Credit access to small farmers: Risk coverage scheme for banks, MFBs unveiled

KARACHI: In a major step to strengthen the agriculture sector and provide greater access to credit for small and marginalized farmers, the government of Pakistan has introduced a risk coverage scheme for banks and microfinance institutions (MFBs).

The scheme aims to facilitate financing for farmers, especially in unserved and underserved regions, by reducing the lending risk for financial institutions.

Under the initiative, all commercial banks, Islamic banks, specialized banks, and MFBs will be eligible to participate. The scheme covers production loans up to Rs 3 million for crops, dairy, livestock, and fisheries, disbursed between July 1, 2025, and June 30, 2028.

Aurangzeb for financing facilities to small farmers in Pakistan

According to State Bank of Pakistan (SBP), with a view to enhance financing to small and marginalized farmers as well as the farmers in unserved and underserved areas, the Government of Pakistan has introduced a risk coverage scheme for banks and MFBs against their fresh financing to small and marginalized farmers.

All commercial banks, Islamic banks, specialized banks and MFBs will be Participating Financial Institutions (PFIs) and all production loans for crops and loans for dairy & livestock and fisheries provided during 01-Jul-25 to 30-Jun-28.

As per the eligibility criteria, subsistence landholding and small farms of Punjab and Sindh, and all types of landholding, farms of KPK, Balochistan, AJK& GB will be eligible for the loan up to Rs3.0 million with a tenure of up to 12 months except for sugarcane where it is 18 months.

The loan will be considered as loss in case the repayment of loan or installment is overdue by 12 months. As per risk coverage, government will provide 10 percent first loss coverage on the outstanding agri loan portfolio against new borrowers and incremental outstanding portfolio against existing borrowers (principal amount only).

Risk coverage claims will be lodged by banks electronically with Financial Inclusion Support Department (FISD), SBP BSC within 15 working days after completion of respective quarter.

However, payment of risk coverage claim shall not obviate banks from the right of recovery of the defaulted amount. Banks shall continue with their regular procedure for recovery of loans. The recoveries from delinquent borrowers may be treated in three ways:

A bank receives recovery from delinquent borrowers and it has pending subsidy claims with SBP under the scheme. In such scenario, the bank may adjust the recovered amount from the quarterly claims by netting it off from the risk coverage claims.

A bank receives recovery from delinquent borrowers and it has no pending subsidy claims with SBP under the scheme. In such case, the concerned bank will deposit the recovered amount with FISD-SBP-BSC. FISD will adjust it with any other bank having pending risk coverage claims under intimation to Agriculture Credit & Financial Inclusion Department and Finance Division. In case where all the banks submit nil claims then the recovered amount will be deposited in a child account “Miscellaneous account (FG MISC)” under Central Account Non Food 1 on quarterly basis under intimation to Finance Division.

To meet the operational cost, federal government will pay Rs10,000 per new borrower to the bank to the extent of net increase in number of borrowers over the previous year.

Banks shall evaluate their net increase in number of borrowers at end of each fiscal year and lodge the claims electronically with Financial Inclusion Support Department (FISD), SBP BSC within 15 working days. In view of foregoing, SBP has advised all banks and MFBs to ensure successful implementation of the scheme.

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