AGRICULTURAL lending reached an all-time high of Rs704.5 billion in the last fiscal year. For this year the target is even higher at Rs1 trillion.
Recovery in agricultural output in the last fiscal year has emboldened banks to readily accept this target. Top bankers say they hope to meet the target as demand for farm loans are likely to remain high and as banks work upon improving lending practices.
But whether banks will also be able to remove geographical and other discrepancies — Balochistan gets about 0.1 per cent of total farm loans — in extending agricultural loans has yet to be seen. The State Bank of Pakistan (SBP) is making reporting requirements more candid to make sure they can.
Balochistan’s contribution to national agriculture is around 3pc to 4pc.
“Geographical discrepancy in farm lending is a fact. But underlying factors are seldom highlighted by media,” complains the head of agricultural lending at a leading commercial bank. “Expecting us to make more loans in regions where issues are insurmountable isn’t fair. If those issues are not of our own making why should we feel embarrassed?” he said.
He and several other bankers say that years of political unrest, terrorism, militancy and poor law and order in Balochistan have resulted in less than adequate banking concentration in that province. But as things have started improving, banks are set to accelerate agricultural lending there, they say.
Balochistan gets only 0.1pc of total agricultural credit despite having a contribution of around 4pc to the national output
Besides, Balochistan Bank is going to be set up in this fiscal year and the provincial government has allocated Rs10bn for this purpose in its budget.
Once the bank begins operating, the pace of agricultural lending there must increase. “It’ll be far easier for a provincial bank to make more agriculture loans in Balochistan than big commercial banks that remain focused on lending in Punjab and Sindh where 97pc of total farm loans are consumed,” the banker says.
But things should be different, if banks stick to provincial break-ups of the agricultural lending, central bankers point out. Smaller provinces and federating units (Balochistan, Khyber Pakhtunkhwa, Azad Jammu and Kashmir (AJK) and Gilgit-Baltistan) are supposed to get 10pc of total agricultural loans and not 3pc that they eventually end up consuming.
In KP, agricultural lending remains below target for reasons similar to those cited in case of Balochistan, i.e. years of militancy, terrorism and poor law and order.
“These things deter banks from entertaining loan applications not only from farmers but even from small loan seekers of other sectors,” says a senior executive of Habib Bank Ltd.
Another reason for low agricultural lending in KP so far is that the farming community there, just like in Sindh, has access to informal finance from middlemen and traditional loan makers who give loans on high interest rates, but are well rooted in the farming community, bankers say.
In case of AJK and Gilgit-Baltistan, banks have never even bothered to assess the potential of agricultural lending, let alone exploiting that potential, they admit.
Small wonder then that KP gets less than 2pc of the total agricultural loans and AJK and Gilgit-Baltistan each get 0.1pc of it, official stats reveal.
Sindh, the second-largest recipient of agricultural lending, happens to be the second-largest contributor to national agriculture as well after Punjab. But whereas its share in the country’s agriculture sector is no less than 23pc, it gets around 13pc of the total agricultural loans. Here, issues are multiple and mostly rooted in agricultural history, bankers and agriculturists say.
“Unlike in Punjab, farm land documentation is very poor [in Sindh],” says a senior executive of one of the five leading local banks. “Besides, the province is known to have misused agricultural loans of ZTBL [Zarai Taraqiati (Agricultural Development) Bank Ltd.] just as Punjab has done in the past.
“But the difference between ZTBL lending in the two provinces is that in Sindh recovery and loan settlement have remained more difficult than in the case of Punjab. That perhaps has kept other banks from accelerating agricultural loans here,” he says.
Agriculturists in Sindh, however, allege that banks knowingly make more agricultural loans in Punjab under pressure from politicians and other powerful lobbies there.
The provincial break-up of loans quoted above has been taken from the SBP report of the fiscal year 2014-15. But sources in the SBP say no dramatic change has since taken place in geographical distribution of farm loans though they insist that in case of Sindh the share now is a bit higher than in 2014-15.
“That is why we are in the process of assigning district-wise lending targets to banks , and hopefully this year’s agricultural lending will be much more judicious than in previous years,” one of these sources told this writer.
“With Islamic banks, microfinance banks, institutions and non-governmental organisations now playing an active role in the agricultural loan distribution and with SBP well determined to remove all geographical and sectoral discrepancies, one can hope that agricultural lending from this year onwards would be much more qualitative,” the source said.
Besides, central bankers point out that with the payment system undergoing some revolutionary changes and mobile and internet banking catching up fast, small farmers, even in the remotest areas of the country will soon have access to agricultural loans.