The State Bank of Pakistan (SBP) has raised the cap for agriculture financing from PKR 1 million to PKR 5 million by amending ‘Prudential Regulations’ (PRs), allowing banks and development finance institutions (DFIs) to streamline loan flows to farm and non-farm sectors.
The maximum ceiling of unsecured/clean financing for agriculture has been raised from PKR 1.0 million to PKR 5.0 million, according to an official release. Furthermore, the exposure limit for the requirement of professionally audited financial statements by a practising chartered accountant has been increased from Rs. 10 million to Rs. 15 million. Banks/DFIs should ensure that these regulations are distributed to their branches/field offices.
For the first time, SBP updated the regulation in 2014 in cooperation with stakeholders. The amended PRs direct banks to implement robust market-oriented policies and practices to facilitate agricultural lending in Pakistan. These policies are intended to make it easier for banks to increase loans to the agricultural sector while maintaining financial stability and risk management.
The statement emphasised that banks/DFIs should implement an effective management information system to continuously evaluate the quality of the agricultural portfolio and make suitable choices at the appropriate time. To prevent the dangers of credit concentration, they are advised to diversify their agricultural portfolio in terms of geographical areas, sources of financing, and so on.
It also encouraged these financial institutions to provide agricultural finance based on anticipated cash flows rather than just collateral. Standard cash flows can be estimated for various crops, and these cash flows can then be changed for unique borrowers based on the quality of land and the efficiency of individual farmers, among other factors, according to the statement.