These Prudential Regulations, to be enforced immediately, have been finalised after extensive and intensive consultations with all major stakeholders, particularly the banks.
The newly issued Prudential Regulations have been placed at SBP Website http://www. sbp.org.pk/publications/prudential/index.htm that could be used easily by the prospective customers.
The main objective of issuing a separate set of Prudential Regulations for Agriculture Financing is to capture the peculiar characteristics of the sector's production and marketing cycle and align it with banks' lending and borrowers' repayment cycles.
A major change in the new regulations is to enable the commercial banks to extend agriculture credit on the basis of future cash flows instead of relying solely on the collateral.
Standard cash flow can be estimated for different crops in different geographical areas and this cash flow can be adjusted for specific borrowers by trained credit officers of the banks/DFIs after considering the quality of land and efficiency of the individual farmers. This will not only facilitate expeditious decision-making, but will also reduce subjectivity in the process of decision making.
This important change in credit appraisal procedure would open up bank financing for a large numbers of small farming households that have so far been denied access due to lack of adequate collateral. The State Bank of Pakistan has targeted that at least 3 million farm households, out of a total 6 million, should have access to institutional agriculture credit by 2010. The new regulatory framework is intended to help achieve this target.
The Prudential Regulations for Agriculture Financing may be considered only as minimum standards, and the banks/DFIs have been advised to adopt adequate measures to ensure that agricultural financing is undertaken in a prudent manner.
The banks/DFIs have been asked by the State Bank to put in place an appropriate management information system to monitor the quality of agricultural finance portfolio on continuous basis and take appropriate decisions at the right time.
Banks/DFIs have also been requested to diversify their agricultural finance portfolio in terms of geographical areas, types of financing, etc to avoid the risks of concentration of credit and designate suitable, qualified and properly trained staff for this purpose.
Keeping in view the national importance of agriculture sector, the State Bank said it expects banks/DFIs to take extra care in facilitating their borrowers. For better understanding of their customers, banks/DFIs have been asked to translate their application forms, check-lists of all required documents and brochures in Urdu and regional languages.
The State Bank of Pakistan would, as always, keep a close liaison with all stakeholders and would modify and update these Prudential Regulations whenever necessary.