Surge in agricultural credit
May 25, 2013
It is good to see that bank credit to the agricultural sector continues to rise despite its slowdown in other sectors. According to the latest data released by the State Bank on 21st May, 2013, agricultural credit disbursements by banks surged by over 15 percent in the first ten months of this fiscal year compared to the same period last year, indicating a high credit demand. In absolute terms, the increase amounted to Rs 35.23 billion to over Rs 259 billion when compared with the total disbursement of Rs 223.85 billion in July-April, 2012.
Credit disbursement by five major commercial banks – Allied Bank, Habib Bank, MCB Bank, NBP and UBL – rose by 15.49 percent to Rs 139.07 billion while ZTBL, the largest specialised bank, disbursed a total of Rs 44.25 billion as compared to Rs 43.90 billion last year. Fourteen domestic private banks also loaned a combined amount of Rs 56.35 billion as against Rs 44.14 billion last year. Microfinance banks were also quite active and disbursed agriculture loans amounting to Rs 13.73 billion as compared to Rs 9.03 billion in the same period last year. All of this shows that almost all the categories of financial institutions are quite keen to increase their agricultural lending, contrary to the practice in the earlier years when only specialised credit institutions like ZTBL were specifically established to support the agriculture sector while other financial institutions concentrated their credit activities mostly on business and manufacturing sectors. Another difference in approach was higher emphasis on livestock than crop production in the sector. The credit to livestock sector has increased sharply compared to the farm sector due to a variety of factors including higher profitability in the sector, lower level of NPLs and the plan of the government to achieve higher growth rates in milk and meat production through shifting from subsistence livestock farming to market-oriented and commercial farming.
A substantial increase in agriculture credit is certainly a welcome development for the country. This sector has a very vital role in Pakistan’s economy and contributes about 21 percent of overall GDP. Its role is also important for ensuring food security, reducing poverty and generating growth in other sectors of the economy. Besides, agriculture provides productive employment opportunities for 45 percent of the country’s labour force and 60 percent of the rural population depends on this sector for its livelihood. It may also be added that during the last five years, disbursement of credit to agricultural sector has increased substantially while bank lending to other sectors has been quite poor. More credit to the agricultural sector and higher support prices for certain crops have kept the rural population reasonably satisfied by shifting higher part of GDP to the rural areas besides ensuring food security in the country.
A very healthy aspect of this positive development is that financial institutions themselves have taken the initiative to extend their reach to the farming sector, without any outside intervention. Gone are the days when SBP used to direct the flow of credit and prescribe mandatory targets for the priority sectors. However, only indicative agricultural credit disbursement target is set at the beginning of the year. This year, it is Rs 315 billion which is likely to be achieved by the end of June, 2013. The increasing interest of the financial institutions in extending credit to the agriculture sector suggests that banking community is quite comfortable with this sector, the present trend is sustainable and this is a very good omen for the economy as a whole. Business Recorder