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Financial inclusion program and farmers

Published on 21st July, Edition 29, 2014


Agriculture contributes nearly one-fourth to Pakistan’s GDP, two of its large-scale industries (textile and sugar) are agro based and nearly 60 percent of total exports comprise of textiles and clothing. This is despite the fact that production and productivity of the sector is very low as compared to the international standards. If right impetus are provided production of major crops can be doubled, which can boost GDP size, create new employment and above all help in earning much needed foreign exchange that can reduce reliance on multilateral donors.

Let one point be kept in mind that production of major crops can be improved through better crop management and without bringing additional area under cultivation. Experts are of the view that low output is the outcome of using poor yielding seeds, use of imbalance nutrients and failure to apply pesticides/insecticides. All these factors can be attributed to poor availability of funds to farmers, who are still dependent on borrowing from informal sector at a colossal cost. Added to these are failure of the government to ensure availability of certified seeds, farmers located at the tail-end of water courses not getting required quantity of irrigation water and post harvest losses being colossal, up to 20 percent in case on grains and 40 percent in case of fruits. If these losses can be contained not only income of farmers will be improved but country would also be able to earn addition foreign exchange.

To make Pakistan’s agriculture sector robust Government of Pakistan has embarked upon various programs. Two of these being implemented with the help of State Bank of Pakistan (SBP) deserves specific mention: 1) persistent and substantial increase in lending to farmers and 2) warehouse receipt financing. The success of both these programs depends on mitigation of risk arising from lending to farmers and appropriate collateral management.

To minimize post harvest losses modern and efficient logistic and warehousing system has to be introduced in the country. The central bank offers soft term loans for the construction of modern ware houses. The efforts of SBP for ensuring financial inclusion of farmers and saving agri produce from going stale before reaching the markets deserves specific mention and appreciation.

For the current financial year (2014-15) the SBP has set agriculture credit disbursement target of Rs500 billion to facilitate the farmers and minimizing their dependence on informal financial system still prevailing in the country. This was announced in the annual meeting of the Agricultural Credit Advisory Committee (ACAC) held at Lahore on 12th July 2014. The meeting was presided over by Ashraf Mahmood Wathra, Governor SBP.

The efforts of the central bank, participating financial institutions and insurance companies have yielded excellent results. A cursory look at the gradual increase in amount lent to the farmers shows a growth to nearly Rs400 billion in 2013-14 from Rs170 billion in 2006-07. The revised target for 2013-14 was set at Rs380 billion, which was rather challenging for both SBP and banks, which was not only met but superseded.

Wathra informed the participants of the meeting the government has shown a keen interest and high level of commitment to make agriculture sector robust, which is essential for achieving the broader national objectives of rapid economic growth and poverty alleviation.


It may sound rhetoric but it remains a fact that agriculture is the most important component of the economy. Its largest contribution is self sufficiency in food, besides contributing 25 percent to the GDP of the country and employing nearly half of the labor force. The sector directly supports three-quarters of the population and contributes a large share of foreign exchange earnings to the country.
The Governor requested the national and provincial government representatives to give their assurance and commitment to provide all kinds of support to the banking industry, especially agriculture lending banks for smooth operations.

A point that is the most evident and also acknowledged by Wathra is that the share of lending by the financial institutions to agriculture sector is still than 6 percent of their total advances and the number of beneficiaries is slightly more than 2.15 million as against 8.3 million farm holdings in the country. It is also disappointing that around one third of credit requirement of agricultural sector is being met by the formal banking system while the remaining is fulfilled through non-institutional credit sources.
Another point worth noting is that it has been decided to establish a National Food Security Council. The council will be responsible for ensuring policy coordination among the provinces and relating to productivity improvements, market reforms, value addition and price monitoring that can ensure stable incomes for farmers.

Wathra praised the efforts of financial institutions for playing a significant role in mobilizing deposits and also extending credit to farmers. However, there is no room for complacency. Without resolving two of the most irritating factors lending to farmers can’t be increased. These are: 1) seeking insurance cover of the amounts let to the farmers and 2) ensuring timely payment of claims in case of any eventuality.

Sector experts say that banks have been failing in acquiring 100 percent insurance cover and public sector insurance company has failed miserably in making timely payment of the claim. They even go to the extent of saying that this insurance company should be declared ‘disqualified’ and financial institutions should be notified not to acquire fresh covers until all the outstanding claimed are paid in full.

It is also suggested to Wathra to bring it to the notice of Finance Minister to immediately appoint heads of insurance companies operating in the public sector i.e. Pakistan Reinsurance Company (PRC), National Insurance Company (NIC) and State Life Insurance Corporation (SLIC).

It is also suggested that SBP should also closely monitor performance of ‘captive’ insurance companies in which commercial banks hold substantial stake. It has proved beyond doubt that Ministry of Commerce has no reasons what so ever to regulate insurance companies but reluctant to pass the mandate over to Securities and Exchange Commission of Pakistan (SECP).


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