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Management of Financial Institutions

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Management of Financial Institutions - MGT 604
VU
Lecture # 37
Role of financial Institutions in Agriculture Sector
Which banks are authorized for providing agricultural credit to farmers/growers?
All banks can provide agricultural credit to Farmers / growers. SBP does not restrain any
bank from providing agricultural credit. However, under the Agricultural Credit Scheme
indicative targets are given to 21 banks on annual basis. These include; two specialized
banks (ZTBL & PPCBL), five major commercial banks (ABL, HBL, MCB, NBP & UBL)
and 14 domestic private commercial banks; 1) Askari Com. Bank, 2) Bank Al-Habib, 3)
Bank Al-Falah , 4) My Bank, 5) Faysal Bank, 6) Habib Metropolitan Bank, 7) PICIC Com.
Bank, 8) KASB Bank, 9) Prime Com. Bank , 10) Saudi Pak Com. Bank, 11) Soneri Bank,
12) Bank of Khyber, 13) Bank of Punjab and 14)Standard Chartered Bank (Pakistan).
Who is eligible for agricultural credit from the banks?
Any individual (farmers/livestock farmers, fishermen, fish farmers), corporate firms,
cooperative societies/self help groups under-taking livestock related activities, fish catching/
processing /packing companies and fish exporters having sufficient knowledge and relevant
experience are eligible to draw agricultural credit from banks.
Are the traders and intermediaries engaged in trading/processing of agricultural
commodities eligible for agricultural credit?
Loans to entities exclusively engaged in processing, packaging and marketing of
agricultural produce shall not fall under agricultural financing and would be covered under
commercial or SME financing. However, agricultural financing can be extended to entities
(including corporate farms, partnerships and individuals) engaged in farming activity as
well as processing, packaging and marketing of mainly their own agricultural produce,
provided 75% of the agriculture produce being processed, packaged and marketed is being
produced by the abovementioned entities themselves.
How can a person get agricultural loan from banks?
Applicant must be a genuine farmer/tenant. For this purpose a farmer's name must appear in
revenue record and a tenant should establish this fact through a government
acknowledgement or the applicant must be handling Non-Farm activities like livestock,
poultry, dairy farming, fishery, forestry or firms/ cooperative societies/self help groups
undertaking agriculture related activities.
The borrower should be holder of computerized N.I.C in cases of individuals.
The borrower should not be a defaulter of any Bank/Financial Institution. This condition
may be relaxed in cases where the bank is satisfied with the creditworthiness of the
borrower and that the earlier default was circumstantial and not willful.
Applicant must produce proper securities / sureties / passbook or other collaterals
acceptable to the banks.
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Management of Financial Institutions - MGT 604
VU
If one brother was declared defaulter, do the banks provide loan to other brothers?
Every individual could be separately considered for grant of loans if he had credit
worthiness and separate landed property.
For what purposes the banks provide Agricultural Credit?
Agricultural credit is provided by banks for complete value chain of activities such as
production/crop loans i.e. in-puts (seed, fertilizer, & pesticides etc.), development loans
(tractors &tube wells, agricultural machinery / equipments / implements etc.), corporate
farming, marketing, cold storage (godowns) on farm & off farm, silos, processing of crops
(other than major crops), fruits & vegetables, grading, polishing, packing, transportation and
exports of agricultural goods etc.
Agricultural credit is also available for non-farm sector such as poultry, livestock, dairy
farming, forestry and fisheries, apiculture, sericulture, floriculture, horticulture, etc.
There is no provision of financing for procurement of fruits/crops under the list of eligible
items for agricultural credit such lending would be covered under commercial or SME
financing.
What types of loans are provided to farmers/growers by banks?
Banks are providing three types of loans; short-term (upto 18 months), medium-term (1.5
years to 5 years) and long-term (5 ­ 7 years). While short-term loans are provided for
working capital, medium and long-term loans are given for developmental requirements
such as improvement and development of land, purchase of tractors and other agricultural
machinery / equipments / implements related to farm and non-farm sector, etc.
Why the mark-up rate of Agricultural Credit is higher than the mark-up rate of
Commercial/Industrial Credit?
In the post financial sector reforms era, banks' markup rates are not fixed for different
sectors but are based on their cost structure and risk profile of the borrowers and the sector.
Banks are required to use KIBOR as a bench mark for determining pricing of their loans.
Our farming community is generally unaware of different agricultural loan
schemes/products. What efforts have been made by SBP for awareness of the farming
community?
