Pakistan considers setting up Microfinance Company

Aimed at disbursing loans to farmers, businesses; will be modelled on nobel prize winner Grameen Bank

ISLAMABAD:

The government is considering setting up the Pakistan Microfinance Company, in line with the business model of renowned Grameen Bank of Bangladesh, in an effort to provide small loans to farmers and businesses.

Grameen Bank, founded by Muhammad Yunus, is a nobel peace prize-winning microfinance and community development bank that lends small amounts of money to people without seeking any collateral.

In a meeting of the federal cabinet held on September 15, a participant told Prime Minister Nawaz Sharif that in a bid to reduce the cost of loans, a credit guarantee scheme for small and marginalised farmers was already in place and its scope was being extended to benefit 300,000 households with small landholdings.

“An amount of Rs100,000 will be provided without collateral under this scheme,” the official said.

This would lead to total disbursement of Rs30 billion whereas the government had set aside Rs5 billion in the budget to provide risk cover to the financial institutions extending loans without demanding any guarantees, he said.

The cabinet was also told that the federal government was mulling over setting up Pakistan Microfinance Company by following the business pattern of Grameen Bank.

This year, the government is pushing up the size of overall agricultural credit to Rs616 billion compared to Rs516 billion last year, an addition of Rs100 billion, which will primarily be meant for small farmers with landholdings of up to 12.5 acres.

Despite historically low interest rates in the country, consumers are not enjoying the benefits as they are forced to borrow at a rate as high as 18% per annum.

In order to ease the pain felt by the small farmers, the government has decided to reduce the cost of production loans by 2%.

The State Bank of Pakistan and provincial governments will also join hands and start one-window operations to facilitate and promote credit flow to borrowers in the agriculture sector.

Apart from this, the collective value of Production Index Unit will be increased from Rs2,000 to Rs4,000, which will enable farmers to acquire more credit for the same landholdings.

In the cabinet meeting, government officials said total impact of the agricultural support package, announced by the prime minister few days ago, would be Rs341 billion, including Rs147 billion as direct financial support and Rs194 billion as credit flow to the farmers.

The government will also take long-term measures such as passage of different legislations through parliament like the Seed Act and Plants Breeders Rights Act, which will place the agriculture sector on a growth path in the long run.

Published in The Express Tribune, September 25^th, 2015.

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