Agri credit

The economy of Pakistan has never been the centrepiece of policy for lawmakers. Critics have long argued that economic managers are too busy fire fighting on the political front that policy decisions on the economy drop off by the way side.
But blaming the government is easy; out of focus planning can be witnessed in the private sector as well. Agriculture remains the mainstay for most Pakistanis - some 45 percent of the population. More than a fifth of the economy is fuelled by the sector.
Yet, less than 5 percent of the quantum of credit advancement from the banking sector is directed to the rural economy. If only private sector lending is taken into account, the number is notched up to just 10 percent at a time, when the agricultural economy has been booming on the back of commodity price and output increases in the past two years.
Recently, the central bank governor has formed a committee to strategise on ways to encourage agricultural credit. He also announced relief measures worth Rs10 billion for agricultural credit in the flood affected areas.
"The country is likely to face a crisis of food security in the next 15-20 years as the population grows, unless serious improvements in agricultural produce are achieved" economist AB Shahid told BR Research.
Efficiencies in the productive capacity may be introduced by concerted efforts in improving mechanisation standard. Credit flows alone will not be enough though; small farmers will need to be educated on best practices drawn from other countries.
Its not as if farmers don need financing. Banks biggest competitor in the rural areas is the middleman, who provides financing to them. They also guarantee off-take from small farmers are commodity prices that are much lower than government mandated rates.
In order to integrate the rural economy into the banking system and muscle out the middleman, warehousing facilities and crop insurance must be integrated. Farmers would be able to seek financing against the warehousing receipts from banks. Further, the development of an effective futures market - through the commodities exchange - will enable transparent price discovery of agriculture produce and livestock.
All hopes are pinned to the strategy of the agricultural credit advisory committee.