SBP amends guidelines for value chain contract farmer financing

State Bank of Pakistan (SBP) on Friday amended the guidelines for value chain contract farmer financing. According to SBP AC&MFD Circular Letter No 01 0f 2015 issued on January 2, 2014, in order to encourage banks to lend to individual farmers, "corporate guarantee" has been added to the eligible securities/collateral (under section 4.8) of the value chain contract farmer financing guidelines.
To bring more clarity in the related instructions, a few amendments have also been made to section 4.8 of the guidelines. As per new guidelines on securities/collateral (Section 4.8): Under contract financing scheme, banks may provide unsecured financing up to a maximum of Rs 1,000,000 to individual farmer as per prudential regulation No R4 of agriculture financing.
In case, a bank intends to secure its financing facility to farmer, it may obtain security/collateral from a lead firm who can be a processor, input supplier, stockiest, marketing company, trader, exporter, etc. The same security/collateral may also be used by banks for securing their marketing loan provided to the lead firm for meeting their short terms/seasonal financing requirement.
The banks financing may be secured against the following securities:
-- Charge on agricultural land through passbook system.
-- Mortgage of rural, urban or commercial property.
-- Hypothecation/mortgage of assets, eg, building, processing plant and machinery, grading & packaging machinery, generator & refrigerators, vehicles, etc.
-- Pledge/hypothecation of stock.
-- Lien on bank deposit.
-- Farmers sales contracts.
-- Corporate guarantee (only valid to secure financing to farmers).
-- Any other tangible collateral security acceptable to bank in accordance with SBP regulation and other laws.
It may be mentioned here that SBP on September 30, 2014 issued guidelines for value chain contract farmer financing and accordingly asked banks to use the guidelines for developing their own products for providing credit to contract farmers according to bank's credit policy, operational and marketing requirements and compliance with SBP's regulation.