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1. Micro Cradit Schemes in
Agriculture Sector

3. CREDIT & MICROFINANACE IN
AGRICULTURE SECTOR

4. Fact Sheet: Agri-Sector
• Life-line of Economy
• 24% of GDP
• 48.4% of the Labour Force
• 70% of Forex earning through export of raw material,
semi-processed and processed agri-products

5. Introduction
• Microcredit Summit (2-4 February 1997)
• “Small loans to very poor people for self-employment
projects that generate income, allowing them to care
for themselves and their families.”
Microfinance Ordinance 2001

6. Contd….
• Traditional Micro financing/crediting
• Activity based Micro crediting through
Conventional or Specialised Banks
• Rural credit through Specialised Banks

7. Contd….
• The out reach of micro credit services grew t roughly
60,000 to 600,000 from 1995 to 2005
• An estimated total market of 10 million borrowers
• Only 6% of the potential market has been reached
(Micro Finance performance
in Pakistan, Report by
USAID)

8. WHY MF
• Instrument to fight poverty
• Poor people need a diversity of financial services, not
only loans
• To build perpetual domestic financial institutions
• Self-sustained institutions
• Government as facilitator not provider

9. MF Sector wise
Agriculture 26%
Livestock 16%
Trade 31%
Services 8%
Manufacturing 7%
Housing 0%
Others 13%

10. Evolution Of Microfinance In
Pakistan

11. Evolution Of Microfinance In
Pakistan
• The beginning of the modern microfinance
movement can be traced back to 1982.
• With the establishment of Orangi Pilot Project in
Karachi and the Aga Khan Rural Support Programme
(AKRSP) by two different NGOs.

12. continued
• AKRSP spawned the rural support movement that
accounts for approximately 70% of NGO outreach in
microfinance and includes some of the largest
providers in the country
(source: World Bank Report on ‘Performance and
Transparency).

13. continued
• In 1990s a variety of other NGOs began to offer
microfinance services.
• In 1996 Kashf Foundation was established and
became the first of only two Pakistani NGOs to
exclusively provide microfinance services.

14. continued
• In the wake of government’s policies to alleviate
poverty during the Musharraf regime microfinance
was selected as the key objective to help curb the
menace of poverty.
• This motive of the government resulted in the
establishment of Pakistan Poverty Alleviation Fund
(PPAF)in 2000 in coordination with World Bank, and a
microfinance bank namely Khushhali Bank.

15. continued
• Microfinance institutions have since been diversifying
their product-offering by exploring new areas which
include enterprise loans, housing finance, personal
loans and deposits, leasing, insurance and remittance
services.
• Tremendous developments have been made in the
microfinance sector so far. Government initiatives
deserve greater appreciation which caused number
of clients to increase from just 100,000 in 2001 to 1.4
million in 2007 (Source: Khushahali Bank Annual
Report 2007 )

16. At present following microfinance
institutions are operating in
Pakistan:
Micro Finance Banks:
• Kashf Microfinance Bank
• Khushhali Bank
• Network Microfinance Bank Limited (NMBL)0

17. continued
• Pak-Oman Microfinance Bank Limited (POMFB)
• Rozgar Microfinance Bank Limited
• Tameer Microfinance Bank Limited
• The First Micro Finance Bank Limited (FMFB)

18. Micro Finance Institutions:
• Akhuwat
• Asasah
• Community Support Concern
• Development Action for Mobilization and
Emancipation

19. Continued:
• Kashf Foundation
• Orangi Pilot Project
• Sindh Agricultural and Forestry Workers Cooperative
Organization

20. Rural Support Programmes:
• Lachi Poverty Reduction Project
• National Rural Support Programme
• Punjab Rural support Programme
• Sarhad Rural Support Programme
• Thardeep Rural Development Programme

21. Others:
• Centre for women Cooperative Development
• Jinnah Welfare Society
• Narowal Rural Development Programme
• Organization for Participatory Development
• Rural Community Development Society

