July 21 - 27, 2008

Though it is too late to evaluate the agriculture as a strong source having potential to lend meaningful support in GDP growth, nevertheless it is never too late than never as both the farming sector as well as the policy makers have started paying attention to optimize agriculture produce sufficient for the domestic needs as well as to cash the global food inflation.

This is reflected in the increased area of cultivation for the cash crops like cotton, wheat, rice and sugarcane etc and enhanced access of the farmers to the financial sector of the country.

In this backdrop the enhanced disbursement of agriculture loans by 25 percent and initiative by the banking and insurance sector to facilitate the farmers with the loan insurance are the interesting developments of the agriculture sector in Pakistan.

The Task Force instituted by the central bank on Crop Loan Insurance Framework has agreed to launch crop loan insurance scheme for farmers throughout the country from coming Rabi crop season.

The Task Force under the Chairmanship of, President Habib Bank Ltd., was assigned to develop a commercially viable and sustainable Crop Loan Insurance Scheme with the help of all stakeholders to mitigate the risk of losses occurring to agricultural borrowers due to natural calamities and risks of defaults to banks by such borrowers.

Since major commercial banks and insurance companies have developed their crop insurance programs/products based on the framework developed by the SBP Task Force and some of these have already come to the market, therefore, the objective of the Task Force is to develop a commercially viable and sustainable Crop Loan Insurance Scheme (CLIS) that can be adopted by the market players.

The scheme will not only facilitate the banks in expanding their outreach of agricultural credit but will also reduce burden on the national exchequer.

The Chairman of Task Force, President HBL Mr. Zakir Mahmood has explained that development of a market-based system is a challenge particularly in the backdrop of many unsuccessful moves made in the past two decades. Therefore, the Task Force adopted a strategy to review the lessons of international best practices, he said and added many data series were compiled by SBP on calamities announcements, crop wise, & district wise loan disbursements, size of production loans, data on write-offs & NPLs and other seasonal analysis. The insurance companies also shared the database with the reinsurers abroad and after detailed deliberations a workable, viable and market-based framework has been formulated.

The proposed framework is based on common denominators acceptable to leading insurance companies and banks. The scheme would provide cover to the borrowers against their losses due to natural calamities up to the amount of outstanding loan and mark up thereon. The insurance companies will charge a maximum of 2% premium for all major field crops and the risk is covered against excessive rains, hail, frost, flood, drought, and crop related diseases like viral and bacterial attacks or damage by locusts. The scheme will be mandatory for the borrowers of the banks.

The representatives of the insurance companies are of the view that after successful implementation, the insurance cover will also be extended to the non-borrowing farmers.

Governor SBP Dr. Shamshad Akhtar appreciating the private insurance companies, and the role of the Task Force that has provided a pure commercial and viable solution of crop loan insurance, has emphasized on the development of a comprehensive data base of the experience of insurance companies and banks for reviewing the issues and remodeling of the framework periodically. This Task Force would be called upon to review the developments after some experience has gained on implementation of the crop loan insurance scheme.


Meanwhile on the back of rising demand for agriculture produce and attractive prices within the domestic and international market the farmers have also enhanced their endeavors to cash on the situation which is reflected in the disbursement of credit to the agriculture sector by commercial and specialized banks up by 25.31 percent year-on-year to Rs 211.561 billion during the recently concluded 2007-08 fiscal year (FY08), surpassing the indicative target of Rs 200 billion by a handsome margin.

In absolute terms, agri credit disbursement raised Rs 42.73 billion in FY08 when compared with preceding year's disbursement of Rs 168.830 billion.

Overall credit disbursement by five major commercial banks including Allied Bank Limited (ABL), Habib Bank Limited (HBL), MCB Bank, National Bank of Pakistan (NBP), and United Bank Limited (UBL) stood at Rs 94.749 billion from July 2007 to June 2008, compared with Rs 80.393 billion during the same corresponding period, depicting an increase of Rs 14.356 billion in absolute terms or almost 18 per cent.

Zarai Taraqiati Bank Limited (ZTBL), the largest specialized bank, has disbursed Rs 66.939 billion in FY08, compared with Rs 56.473 billion in FY07, while disbursement by Punjab Provincial Co-operative Bank Limited (PPCBL) stood at Rs 5.931 billion in FY08, compared with Rs 7.988 billion in FY07. Besides, 14 domestic private banks (DPBs) also loaned a combined Rs 43.941 billion in FY08, up 83.27 percent when compared with Rs 23.976 billion disbursed in FY07.

It may be recalled that the State Bank of Pakistan had set an indicative target of Rs 200 billion for FY08, up from Rs 160 billion in FY07, showing an increase of Rs 40 billion.