Role of financial Institutions in Agriculture Sector:What is “Revolving Credit Scheme”?

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Management of Financial Institutions - MGT 604

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

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

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

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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