The Governor of the State Bank of Pakistan, Dr Ishrat Husain, addressing the 53rd Annual General Meeting of the Institute of Bankers Pakistan, in Karachi on February 21, discussed the impact of the past four years of financial sector reforms on the efforts to alleviate poverty in the country.
According to him, the effect of the reforms could be gauged from the steady increase in the participation of commercial banks in the financing of the agriculture sector and small and medium enterprises.
He quoted figures of loan financing from commercial banks in these two sectors, which reflected 14 percent annual growth during the past four years.
He pointed out that while loans from Zarai Taraqqiati Bank remained relatively low at Rs 13.4 billion during the first six months of the current financial year, the financing by commercial banks in the agriculture sector during this period stood higher at Rs 15.1 billion, a welcome rise from Rs 9.2 billion in the year 2000.
This could be seen as a happy development which is undoubtedly the outcome of an appropriate restructuring of the monetary policy combined with government's efforts to enhance the availability of bank credit to small farmers in addition to the SMEs.
These two sectors together provide employment opportunities to the extent of 85 percent of the labour force, while the SMEs in particular, according to Dr Ishrat Husain, contributed 40 percent of the share of industrial production as a whole in the GDP.
The Governor exhorted the banks to further accelerate their credit to small and subsistence farmers in addition to the SMEs.
He estimated that the present level of financing in the agriculture sector by commercial banks covered only 15 percent of the total number of farmers in the country and emphasised that this level should be increased to at least 50 percent of the farming community which is estimated at around 6.62 million.
The sustained increase in the volume of credit to the agriculture sector from commercial banks in recent years appears to be largely the result of mandatory limits prescribed by the State Bank of Pakistan, which was one of the steps in the overall financial sector reforms.
The Governor disclosed that thanks to rising competition among banks to explore new avenues for credit financing, quite a number of privately-owned banks have chalked out plans to introduce credit cards for the farming community with a view to helping the farmers to purchase their requirements of inputs without any stumbling blocs like sanctioning procedures etc.
The idea is indeed a novel one which deserves encouragement from all concerned, including the State Bank of Pakistan.
The credit card facility would pave the way for farmers to open their accounts in banks and thus documentation of the requirements of farmers and their seasonal operations can be carried on by banks in a transparent manner.
Sustained progress in this methodology would naturally provide necessary data and related information to various government agencies for the study of fluctuating trends in crop production and other activities in the agriculture sector.
It would appear that the commercial banks which previously had strong reservations about liberalising their credit financing in the agriculture sector for one reason or the other, are now increasingly leaning towards this sector, which is undoubtedly a revolutionary change in the mindset of the banking sector.
The development unquestionably opens up prospects of a rapid flow of credit facilities in this vital sector of the economy which at present operates under various types of hardships, specially the paucity of liquid resources because of which bold steps to introduce innovations in the agricultural operations cannot be initiated by the farming community.
It has now been fully recognised that liberal availability of micro-finance is one of the most effective ways to alleviate poverty in the rural economy and thus the expansion of bank credit is a highly encouraging change to make rural population more productive and self-supporting in resources.
It will be noted that the commercial banks are no more rigid in demanding collateral against their advances to small borrowers, including farmers, and this seems to be an important change in the working of the banks.
The President of National Bank of Pakistan, Ali Raza in his speech, in fact, advised the banks to forget about the unavoidable requirement of a collateral in offering credit to agriculture and other small sectors.
In support of his view he advanced a concrete argument that collaterals have not prevented the rising trend in non-performing loans of banks.
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