It is encouraging to see that agricultural credit in the economy is increasing at a fairly rapid rate. According to the latest data released by the State Bank, commercial banks disbursed agricultural credit amounting to Rs 409 billion during the first eight months (July-February) of the current year which was 58.4 percent of the overall annual target of Rs 700 billion fixed for FY17 and 22.9 percent higher than the disbursement of Rs 332.8 billion made during the corresponding period last year. It may be noted that target during the year at Rs 700 billion was higher by 17 percent than the target of Rs 598.3 billion in 2015-16. Out of total disbursement of Rs 409 billion during 2016-17, Rs 196.01 was disbursed to farm sector while Rs 212.9 billion was disbursed to non-farm sector. Five major banks as a group disbursed Rs 204 billion or 60 percent of their annual target. ZTBL, the most important specialised bank in the field, disbursed Rs 46.7 billion or 45.5 percent of its target of Rs 102.5 billion while PPCBL disbursed Rs 5.9 billion or 47.7 percent against its target of Rs 12.5 billion during July-February, 2017. Fifteen domestic private banks disbursed Rs 78.5 billion or 56 percent of their annual target of Rs 139.6 billion while four Islamic banks disbursed Rs 7.8 billion against the target of Rs 11 billion. Province-wise, the major share of agricultural credit amounting to Rs 361.8 billion was disbursed in Punjab as against the target of Rs 507.9 billion for the entire year. In Sindh, banks disbursed an amount of Rs 38.6 billion during July-February, 2017 which was 37 percent of the indicative target of Rs 104.3 billion. KP and Balochistan received only Rs 7.2 billion and Rs 0.3 billion which was 37 percent and 15.8 percent of their allocated targets for the first eight months of the current fiscal. AJK and GB received Rs 0.7 billion and Rs 0.3 billion against their targets of Rs 4.1 billion and Rs 3.5 billion, respectively.

It is no secret that agriculture sector is a vital component of Pakistan's economy, providing raw materials to down the line industries, helping poverty alleviation and absorbing about 42.3 percent of the country's total labour force. Although, the growth of agriculture sector is mainly contingent on favourable weather conditions, timely availability of canal water, relative prices of agricultural products, etc, the importance of agricultural credit in developing agriculture sector also cannot be ignored. Its easy availability at reasonable rates could of course facilitate farmers to procure the needed inputs, including fertilisers, agricultural machinery and the latest seeds which could result in higher productivity in the agriculture sector and also help the growth in other sectors. Looking at the recent data, it appears that the disbursement of agriculture credit has been increasing over the years, even if the data is adjusted for price increases and analysed in real terms. An increase of nearly 23 percent in disbursement during the current fiscal is of course a welcome development, particularly when the banks have an easy option of investing in higher yielding government securities without any risk. Some of the recent initiatives of the government and the SBP might have helped increase the volume of credit in this sector. For instance, out of Rs 341 billion agriculture package of the Prime Minister, Rs 194 billion were allocated for agricultural loans. ZTBL and commercial banks were asked to provide one-window facility to farmers seeking loans. A number of policy and regulatory initiatives were taken to remove the bottlenecks and enhance access to financial services for farmers. These include Credit Guarantee Scheme for Small and Marginalised farmers, Framework for Warehouse Receipt Financing and guidelines for Value Chain Financing.

Although, the SBP and the government, in collaboration with banks, farming community and other stakeholders, have been encouraging banks to adopt agricultural lending as a viable business line, some of the weaknesses of the system cannot be ignored. Firstly, it is to be appreciated that agricultural lending has increased this year but even if the present healthy trend in disbursement is maintained during the remaining part of the year, total disbursements cannot reach the target of Rs 700 billion prescribed for FY17. This calls for more careful exercise in finalising the targets at the beginning of the year. Secondly, it is very regrettable that while the province of Punjab is getting a lion's share of agriculture credit, other provinces are largely deprived of their credit needs. We know that bankers would justify this unequal distribution of credit on the basis of repayment capacity of the farmers and smaller network of bank branches in other provinces but such an approach would result in lower productivity in smaller provinces and may lead to some heart-burning in these areas. As such, we would urge upon the State Bank to pressurise the banks to be more active in KP, Sindh, AJK and GB in identifying the potential borrowers in the agriculture sector and reaching them with an open heart. Nonetheless, the SBP must continue to stick to the existing policy of prescribing indicative targets and not think about the option of mandatory targets which generally results in sub-optimal allocation of credit.

Copyright Business Recorder, 2017