Agricultural Credit Department

State Bank of Pakistan

By
Muhammad Nadeem Khanzada
Joint Director
1

Agriculture Credit Department

Agricultural Credit

Banking Cluster
Development Finance Group

Banking Supervision Group

Agriculture Credit
SME Finance
Micro Finance
Infrastructure & Housing Finance

Banking Inspection
Offsite Supervision &
Enforcement

Banking Policy & Regulations

Group
Banking Policy & Regulation
Banking Surveillance
Consumer Protection
Islamic Banking
3

Agricultural Credit

ACD Vision
To transform ACD into a professional and
dynamic Rural Finance Support Department,
fully equipped to play a leading role in
development of a sound, stable and robust
agriculture and rural finance sector in
the Country.

Agricultural Credit

ACD Mission

To mainstream the agriculture and

rural finance sector in the countrys
financial system as a commercially viable
and attractive business line and to
catalyze growth and activity in the sector
through sector friendly policies.

Agricultural Credit

Key Functions of the

Department
To operate as a focal point in SBP for all
agriculture and rural finance policies, programs
and projects
To formulate agriculture & rural finance policies
in consultation with stakeholders to ensure
adequate flow of institutional credit in rural
areas
To liaise with Federal and Provincial Agricultural
departments and research institutes on all
agri/rural finance issues, policies and projects.
6

Agricultural Credit

Key Functions of the Department

Continued
To assess/estimate the credit needs of agri/rural sectors and
take measures / initiatives and to help develop necessary
Institutional infrastructure to meet the credit needs of the
sector.
To collect periodical agriculture/rural finance data for analysis,
policy formulation and dissemination to general public
To initiate and undertake information dissemination and
awareness building programs for farmers and rural
community about the financial services they can access from
banks
To take initiatives to build commercial banks rural finance
related capacity like special training programs, workshops
and seminars etc.

Agricultural Credit

Organizational Structure
I.

Agriculture Credit Estimation & Target

Monitoring Division

I.

Agriculture Finance Policy Division

II.

Coordination and Services Division

Agricultural Credit

Agriculture Credit Estimation

& Target Monitoring Division
To organize periodic ACAC meetings
Sanction/monitoring of Agriculture Credit line
/repayment schedule of PPCBL
Monitoring SBP credit lines outstanding against ZTBL
Allocation of indicative agri. credit disbursement
targets to banks
To collect periodical agriculture credit data from
banks and financial institutions

Agricultural Credit

Agriculture Credit Estimation &

Target Monitoring Division
To settle reimbursement claims of bonafide
losses of five big commercial banks
Enforcement of Inspection findings/
recommendations relating to agricultural
credit
Disposal of Assembly/Senate questions

10

Agricultural Credit

Agriculture Finance
Policy Division
To process queries, reference, exceptions etc.
on Agrifinance policies, scheme Prudential
Regulations etc. on Agrifinance
To organize quarterly meetings with Agri. Credit
Heads of the banks
To liaise with Ministry of Finance, MINFAL,
Provincial Agricultural and Livestock
Departments to identify the key issues and
challenges and sector understanding of major
initiatives / projects to address the same
11

Agricultural Credit

Pakistans Scenario

12

Agricultural Credit

12

Percentage Distribution of GDP

Agricultural Credit

Land Holdings

*Extrapolated
14

Agricultural Credit

14

Area Under Crops By

Province 2005-06
(000 Hectares)
CROP

PUNJAB SINDH

NWFP

BALOCHISTAN

PAKISTAN

573.6

12896.3

Food Crops

9330.3 1675.7 1316.7

Cash Crops

3179.9

836.9

142.3

43.4

4202.5

Pulses

1163.2

122.2

60.6

58.5

1404.5

361.0

311.5

29.5

35.5

737.5

Condiments

45.1

125.7

15.2

43.9

229.9

Vegetables

240.5

37.1

47.5

38.6

363.8

2027.1

269.5

109.3

42.2

2448.1

386.7

135.4

46.8

245.6

814.6

16733.8 3514.0 1767.9

1081.4

23097.2

Oilseeds

Fodder crops
All fruit
Cropped Area

Agricultural Credit

Financial Inclusion
in Pakistan is Low

The Financial Market Development Frontiers

The
Formally
Served

The Informally Served

Source: Access to Finance Survey

16

Agricultural Credit

The Financially Excluded

Agriculture
Finance
17

Agricultural Credit

Rural and Agricultural

Finance

Agriculture financing is
defined as provision of
credit for development of
agriculture
18

