Farm mechanisation: Markup subsidy, risk sharing scheme announced

KARACHI: The State Bank of Pakistan (SBP) has announced mechanism for “Markup Subsidy and Risk Sharing Scheme for Farm Mechanization (MSRSSFM)” to support the agriculture sector.

In order to enhance agriculture productivity and food security in the country, the government has introduced a markup subsidy and risk sharing scheme for farm mechanization under the PM’s Kissan Package - 2022.

Under this scheme, the cost of markup subsidy and risk sharing will be borne by government. All farmers processors and corporates engaged in agriculture crop production are eligible for the scheme and can avail finance for purchase of new/used farm machinery, tractor, thresher, harvester, planters, mobile grain dryers and solar tube-wells.

The scheme will be valid for 1 year from the date of announcement with maximum loan size of Rs30 million. The loan tenor is up to 7 years inclusive of 1-year grace period. However, bank may decide the actual tenor based on useful life of machinery/equipment.

Markup rate for end user will be 7 percent per annum, while bank pricing KIBOR 6-month offer + 3 percent pa. The government will pay the difference of the cost.

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Under the category 1 of tractor and thresher, all farmers for new and used tractors & threshers (up to 3 years old) are eligible for financing. In case of used tractors and threshers, valuation report from PBA approved evaluator will be required for assessing loan tenor/useful life of machinery. Hypothecation of the asset purchased will be acceptable as collateral.

All farmers processors, corporates engaged in agriculture crop production are eligible under the category 2 of harvesters, planters and mobile grain dryers, solar tubewells.

New and used harvesters, planters, mobile grain dryers and solar tube-well (up to 3 years old) are eligible for financing. In case of used harvesters, planters, mobile grain dryers, solar tube-well, valuation report from PBA approved evaluator will be required for assessing loan tenor/useful life of machinery. Hypothecation/any collateral is acceptable to bank as per the policy. The government will bear 25 percent first loss on disbursed portfolio (principal portion only) for eligible borrowers as per Prudential Regulations for Agriculture Financing.

For allocation of targets, all banks will submit their proposed credit limits to the SBP within 7 days after issuance of the circular. The SBP will assign credit limits to banks and allocate credit disbursement targets to banks in view of banks’ previous performance, their penetration among farmers and budgetary allocation made by the GoP and communicate the same to banks. The target achieved by banks under this scheme will be part of their annual indicative agriculture credit target assigned by the SBP.

Copyright Business Recorder, 2022