For awareness building of the farmers, SBP has published pamphlets, brochures/book-lets
containing information about different agricultural credit schemes/products in Urdu and
English as well as in all regional languages and these publications have been distributed to
the stakeholders including farming community.
Besides, SBP has been arranging special outreach training programs since 2003 in different
cities of Pakistan for the banks, Agriculturists, Nazims, Chambers of Agriculture and
representatives of Farmers' Associations. SBP officials along with banks' representatives
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Management of Financial Institutions - MGT 604
VU
also undertake field visits across the country especially to make the farmers aware of
loaning facilities available and various schemes & new products of banks.
Banks are vigorously going for car leasing business. Can't such facility be extended to
farming / rural community by providing agricultural machines/equipments /
implements including tractor on leasing, hiring, rental basis?
SBP has already allowed banks to extend leasing facilities to the farmers under the scheme
for tube wells, tractors, harvesters etc. These machines/equipments / implements are also
available to the farmers on hiring, leasing and rental basis through Leasing Companies.
Whether lease holders of orchards are eligible for agriculture loans from banks?
Yes, lease holders of Orchards are also eligible to avail loan under Agricultural Credit
Scheme
Is there any limit for agriculture financing?
No, there is no limit on agricultural loans; however, the loan limit amount is assessed by the
ACO/branch manager on the basis of financing appraisal or feasibility report, etc.
Do the bank branches functioning in remote areas have sufficient information about
the schemes for agricultural financing?
Guidelines on different financing schemes and other instructions issued to banks are
communicated to banks with the instructions to send the same to all concerned branches. In
addition to this, SBP has published brochures about different loan schemes which were
translated into Urdu and regional languages and distributed among stakeholders including
ACOs/MCOs of rural branches of banks. Moreover, special outreach and training programs
organized in collaboration with commercial banks create awareness among the
farming/rural community of agri-financing facilities they can access and also to enhance the
capacity of commercial banks in agricultural & rural finance by providing training to local
agricultural credit officers of the banks.
What areas are covered under the Agricultural Loans scheme?
The Agricultural Loans Scheme has been designed to cover the entire Pakistan including
AJK with no restriction of territorial jurisdiction. Any farmer / grower can avail bank credit
from any designated branch of banks throughout Pakistan as per his choice. Likewise banks
are also free to provide credit to any farmer through out Pakistan subject to completion of
required formalities.
What types of sureties / securities/collaterals are acceptable to the banks for providing
agricultural credit to farmers/growers?
Agricultural land under the pass book system, urban/rural property, commercial property,
Defense Saving Certificates, Special Saving Certificates, Gold & Silver Ornaments,
personal surety, hypothecation of livestock and other assets e.g. motor boats / fishing
trawlers, etc. are generally accepted by banks as collateral.
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Management of Financial Institutions - MGT 604
VU
Is mark-up rate fixed by SBP on agricultural loans?
SBP does not fix any maximum/minimum mark-up rate to be charged on agricultural loans.
Banks' mark-up is based on their cost structure and risk profile of the borrowers and the
sector. However, for benchmarking, Karachi inter-bank Offered Rate (KIBOR) is used by
banks for the purpose.
What is "Revolving Credit Scheme"?
Revolving Credit Scheme was introduced in 2003 in consultation with banks. Under the
scheme, banks can provide finance for agricultural purposes on the basis of revolving limits
for a period of three years with one-time documentation. The borrowers are required to clear
the entire loan amount (including mark-up) once in a year at the date of their own choice.
Multiple withdrawals are allowed and the borrowers are also allowed to make partial
repayments. Only the amount utilized by the borrower will attract mark-up. This facility can
be availed by the farmers just like "running finance". The limits under this scheme are
automatically renewed on annual basis without any request or fresh application.
Is the credit facility under "Revolving Credit Scheme" available only on seasonal basis
i.e. one crop only?
The credit limits under Revolving Credit Scheme are available to the farmers for full one
year i.e. covering both the crops in a year. To save the farmers from stress sale of their
crops, they are required to clear their account only once in a year at a date indicated by the
borrower and mutually agreed with lending bank.
Is there any system/procedure under which farmers can get agricultural loans at their
doorsteps?
Mobile Credit Officers (MCOs) and Agricultural Credit Officers of banks are visiting the
farmers regularly to ascertain the credit needs of the farmers and ensure its availability at
their doorsteps and also provide technical help for different crops.
