Canola cultivation in flood-hit areas

SBP launches Rs 500 million financing scheme

Staff Report

KARACHI: The State Bank of Pakistan (SBP) has launched a concessional financing and guarantee scheme, under which an amount of Rs 500 million has been allocated to encourage farmers to sow canola in the flood affected areas of the country for the current Rabi season.

According to a circular (SMEFD Circular No 15) issued on Tuesday – under the scheme, financing will be provided at affordable/concessional markup rates through banks.

Banks and Zarai Taraqiati Bank Limited (ZTBL) are allowed to obtain following refinance facility to finance the farmers of notified flood affected areas, it added.

Refinance under the scheme will be provided to banks at 5.0% per annum – while the banks will be permitted to charge a maximum spread of 3.0% p.a. from the borrowers, therefore credit to farmers will be available at 8% p.a., according to the circular. This scheme will remain valid up to October 31, 2011.

This new scheme is in line with the government of Pakistan policy for revival of agriculture activities and SBP relief measures for improving access to financing in flood affected areas. “In this regard it is expected that MINFA (Federal Ministry of Food and Agriculture) and provincial agriculture departments would ensure timely availability of hybrid seeds, fertilizer, pesticides and on ground technical guidance to the farmers,” it added.

Under the scheme, agricultural credit will be provided to the farmers for canola cultivation in 17 affected districts as identified by MINFA. Out of the 17 districts, six districts are of Punjab (Layyah, Muzaffargarh, Rajanpur, Rahim Yar Khan, Multan and D.G. Khan), four districts are from Khyber Pakhtunkhwa (Nowshera, Charsadah, D.I. Khan and Peshawar), four are from Sindh (Sukkur, Nausheroferoz, Benazirabad and Larkana) and three districts are from Balochistan (Nasirabad, Jaffarabad and Jhal Magsi).

According to the circular, agricultural credit shall mean only farm credit for meeting the production/working capital requirements, as defined in Prudential Regulations for agriculture financing while all categories of farmers (owner, owner-cum tenant and tenant) of the specified areas will be eligible for agricultural loans under the scheme.

It said the time period of the crop production loans and its repayment will be based on the cropping cycle up to a maximum period of 6 months while there will be no maximum limit for borrowing by the farmers under this scheme. However, the borrowing limit of farmer shall be fixed by the bank keeping in view production cost, cash flows, repayment capacity, risk profile of the borrower, etc., it added.

Principal amount of loans under the scheme shall have to be repaid on the agreed date between the bank and the borrower, however, not later than 60 days from the date of harvest of the crop, it said and added that banks shall not take more than 5 working days in evaluating an application for credit under the scheme from the date of receipt of complete information from the borrower. “Where the request is declined, the bank will explicitly apprise the applicant reasons for rejecting the application,” it added.

Under the Scheme, SBP would share bona fide losses to the extent of 30% out of which 50% claims of losses shall be reimbursed by the SBP when the loan is categorised as doubtful and the remaining 50% at the time of loss. Claims shall be submitted to the SBP on semiannual basis i.e. April 30th and October 31st duly verified/certified by the bank’s internal audit. “However, this reimbursement shall not obviate the lending institutions from the right of recovery of the defaulted amount,” the circular said. Dailytimes

SBP developing strategy for settlement of loans

Karachi—Lending a strong supporting hand to the SMEs, microfinance and agriculture sectors which are badly damaged by the flash flood the write-offs of existing loans are under consideration where prospects of recovery are slim.

In this respect, the State Bank has constituted committees in the areas of SMEs, Microfinance & Agriculture and General Relief activities to develop a strategy for the settlement of existing loans and provision of fresh credit in the affected areas.

Explaining the remedial steps Shahid Kardar, Governor State Bank of Pakistan gas said that the State Bank generally discourages such interventions as they create market and price distortions, promote mis-allocation of scarce credit resources and have monetary implications. However, keeping in view the special circumstances, decision makers may wish to consider a combination of such activities for a limited period, say two years, for flood affected areas, with the cost to be borne by the Federal Government.

The Central bank in consultation with the Federal Government and donors is also deliberating on deferral of Loan Repayment for 2 years – Restructuring/Rescheduling of overdue loans and reduced Mark up for 2 years provided the interest differential between mark up charged and KIBOR (for banks) or Average Market Rate (for MFBs) is borne by the GOP for the period.Other recommendations of the committees including exemption from additional provisioning requirements for one year, rovisioning of fresh credit at subsidized rate through the SBP refinance window for 2 years at 8 percent per annum with a bank spread of 3%, Credit guarantee schemes on a 30% first loss sharing basis with funding support of GOP & multilateral agencies, besides expanding the scope of existing Microfinance Credit Guarantee Facility (MCGF) to raise the additional borrowing requirements of Rs 3 billion for fresh lending in affected areas by Microfinance Banks (MFBs) with the funding support of GOP and multilateral agencies.

Speaking at a Roundtable Discussion on ‘Damage Assessment of Floods and Implications for the Financial Sector’Shahid H. Kardar said that the recent floods – the biggest natural calamity in the country’s history – provide an opportunity for the banking industry to increase financial inclusion, diversify its products on sustainable basis and play its due role in rebuilding the national economy.

Govt urged to impose agriculture tax

ISLAMABAD—The Pakistan Economy Watch (PEW) on Friday welcomed MQM’s stance to oppose proposed Reformed GST, flood tax or any other tax. It said that other political parties and civil society should also resist decision to impose new taxes and it is not suitable in the prevailing economic scenario. Reformed GST will not substantially add to government kitty; it will only hike inflation which is fastest in the continent, and illicit income of tax collecting officials, said Dr. Murtaza Mughal, President PEW. “New taxes aren’t acceptable before imposition of agricultural income tax which the lawmakers are avoiding since decades,” he said. Masses cannot trust billionaire politicians who evade taxes while asking others to pay for revenue enhancement. Our leaders have been failing to walk their talk despite growing annoyance at home and among international donors, he added. Dr. Mughal said that the officials who have helped politicians and other wealthy to hide their money are equally responsible but no one is pointing figure towards them. He said that a former lfinance minister had identified FBR as the most corrupt institution in the country. Therefore, masses are not ready to trust it in any way. The entire tax machinery seems to be beyond repair. Talking to a group of developers including Khalid Mughal and Azam Mairaj, he said that the recent policy rate hike is unfortunate; it suggests that the central bank is not ready to believe government’s ability to support fiscal needs from revenue. Rate hike proves that there is no change in mindset of the central bank officials despite a change at the top. They are yet to realise that economy is unable to swing against this tide. SBP will continue to hike interest rates in future, he said. He said that new valuation table for urban property introduced by government of Sindh indicates the confusion among the provincial tax officials.—Agencies

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