Agricultural Credit

Relationship of Agri
and Rural Finance
Financial
Sector

19

Agricultural Credit

Agri. Finance
Market
Crop Sector
6.6 million farm households
3.8 million or 58% farmers with up to 5
acres of land holding
1.9 million or 28% of farmers with more
than 5 and up to 12.5 acres of land
holdings
0.9 million or 14% of farmers having
more than 12.5 acres of land holdings
Majority of the small farmers are
working as tenants
20

Agricultural Credit

Agri. Finance
Market
Non-crop Sector
Livestock 49% of agriculture GDP
Poultry population is estimated to be 319
million
Fisheries 1.3% of agriculture GDP. 1050 km
of coastal and 0.3 m sq km of marine and
0.08 m sq km of inland waters
Horticulture is 12% of the agriculture valueadded. Pakistan holds immense comparative
advantage to exploit US $ 80 billion world
market of fresh fruits & vegetables
21

Agricultural Credit

Overview of Agriculture
Credit

22

Agricultural Credit

Sources of
Agricultura
Financing

Specialized Banks

Zarai Taraqiati Bank Ltd.

Punjab Provincial Cooperative Bank Ltd.
Microfinance Banks

Commercial Banks

NGOs-MFIs

Informal Credit Providers

23

Agricultural Credit

23

Agricultural
Financing

Farm (Crop) Sector Credit

Production Loans (Purchase of inputs like seed, fertilizer, pesticides,

water, electricity, fuel, labor, etc.)

Development Loans (Purchase of agri. implements, machinery,

tractors, harvesters, threshers, land leveling implements, construction
of water courses, drip & sprinkle irrigation systems, etc.)

24

Agricultural Credit

Agricultural
Financing

Types of Non-Farm (Non-Crop) Sector

Credit

Working Capital or Short Term Credit for purchase of inputs

and day to day expenses based on the activity and business cycle

Long Term Credit for construction of infrastructure, purchase

of machinery, cold storages, silos, godowns, vehicles, etc.

25

Agricultural Credit

Agricultural
Non-FarmFinancing
(Non-Crop) Sector Credit for

Livestock
Fisheries
Poultry
Horticulture
Sericulture
Apiculture
Forestry
Floriculture

26

Agricultural Credit

Current Position of
Agri Credit

In addition to five big banks (ABL, HBL, MCB, NBP &

UBL) and two specialized banks (ZTBL & PPCBL), 14
domestic private banks are being assigned indicative
credit targets.
Disbursement has increased from Rs 39 billion in FY00
to Rs 233 billion in FY08-09.
Target for FY09-10 is Rs 260 billion, out of which Rs 215
billion has been disbursed in 11 months (July 2009
May.2010).
ONLY AROUND 2 MILLION BORROWRS ARE BEING
SERVED BY COMERCIAL BANKS AND 0.5 MILLION
BY MFBs, AS ON 31ST MARCH 2009, AS AGAINST 6.6
MILLION FARMERS IN THE COUNTRY
27

Agricultural Credit

Segmentation of
Banks Advances in %

28

Agricultural Credit

Agricultural Credit Targets

Achievements

29

Agricultural Credit

Comparative Role of Commercial Banks,

ZTBL And Cooperative Banks in Agri Credit
(Rs. In million)

Commercial Banks
Amount

Share in
total (%)

Year
1971-72

ZTBL

Cooperative Banks

Amount

Share in
total (%)

80

Total

Amount

Share in
total (%)

