The State Bank of Pakistan (SBP) on Friday set a slightly higher Rs1,800 billion farm lending target for 2022–2023 in light of the extensive damage to agriculture caused by enormous floods brought on by historic monsoon rains.
The Rs1,700bn objective was missed last year primarily as a result of the conservative lending practices of financial institutions.
Devastating flash floods across the nation have put a tremendous amount of pressure on the current year. Although there are no official statistics on the loss of livestock, crops, and other agriculturally linked valuables, a brokerage house first pegged the overall loss at Rs. 900 billion.
Due to capacity constraints, it is difficult for brokerage firms or independent NGOs to estimate potential losses; only the government can offer data on the precise damages brought on by the floods.
The agricultural industry obviously needs a lot more funding to recover from the significant losses brought on by the natural disaster.
In order to meet the demand for agricultural credit, the SBP has set a fiscal year 2019 target for banking institutions of Rs1.8 trillion in annual agriculture loan disbursement.
Additionally, under the overall target for FY23, specific targets of Rs140 billion for production loans of the wheat crop, Rs45 billion for tractor financing, and Rs20 billion for harvesters, planters, and other farm machinery have also been set in accordance with the needs for national food security and the mechanization of farms to increase agriculture productivity, according to the central bank.
To assist the farming community in obtaining appropriate financing from banks and maximizing the use of their agricultural inputs, the per acre indicative credit ceilings for agriculture financing have also been enhanced.
In response to the wheat scarcity, credit for wheat has increased this year by 40% per acre. The cost of importing 2 million tonnes of wheat is anticipated to be $1.7 billion.
According to the SBP, the per-acre indicative credit limit for wheat has been increased from the previous Rs60,000 to Rs100,000. This will enable farmers to use high-quality inputs for increased yields. Financial institutions were able to give the agricultural industry Rs1,419 billion in FY22 as opposed to Rs1,366 billion in FY21.
The SBP claimed that numerous recent initiatives to encourage agriculture credit and financial inclusion in the nation had contributed to the unprecedented disbursement and growth in the portfolio of agricultural loans.
One of the major recent initiatives of SBP was the introduction of a comprehensive agriculture credit scoring model to bring the focus of banks towards improving qualitative aspects and regional distribution of agriculture financing in the country, it added.
The model, adopted by the Agricultural Credit Advisory Committee, provides individual scores reflective of each bank’s agriculture credit performance against multi-dimensional criteria based on various indicators including sectoral disbursement, regional performance, outstanding amount and outstanding borrowers etc.
“Recently, growth in agriculture credit disbursement remained subdued due to various challenges such as adverse climate change effects, resource constraints in banks, underutilisation of approved limits by borrowers etc, while a few banks, particularly large public sector banks, among others, also performed slower than usual and struggled to achieve their assigned annual targets,” said the SBP.
To promote transparency and competition among the various agriculture credit providers, the SBP has also made available the annual rating of banks using this scoring mechanism.
According to the model’s results for FY22, Bank of Punjab ranked most among midsize banks with a score of 62.1, HBL was ranked highest among large banks with a score of 75.4, and Bank Islami was ranked highest among small banks with a score of 55.7. Additionally, U Microfinance Bank received the best 80.4 rating.
