Rain- and flood-hit farmers: Three markup waiver and financing schemes announced

KARACHI: The federal government has announced three markup waiver and financing schemes for farmers in rain and flood affected areas under Kissan Package 2022. Under these schemes farmers can also avail up to Rs 200,000 financing at zero percent markup rate, besides waiver of markup on previously obtained financing.

According to the State Bank of Pakistan (SBP), with a view to facilitate recovery of farmers from the impact of recent rains and floods, the federal government has introduced three schemes for the revival of agriculture including farm and non-farm sectors in the rain and flood affected areas, as notified by National/Provincial Disaster Management Authority (NDMA/PDMA) during recent floods in 2022.

Markup Waiver Scheme (MWS) will be for subsistence farmers against agriculture loans with outstanding balance (including markup) of up to Rs 500,000 per loan that were regular as on June 30, 2022.

MWS for subsistence farmers will be offered to the borrowers of farm sectors having subsistence landholding and to small farmers of non-farm sectors in flood affected areas as declared by NDMA/PDMA during recent floods 2022.

These borrowers have been defined in the SBP’s Report on Indicative Credit limits and Eligible items for Agriculture Financing.

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Banks/MFBs will waive-off the entire amount of markup due till September 30, 2022 against outstanding agriculture loans (principal plus markup) up to Rs 500,000 that were regular as on June 30, 2022 and reschedule/restructure the principal amount of loans for up to one year in calamity-notified areas.

Some 50 percent of the cost of above waiver of markup will be borne by the government through budgetary allocation whereas 50 percent will be borne by the concerned Banks/MFBs themselves.

In this regard, banks/MFBs will submit their markup subsidy claims on prescribed format duly audited by their Internal Audit Department to Director DFSD SBP BSC Head Office Karachi till January 15, 2023.

DFSD, SBP BSC will scrutinize subsidy claims of Banks/MFBs within 15 working days after receipt of complete information for onward submission to Finance Division Ministry of Finance (MoF).

Under the second scheme, Government of Pakistan Markup Subsidy Scheme (GMSS) will be for revival of agriculture and livestock sectors against loans of up to Rs 500,000 to subsistence farmers. GMSS will be Short-term production and working capital loans at Zero (0) Percent Markup Rate for End-user for all crop and non-crop sectors with a maximum 6 months and Banks and Microfinance Banks will be Participatory Financial Institutions (PFIs).

The scheme will be eligible for all crops and non-crops, while number of loans per borrower will be single loan facility under the scheme.

All existing and new subsistence landholding farmers and new small farmers from non-crop sector, in flood affected areas as notified by NDMA/PDMAs during June- December, 2022.

Rate of Markup Subsidy to be provided to PFIs will be 6 Month KIBOR+3 percent pa for commercial banks and 6-month KIBOR+9 percent pa for Microfinance Banks.

The scheme duration will be six months from the launch of the scheme and Finance Division will allocate budget for the markup subsidy and upon receipt of consolidated claims from the SBP, it will make payment to the SBP.

Under the scheme, PFIs will submit their subsidy claims as per prescribed format duly audited by their Internal Audit Department to the Director, DFSD, SBP BSC, Head Office Karachi on quarterly basis for reimbursement of the subsidy claims from Government of Pakistan.

Third scheme is interest free loans and Risk Sharing Scheme for Landless Farmers (IF&RSLF) up to Rs 200,000 in flood affected areas will be production or working capital loans for purchase of input supplies, rentals of farm implements. The loan tenor is based on cropping cycle up to a maximum period of six (06) months, in flood affected areas. The scheme tenure will be six months after issue.

Markup rate for End user will be zero percent (0) pa with maximum loan size Rs 200,000 per borrower for crop and non-crop sectors. Small and marginalized landless farmers and tenants in flood affected areas cultivating with 5 acres for irrigated land or 10 acres for rain-fed land will be eligible for loans under this scheme.

Rate of Markup Subsidy to be provided to PFIs will 6 Month KIBOR+3 percent pa for Commercial Banks and 6 Month KIBOR+9 percent pa for Microfinance Banks.

The scheme provides credit risk coverage of 50 percent of outstanding loans (principal) in case of non-repayments, after being classified as ‘SUBSTANDARD’ (as per the classification criteria laid down in Prudential Regulations for both Agriculture Financing and Microfinance banks).

In addition to process adopted for reimbursement of loss claims to PFIs as per limits allocated, PFIs will submit markup subsidy claims to the SBP on half-yearly basis for reimbursement.

The SBP has advised banks and MFBs to gear up their systems for successful implementation of these schemes and to avoid any misuse.

Copyright Business Recorder, 2022