Governor State Bank of Pakistan (SBP) Yaseen Anwar Wednesday said commercial banks were allowed to restructure or write off the existing loans of the farmers in the flood and rains affected areas of the country. Also, SBP governor urged banks to adopt agricultural financing as a viable business model through development of specific products and disseminate best practices through grass-root level programmes for farmers. He also announced the setting up of an implementation committee to ensure timely implementation of the action plan prepared by ACAC special committee, constituted in December 2010.
“Banks are allowed to restructure the existing loans and write-offs in cases where the recovery of loans is not possible,” Anwar said while chairing a meeting of Agricultural Credit Advisory Committee (ACAC) here at SBP. He said relevant federal and provincial government departments, farmers’ representatives and other players in value chain also needed to create credit absorption capacity of farmers through adoption of best modern farming practices, development of storage and marketing systems and resolution of other real side issues.
He said heavy rains of 2011 and devastating floods in 2010 had greatly affected national economy in general and agriculture sector in particular. Credit requirements of farmers had also increased significantly besides adjustment of existing agricultural loans, he said adding that agriculture remains the mainstay with a contribution of more than 21 per cent to GDP and around 60 per cent of the population was dependent on agriculture-related activities for its livelihood. SBP governor said banks need to develop a comprehensive agricultural finance policy for settlement, rescheduling and restructuring of loans of the affected borrowers in addition to providing fresh credits for the rehabilitation and revival of the economic activities in the affected areas. “The federal and provincial governments would also need to initiate support and relief packages for the affected areas,” he added.
Anwar said to ensure timely and quick loan disbursement to help agriculture sector and revival of economic activities in the affected areas, SBP in collaboration with banks had taken a number of initiatives including refinance scheme at discounted rates of eight per cent coupled with credit guarantee scheme for loss sharing of banks up to 40 per cent. He said crop loan insurance scheme introduced by government for production loans for five major crops had also supported the sector whereby claims of around Rs800 million, including around Rs550 million of the borrowers of ZTBL, had been settled by insurance companies in 2010 and 2011.
He pointed out that agricultural credit is highly skewed towards farm sector i.e. around 68 per cent whereas credit to non-farm sector including livestock sector is only 32 per cent compared to its contribution of 55 per cent to agriculture GDP. About the implementation committee, he said the body would be headed by SBPs’ executive director, comprising members from provincial agricultural departments, farmers’ representatives, Pakistan Banks Association (PBA), ZTBL and SBP Banking Services Corporation. Committee will also collaborate with regional agriculture focus groups of SBP-BSC offices to get feedback on implementation strategy and ensure timely implementation of decisions and recommendations. Update on the progress of implementation would be made to the ACAC in its next meeting.
Anwar highlighted the key initiatives taken by SBP during July, 2010 to December, 2011 that include:
n Introduction and completion of Pilot Project Phase III with 87 per cent achievement of set targets, in 51 agriculture intensive districts covering 75 per cent of total farm households in the country.
n Successful arrangement of six training workshops for CAD/risk management departments of banks on agricultural loan documents, training 178 senior officials of agricultural lending banks, SBP and DFSD, SBP-BSC.
n Finalisation of a primary framework of commodity operations after deliberations with key stakeholders which will evolve proper storage, fair and transparent price mechanism & post-harvest financing system (the assignment has now been shifted to Pakistan Mercantile Exchange for its implementation).
n Arrangement of Agribusiness finance workshop at Netherlands for senior officials of SBP and SBP-BSC and agricultural lending banks to create awareness, build capacity of banks in enhancing outreach of agricultural credit.
n Launching of 6-week specialised internship programme for students of Agricultural universities and departments from 5th July, 2010 at SBP to facilitate provision of quality human resource for banks in agricultural financing to achieve the overall objective of access to finance to the farming community.
n Arrangement of knowledge sharing session with Central Bank of Indonesia for learning their key success factors in the area of agricultural and rural finance.
n To educate agriculture graduates about the basic structure of agricultural financing, related policies, schemes, initiatives taken by SBP to enhance the outreach of agricultural/ rural finance, arranged eight “Policy adequacy and awareness seminars on agricultural financing” so far at different agriculture universities of the country.
n To ensure timely disbursement of agricultural credit to the farming community, revised the list of documents to be obtained by banks against various kinds of agricultural loans and streamlined the turnaround time for agricultural loan processing through ACD Circular No 02 of 11th August, 2010.
n In order to revive SMEs and agricultural activities in flood affected areas, issued a refinance scheme vide SMEFD circular no 16 of 2010 for improving access to finance in 78 flood affected districts notified by National Disaster Management Authority (NDMA).
n To ensure availability of credit to the farmers for the purchase and maintenance of efficient systems and techniques, developed guidelines for efficient water management financing, which were issued vide AC&MFD circular no 2 of 2011.
He said the above-mentioned initiatives of State Bank were important but real benefits could only be reaped through collaborative efforts of all stakeholders including banks, relevant departments of federal and provincial governments and farmers representatives. The meeting was informed the mid-year (July-December 2011-12) performance of agricultural credit remained satisfactory wherein, total disbursement registered an optimistic figure of Rs125 billion which included additional Rs5.5 billion by microfinance banks as compared to last year’s Rs102 billion for the same period with 23 per cent overall growth rate.
This positive trend indicates gradually building trust of formal sector towards agricultural financing because of its sustainable nature and showing signs of recovery after overall recessionary environment. An amount of Rs285 billion was the indicative agricultural credit disbursement target for banks and Microfinance Banks (MFBs) for 2011-12 which is 8.4 per cent higher than 2010-11 target.