Whether landless farmers/tenants can avail agricultural credit under Revolving Credit
Scheme?
Yes, agricultural credit under Revolving Credit Scheme can be availed against personal
surety, guarantee or any other collateral acceptable to banks.
Are farmers who had availed any concession or remission under Government relief
package announced from time to time, eligible for fresh loans?
Yes, borrowers who have availed concession under any scheme notified by the government
or concerned bank/DFI in the light of guidelines issued by SBP may be eligible for fresh
financing.
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Table of Contents:
  1. Financial Environment & Role of Financial Institutions:FINANCIAL MARKETS &INSTITUTIONS
  2. FINANCIAL INSTITUTIONS:Non Banking Financial Companies
  3. CENTRAL BANK:Activities and responsibilities, Interest Rate Interventions
  4. POLICY INSTRUMENTS:Open Market Operations, Capital Requirements
  5. BALANCE OF TRADE:Balance of Payments Equilibrium, Public Policy and Financial Stability
  6. STATE BANK OF PAKISTAN:History, Regulation of Liquidity, Departments
  7. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS:Banking Inspection Department
  8. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Debt Management
  9. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Training Programs by SBP
  10. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Human Resources Department
  11. MAJOR DRIVERS OF FINANCIAL INDUSTRY:GLOBAL FINANCIAL SYSTEM, The World Bank
  12. INTERNATIONAL FINANCIAL INSTITUTIONS:ADB Projects in Pakistan, Paris Club
  13. PAKISTAN ECONOMIC AID & DEBT:Macroeconomic Stability, Strengthening Institutions
  14. INCREASING FOREIGN DIRECT INVESTMENT:Industrial Sector, Managing the Debt
  15. ROLE OF COMMERCIAL BANKS:Services Typically Offered by Banks, Types of banks
  16. ROLE OF COMMERCIAL BANKS:Types of investment banks, The Management of the Banks
  17. ROLE OF COMMERCIAL BANKS:Public perceptions of banks, Capital adequacy, Liquidity
  18. ROLE OF COMMERCIAL BANKS:Problem bank management, BANKING SECTOR REFORMS
  19. ROLE OF COMMERCIAL BANKING:Private Deposit Insurance,
  20. BRANCH BANKING IN PAKISTAN:Remittances, Online Fund Transfer
  21. ROLE OF COMMERCIAL BANKS IN MICRO FINANCE SECTOR
  22. Mutual funds:Types of international mutual funds, Mutual funds vs. other investments
  23. Mutual Funds:Criticism of managed mutual funds, Money Market Fund
  24. Mutual Funds:Balanced Funds, Growth Funds, Specialized Funds, Measuring Risks
  25. Mutual Funds:Cost of Ownership, Redemption Fee, Reports to Shareholders
  26. Mutual Funds:Internet Fraud, The Pyramid Scheme, How to Avoid Investment Fraud
  27. Mutual Funds:Investing In International Mutual Funds, How to Pre-Select a Mutual Fund
  28. Role of Investment Banks:Recent evolution of the business, Possible conflicts of interest
  29. Letter of Credit:Elements of a Letter of Credit, Commercial Invoice, Tips for Exporters
  30. Letter of Credit and International Trade:Terminology, Risks in International Trade
  31. Foreign Exchange & Financial Institutions:Investment management firms, Exchange Traded Fund
  32. Foreign Exchange:Factors affecting currency trading, Economic conditions include
  33. Leasing Companies:Basic Purpose of Leasing, Technological Benefits
  34. The Leasing Sector in Pakistan and its Role in Capital Investment
  35. Role of Insurance Companies:Indemnification, Insurer’s business model
  36. Role of Insurance Companies:Life insurance and saving
  37. Role of financial Institutions in Agriculture Sector:What is “Revolving Credit Scheme”?
  38. Agriculture Sector and Financial Institutions of Pakistan:What is SMEs
  39. Can Government of Pakistan Lay a Pivotal Role in this Sector?:Business Environment
  40. Financial Crimes:Process of Money Laundering, Terrorist Financing
  41. DFIs & Risk Management:Managing Credit Risk, Managing Operational Risk
  42. Banking Fraud & Misleading Activities:Rogue Traders, Uninsured Deposits
  43. The Collapse of ENRON:Auditing Issues, Corporate Governance Issues, Corrective Actions
  44. Classic Financial Scandals:Corruption, Discovery, Black Wednesday
  45. RECAP:FINANCIAL INSTITUTIONS, CENTRAL BANK,