Amount

67.2

39

32.8

119

1972-73

86

28.9

169

57.0

42

14.2

297

1999-00

9,313

23.5

24,424

61.5

5,951

15.0

39,687

2000-01

12,055

26.9

27,610

61.6

5,124

11.4

44,789

2001-02

18,079

34.5

29,108

55.5

5,274

10.1

52,461

2002-03

24,164

41.0

29,270

49.7

5,485

**

9.3

58,919

2003-04

35,949

48.9

29,933

40.7

7,564

**

10.3

73,446

2004-05

63,717

58.6

37,408

34.4

7,607

**

7.0

108,732

2005-06

83,990

61.1

47,594

34.6

5,889

**

4.3

137,474

2006-07

104,36
9

61.8

56,473

33.4

7,988

**

4.7

168,830

2007-08

138,69
0

65.6

66,939

31.6

5,931

**

2.8

211,560

2008-09

152,29
2

65.36

75,139

32.28

5,579

**

2.39

233,010
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*: Includes Domestic
Agricultural
Credit Private Sector Banks

Province-wise Agri.
Credit
(Billion Rupees)

FY 2008-09
Province
Targets

Punjab

Disburs.

Targets
Achieved

FY 2007-08
% Share
in Total

Targets

Disburs.

Targets
Achieved

% Share
in Total

195.0

196.1

100.6%

84.1%

156.0

176.4

113.1%

83.4%

Sindh

35.0

27.6

78.9%

11.9%

28.0

24.7

88.1%

11.7%

NWFP

15.0

7.9

52.7%

3.4%

12.0

9.1

76.0%

4.3%

Balochistan

3.8

0.6

14.7%

0.2%

3.0

0.7

22.1%

0.3%

AJK/NAs

1.3

0.8

66.5%

0.4%

1.0

0.7

74.3%

0.4%

250.0

233.0

93.2%

100.0%

200.0

211.6

105.8%

100.0%

Total

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Agricultural Credit

SBP Policies, Regulations

& Schemes on Agricultural
Credit

Supervised Agricultural Credit Scheme.

Revolving Credit Scheme.
Prudential Regulations for Agri Financing.
Guidelines for Livestock, Fisheries & Poultry Financing.
Financing Scheme for Small Farmers
Guidelines for Islamic Agriculture Financing
Crop Loan Insurance Scheme
National Agriculture Insurance Scheme
Estimation of Agricultural Credit Requirements
Per Acre Agri. Credit Limits
Introduction of Pilot Projects and One Window Operation
Training and Capacity Building Programs for Banks
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Policy Adequacy and Awareness Programs

Agricultural Credit

Revolving Credit Scheme

Under the scheme credit is provided for agri.
production or working capital with the following
features: -

Revolving credit limit for three years with one

time documentation
One time sanction/approval of loan limit
Facility for multiple withdrawals, deposits and
partial repayments
Performance based automatic annual renewal
Credit limits based on size of land holding, cash
flows and collaterals
Loans upto Rs 500,000/- (around US $ 6,000/-)
can be financed on personal sureties
Markup is charged on outstanding loan amount,
quarterly or half yearly
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Agricultural Credit

33

Livestock Financing
Livestock contributes around 47% in agricultural
GDP and about 11% national GDP. Pakistan is the
4th largest producer of milk, however, it attracts
only 11% of banks agri. loan disbursement. Banks
are
financing
for
dairy
and
meat
farming
requirements including:

Working Capital Financing for the purchase and

plantation of animal fodder, feeds, feed mixing
machines, vaccination, vitamins & other medications,
artificial insemination, labor, electricity, fuel, etc.
Term Finance for purchase of mature milk yielding
buffaloes, cows, & goats, replacement of existing
animals, milk storage chilling tanks, refrigerated meat
storages, establishment of slaughter houses, etc.
Markup is charged on outstanding loan amount,
monthly, quarterly or half yearly
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Agricultural Credit

34

Fisheries Financing
Pakistan has a coastline of 1050 km and a total
areas of 0.25 million sq km of marine and 0.08
million sq km of inland waters consisting of
rivers, streams, canals, etc. Fisheries sector is
providing livelihood to about 379,000 fishermen
and almost 400,000 people are employed in its
ancillary industries. It has an export potential of
US $ 1 billion annually.