22. continued
• Rural Community Development Society
• Save the Poor
• Sindh Rural Support Program
• Sungi Development Foundation
• Swabi Women’s Welfare Society
(Source: Microwatch - Issue No. 11 Quarter jan-Mar
2009)

23. Zarai Taraqiati Bank Limited (ZTBL)
• The Government of Pakistan in early 1960s started
agricultural credit scheme through Agricultural
Development Bank of Pakistan (ADBP), renamed as
Zarai Taraqiati Bank Limited (ZTBL).
• Recently, the Commercial Banks and Domestic Private
Banks have also started disbursing agriculture credit
to the farming community.
• Credit is provided to farmers for purchase of
seeds, fertilizers, and pesticides as well as for
purchase of agricultural machinery.

24. continued
• Government policy with regard to
agricultural credit is to safeguard the
interest of small/medium farmers by
extending credit to them on easy term
and to recover the same in time as well as
to protect them in case of any natural hazards and
calamity.
• Agriculture credit is provided for production and
development purposes.

25. Current Facilities Available
to Farmers
• Running financing from the banks on the basis of
multiple/revolving limits for a period of three years in
addition to demand finance in single disbursement.
• Revolving limits can be availed not only against 100%
adjustment/repayment of previous loan but also in
case of partial adjustment/repayment without any
fresh documentation.
• Finance for Agricultural produce by
farmers/marketing companies against raw
cotton, cotton yarn, mutton and beef, wool and
animal hair, food stuff for animals.

26. continued
• A farm loan help Desk is functioning in the Agriculture
Credit Department, State Bank of Pakistan, Karachi to
facilitate the farmers/borrowers.

27. Microfinance in Pakistan’s
Agriculture Sector: Where is the
money coming from?

28. Overview
• Widely recognized on a policy-level
• Pakistani context: financial and social service
• Breakdown on microfinance:
– Agriculture production 50%
– Livestock 25%
– Household-based Income
Generating Activities (IGAs) 25%*
Source: Khushali Bank Working Paper titled, “Challenges and Prospects: Microfinance
in Pakistan”

29. • Rural households that take loans 32%*
– Informal sources 90%
• Friends & relatives 67%
• Landlords 11%
• Other 22%
– Institutional sources 10%
• ZTBL 76%
• Commercial Banks 17%
• Co-operatives 7%
Source: World Bank Report, 1995

30. Informal Sources
• Simple, flexible
• 96% on personal assurity*
• More accessible to smaller farmers and tenants
• Emergency loans
• Possibility of deferred payment of debt if crop fails
Source: World Bank Report, 1995

31. • Belief that moneylenders charge obnoxious rates
• Commision agents or arhtis
• Effectively high rate of return from borrower
• Demand for agricultural credit: highly service elastic

32. Formal Sources
• Constrained by complex procedures and
documentation
• Transaction costs
• Collateral:
– Security of landed property 76%
– Personal surety 21%
• Availability, like other inputs, affects crop productivity

33. • Includes government departments and
corporations, co-operatives, commercial banks, and
agriculture-specific banks.
• ZTBL involved in medium and long term loans
• Private banks, new entrants
• Targeting of credit
• 60% to 95% of all cooperative societies are “bogus”

34. Current Statistics

35. Distribution of different loans by
purpose(%) - 1995
Source: The impact of farm credit in Pakistan, World Bank

36. Distribution of borrower households
by operational holding-1995
Source: The impact of farm credit in Pakistan, World Bank

37. Micro finance Outreach

38. Proportion of Male and Female
Borrowers

39. Micro finance market
Data Source: Microfinance Challenges and Opportunities in Pakistan by
Sulaiman D. Muhammad

42. Costs of lending for ADBP

44. Recovery rates for ADBP loans

45. Cost-effectiveness of ADBP lending based on
actual distribution of loans

46. Source: The impact of farm credit in Pakistan, World Bank
Note: Figures in parentheses are based on the assumption that
total lending is disbursed only to borrowers with positive and
significant returns (that is, small holders in this case).

