State Bank of Pakistan (SBP) has released data of lending by financial institutions to farmers for the six months period ending December 31, 2013. On the face value it appears that the financial institutions have achieved 44% of the indicative lending trend. However, a deeper probe suggests that challenges like high non-performing loans, inadequate infrastructure and overall security and macroeconomic conditions are the reasons for the lackluster performance. The most disappointing has been the performance of ZTBL that could achieve only 34% of its target as it succeeded in disbursing Rs23.7 billion against its annual target of nearly Rs70 billion.
Commercial banks succeeded in disbursing Rs159.3 billion during the first half of current fiscal year, which is 13.5% higher than the disbursement of Rs140.3 billion during the corresponding period last year. Banks achieved 44% of their annual indicative targets of Rs360 billion despite multitude of challenges faced.
Total outstanding portfolio of loans extended to farmers surged by more than 17% from to Rs276.7 billion at end of December, 2013 as compared Rs235.9 billion for the corresponding period of last year. The increase is mainly due to SBP’s initiative of introduction of annual outstanding indicative targets for banks.
‘Big Five’ Five banks disbursed agri loans of Rs85.4 billion or 47.5% of its annual target which is higher by 12.3% from Rs76.0 billion extended during the corresponding period last year. Amongst the major banks HBL (53.3%), MCB (52.6%) and NBP (50.5%) emerged the star performer while UBL (38.6 %) and ABL (34.5%) emerged major lagers.
Amongst specialized banks, ZTBL could achieve only 34% of its target by and PPCBL achieved 48% of their target by disbursing an aggregate amount of Rs4.3 billion during the period under review.
Fourteen domestic private banks collectively achieved 42% of their targets. Most outstanding was the performance of Sindh Bank that surpassed its annual target by disbursing nearly Rs673 million against its target of Rs600 million. Outstanding was the performance of Bank Al Habib (61%), the Bank of Khyber (59%) and Bank of Punjab (51%). Performance of Summit Bank, SilkBank and NIB Bank achieved 48%, 44% and 42% respectively was also not too bad as they succeeded in lending close to the targets of their annual targets respectively. Amongst the 14 DPBs, Bank Alfalah (38.5%), Soneri Bank (38%), Faysal (34%), and Askari Bank (20.5%) could achieve the annual targets partially.
Seven microfinance banks as a group disbursed agri loans of Rs11.2 billion or 57% of their annual target of Rs19.6 billion. Under the Islamic modes of financing the newly inducted Islamic banks collectively disbursed Rs0.25 billion or 47.6% against a target of Rs0.5 billion to farmers during period under review.
While it is encouraging to note that the lending to farmers is on the rise, slightly deeper probe raises some serious concerns, the most important being that money lent for agriculture is being used for purchase of urban properties and expensive cars. It is also noted that main beneficiaries are feudal lords, which hold title of land directly or indirectly. In many cases tile is not clean, which does not allow financial institutions to extend money to such farmers.
State Bank of Pakistan introduced rules for mandatory insurance of total credit extended to farmers and also promised to reimburse premium pertaining to ‘subsistence level farmers’. However, the gross irregularities are common: 1) all the amounts extended are not insured and 2) even if the losses are indemnified insurers, particularly National Insurance Corporation has failed in making timely payments. According to informed sources claims arising from 2010 and 2011 floods have not been paid as yet.
As stated above worst has been the performance of ZTBL, which has most extensive footprint. One of the fallback of ZTBL’s dismal performance is massive fall in the sale of tractors. This on one hand deprives farmers from undertaking mechanized farming but more importantly affecting capacity utilization of tractors manufacturers. Ironically, federal government as well as provincial governments have failed in introducing tractor financing schemes.
It is necessary to recognize the performance of National Bank of Pakistan (NBP). It has two heathers in its cap: 1) extending the highest amount among all the financial institutions and 2) having the lowest percentage of non-performing loans. The credit of this outstanding performance goes to management and field staff for their untiring efforts to deliver loans at the foot step of farmers.
Another point of serious concern is that despite achieving capacity to produce exportable surplus urea the country has been importing nearly one million tones of urea every year. This on one hand erodes country’s foreign exchange reserves and on the other hand forces the government to pay billions of rupees as subsidy on imported urea.
It has been highlighted repeatedly that appropriate measures have to be taken to achieve self-sufficiency in edible oil production. At an average, country imports edible oil worth US$2 billion every year. Pakistan has ample land and offering right incentives to farmers can help in boosting indigenous production of canola and sunflower oil. It is suggested that the central bank fix a specific amount to be lent to edible oil seed growers that too at concessional rate.
It is also necessary that production and yield of sugarcane is increased. Sugar industry is not only the driving engine of rural economy but also has the potential to produce huge quantity of ethanol to be used for E-10 (petrol containing 10% ethanol) and also has the capacity to produce 3000MW electricity that can help in overcoming acute shortage of electricity in the country.