Financial institutions in Pakistan have disbursed a total of PKR1.78 trillion (US$6.15 billion) in agricultural financing in H1 2023, with Islamic agricultural banking “growing significantly”, according to the State Bank of Pakistan (SBP).
“The last ACAC [Agricultural Credit Advisory Committee] meeting, held in December 2022, brought [the] industry’s focus to the potential of Islamic banking for meeting the needs of the farming community. As a result, Islamic agriculture financing also grew significantly during the year,” the SBP said in a statement.
According to the SBP, the unprecedented performance, which met 97.6% of the agricultural credit target of PKR1.82 billion (US$6.29 billion) set by the bank for this year, is a product of several initiatives in response to the devastating floods the country faced last year, the rising input costs and monetary tightening in recent years.
The initiatives contributing to the agricultural financing dispersed this year which is already growing by over 25% compared with 2022 include the SBP’s Champion Bank Model and Agriculture Credit Scoring Model, which particularly contributed to agricultural financing in underserved areas.
Other initiatives include the Prime Minister’s Kissan Package, which provided stimulus to revive the flow of agricultural financing with an emphasis on the flood-affected areas. A number of measures were implemented under the package including a waiver of markup on interest-free loans for small and marginalized farmers.
Agriculture-based SMEs were also included in the SBP’s Refinance Facility for Modernization of SMEs and the Prime Minister’s Youth Business and Agriculture Loan Scheme.
While there are only five fully-fledged Islamic banks acting as agricultural lending institutions (ALIs) in contrast to 19 conventional bank ALI counterparts, fully-fledged Islamic banks have contributed significantly to agricultural financing during the period.
Among small banks, classified as those with total assets less than PKR500 billion (US$1.73 billion), Islamic banks represented three out of five of the highest agricultural credit performances as ranked by the ACAC, with BankIslami and MCB Islamic taking the top two spots respectively.
Meezan Bank ranked second among large banks.
Notably, several of the 19 conventional banks and over 20 microfinancing banks and institutions offer Islamic agricultural financing solutions.
ISFI previously reported that the Bank of Punjab signed agreements with Akhuwat Islamic Microfinance and the National Rural Support Programme in the first quarter of this year to provide interest-free financing to agriculture-based SMEs under the youth agriculture loan scheme.