STAFF REPORT IBD: Pakistan has witnessing increase in farm credit this fiscal year by Rs125 billion, including Rs5.5 billion by the microfinance banks and with the 21 per cent contribution to the GDP, the farm sector continues to be the countrys most important economic sector. However, despite such increase over the past decade, the net share of agricultural credit in the total formal-sector credit portfolio remained at only 4.5 per cent at the end of the year 2009-10 portraying a very dismal performance of this sector to the national economy.
According to the State Bank estimates, the growth in the agricultural credit supply has also fallen behind the growth in its demand during the last decade. The demand-supply gap stood at about Rs280 billion in 2009-10 and the supply of institutional agricultural credit during the fiscal year 2009-10 fell short by more than half of the demand. Subsequently, this led to the farmers increased reliance on the informal credit market, which is completely unregulated and offers rates of interest that are usually much higher than those prevalent in the institutional credit market. State Bank estimated that the interest rates in the informal credit market vary between 50-100 per cent.
Financial statements reveal that agriculture does not feature as a priority sector in the credit portfolios of major financial institutions. The 2009-10 data shows that UBL allocated the highest share of its credit portfolio (14.09 per cent) to agribusiness followed by HBL (6.44 per cent), NBP (5.01 per cent), MCB (0.98 per cent) and ABL (0.18 per cent).
The data shows that Sindh is gradually losing its share in agricultural credit which is being attributed to the limited availability of farmers passbooks, the lack of cooperation by the provincial revenue departments to verify these books, issuance of bogus passbooks and closure of the Sindh Provincial Cooperative Bank. Same is the case in the other provinces, the data reveals.
Market credit experts say that the procedural and practical hiccups in farm sector loaning leave much to be desired. The outdated loan ceilings are one such issue, they said explaining that in the last three years, the cost of production has skyrocketed on three accounts: general sales tax on inputs, rupee depreciation and receding government writ on pricing. The GST has raised inputs price and cost of production by around 25 per cent.
The impact of weak governance can be gauged from the urea crisis: black marketing of urea is costing around 40 per cent more to farmers. Thus on these accounts, the cumulative cost has gone up by over 100 per cent. However, the banks have kept inputs loan ceilings constant for the last many years. This prevailing farm credit mechanism can be improved only if the authorities opt for a major reformation of the system keeping in view that farmers economic position and their on-ground situation.
Extensive research of the rural credit market reveals that continued negligence drastically affected the agriculture economy in the country. Experts suggest a major reformation in the farm credit mechanism so as to enhance the performance of the national agriculture sector.
They argue that though the amount of agriculture credit increased from Rs 14.9 billion in the year 1990 to Rs125 billion last year, the agricultural credit schemes have not achieved desired results.
Special tripartite agreement among the farmers/private sector credit institutions for provision of farm inputs could lead to betterment of the credit system. In addition, they also recommend establishment of more effective and equitable methods of delivering farm inputs and providing services to farmers as it would significantly help in enhancing the agriculture yields, market experts are of the opinion.

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