Agricultural credit hits record high, sector growth declines to 1.2 percent

Governor of State Bank of Pakistan (SBP) Jameel Ahmad has revealed that agricultural credit disbursement reached a staggering 2.216 trillion rupees in the first half of FY 2024-25. As per reports, financial institutions issued 25 percent more credit to the agricultural sector compared to the previous year.

The governor attended an Agricultural Credit Advisory Committee (ACAC) meeting where he reiterated the SBP’s will to support the agricultural sector via additional financing. He explained that 2.86 million debtors had already received 1.266 trillion rupees in the third quarter of FY 2024-25.

According to Jameel, the agricultural sector partially serves as the backbone of the economy as it eradicates issues pertaining to food security while supporting rural households that are not integrated with larger sectors.

The senior SBP official conceded that there were numerous issues currently plaguing the agricultural sector that need to be addressed, including climate change, subpar productivity and the lack of strong formal financial institutions.

While speaking at the meeting, Jameel urged banks to strongly consider agricultural finance as a primary business operation. Currently, however, a large number of banks issue loans to the agricultural sector as a secondary business activity and prefer to refrain from providing credit to smaller farmers.

Analysts explain bank behaviour by pointing towards the costly nature of enforcement and monitoring while lending to the rural sector. Often, the costs exceed the revenues, making it unprofitable to lend money to farmers.

Jameel outlined the importance of commercial banks in the quest to expand the financial system, especially in rural areas. The governor explained that banks could achieve this by increasing the number of branches and credit officers in areas with limited financial coverage. If implemented, the governor believes that the measure will greatly support smaller farmers.

According to reports, agricultural growth stagnated in the third quarter of FY 2024-25, declining to a measly 1.2 percent compared to a respectable 8.1 percent growth rate in the same period last year. The drop in growth rates reportedly resulted in a suboptimal GDP growth rate of under one percent during the third quarter of FY 2024-25.

Jameel outlined three factors financial institutions and relevant stakeholders need to consider in order to support the neglected agricultural sector: tackling climate change issues, modernising farming tools and focusing on the livestock sector.

As per reports, the governor mentioned the need for the sector to be provided with green financing and training to tackle food security issues.

Further, he stressed the importance of implementing state-of-the-art facilities to transform the agricultural sector. These facilities include geospatial technologies as they allow farmers to monitor their crops efficiently while reducing production-related risks.