Crop Loan Insurance Scheme: 1.6 percent premium for Rs 260 billion loan finalised

The government has finalised 1.6 percent premium with insurance companies on a loan of Rs 260 billion for agriculture sector to bring five major crops - cotton, wheat, sugarcane, maize and rice - under the net of "Crop Loan Insurance Scheme". The scheme has been jointly prepared by the Ministry of Food and Agriculture (Minfa), the Finance Ministry and the Planning Commission.
Sources told Business Recorder on Saturday that the State Bank of Pakistan (SBP) and the Finance Ministry were currently examining the total impact of the premium on a target loan of Rs 260 billion to extend to farmers during the 2009-10 financial year.
The Zarai Tarraqiati Bank Limited (ZTBL) has entered into an agreement with the Adamjee Insurance Company and National Bank of Pakistan (NBP) with National Insurance Company (NIC) for the insurance scheme specific to the agriculture sector. The sources said that insurance companies had sought two percent premium on the insurance scheme, but the two sides agreed on 1.6 percent premium. The government will pay the premium on loan for small farmers under the insurance scheme.
According to the criterion, small farmers are defined as those having agricultural land-holdings of around 12.5 acres in Sindh and Punjab, 16 acres in the NWFP and 30 acres in Balochistan. "The insurance companies will pay the loan with mark-up to the banks if farmers are not able to repay loan due to damage to crops," the sources said, adding that the scheme would benefit all the stakeholders, including banks, farmers and insurance companies.
The government has allocated rupees three 3 billion in the 2009-10 budget for the purpose. At present, banks hesitate to extend loans to farmers because the small farmers often fail to repay loans due to poor crop yields. This insurance scheme will give confidence to the banks to extend loans to agriculture sector. In the second phase of the scheme, yield will be brought under net of insurance, covering damage to the crop due to natural calamity, terrorism or any criminal activity.
According to the Ministry of Food and Agriculture, small farmers constitute around 85 percent of the total farm owners in the country. Crop loan insurance would mitigate the risk factors for small farmers, enabling them to aggressively pursue production targets.