Agri financing FY18: Shoot for the moon

Rs1001 billion is the hot number in this budget; it is the surprisingly high PSDP allocation for FY18 and incidentally, it is also the target set for agricultural loans. Agriculture has received a lot of attention in this budget, but is this much credit too ambitious a target?

Historically, the flow of agricultural credit has exceeded the target by some margin. But in FY16, this trend broke as the target was just shy by less than a couple of billion rupees – nothing too criminal. As for the 9M figures for FY17, the target of Rs700 billion appears to be cutting it close as well. However, FY18’s target of Rs1001 billion is entirely unprecedented – reflecting a 43 percent year-on-year increase as against an average increase of 22 percent in previous years. It’s a tall order, and some complementary measures are there to encourage it.

For the upcoming year, Ishaq Dar has announced two million small loans of up to Rs50,000 per farmer to be provided by ZTBL and NBP. Moreover, a reduction in the markup has been announced – from the current 14-15 percent to 9.9 percent – for small farmers with holdings of up to 12.5 acres. These measures, along with lowered duty on machinery imports, suppression of fertiliser and urea prices at current levels, and continued subsidy on electricity for tubewells, are likely to encourage activity in the sector, resulting in higher credit offtake.

The SBP has done well in recent years in not only encouraging commercial banks to adopt agriculture lending, but also in launching its own initiatives such as the Credit Guarantee Scheme for Small and Marginal Farmers; Framework for Warehouse Receipt Financing; Crop Loan Insurance Scheme; and Guidelines for Value Chain Financing.

Moreover, last year saw the induction of 16 Microfinance Institutions and Rural Support Programmes, which are responsible for disbursing Rs34 billion – almost five percent of the total target of Rs700 billion in FY17. Going forward, these could play a significant role in increasing credit to the agriculture sector, particularly to small and marginalised farmers.

In conclusion, a trillion rupees is a lot of credit to disburse. However, the progress made in credit availability over the years is commendable and all the right policies are there. Shoot for the moon; even if you miss, you will land among the stars.