Types of Financing

Working Capital Financing for Marine and Inland

Fish Farming/Capture Fisheries
Term Financing for Marine and Inland Fish
Farming/Capture Fisheries
Markup is charged on outstanding loan amount,
monthly, quarterly, half yearly or yearly
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Agricultural Credit

35

Horticulture Financing
Pakistan is a major producer of fruits &
vegetables with 1060 million hectares
devoted for their cultivation.
Working Capital Financing

To meet day to day expenses of horticulturists, banks can provide

working capital finance on revolving basis to cover following
items :Seeds/ root-stock, Water Charges, Fertilizers, Pesticides, Labor
charges , diesel & engine oil , Utility bills, Storage, Transportation,
Marketing, Grading, Packing and Processing by farmers etc

Term Financing

The term finance facilities could be provided for the following

purposes:
Tractors, Farm implements, Tube-wells, Orchards &
Nurseries etc
36

Agricultural Credit

36

Poultry Financing
Poultry is an important sub-sector of agriculture
playing a significant role in the national economy
by contributing towards food security, reducing
pressure on demand for mutton and beef and
earning of foreign exchange. Around 1.1% share in
GDP, 4.8% in agriculture GDP. Around 1.5 million
people connected with this field.
Working Capital Financing

To meet day to day expenses of poultry sector including purchase of

feed, birds/ day old chicks, feed raw material, vaccination, vitamin, saw
dust, wood, coal, medicines, water filter cartages, utensils for poultry
bird feed, etc.

Term Financing

The term finance facilities can be provided for medium to long term
credit needs for construction of broiler, layer, breeder & hatchery farms
and feed mills, tube feeders, breeder eggs storage refrigeration plants,
slaughtering & de- feathering machine, etc.
37

Agricultural Credit

37

Financing Scheme for Small Farmers

About 2 million borrowers are being financed by formal
sector against total farmers population of 6.6 million.
Majority of the countrys farmers i.e. 84% comprises of
small farmers and rely on informal sector credit at
exorbitant rates to meet their agri. credit requirements.
One of the main reasons of the financial exclusion of
these small farmers has been their inability to provide
collateral to banks. Salient features of the scheme are:

Equally strong for micro, rural and agriculture financing

Lending through group based methodology
Each farmer in the group is guarantor of an other farmer of the group
Formation of group is 5 15 Farmers with similar type of financial
needs
Blood relations and spouse are prohibited in the same group
Registration of SFG (small farmer group) with the bank
Maximum loan limit per farmer is Rs 200,000/- (about US $ 2,400/-)
38

Agricultural Credit

38

Islamic Financing for Agriculture

There has always been a great demand from
agricultural customers to have Islamic financing
products for agriculture sector. The Guidelines on
Islamic Financing for Agriculture has been issued to
facilitate IBIs to develop their own Shariah compliant
products for financing to agriculture.

Types of Islamic Financial Transactions

Trade based mode of financing; It means providing finance through trading of goods
and commodities. Major modes are MURABAHA, MUSAWAMAH, SALAM and ISTISNA

Rental based mode of financing; under this mode of financing, bank purchases
an asset and hands it over to the customer on rental basis. Ijara (leasing) is the
only type of rental based mode of financing.

Participatory mode of financing; this mode of financing is based on the basic theme
of participation in profit and loss. Main products are MUSHARAKA, DIMINISHING
MUSHARAKA, MUDARABA, MUSAQAT, MUZARA'A and MUGHARASA
39

Agricultural Credit

39

National Crop
Insurance Scheme
successful implementation of mandatory

After
Crop Loan
Insurance Scheme, Governor, SBP formed a Task Force on
National Agricultural Insurance Scheme (NAIS)
The Task Force comprised of experts in the field and other
Government & private sector departments
After detailed deliberations and review of international best
practices & related information a NAIS was developed to
mitigate the risk of losses of non borrower farmers in case of
natural hazards and calamities. Implementation of NAIS will
not only safeguard the interests of farmers, but will also save
huge amount of funds spent by the Government of Pakistan in
the shape of relief to the farming community affected by
natural calamity.
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Agricultural Credit

Issues in Agri. Financing

Higher delivery cost
Higher NPLs
Cumbersome loaning procedures of banks and revenue
departments
Circumstantial defaults caused by: Low productivity
Inadequate marketing system resulting in lower incomes

Historical tendency for willful defaults nurtured by:

Difficult disposal of collateral/security

Political considerations promoting default culture
Ineffective implementation of legal framework
Lack of cooperation on the part of the provincial revenue departments

Limited institutional capacity

Lack of specialized staff
Agricultural Credit

41

Thanks
42

Agricultural Credit