‘Only one-eighth of demand for farm credit is being met’

KARACHI: Of the agriculture sector’s total demand for credit of Rs 350 billion to Rs 375 billion, just Rs 45 billion to Rs 50 billion is met but this can be boosted to Rs 100 billion to Rs 150 billion if banks offer new products, a senior banker said.

During a lecture in the Business Breakfast series of the Institute of Bankers of Pakistan, S Ali Raza, president of the National Bank of Pakistan (NBP), said here Saturday that the bank is actively working on developing new products for the agriculture sector.

“It is good for us, good for the farmers and good for the country that more credit facilities be offered to the farming community that may not necessarily be used for farm inputs,” he said

Talking about the projected lending in the agriculture sector, he said if the banks succeeded in bringing in good products for the sector, the lending could go Rs 100 billion to Rs 150 billion from the prevailing Rs 45 billion annual lending.

Speaking on, “The Silent Revolution in Farm Lending”, Mr Raza said that a couple of years ago, the State Bank of Pakistan used to fix the limits to be met by the commercial banks in lending to the agricultural sector but only Zarai Taraqiati Bank was lending to the sector. However, now the situation has changed and the sector is being considered feasible in the commercial sense, he added.

Admitting that interest rates are higher for lending to the agriculture sector, he said there should not be any interference and market forces should play their role in bringing rates down.

He said currently only NBP is in the field and when several other banks start offering finances to growers in a year or two, that will force all of them to compete and bring the lending cost down.

US agriculture subsidies: He said it’s ironic that the GATT and WTO were trying to enforce free trade and those who were the forerunner and carrying the flags of the free trade, were paying huge subsidies and protections to their agriculture sector at the home front.

The developing countries have started feeling that their agricultural products were being discriminated against by forcing them to withdraw subsidies and concessions, which were available to the growers of developed countries. It’s good omen that they have started joining each other to voice their concern and ultimately the developed world would be forced to withdraw these subsidies in the coming years.

Explaining the scenario after the real free trade, he said that Pakistan or India might be exporting sugar to the developed world in the coming years after the withdrawal of subsidies. The pressure is increasing against such double policies of the developed world, he added.

He said that 25 percent of gross domestic product is based on agriculture but it would increase in the due course, as the financing and other facilities would be enhanced to the sector in the coming years.

Talking about the existence of demand in the agriculture sector, he said checking the wastage of water and adopting new ways to conserve irrigation water like trip irrigation could increase 35 percent to 40 percent agriculture production. Such technologies are capital intensive and these are the places where the bankers come into picture, he added.

He was of the view that the brick lining of the water courses and canals can help save huge amount of the total wastage of irrigation water besides proposing the adoption of the modern irrigation techniques.

Crop insurance: Responding to a question on crop insurance, he said the State Bank of Pakistan is carrying out some research on the subject. However, he said the NBP is not working on that. However, he said his bank is looking various options like agriculture credit cards, lending for more than one year to enable the farmers to return on next crop if one fails in the first year.

He said the important part of agricultural loaning was to understand the rural economy and the agricultural business cycle. He said farmers do not need farm inputs at all times and often use funds obtained through passbooks for personal expenses.

He repeatedly stressed the need to change the mindset and move off the collateral paid lending, as the basic paying source is not the collateral but the cash flow. He called upon the bankers to go for risk management but think out of box to cope with the changing environment of the industry. He also hinted that NBP is working on a product under which funding for the development of storage facilities for agricultural produce, transportation from farm to market, and marketing would be possible.—APP

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