NBP LEADER IN LENDING TO FARMERS
THE BANK DISBURSED AGRI CREDITS OF RS33.013 BILLION AGAINST A TARGET OF RS32.400 BILLION DURING FIRST NINE MONTHS OF CURRENT FINANCIAL YEAR.
SYED IBNE HASSAN
May 21 - 27, 2012
National Bank of Pakistan (NBP) is among 'big-five' commercial banks of Pakistan. It offers complete range of commercial banking services and one of the key areas is lending to farmers. For the financial year 2011-12, the State Bank of Pakistan (SBP) has fixed an indicative lending target of Rs280 billion out of this NBP has been assigned the maximum share, among the commercial banks.
NBP takes pride in having disbursed even more than the target assigned last year and aims at offering even better services to the farmers enjoying greater outreach. This becomes possible only because NBP's 875 branches out of total 1277 domestic branches are involved in catering to the needs of farmers. The key distinguishing factor is that NBP offers very competitive mark up rate, lower than the rate being charged by other financial institutions.
The loans disbursed can be divided into two categories: production and development loans. Under the first category, loans are disbursed mainly for the procurement of seeds, leveling land, pesticides, and fertilizers. The second category is for purchasing tractors and other agricultural implements and construction of modern storage facilities, cattle farms, and poultry farms etc.
Under the dynamic leadership of President Qamar Hussain, NBP's claim that it delivers loans at the doorstep of farmers is evident from disbursement of over Rs33 billion among nearly 176,372 farmers, against a target of Rs32,400 million during nine months. NBP takes pride in being a key partner in government's program of achieving food security and poverty alleviation. NBP had disbursed Rs42.4 billion among more than 252,000 farmers, against a target of Rs41 billion during financial year 2010-11.
HISTORY OF AGRICULTURE FINANCE
In Pakistan, agricultural credit market consists of formal and informal providers of credit. Formal lenders include specialized banks like Zarai Taraqiati Bank (ZTBL) and Punjab Provincial Cooperative Bank (PPCBL) and commercial banks. The informal lenders comprise of friends and relatives, village shopkeepers and commission agents etc. The predominant share of credit is provided by the informal sources. In order to overcome this inadequacy, two specialized institutions i.e. Agricultural Development Finance Corporation and the Agricultural Bank were established in 1950s. Subsequently, these institutions were merged to form the Agricultural Development Bank of Pakistan (ADBP) in 1961 (Now called ZTBL).
Prior to 1972, commercial banks' agriculture loans portfolio was nominal and bulk of the credit to the sector was provided by ADBP. With the introduction of banking reforms in 1972, several institutional and policy changes reforms were introduced to facilitate equitable distribution of banks' credit among various sectors and groups. Towards the end of 1972, SBP started assigning mandatory agricultural credit targets for big-five big banks (ABL, HBL, MCB, NBP, and UBL) and imposing penalty on institutions that do not meet the targets.
The legislation on Cooperative Credit System was introduced in the subcontinent in 1904. At the time of independence, cooperative banks were mainly engaged in financing commercial activities and neglected the financing to cooperative societies. In 1976, with enactment of Cooperative Banking Ordinance, the "Federal Bank for Co-operatives" (FBC) was established to finance provincial cooperative banks for further lending to cooperative societies. Subsequently, provincial cooperative banks were amalgamated to provide agricultural credit at grass root level and encourage the cooperative societies' structure in the country.
However, the system did not achieve its goals due to default of the provincial cooperative banks and a number of fake cooperative societies. Various steps undertaken by the government over subsequent years failed to revive the role of cooperatives in financing the agriculture sector.
Resultantly, FBC was liquidated in 2001 followed by liquidation of provincial cooperative banks' except PPCBL. After liquation of FBC, financing to PPCBL was diverted to SBP under the guarantee of Punjab government.
Informal credit market is characterized by low transaction costs, very high interest rates, and quick disbursement of credit. Although, its share in total credit has declined, it is still a major source of agri credit in the country. The close familiarity of borrowers with informal lenders in conjunction with coercive loan recovery methods and the inability of formal institutions to reach to the poor have brought about heavy dependency of the rural population on the informal markets. This trend has continued despite higher interest rates ranging from 50 to 100 per cent per annum. Most informal lenders have limited loan portfolios and operate within the narrow area of their influence.
ROLE OF NBP
National Bank of the Pakistan realizes the vital role of agriculture in the development of the country and developed various farmer-friendly schemes, in line with the policies of SBP, and is delivering it at the farmers' doorstep or within their easy access through simplification of documents, less stringent eligibility criteria etc. Being a public sector organization, NBP has been at the forefront and always demonstrated its unflinching commitment to the progress of the country.
NBP out of its 1271 domestic branches designated 875 branches for the agriculture finance. Bank has a specialized field force of agriculture graduates (agriculture field officers) who spend considerable part of their time in the fields under their jurisdiction especially during sowing and harvesting seasons to provide technical support to the farmer for adoption of improved farming practices, use of better yielding inputs pesticides, and facilitate them to meet their financing needs.
Broadly speaking, agriculture sector is divided into farm sector and nonfarm sector. Different activities have been identified within these two sectors which are categorized as production and development activities. NBP has devised comprehensive list of items covering almost all the activities ranging from input to farm development along the value added chain from production up to the processing.
Production finance is meant for crop production. It is a finance facility, which is given mainly for meeting input needs of a particular crop. These loans are mainly for the purchase of agriculture inputs like seeds, fertilizers, pesticides, etc. and other short-term requirements.
Farm Development Loan: It is a financing facility to carry out development work on and off the farm and includes financing for the purchase of tractor, tube wells, farm machinery, land improvement, etc. The bank has developed various products for facilitating farmers to meet such developmental expenses.
Financing to nonfarm sector comprises of lending to livestock, dairy, poultry, fisheries, orchards, and forestry. Term loans are offered for the purchase of animals, equipments, and machinery etc. whereas working capital finance is offered to meet running expenses of the business. NBP offers a wide range of financing schemes to fulfill credit requirements. Funds are provided against personal security or lien on Agri Pass Book or mortgage of rural/urban/ commercial/residential property or pledge of SSC or DSC/ Lien on bank deposits etc.