The state of agriculture is far from ideal. But some progress is being made when it comes to agricultural credit disbursement. According to data released by the State Bank of Pakistan (SBP), Rs972.6 billion was disbursed in FY18 – 38 percent higher as compared to FY17 and almost 97 percent of the assigned target of Rs1 trillion.
The overall outstanding portfolio of agricultural credit increased to Rs469 billion while the number of borrowers increased to 3.72 million. For the current fiscal year, the central bank has set a target of Rs1.25 trillion and is particularly focused on increasing outreach to small farmers in underserved areas.
From FY13 to FY18, agricultural credit has increased at a CAGR of 19.4 percent while it has almost tripled in absolute terms during this period (from Rs336billion FY13 to Rs972.6 billion FY18). A variety of factors have contributed to this increase such as rising participation by commercial banks due to aggressive indicative targets by the SBP, new financing products such as value-chain financing, warehouse receipts financing, digitalization of credit as well as the inclusion of microfinance institutions/rural support programs for lending to poor farmers.
The agricultural lending mix continues to become more diverse with commercial banks once again taking the lion’s share of disbursement at 54 percent, followed by domestic and private banks at 19 percent. Zarai Taraqiati Bank Limited (ZTBL) and Punjab Provincial Cooperative Bank Ltd continue to under-perform and now cumulatively account for only 10 percent of the overall agricultural credit supply as opposed to 34 percent a decade back.
A pleasant shift is the increasing role of microfinance banks, which accounted for almost 13 percent of the total disbursed agri-credit for FY18. The central bank is cognizant of the need to increase agri-lending to small farmers and for good reason.
Almost 60 percent of farmers in Pakistan have less than five acres of land, while 33 percent fall in the range of 5-25 acres. It is to this segment that agricultural financing needs to be bolstered in order to achieve true financial inclusion
Another aspect that needs to be worked upon is improving the geographical spread of agri-credit disbursement. As things stand currently, Punjab is getting the majority share of more than 80 percent of total outstanding agricultural credit while other provinces have a disproportionately low share.
Overall, the SBP has done a good job of increasing the amount of agricultural credit. But more needs to be done to improve the quality of lending as well. This would ideally include pushing commercial banks and MFIs to serve across all provinces especially in underserved areas.
On the other hand, the banks themselves must reinvent their traditional business models to reach out to small and medium farmers. Agricultural value-chain financing should be improved, something which would benefit the overall sector by tailoring financial products to fit the entire value chain.
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