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Minority provinces get too little farm loans

Sindh, Balochistan and KP continue to get a little more than 10pc of the total bank loans for agriculture.

Punjab consumes the bulk of such loans — over 89pc while two other federating units — AJK and Gilgit Baltistan — get less than 1pc.

Shocking stats! Indeed!

“Well, let’s accept this. And let’s move on. Banks realise that this has to change. We’re working on it. From the next fiscal year banks will have district-wise credit disbursement targets,” a central banker informed this writer.

“The SBP governor has already taken note. We assure all that geographical and sectoral discrepancies in agricultural credit disbursement will soon be a thing of the past.”

“We should hope so. But enough is enough. Sindh has long been receiving less than 10pc of agricultural loans. Why? Does it not have an impact on the province’s agricultural and overall economic growth?” complains a senior member of Sindh Chamber of Agriculture.

However, banks’ gross agricultural lending shot up from Rs336.3bn in FY13 to Rs598bn in FY16. In the first half of FY2017 banks have already extended Rs302bn farm loans on gross basis against the full year target of Rs700bn. But volumes of farm loans in Sindh, KP, Balochistan, AJK and Gilgit Baltistan remain low. “It is damaging, unacceptable.”

Growers’ lobby groups say that bankers simply don’t want to get out of their comfort zone when it comes to entertaining small borrowers

A former secretary of the Sindh agriculture department told this writer one of the reasons for banks’ low agricultural lending to small provinces is that at the time of indicative lending target setting “the targets for small provinces are set off the mark”, implying that their borrowing needs are underestimated. For example, in FY15, Sindh’s target was set at Rs70bn whereas Punjab’s target was put at Rs390bn. But by the close of FY16 banks ended up lending Rs438.6bn to Punjab and Rs65.6bn to Sindh.

“Now, how was the target of Rs70bn arrived at for Sindh, less than one-fifth of Punjab, we don’t know. Does Sindh’s agriculture account for one fifth of Punjab? The answer is no. To add insult to injury banks exceeded Punjab’s big target and missed Sindh’s small target.”

Agricultural lending targets are set more or less according to the provincial requirements presented before the Agriculture Credit Advisory Committee (ACAC). But the problem with KP and Balochistan is that banks almost always miss their targets by very wide margins.

In FY15, agricultural lending targets for KP and Balochistan were set at Rs30bn and Rs7.5bn respectively but actual gross disbursement totalled Rs10bn and Rs0.4bn. A year earlier in FY14, when their targets were Rs21.3bn and Rs5.7bn, actual lending had reached Rs9.5bn in KP and Rs0.4bn in Balochistan.

“The SBP has taken a serious note of the issue and the committee recently set up to examine geographical and sectoral discrepancies is working with stakeholders including banks and farmers’ representatives to ensure this does not happen in the future,” says an SBP official.

“If wilful neglect is established on the part of banks we can even devise a mechanism to penalise them.”

Scant agricultural lending to small provinces compels borrowers to seek loan on very high interest rates, sometimes 36-48pc, from traditional moneylenders. Besides, they also have to postpone investment in agricultural development and innovation which, in turn, keeps their farm yields low.

“Isn’t it painful to see that Balochistan, the fruit basket of Pakistan gets less than half a billion rupees in agricultural loans from banks? How can you expect orchard owners there to innovate ways of farming fruits or boosting per hectare yields of crops,” laments an official of the provincial agricultural department.

The lack of access to formal finance was brought to the notice of the SBP governor, Ashraf Mahmood Wathra, by farmers and businessmen during his recent visit to Quetta. He announced the SBP’s plan to setup the Balochistan Bank with the equity of the provincial government.

“But sadly no one present there (the SBP officials and senior bankers) explained why the province gets Rs400m agricultural loans against the annual target of Rs7.5bn,” a participant of the meeting lamented while talking to this writer.

Bankers often cite improper documentation of agricultural land and other assets as an impediment to agricultural lending in minority provinces. But growers lobby groups say that bankers simply don’t want to get out of their comfort zone when it comes to entertaining small borrowers.

In private conversations bankers posted at rural branches admit that lack of empowerment for loan approvals at branch levels in most cases leads to lower lending.

Banks have rather over-centralised decision-making in all matters pertaining to lending. Loans are sanctioned or renewed only when we get a nod from our regional offices, they say.

Aazim, Mohiuudin. Minority provinces get too little farm loans. Dawn, April 3, 2017.

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