BANKS have increased their agricultural lending; but whether higher lending has had any impact on rural poverty remains debatable.

The percentage of those suffering from undernourishment, between 2000 and 2016, slipped from 23 to 21, according to the Food and Agriculture Organization. However, according to the World Bank, people living below the poverty line of $1.9 a day fell from 29 per cent in 2001 to 4pc in 2015.


These readings show whereas overall poverty rate is declining fast, extreme poverty as measured through undernourishment or hunger is not.

Agriculture lending can, and does, help in hunger eradication and poverty reduction if it is backed by the right set of government policies and sociopolitical attitudes. Changes in absolute numbers of agricultural lending can be of little help in analyzing how helpful this lending is.

But the quality of the lending and even its outreach can tell us where we are heading.

The problem with Pakistan’s agriculture lending is, it is still directed mostly towards the big and powerful agriculturists’ lobbies. Further, this lending is injudiciously centered in Punjab. Also, banks tend to lend more for agri-production and less for agriculture development.

The central bank, in addition to microfinance banks, is also involving microfinance institutions and rural support programs for lending.

The State Bank of Pakistan (SBP) has tried to address all three issues by encouraging banks to lend more to small farmers, keep an eye over district-wise agri-credit disbursement and accommodate requests for agri-development borrowing more passionately than before.

For many years the central bank has been assigning indicative targets of agri lending to Islamic and microfinance banks. But we have a long way to go.

Just consider this: 17,998 big landlords got agricultural credit worth Rs129.5 billion in FY17. Against this, 1.64 million small farmers got just Rs158.4bn. A little more than 116,464 mid sized landowners received Rs67.9bn, according to revised date by the SBP. Statistics for FY18 have not yet been released.

Also consider this: As per SBP data, during July-Dec 2018, 84.8pc of the total credit offered by banks went to Punjab; 12pc went to Sindh; 2.4pc to Khyber Pukhtunkhwa; 0.3pc to Azad Jammu and Kashmir; and 0.2pc each to Balochistan and Gilgit Baltistan. More recent stats are awaited.

And now, look at this: During July-Dec 2018, banks’ agri lending for development purpose was just 8.6pc of overall lending to the agriculture sector (Rs76.6bn against the total of Rs819bn).

Agriculture lending via microfinance banks is growing rapidly and has the potential to make a positive impact on the lives of smaller farmers, thus helping in poverty control and hunger eradication.

But owing to the nature of operations of these banks and their rules of business, including per party lending limits; volumetric gains in their lending makes a small percentage of the total agri lending.

Between July-Dec 2018, microfinance banks offered Rs81.5bn, or 15.5pc, of the entire banking sector’s agricultural lending of Rs527.3bn. Going forward there is a need to assign larger agri lending targets to these banks and make necessary changes in their rules of business to meet those targets.

Also, there is a need to monitor banks’ agri lending at district levels more closely, incentivize those that meet their district-wise targets and penalize the ones that don’t.

It is good to see that the central bank, in addition to microfinance banks, is also involving microfinance institution and rural support programs in agricultural lending programs.

And surprisingly, despite limitations in their scope of business, they are doing pretty well. Between July-Dec 2018, all such institutions and programs lent Rs16.7bn to the farming community. That was equal to 3.2pc of the total agri lending.

In addition to addressing the technical aspects of agriculture lending, the political aspect also needs to be addressed with wisdom.

Unless the federal and provincial governments develop a more harmonious relationship and join hands in poverty minimization, no instrument can become effective. Not even higher, micro- level targeted lending.

Legal framework necessary but not sufficient

THE agriculture tax ordinance was enacted in 1997 and amended in2001. The post-Amendment law obligates farmers with a landholding of 50acres or more of irrigated land, and 100 acres of Barani land, to submit a declaration of agriculture income on a prescribed form.

They have to pay tax on land ownership or income basis, whichever is higher.Post-18th Amendment, agriculture was transferred to the provinces.

Currently, the legal framework and the administrative set-up to levy and collect agriculture income tax exist in all four provinces. Despite having an adequate record of landholdings, the lack of political will, a weak infrastructure and the skill to assess income render the exercise worthless.

The revenue generation under this head is better in Punjab but it still continues to be a tiny fraction of the actual potential.—AS

Published in Dawn, The Business and Finance Weekly, April 22nd, 2019