Bank of Pakistan (SBP) Governor Shahid Hafeez Kardar has said that the share of the agriculture sector in bank credit has been a mere 4.9 per cent, which was somewhat disappointing given the importance and potential of the sector.

Chairing a meeting of the Agricultural Credit Advisory Committee (ACAC) held at the SBP on Wednesday, Kardar said that the situation for agricultural credit had further aggravated as a result of recent floods that had caused huge losses to infrastructure, standing crops and other earning assets of rural households.

As a result, out of total outstanding agricultural advances of Rs53 billion in affected areas, Rs32 billion had entered the category of non-performing loans.

However, Kardar said that in spite of weak economic and market conditions in financial year 2009-10, banks were able to achieve more than 95 per cent of the agricultural credit disbursement target of Rs260 billion. Banks disbursed Rs248 billion, an increase of 6.5 per cent over the disbursement of Rs233 billion in FY09.

He urged banks to understand the needs of the economy and improve their penetration in the sector, as it is commercially viable to offer attractive potential cash flows and extensive backward and forward linkages in the value chain.

“Banks need to develop a comprehensive agricultural finance policy, dedicated human resource, simplified procedures and other prerequisites for building lending portfolios and timely provision of credit to farmers,” said the governor.

Kardar added that the federal and provincial governments, revenue departments, farmer associations and other stakeholders also need to contribute to value addition in the sector through automation of land records, marketing and storage channels, introduction of latest farming techniques, efficient extension services and water management.

Agriculture contributes 21 per cent to the gross domestic product and is the source of livelihood for at least 45 per cent of the total employed labour force. Adequate availability and access to institutional credit is essential for accelerating the pace of agriculture development with a view to ensuring food security and poverty alleviation, he added.

Committee formed

Kardar constituted a special committee tasked with devising a strategy for the growth of agricultural credit in consultation with federal and provincial governments and other stakeholders. The committee, headed by Muhammad Ashraf Khan, the executive director of development finance group of SBP, consists of representatives from the State Bank, commercial banks and agriculture chambers and associations.

He said that the committee will hold discussions at the federal and provincial levels to formulate a strategy for the development of agricultural credit with the consensus of all major stakeholders.

Kardar said that for the resolution of issues of bank credit in flood-hit areas and for the revitalisation of farming activities, the SBP, in consultation with banks, had undertaken some initiatives for the revival of economic activity. These included rescheduling and restructuring agriculture and small and medium enterprise loans, providing concessional financing for canola cultivation and Rs10 billion as part of a refinance scheme amongst other initiatives.

In the meeting, representatives of banks and agriculture chambers and associations also gave various proposals for increasing the credit flow to the agriculture sector.

Published in The Express Tribune, December 9^th, 2010.