Dr Shamshad Akhtar, Governor of the State Bank of Pakistan (SBP) has announced an increase in the credit disbursement target for the country’s agricultural sector to Rs250 billion; up from Rs200 billion in the 2007- 08 year. Pakistan’s agricultural sector has been experiencing a high volume of growth, and as such is seeing an increased demand for credit. This past year banks surpassed the 2007 -08 credit target of Rs200 billion by Rs12 billion. This higher demand for credit is also characterized by an increased diversity in the funds. The non-farm sector of agriculture made up 25 percent of credit disbursements in 2008 and credit to less developed rural provinces has also been growing during the past couple of years.
Agriculture is Pakistan’s largest sector, making up 20.5 percent of GDP in 2006. It has been on a steady increase since, thanks to a number of strategies promoting innovation and government incentive packages for production which have resulted in a higher rate of output. The sector grew by 5.0% year-on-year in 2006-07, above government expectations of 4.5% year-on-year growth. The rise was driven mostly by increased wheat output and export prices.
In addition to raising the credit target for agriculture, the SBP is also introducing the Finance Inclusion Programme(FIP), a joint scheme undertaken with the UK Department for International Development (DFID), allowing banks to provide wholesale credit to microfinance banks for onward disbursement to micro borrowers in rural areas against the larger credit enhancement scheme of the SBP. The DFID is the department responsible for Britain’s poverty-reduction efforts worldwide and is participating in the FIP as part of its aim to achieve the Millennium Development Goals set by the United Nations in Pakistan. The program will focus on financing for micro and small enterprises during the first year, then gradually focus on low-income housing and rural finance. It has also implemented an evidence based policy and set a target of reaching out to three million microfinance users by the end of 2010.
Representatives from these underserved rural provinces have also been vocal about their regions’ need for financial services and technical assistance to the SBP. Seeing as how the demand for credit has increased as a whole in agriculture, and there is and evidenced growth of the sector, it is apparent that the FIP will be serving an increased demand and can look forward to a well-backed policy for its growing client base.
By Yrenilsa Lopez, Research Assistant
ADDITIONAL RESOURCES:
“Pakistan: Country Profile.” Euromonitor International. Aug. 2008
“Agriculture Bolsters Pakistani Economy”. Euromonitor International. Oct. 2007
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