State Bank asks banks adopt agri-financing as viable business model

Karachi: Governor, State Bank of Pakistan SBP Yaseen Anwar Wednesday urged banks to adopt agricultural financing as viable business model through development of specific products/ schemes and disseminate best practices through grassroot level programs for farmers.

Presiding Agricultural Credit Advisory Committee ACAC meeting at SBP, he said relevant federal & provincial government departments, farmers’ representatives, other players in value chain also need to create credit absorption capacity of farmers through adoption of best modern farming practices, development of storage & marketing systems and resolution of other real side issues.

He said heavy rains of 2011 and devastating floods in 2010 greatly affected national economy in general and agriculture sector in particular. Credit requirements of farmers also increased significantly besides adjustment of existing agricultural loans. Agriculture remains mainstay with contribution of more than 21% to GDP and around 60% population depends on agriculture related activities for its livelihood.

SBP Governor said banks need to develop comprehensive agricultural finance policy for settlement, rescheduling, restructuring of loans of affected borrowers in addition to providing fresh credits for rehabilitation, revival of economic activities in affected areas. Federal & provincial governments would also need to initiate support & relief packages for affected areas.

He said in order to ensure timely and quick loan disbursement to help agriculture sector and revival of economic activities in affected areas, SBP in collaboration with banks taken number of initiatives including Refinance Scheme at discounted rates of 8% coupled with Credit Guarantee Scheme for loss sharing of banks up to 40%. Banks were also allowed to restructure existing loans and write-offs in cases where their recovery is not possible.

He said crop loan insurance scheme introduced by the government for production loans for five major crops also supported the sector whereby claims of around Rs 800 million including around Rs 550 million of borrowers of ZTBL were settled by insurance companies in 2010 and 2011. Agricultural credit is highly skewed to farm sector i.e. around 68% whereas credit to non form sector including livestock sector is only 32% as compared with its contribution of 55% to agriculture GDP.

Anwar announced setting up of Implementation Committee to ensure timely implementation of action plan prepared by ACAC Special Committee, constituted in December, 2010. It will be headed by SBP Executive Director and include members from provincial agricultural departments, farmers representatives, Pakistan Banks Association PBA, ZTBL & SBP Banking Services Corporation. Committee will also collaborate with Regional Agriculture Focus Groups of SBPBSC offices to get feedback on implementation strategy and ensure timely implementation of decisions/ recommendations. Update on progress of implementation would be made to ACAC in its next meeting.

He spoke of SBP key initiatives taken during July, 2010 to December, 2011 including introduction, completion of Pilot Project Phase III with 87% achievement of set targets, in 51 agriculture intensive districts covering 75% of total farm households in the country. Six Training Workshops for CAD/Risk Management Departments of Banks on Agricultural Loan Documents/ Procedures, training 178 senior officials of agricultural lending banks, SBP & DFSD, SBPBSC.

Finalizing primary framework of commodity operations after deliberations with key stakeholders which will evolve proper storage, fair & transparent price mechanism & postharvest financing system assignment has now been shifted to Pakistan Mercantile Exchange for its implementation. Arrangement of Agribusiness Finance Workshop at Netherlands for senior officials of SBP & SBPBSC, agricultural lending banks to create awareness, build banks capacity to enhance outreach of agricultural credit.

Specialized Internship Program for Agricultural Universities/ Departments students from 5th July, 2010 at SBP to facilitate provision of quality human resource for banks in agricultural financing to achieve object of access to finance to farming community. Arrangement of Knowledge Sharing Session with Central Bank of Indonesia for learning key success factors in agricultural/ rural finance.

To educate agriculture graduates on basic structure of agricultural financing, related policies, schemes, initiatives taken by SBP to enhance outreach of agricultural/ rural finance, arranged eight Policy Adequacy & Awareness Seminars on Agricultural Financing so far at various agriculture varsities. To ensure timely disbursement of agricultural credit to farming community, revised list of documents to be obtained by banks against various kinds of agricultural loans and streamlined turnaround time for agricultural loan processing through ACD Circular No. 02 of 11th August, 2010.

In order to revive SMEs’ & agricultural activities in flood affected areas, issued a Refinance Scheme vide SMEFD Circular No. 16 of 2010 for improving access to finance in 78 flood affected districts notified by National Disaster Management Authority NDMA. To ensure availability of credit to farmers for purchase, maintenance of efficient systems, techniques, developed Guidelines for Efficient Water Management Financing, issued vide AC&MFD Circular No.2 of 2011.

He said SBP’s above mentioned initiatives are important but real benefits can only be reaped through collaborative efforts of all stakeholders including banks, relevant departments of Federal, provincial governments, farmer representatives. Meeting was told midyear July-December 201112 performance of agricultural credit remained satisfactory wherein, total disbursement registered optimistic figure of Rs 125 billion including additional Rs 5.5 billion by Microfinance banks as compared to last year’s Rs 102 billion for same period with 23% overall growth rate. This positive trend indicates gradually building trust of formal sector to agricultural financing because of its sustainable nature and showing signs of recovery after overall recessionary environment. Amount of Rs 285 billion is indicative agricultural credit disbursement target for banks and Microfinance Banks MFBs for 201112 which is 8.4% higher than 201011.

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