In an agrarian country like Pakistan, it is quite essential to provide the necessary incentives to the agriculture sector to maintain the vitality of the economy, the State Bank of Pakistan seems to have played an active role in this connection. Presiding over the annual meeting of Agricultural Credit Advisory Committee (ACAC) in Multan, SBP Governor, in his keynote address, urged upon banks to focus on agricultural financing as it is a viable business activity having huge cash flows, and a significant contribution to GDP with strong backward and forward linkages.
As for the SBP, it has adapted to the challenge of playing the role of a facilitator and a developmental partner of financial institutions to accelerate the growth of agriculture finance in the country. On their part, financial institutions need to strengthen their agriculture finance policies, increase dedicated human resources, simplify lending procedures, rationalize lending rates, work diligently for creating mass awareness and develop other prerequisites for the timely provision of credit to farmers and harness untapped potential of agri-credit demand.
The meeting was also informed that banks disbursed agricultural credit amounting to Rs 598.30 billion during 2015-16, which was nearly equal to the target of Rs 600 billion during FY16 and 16 percent higher than the disbursement of Rs 515.9 billion a year earlier. During the first half of 2016-17, financial institutions had disbursed Rs 301.7 billion which was 43.1 percent of the indicative target of Rs 700 billion for the current year.
The efforts of the State Bank to motivate other financial institutions to provide increasing financial facilities to the agriculture sector and its success in this regard could only be appreciated. Of course, this sector is a very vital component of Pakistan's economy and provides the raw materials to down the line industries in most of the cases. The sector also contributes about 20 percent to the country's GDP and remains by far the largest employer absorbing over 42 percent of the country's total labour force.
Keeping in view the importance of this sector in Pakistan's economy, the government has lately been focusing on improving agricultural productivity by systematic application of better inputs and advance technology, etc, which is not possible without adequate provision of credit to the agriculturists who generally do not have enough resources of their own to buy seeds, agricultural implements, etc. It is undoubtedly a matter of satisfaction that the SBP has all along been motivating banks to adopt agriculture lending as a viable business line.
Some of the recent initiatives of the SBP are "credit guarantee scheme for small and marginal farmers", "framework for warehouse receipt financing" and "guidelines for value chain financing". Also, it is encouraging to see that ACAC, where all the stakeholders like farmers, bankers and the government are represented, is working very well under the guidance of the SBP and reviews the relevant progress periodically. The fact that actual disbursements have nearly equalled to the targets over the years inspires the confidence that progress in this area is likely to be sustainable.
However, while the work of ACAC could be commended for raising the level of credit to the agriculture sector, there are still few weak links in the system. ZTBL, earlier known as Agriculture Development Bank, which has largely relied on the rupee resources of the State Bank for its lending needs which it cannot repay, needs to be made much more efficient to stand on its own feet like any other financial institution.
Similar is the case with co-operative banks. Besides, there is need to increase collaboration between banks and other stakeholders, enhance the necessary banks' infrastructure and the level of information in underserved areas and develop Shariah-compliant products and services for meeting the financial requirements of faith sensitive clients.
Finally, there is a perception and probably for the right reasons that a large part of agriculture credit is disbursed to bigger landlords while the poor and average agriculturists are deprived of credit facilities because of various reasons. Hopefully, the ACAC would take notice of such weaknesses in the system and try to overcome the shortcomings to improve the flow and quality of credit to the agriculture sector for the larger economic interest of the country.