State Bank of Pakistan (SBP) has enhanced the indicative credit limits for agriculture financing by banks to farmers to align the amount of financing with agriculture input requirements.
The enhanced indicative credit limits for production and development loans of farm and non-farm sectors will directly benefit agriculture borrowers, who will now be able to obtain more credit from banks, which would, in turn, enhance agriculture productivity through adequate use of inputs. This will also enable banks to align the loan amounts with the actual requirements of farmers and resultantly enhance the flow of agriculture credit.
The credit requirements are the actual demand of the farmers or agriculture business entrepreneurs for agricultural financing. The credit requirements are calculated based on various factors like; land holding, size of farms, economic conditions, and expected prices of the agriculture produce.
Generally, the farmers having medium to large farm sizes are in a good financial position and may have relatively low credit demand, while the subsistence and marginalized farmers mainly rely on credit/loans to meet their financial requirements, which vary from 90 to 100 percent.
It is important to note that the indicative credit limits serve as a guideline for banks to assess the credit requirements of agriculture borrowers while sanctioning credit limits. Banks may, however, make adjustments on the basis of prevailing market conditions, local prices of inputs, and the repayment capacity of borrowers.
The revised indicative credit limits will also facilitate provincial planning departments in estimating the total financial and credit requirements of respective provinces/regions for farm and non-farm sectors.
In the farm sector, farmers usually need credit for production and development activities. Production loans are used for the purchase of crop inputs like seeds, fertilizers, pesticides, water, fuel for on-farm activities/cultivation of various crops, while development loans are mainly used for the purchase of farm machinery like tractors, tube wells, thrashers, and activities like construction of on-farm infrastructure like tunnel farm, godowns/warehouses, silos, etc.
Hence with the increase in the cost of living and production, the credit limit is extending mainly to promote the agriculture sector and farms. To facilitate banks in assessing the credit needs of farmers, per acre credit limits for production inputs are provided for crops, orchards, forestry, and agriculture-related infrastructure by SBP.
These limits are indicative and serve as guidelines for banks to assess the credit requirements of agriculture borrowers. Banks may, however, vary from these limits based on the prevailing market conditions, local prices of farm inputs, and repayment capacity of borrowers.
The eligible items have been updated after incorporating additional items/activities through feedback from stakeholders, and in light of SBP guidelines on livestock, fisheries, poultry, efficient agriculture water management, and horticulture financing. However, the list is indicative and banks are allowed to finance any other agriculture-related activity as per SBP’s regulations, their policy, and the requirements of the farming community
