In Pakistan, 90 to 94 percent of agricultural loans are offered for production and only 6 to 10 percent for agricultural development.

According to the State Bank of Pakistan (SBP), the share of development loans in total agricultural finance stood at 6% in 2018-19. This percentage rose to 6.7% in 2019-2020 and to 10% in the first seven months of this fiscal year.

Among other things, this factor is also responsible for keeping our agriculture where it is today: underexploited, low in productivity, high in waste, slowly growing and the least prepared for future challenges.

“The development and commercialization of agriculture requires financial services that can support: greater agricultural investments and agriculture-related infrastructure that requires long-term financing, greater inclusion of young people and women in the agriculture and technological progress. This World Bank statement in October 2020 largely sums up how agricultural finance needs to be overhauled in most developing countries.

Pakistan is no exception. For its part, the country has long made efforts to restructure its agricultural financing regime. And, some examples of these ongoing efforts can be found in the introduction of measures such as warehouse receipt financing and greater involvement of microfinance institutions in agricultural credit.

SBP should consider assigning sub-targets for agricultural development loans to banks

Last year, the SBP presented a detailed report on agricultural finance. In this report, he defined development agri-finance as medium and long-term loans that banks offer in all agricultural sub-sectors, namely staple and secondary crops, livestock, dairy products. , poultry, fishing and forestry. Short-term loans of six months to one year are offered to the entire agricultural sector mainly to meet their working capital needs. But medium and long-term loans with a maturity of three to five years are advanced to enable farmers to undertake projects that can help improve productivity and reduce losses.

This is why it is important to examine the volumes of agricultural development loans to understand how prepared Pakistani agriculture is to meet future challenges such as national food security and environmental protection.

As part of agricultural development finance, agricultural sector development loans are mainly offered for the improvement of agricultural land and orchards, construction of tunnel farms, storage sites and warehouses, installation of systems irrigation systems and the purchase of agricultural machinery. But no studies have been conducted by provinces to determine how development finance available to crop producers in each province has resulted in higher yields and lower losses.

After all, agriculture is a provincial subject and in the absence of such studies, one cannot expect banks or the central bank to overhaul the financing of agricultural development with a view to increasing crop yields. and reduce pre- and post-harvest losses. Banks only provide agricultural development finance as part of overall agricultural finance, and their lending remains demand-driven. It is up to producers to see the benefits of development finance and to seek it from banks if they meet the eligibility criteria. For those who work in corporate agriculture, this makes sense. But leaving such crucial decision-making to small individual producers seems unwise.

The SBP should consider assigning agricultural development lending sub-targets to banks as a certain percentage of overall agricultural lending targets. The central bank can also push banks to provide more agricultural development loans to individual small and medium producers.

Sub-targets for agricultural development loans can also be set for banks for granting agricultural loans in the livestock, fisheries and poultry sub-sectors. In addition, banks should seek help from provincial governments to educate farmers and design a mechanism to align agricultural development loans with overall national food security goals.

In the case of a global agricultural credit which includes both production and development credits, the distribution of credits still suffers from geographic disparities. If this issue is not resolved, it will produce unwanted political fallout in addition to undermining national food security goals through high and sustainable growth in agriculture.

Continuing a long-standing trend, agricultural loans in July-December 2020 remained disproportionately high in Punjab and smaller provinces got little. Out of the total agricultural loan value of 617 billion rupees, Punjab-based farmers got 517.6 billion rupees or 83.9pc, followed by Sindh which got 88.8 billion rupees or 14.4pc. Only 1.7% of total agricultural credit was distributed to farmers in Khyber Pakhtunkhwa, Balochistan, Azad Jammu and Kashmir and Gilgit-Baltistan, the latest data released by the SBP shows.

This pattern must be broken once and for all. Sindh’s contribution to Pakistani agriculture is close to 20% and the collective contribution of Khyber Pakhtunkhwa, Balochistan, Azad Jammu and Kashmir and Gilgit-Baltistan is around 5%.

Moreover, agricultural credit, in particular agricultural development credit, cannot be linked to the exact contribution of a federating unit to the total agriculture of the country. It should be linked to the specific agricultural needs of the provinces and their unique development potential. This will ultimately contribute to sustained growth of the country’s agriculture as a whole.

Under the aegis of the China-Pakistan Economic Corridor (CPEC), Pakistan and China have signed several cooperation agreements in the agricultural sector. The agricultural credit system supervised by the SBP under which banks grant agricultural loans to farmers must now encourage banks to deploy specific financing models for projects covered by these agreements. The central bank is also expected to revise the regime in the near future to take account of contributions from smaller provinces. This is important because some of the agricultural projects planned under the CPEC are aimed at improving the irrigation system across Pakistan.

Irrigation, fisheries, and corporate and joint farming are key areas of cooperation planned under CPEC’s agricultural awareness program. In each of these areas, farmers and provincial agricultural authorities complain about a lack of clarity and also have some reservations. The federal government must provide them with the required clarity and lift their reservations. This too is essential in the overhaul of the agricultural credit system in order to make it responsive to the specific future needs of agricultural projects linked to the CPEC.

Posted in Dawn, The Business and Finance Weekly,, March 8, 2021