48. Challenges and
Recommendations

49. Inadequate Access of the Poor to
Services
• Inadequate access to productive resources and social
services has resulted in low indicators of well-being
and lack of employment
• This situation is compounded in rural areas due to
inadequate or complete lack of basic infrastructure.
• Low skill level and absence of support for human
resource development for the poor prevents them
from diversifying their household income.

50. Obstacles for Microfinance
Outreach to Women
• Constraints on mobility, social interaction, and skills
development cost and the gender orientation of
organizations, products, and delivery mechanisms is
insufficient to enhance outreach to women.

51. Absence of mitigation measures
• Poor households forego potentially viable
technologies, production choices and income
opportunities due to risk aversion. Mechanisms to
mitigate such risks are not available.

52. Institutional Limitations
• Competitive pressures for product differentiation and
cost reduction are increasing.
• Smaller institutions are not able to invest in new
technology and a branch network to access low cost
retail deposits to gain competitive advantage.
• The banking system is becoming concentrated in a
few large institutions.

53. Services
• Delivery of financial services to the poor, particularly
in rural areas is constrained by
• Density in some provinces
• Inadequate communication services
• Small loans
• Low household savings that increase transaction
costs.
• Seasonally of the agriculture business cycle,
• Security of savings is a prime concern for rural
households
• CBs find it costly to cater to small depositors.

54. Improper Regulations
It is quite necessary to reform regulatory norms which
are quite complicated and have become the reasons
of increasing cost, especially regulations of
• funds
• transfers
• insurance
• saving deposits etc.

55. Increasing Competition
• With the introduction of formal microfinance banks
and institutions, and increase in awareness, clients
are now demanding more services, which ultimately
warrant a cost increase.

56. MFIs Profitability
• In MF sector due to the special circumstance on
demand side, MFIs cannot charge high rate of
interest.
• It is the reason that MFIs can not generate enough
revenue . This fact minimizes their margin of profit to
a large extent.
• It is necessary that some concessions must be
provided by the government for the healthy
operation of MFIs.

57. Stability of MFI
Microfinance in particular context is a by-product of
banking sector. Hence its stability depends upon the
banking sector. But the time has come that this sector
should stand on its own feet.

58. Political Interference
• In the rural areas of Pakistan role of landlords is very
obvious i.e. exploit the poor people.
• Big proportion of loans of agriculture sector is taken
by them.
• Proper legislation is required to protect this sector
from their exploitation.

59. Inadequate infrastructure
development
• Insufficient investment in physical infrastructure
automatically increases the cost of doing business
and ultimately discourages private investment.

60. Low Level of Knowledge
• Existing human resource has a very low knowledge
base which is quite insufficient to run this mechanism
smoothly.

61. Recommendations
• MFIs’ staff working in market needs adequate
training.
• Research can be done on the level of skills of the
client.
• Marketing the concept of microfinance more
aggressively to avoid the potential biasness in
financial organizations.
• Ensure small loans available to all.
• There is a great need for MFIs to mitigate the risk
factor and adopt the standard practices.
• Make MFI accessible to women.
• Provide level playing field to the private sector
market players in this area.

62. Conclusion
• Microfinance services for the poor are now widely
promoted as a key strategy for poverty reduction.
• Many microfinance programmers have increasingly
targeted women in response to experience of
excellent repayment rates.
• Poverty is a multifaceted phenomenon that goes
beyond lack of adequate income. Rapid as well as
consistent policies will cater this objective.
• Pakistan has in the last 3 years initiated a bold reform
program for accelerating growth as well as a focused
third generation microfinance sector development
program providing a conducive policy framework and
support mechanisms.
• The State Bank of Pakistan provides for a regulatory
framework allowing for the establishment of licensed
MFIs, which can mobilize resources from local
markets.

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